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OKLAHOMA GAS & ELECTRIC CO
10-K
Annual report pursuant to section 13 and 15(d)
Filed on 02/18/2010
Filed Period 12/31/2009

Table of contents

  • Page 1
    OKLAHOMA GAS & ELECTRIC CO 10-K Annual report pursuant to section 13 and 15(d) Filed on 02/18/2010 Filed Period 12/31/2009

  • Page 2
    ...For the fiscal year ended December 31, 2009 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____to_____ Commission File Number: 1-1097 OKLAHOMA GAS AND ELECTRIC COMPANY (Exact name of registrant as specified in its charter...

  • Page 3
    OKLAHOMA GAS AND ELECTRIC COMPANY FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2009 TABLE OF CONTENTS FORWARD-LOOKING STATEMENTS Item 1. Part I Business The Company General Regulation and Rates Rate Structures Fuel Supply and Generation Environmental Matters Finance and Construction Employees Access to...

  • Page 4
    .... Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 105 Item 13. Certain Relationships and Related Transactions, and Director Independence Item 14. Principal Accounting Fees and Services Part IV Item 15. Exhibits, Financial Statement Schedules Signatures...

  • Page 5
    ... ability of Oklahoma Gas and Electric Company (the "Company"), a wholly-owned subsidiary of OGE Energy Corp. ("OGE Energy"), and OGE Energy to access the capital markets and obtain financing on favorable terms; prices and availability of electricity, coal and natural gas; business conditions in the...

  • Page 6
    ... is the largest electric utility in Oklahoma and its franchised service territory includes the Fort Smith, Arkansas area. The Company sold its retail gas business in 1928 and is no longer engaged in the gas distribution business. The Company's principal executive offices are located at 321 North...

  • Page 7
    ... in Oklahoma, and Fort Smith, Arkansas, the second largest city in that state. Of the 269 communities that the Company serves, 243 are located in Oklahoma and 26 in Arkansas. The Company derived approximately 90 percent of its total electric operating revenues for the year ended December 31, 2009...

  • Page 8
    OKLAHOMA GAS AND ELECTRIC COMPANY CERTAIN OPERATING STATISTICS Year ended December 31 (In millions) ELECTRIC ENERGY (Millions of MWH) Generation (exclusive of station use) Purchased Total generated and purchased Company use, free service and losses Electric energy sold ELECTRIC ENERGY SOLD (Millions...

  • Page 9
    .... The Company implemented the new electric rates effective June 1, 2009. OU Spirit Wind Power Project. The Company signed contracts on July 31, 2008 for approximately 101 MWs of wind turbine generators and certain related balance of plant engineering, procurement and construction services associated...

  • Page 10
    ... to its power-generation portfolio in the future. Windspeed Transmission Line Project. The Company filed an application on May 19, 2008 with the OCC requesting preapproval to recover from Oklahoma customers the cost to construct the Windspeed transmission line at a construction cost of approximately...

  • Page 11
    ... near Hugo, Oklahoma. The Company began preliminary line routing and acquisition of rights-of-way in June 2009. When construction is completed, which is expected in April 2012, the SPP will allocate a portion of the annual revenue requirement to Company customers according to the base-plan funding...

  • Page 12
    ... of these new programs, the Company also seeks recovery of the program and related costs through a rider that would be added to customers' electric bills. In Arkansas, the Company's program is expected to cost approximately $2 million over an 18-month period and is expected to increase the average...

  • Page 13
    ... price is based on the Company's projected next day hourly operating costs. Fuel Supply and Generation During 2009, approximately 60 percent of the Company-generated energy was produced by coal-fired units, 38 percent by natural gas-fired units and two percent by wind-powered units. Of the Company...

  • Page 14
    ... 1.10 $ 7.10 $ 2.98 2005 $ 0.98 $ 8.76 $ 3.21 The decrease in the weighted average cost of fuel in 2009 as compared to 2008 was primarily due to decreased natural gas prices partially offset by increased coal transportation rates in 2009 as discussed in Note 12 of Notes to Financial Statements. The...

  • Page 15
    ... in service in November and December 2009 and (iii) access to up to 50 MWs of electricity generated at a wind farm near Woodward, Oklahoma from a 15-year contract the Company entered into with FPL Energy that expires in 2018. The Company announced in October 2007 its goal to increase its wind power...

  • Page 16
    ... electric generating units, and also impose various monitoring and reporting requirements. Such laws and regulations may require that the Company obtain preapproval for the construction or modification of certain projects or facilities expected to produce air emissions or result in the increase...

  • Page 17
    ... of greenhouse gases in areas in which the Company conducts business could have an adverse effect on its operations and demand for its services or products. The Company reports quarterly its carbon dioxide emissions from generating units subject to the Federal Acid Rain Program and is continuing to...

  • Page 18
    ... by the Company and a significant increase in our cost of conducting business. On September 22, 2009, the EPA announced the adoption of the first comprehensive national system for reporting emissions of carbon dioxide and other greenhouse gases produced by major sources in the United States. The new...

  • Page 19
    ...transmission assets and wind generation assets, will be evaluated based upon their impact upon achieving the Company's financial objectives. Pension and Postretirement Benefit Plans During each of 2009 and 2008, OGE Energy made contributions to its pension plan of approximately $50.0 million to help...

  • Page 20
    ...otherwise requires, the terms "we", "our" and "us" refer to Oklahoma Gas and Electric Company and "OGE Energy" refers to OGE Energy. In addition to the other information in this Annual Report on Form 10-K and other documents filed by us with the SEC from time to time, the following factors should be...

  • Page 21
    ... to rate regulation by the states of Oklahoma and Arkansas, as well as by a Federal agency, whose regulatory paradigms and goals may not be consistent. We are currently a vertically integrated electric utility and most of our revenue results from the sale of electricity to retail customers subject...

  • Page 22
    ... business expense. To the extent the frequency of extreme weather events increases, this could increase the Company's cost of providing service. The Company's electric generating facilities are designed to withstand the effects of extreme weather events, however, extreme weather conditions increase...

  • Page 23
    ... we cannot predict the ultimate impact of any future changes in accounting regulations or practices in general with respect to public companies, the energy industry or our operations specifically. Any new accounting standards could affect the way we are required to record revenues, expenses, assets...

  • Page 24
    ... adversely affect our financial position, results of operations and cash flows. Weather conditions directly influence the demand for electric power. In our service area, demand for power peaks during the hot summer months, with market prices also typically peaking at that time. As a result, overall...

  • Page 25
    ... performance, increased retirements, changes in retirement plan regulations and increasing costs associated with our defined benefit retirement plans, health care plans and other employee-related benefits may adversely affect our results of operations, financial position or liquidity. OGE Energy has...

  • Page 26
    ...turmoil in late 2008 and early 2009. Pricing grids associated with our credit facility could cause annual fees and borrowing rates to increase if an adverse ratings impact occurs. The impact of any future downgrade would result in an increase in the cost of short-term borrowings but would not result...

  • Page 27
    ...2. Properties. The Company owns and operates an interconnected electric generation, transmission and distribution system, located in Oklahoma and western Arkansas, which included 11 generating stations with an aggregate capability of approximately 6,641 MWs at December 31, 2009. The following tables...

  • Page 28
    ...used when additional short-term capacity is required. (D) The original units at the Redbud Facility were installed in 2003. In September 2008, the Company purchased a 51 percent ownership interest in the Redbud Facility. (E) Represents the Company's 77 percent ownership interest in the McClain Plant...

  • Page 29
    ... conductors in Arkansas. The Company owns 140,133 square feet of office space at its executive offices at 321 North Harvey, Oklahoma City, Oklahoma 73101. In addition to its executive offices, the Company owns numerous facilities throughout its service territory that support its operations. These...

  • Page 30
    ...its December 9, 2009 order, the OCC advised the plaintiffs that the ruling does not address the question of whether the Company's collection and remittance of such sales tax should be discontinued prospectively. On December 21, 2009, the plaintiffs filed a motion at the Oklahoma Supreme Court asking...

  • Page 31
    ..., Jr. Max J. Myers Scott Forbes Jerry A. Peace Age 56 54 42 51 59 49 47 51 45 45 61 52 61 53 53 35 52 47 Title Chairman of the Board, President and Chief Executive Officer Senior Vice President and Chief Operating Officer Vice President and Chief Financial Officer Vice President - Governance and...

  • Page 32
    ...Vice President and Chief Operating Officer of Enogex Inc. 2009 - Present: Vice President and Chief Financial Officer of OGE Energy and the Company and Chief Financial Officer of Enogex LLC 2007 - 2009: Senior Vice President - Investor Relations and Financial Planning of Duke Energy 2006 - 2007: Vice...

  • Page 33
    ... Company Vice President - Transmission of the Company Vice President - Public Affairs of OGE Energy and the Company Director - Public Affairs of OGE Energy and the Company Vice President - Power Supply of the Company Director - Power Plant Operations of the Company Plant Manager - Sooner Power Plant...

  • Page 34
    ... Officer of First Choice Power (retail electric provider) Senior Vice President and Chief Financial Officer of Texas New Mexico Power Company (electric utility) Chief Risk Officer of OGE Energy and the Company Chief Risk Officer and Compliance Officer of OGE Energy and the Company 28 Jerry A. Peace...

  • Page 35
    ..., Related Stockholder Matters and Issuer Purchases of Equity Securities. Currently, all of the Company's outstanding common stock is held by OGE Energy. Therefore, there is no public trading market for the Company's common stock. During 2009, the Company declared no dividends to OGE Energy. During...

  • Page 36
    ... Oklahoma Territory. The Company is the largest electric utility in Oklahoma and its franchised service territory includes the Fort Smith, Arkansas area. The Company sold its retail gas business in 1928 and is no longer engaged in the gas distribution business. Executive Overview Strategy OGE Energy...

  • Page 37
    ...(Conservation and Energy Efficiency Programs) for a further discussion. If these initiatives are successful, the Company believes it may be able to defer the construction of any incremental fossil fuel generation capacity until 2020. Increases in generation and the building of transmission lines are...

  • Page 38
    .... The Company implemented the new electric rates effective June 1, 2009. OU Spirit Wind Power Project In July 2008, the Company signed contracts for approximately 101 MWs of wind turbine generators and certain related balance of plant engineering, procurement and construction services associated...

  • Page 39
    ... develop smart grid technology, transmission infrastructure and renewable energy. After review of the ARRA, the Company filed a grant request on August 4, 2009 for $130 million with the DOE to be used for the Smart Grid application in the Company's service territory. On October 27, 2009, the Company...

  • Page 40
    ... to the seasonal nature of air conditioning demand. Results of Operations The following discussion and analysis presents factors that affected the Company's results of operations for the years ended December 31, 2009, 2008 and 2007 and the Company's financial position at December 31, 2009 and 2008...

  • Page 41
    ... sales 1.4 0.7 1.0 Total sales 28.2 27.1 26.9 Number of customers 770,088 762,234 776,550 Average cost of energy per KWH (C) - cents Natural gas 8.455 6.872 3.696 Coal 1.153 1.143 1.747 Total fuel 3.337 3.173 2.474 Total fuel and purchased power 3.710 3.523 2.760 Degree days (D) Heating - Actual...

  • Page 42
    ... lower demand and related revenues by non-residential customers in the Company's service territory, which decreased the gross margin by approximately $8.1 million. Cost of goods sold for the Company consists of fuel used in electric generation, purchased power and transmission related charges. Fuel...

  • Page 43
    ...Funds Used During Construction. AEFUDC was approximately $15.1 million in 2009. There was no AEFUDC in 2008. The increase in AEFUDC was primarily due to construction costs associated with OU Spirit and the Extra High Voltage ("EHV") Windspeed transmission line being constructed by the Company. Other...

  • Page 44
    ... in 2007, an increase of approximately $101.1 million, or 13.4 percent, primarily due to higher natural gas prices. The Company's electric generating capability is fairly evenly divided between coal and natural gas and provides for flexibility to use either fuel to the best economic advantage for...

  • Page 45
    ... fund the purchase of the Redbud Facility and daily operational needs of the Company. These increases in interest expense were partially offset by a decrease of approximately $3.1 million in interest expense associated with the interest due to customers related to the fuel over recovery balance in...

  • Page 46
    ... 31, 2009 and 2008, respectively, an increase of approximately $32.2 million, or 30.7 percent, primarily due to an increase in accruals relating to the EHV Windspeed transmission line being constructed by the Company, OU Spirit and an increase in the payable for natural gas purchases. The balance of...

  • Page 47
    ... Earnings. Off-Balance Sheet Arrangement Railcar Lease Agreement At December 31, 2009, the Company had a noncancellable operating lease with purchase options, covering 1,462 coal hopper railcars to transport coal from Wyoming to the Company's coal-fired generation units. Rental payments are charged...

  • Page 48
    ... Total Base Transmission, Distribution, Generation and Other Known and Committed Projects: Transmission Projects: Sunnyside-Hugo (345 kV) Sooner-Rose Hill (345 kV) Windspeed (345 kV) Balanced Portfolio 3E Projects Total Transmission Projects Other Projects: Smart Grid Program (A) System Hardening...

  • Page 49
    ... were cash generated from operations and proceeds from the issuance of short-term debt. Changes in working capital reflect the seasonal nature of the Company's business, the revenue lag between billing and collection from customers and fuel inventories. See "Financial Condition" for a discussion...

  • Page 50
    ... of capital expenditures in 2008 mostly related to the purchase of the Redbud Facility in September 2008 partially offset by capital expenditures in 2009 related to OU Spirit and the EHV Windspeed transmission line being constructed by the Company. The increase of approximately $463.2 million in net...

  • Page 51
    ... periods. (In millions) Pension Settlement Charge: 2007 OGE Energy Company's Portion (A) $ 16.7 $ 13.3 Retirement Restoration Plan Settlement Charge: 2007 $ 2.3 $ 0.1 (A) The Company's Oklahoma and Arkansas jurisdictional portion of these changes were recorded as a regulatory asset (see Note 1 of...

  • Page 52
    ... commodity prices, acquisitions of other businesses and/or development of projects, actions by rating agencies, inflation, changes in environmental laws or regulations, rate increases or decreases allowed by regulatory agencies, new legislation and market entry of competing electric power generators...

  • Page 53
    ... accounting estimates have been discussed with OGE Energy's Audit Committee. Pension and Postretirement Benefit Plans OGE Energy has a Pension Plan that covers substantially all of the Company's employees hired before December 1, 2009. Also, effective December 1, 2009, OGE Energy's Pension Plan...

  • Page 54
    ... customers' electricity consumption that has not been billed at the end of each month. Unbilled revenue is presented in Accrued Unbilled Revenues on the Balance Sheets and in Operating Revenues on the Statements of Income based on estimates of usage and prices during the period. At December 31, 2009...

  • Page 55
    ... position or results of operations. The Company believes, however, that it is reasonably likely that the trend in environmental legislation and regulations will continue towards more restrictive standards. Compliance with these standards may increase the cost of conducting business. Approximately...

  • Page 56
    ... new HAP emission limitations for coal-fired and oil-fired power plants by November 2011. Any costs associated with future regulation of mercury or other HAPs are uncertain at this time. Because of the uncertainty caused by the litigation regarding the CAMR, the promulgation of an Oklahoma rule...

  • Page 57
    ... subject to changes in the cost of basic materials. Under the Proposed Agreement, the specified BART for reducing sulfur dioxide ("SO2") at the four coal-fired units at the Muskogee and Sooner generating stations would be continued use of low sulfur coal and emission rate and annual emission tonnage...

  • Page 58
    ..., 2009, the EPA proposed two rules related to the control of greenhouse gas emissions. The first proposal, which is related to the prevention of significant deterioration and Title V tailoring, determines what sources would be affected by requirements under the Federal Clean Air Act programs for new...

  • Page 59
    ... gases could result in significant changes to the Company's operations, significant capital expenditures by the Company and a significant increase in its cost of conducting business. Oklahoma and Arkansas have not, at this time, established any mandatory programs to regulate carbon dioxide and other...

  • Page 60
    ...-at-risk limits, position limits, tenor limits and stop loss limits. Interest Rate Risk The Company's exposure to changes in interest rates relates primarily to short-term variable-rate debt, treasury lock agreements and commercial paper. The Company from time to time uses treasury lock agreements...

  • Page 61
    ... Statements and Supplementary Data. OKLAHOMA GAS AND ELECTRIC COMPANY STATEMENTS OF INCOME Year ended December 31 (In millions) OPERATING REVENUES COST OF GOODS SOLD (exclusive of depreciation and amortization shown below) Gross margin on revenues Other operation and maintenance Depreciation and...

  • Page 62
    OKLAHOMA GAS AND ELECTRIC COMPANY BALANCE SHEETS December 31 (In millions) ASSETS CURRENT ASSETS Cash and cash equivalents Accounts receivable, less reserve of $1.7 and $2.3, respectively Accrued unbilled revenues Advances to parent Fuel inventories Materials and supplies, at average cost Gas ...

  • Page 63
    OKLAHOMA GAS AND ELECTRIC COMPANY BALANCE SHEETS (Continued) December 31 (In millions) LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES Accounts payable - affiliates Accounts payable - other Advances from parent Customer deposits Accrued taxes Accrued interest Accrued compensation Fuel ...

  • Page 64
    OKLAHOMA GAS AND ELECTRIC COMPANY STATEMENTS OF CAPITALIZATION December 31 (In millions) STOCKHOLDER'S EQUITY Common stock, par value $2.50 per share; authorized 100.0 shares; and outstanding 40.4 shares Premium on capital stock Retained earnings Accumulated other comprehensive loss, net of tax ...

  • Page 65
    ... loss ------Comprehensive income (loss) ----200.4 Balance at December 31, 2009 $ 100.9 $ 857.5$ 1,066.3 (A) The Company recognized a cumulative effect adjustment for its uncertain tax positions on January 1 2007 related to the adoption of a new accounting principle. $ $ $ The accompanying Notes...

  • Page 66
    ...funds used during construction) Proceeds from sale of assets Net Cash Used in Investing Activities CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in short-term debt, net Proceeds from long-term debt Capital contribution from OGE Energy Dividends paid on common stock Retirement of long-term...

  • Page 67
    ...in the south central United States. The Company was incorporated in 1902 under the laws of the Oklahoma Territory. The Company is the largest electric utility in Oklahoma and its franchised service territory includes the Fort Smith, Arkansas area. The Company sold its retail gas business in 1928 and...

  • Page 68
    ... in the Arkansas rate order. Both the Oklahoma and Arkansas pension plan expenses are reflected in Deferred Pension Plan Expenses in the table above. Unamortized loss on reacquired debt is comprised of unamortized debt issuance costs related to the early retirement of the Company's long-term debt...

  • Page 69
    ... 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. The Company uses the weighted-average cost method of accounting for inventory...

  • Page 70
    ... to plant balances at cost which includes contracted services, direct labor, materials, overhead, transportation costs and the allowance for funds used during construction ("AFUDC"). Replacements of units of property are capitalized as plant. For assets that belong to a common plant account, the...

  • Page 71
    ... facilities in the Company's service territory, which are being amortized over a 26 to 59-year period. Asset Retirement Obligations In the fourth quarter of 2009, the Company recorded an ARO for approximately $4.5 million related to its OU Spirit wind project in western Oklahoma ("OU Spirit...

  • Page 72
    ... customers. The Company records the hourly sales to the SPP at market rates in Operating Revenues and the hourly purchases from the SPP at market rates in Cost of Goods Sold in its Financial Statements. Fuel Adjustment Clauses Variances in the actual cost of fuel used in electric generation...

  • Page 73
    .... On July 1, 2009, the Company, Enogex and OERI entered into hedging transactions to offset natural gas length positions at Enogex with short natural gas exposures at the Company resulting from the cost of generation associated with a wholesale power sales contract with the Oklahoma Municipal Power...

  • Page 74
    ...agreement, the average inflation rate, market risk premium and the credit-adjusted risk free interest rate. The term of the ARO of 35 years was determined by the OU Spirit lease agreement which states that the Company will remove the wind turbines and related facilities at the time the lease expires...

  • Page 75
    ...the 2008 Plan, restricted stock, stock options, stock appreciation rights and performance units may be granted to officers, directors and other key employees of OGE Energy and its subsidiaries. OGE Energy has authorized the issuance of up to 2,750,000 shares under the 2008 Plan. The Company recorded...

  • Page 76
    ... Risk-free interest rate Expected life of units (in years) Fair value of units granted 2009 4.5 % 31.0 % 1.25 % 2.88 $ 25.55 2008 3.8 % 18.7 % 2.21 % 2.84 $ 33.62 2007 3.6 % 15.9 % 4.47 % 2.95 $ 24.18 A summary of the activity for OGE Energy's performance units applicable to the Company's employees...

  • Page 77
    A summary of the activity for OGE Energy's non-vested performance units applicable to the Company's employees based on TSR at December 31, 2009 and changes during 2009 are summarized in the following table: Weighted-Average Number Grant Date of Units Fair Value Units Non-Vested at 12/31/08 55,368 $ ...

  • Page 78
    ... compensation cost related to non-vested options, which became fully vested in January 2007. A summary of the activity for OGE Energy's stock options applicable to the Company's employees at December 31, 2009 and changes during 2009 are summarized in the following table: Number of Options...

  • Page 79
    ... fixed price for floating price or rate payments over the life of the instrument without an exchange of the underlying commodity. Natural gas swaps are used to manage the Company's natural gas price exposure associated with a wholesale generation sales contract. On July 1, 2009, the Company, Enogex...

  • Page 80
    ... recognized directly in earnings. At December 31, 2009 and 2008, the Company had ...Operating Revenues as the offsetting loss or gain on the related hedging derivative. At December 31, 2009 and 2008, the Company... future installment payments to developer Power plant long-term service agreement Capital ...

  • Page 81
    ...--0.3 Effective income tax rate as reported 26.8 % 31.0 % (A) These are credits associated with the production from the Company's wind farms. 2007 35.0 % 1.3 1.2 (0.3) (2.0) (3.0) (1.0) 31.2 % The Company filed a request with the Internal Revenue Service ("IRS") on December 29, 2008 for a change in...

  • Page 82
    ...cost of certain property placed into service during 2009. This tax loss results in an approximate $39 million current income tax receivable related to the 2009 tax year. On November 6, 2009, the Worker, Homeownership, and Business Assistance Act of 2009 was signed into law by the President. This new...

  • Page 83
    ... OGE Energy. The following table provides information regarding OGE Energy's and the Company's revolving credit agreements and available cash at December 31, 2009. Revolving Credit Agreements and Available Cash (In millions) Aggregate Amount Weighted-Average Commitment Outstanding (A) Interest Rate...

  • Page 84
    .... Pricing grids associated with the back-up lines of credit could cause annual fees and borrowing rates to increase if an adverse ratings impact occurs. The impact of any future downgrades of the ratings of OGE Energy or the Company would result in an increase in the cost of short-term borrowings...

  • Page 85
    ... requirement specified by the Employee Retirement Income Security Act of 1974, as amended. At December 31, 2009, the projected benefit obligation and fair value of assets of the Company's portion of OGE Energy's Pension Plan and restoration of retirement income plan was approximately $478.2 million...

  • Page 86
    ... and changes relating to the Pension Protection Act notice requirements, (ii) effective January 1, 2007, OGE Energy Pension Plan and 401(k) Plan were amended to allow a non-spouse beneficiary to directly rollover an eligible distribution to an eligible individual retirement account, (iii) effective...

  • Page 87
    ...for mid-cap and small-cap equity managers) can be invested in any one stock at the time of purchase and no more than 16 percent (10 percent for mid-cap and small-cap equity managers) after accounting for price appreciation. A minimum of 95 percent of the total assets of an equity manager's portfolio...

  • Page 88
    ... following table is a summary of OGE Energy's Pension Plan's assets that are measured at fair value on a recurring basis at December 31, 2009, of which approximately $398.9 million is the Company's portion. There were no Level 3 investments held by the Pension Plan at December 31, 2009. (In millions...

  • Page 89
    ... and other limitations. The Company charges to expense the postretirement benefit costs and includes an annual amount as a component of the cost-of-service in future ratemaking proceedings. Plan Assets The following table is a summary of OGE Energy's postretirement benefit plans' assets that are...

  • Page 90
    ... December 31 (In millions) 2009 Effect on aggregate of the service and interest cost components $ 1.4 Effect on accumulated postretirement benefit obligations 25.6 Medicare Prescription Drug, Improvement and Modernization Act of 2003 On December 8, 2003, President Bush signed into law the Medicare...

  • Page 91
    ... a reduction in pension expense in 2009 of approximately $3.2 million in the Arkansas jurisdiction to reflect the approval of recovery of the Company's 2006 and 2007 pension settlement costs in the May 2009 Arkansas rate order which are identified as Deferred Pension Plan Expenses (see Note 1). The...

  • Page 92
    ...Long-Term Disability Plan due to death, recovery from disability, or eligibility for retiree medical benefits. The Company's post-employment benefit obligation was approximately $1.7 million and $1.6 million at December 31, 2009 and 2008, respectively. Defined Contribution Retirement Plan OGE Energy...

  • Page 93
    ...OGE Energy's common stock or in cash which was used to invest in OGE Energy's common stock. Once made, OGE Energy's contribution could be reallocated, on any business day, by participants to other available investment options. The 401(k) Plan was amended effective January 1, 2010, whereby OGE Energy...

  • Page 94
    ... for rail transportation to the Company's Sooner and Muskogee power plants is expected to cause an approximate 47 percent annual increase in the Company's delivered coal prices. Termination of Wholesale Agreement On May 28, 2009, the Company sent a termination notice to the Arkansas Valley Electric...

  • Page 95
    ... capacity payments under the contracts are approximately: 2010 - $86.1 million, 2011 - $83.1 million, 2012 - $81.1 million, 2013 - $79.0 million and 2014 - $76.7 million. Fuel Minimum Purchase Commitments The Company purchased necessary fuel supplies of coal and natural gas for its generating units...

  • Page 96
    ... supply purchases account for approximately 50 percent of the Company's projected coal requirements during that timeframe. Additional coal supplies to fulfill the Company's remaining 2011 through 2015 coal requirements will be acquired through additional RFPs. Natural Gas Measurement Cases United...

  • Page 97
    ...its December 9, 2009 order, the OCC advised the plaintiffs that the ruling does not address the question of whether the Company's collection and remittance of such sales tax should be discontinued prospectively. On December 21, 2009, the plaintiffs filed a motion at the Oklahoma Supreme Court asking...

  • Page 98
    ... that the trend in environmental legislation and regulations will continue towards more restrictive standards. Compliance with these standards may increase the cost of conducting business. Air Sulfur Dioxide The 1990 Federal Clean Air Act includes an acid rain program to reduce sulfur dioxide ("SO2...

  • Page 99
    ... time. EPA 2008 Information Request In July 2008, the Company received a request for information from the EPA regarding Federal Clean Air Act compliance at the Company's Muskogee and Sooner generating plants. In recent years, the EPA has issued similar requests to numerous other electric utilities...

  • Page 100
    ... of power lines, substations and related equipment to ensure that the Company can reliably meet growing customer demand for electricity. On March 18, 2009, the Company, the APSC Staff and the Arkansas Attorney General filed a settlement agreement in this matter calling for a general rate increase of...

  • Page 101
    ... the Company to make a compliance filing. In July 2008, rates were implemented in an annual increase of approximately $2.4 million, subject to refund. On June 25, 2009, the FERC issued an order approving an approximate $1.3 million increase in revenues from the Company's transmission customers...

  • Page 102
    ...15, 2009, the OCC issued an order adopting the findings in the settlement agreement. OU Spirit Wind Power Project The Company signed contracts on July 31, 2008 for approximately 101 MWs of wind turbine generators and certain related balance of plant engineering, procurement and construction services...

  • Page 103
    ... to add to its power-generation portfolio in the future. Windspeed Transmission Line Project The Company filed an application on May 19, 2008 with the OCC requesting pre-approval to recover from Oklahoma customers the cost to construct a transmission line from Oklahoma City, Oklahoma to Woodward...

  • Page 104
    ... of these new programs, the Company also seeks recovery of the program and related costs through a rider that would be added to customers' electric bills. In Arkansas, the Company's program is expected to cost approximately $2 million over an 18-month period and is expected to increase the average...

  • Page 105
    ... develop smart grid technology, transmission infrastructure and renewable energy. After review of the ARRA, the Company filed a grant request on August 4, 2009 for $130 million with the DOE to be used for the Smart Grid application in the Company's service territory. On October 27, 2009, the Company...

  • Page 106
    competitive supplier of electricity. While the Company is supportive of competition, it believes that all electric suppliers must be required to compete on a fair and equitable basis and the Company is advocating this position vigorously. 100

  • Page 107
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholder Oklahoma Gas and Electric Company We have audited the accompanying balance sheets and statements of capitalization of Oklahoma Gas and Electric Company as of December 31, 2009 and 2008, and the related ...

  • Page 108
    ... (as such term is defined in Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934), the CEO and CFO have concluded that the Company's disclosure controls and procedures are effective. No change in the Company's internal control over financial reporting has occurred during...

  • Page 109
    ... of the Board, President and Chief Executive Officer /s/ Sean Trauschke Sean Trauschke, Vice President and Chief Financial Officer /s/ Danny P. Harris Danny P. Harris, Senior Vice President and Chief Operating Officer /s/ Scott Forbes Scott Forbes, Controller and Chief Accounting Officer 103

  • Page 110
    ..., effective internal control over financial reporting as of December 31, 2009, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the balance sheets and statements of capitalization of Oklahoma Gas and...

  • Page 111
    ... the chief financial officer and chief accounting officer, which is available for public viewing on OGE Energy's web site address www.oge.com under the heading "Investor Relations", "Corporate Governance." The code of ethics will be provided, free of charge, upon request. The Company intends to...

  • Page 112
    ... other fees billed by the independent auditors to OGE Energy in 2009 and 2008 for other services. Audit Committee Pre-Approval Procedures Rules adopted by the SEC in order to implement requirements of the Sarbanes-Oxley Act of 2002 require public company audit committees to pre-approve audit and non...

  • Page 113
    ... as Exhibit 2.01 to OGE Energy's Form 8-K filed August 20, 2003 (File No. 1-12579) and incorporated by reference herein) Amendment No. 1 to Asset Purchase Agreement, dated as of October 22, 2003 by and between the Company and NRG McClain LLC. (Filed as Exhibit 2.03 to OGE Energy's Form 10-K for the...

  • Page 114
    ...Commission upon request) (Filed as Exhibit 2.01 to OGE Energy's Form 8-K filed January 25, 2008 (File No. 1-12579) and incorporated by reference herein) Asset Purchase Agreement, dated as of January 21, 2008, entered into by and among the Company, the Oklahoma Municipal Power Authority and the Grand...

  • Page 115
    ...) and incorporated by reference herein) Operating and Maintenance Agreement for the Transmission Assets of the McClain Generating Facility dated as of August 25, 2003 between the Company and the Oklahoma Municipal Power Authority. (Filed as Exhibit 10.05 to OGE Energy's Form 10-Q for the quarter...

  • Page 116
    ... Stock Incentive Plan. (Filed as Exhibit 10.27 to OGE Energy's Form 10-K for the year ended December 31, 2006 (File No. 1-12579) and incorporated by reference herein) Ownership and Operating Agreement, dated as of January 21, 2008, entered into by and among the Company, the Oklahoma Municipal Power...

  • Page 117
    ... the Oklahoma Attorney General and others relating to the Company's OU Spirit application. (Filed as Exhibit 99.02 to OGE Energy's Form 8-K filed December 2, 2009 (File No. 1-12579) and incorporated by reference herein) Amendment No. 1 to OGE Energy's Restoration of Retirement Income Plan. (Filed as...

  • Page 118
    ... Commission Staff, the Oklahoma Attorney General and others relating to the Company's rate case. (Filed as Exhibit 99.02 to OGE Energy's Form 8-K filed July 30, 2009 (File No. 1-12579) and incorporated by reference herein) Copy of APSC order with Arkansas Public Service Commission Staff, the...

  • Page 119
    OKLAHOMA GAS AND ELECTRIC COMPANY SCHEDULE II - Valuation and Qualifying Accounts Additions Charged to Charged to Costs and Other Expenses Accounts (In millions) Year Ended December 31, 2007 Reserve for Uncollectible Accounts Year Ended December 31, 2008 Reserve for Uncollectible Accounts Year Ended...

  • Page 120
    ...of February, 2010. OKLAHOMA GAS AND ELECTRIC COMPANY (Registrant) By /s/ Peter B. Delaney Peter B. Delaney Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following...

  • Page 121
    Supplemental Information to Be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act. The Registrant has not sent, and does not expect to send, an annual report or proxy statement to its security ...

  • Page 122

  • Page 123
    ...OKLAHOMA GAS AND ELECTRIC COMPANY RATIO OF EARNINGS TO FIXED CHARGES Year Ended Year Ended Year Ended Year Ended Year Ended Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, 2005 2006 2007 2008 2009... used during construction Total Earnings Fixed Charges: Interest on long-term debt Interest on short-term debt...

  • Page 124
    ... of Oklahoma Gas and Electric Company, and the effectiveness of internal control over financial reporting of Oklahoma Gas and Electric Company, included in the Annual Report (Form 10-K) for the year ended December 31, 2009. /s/ Ernst & Young LLP Ernst & Young LLP Oklahoma City, Oklahoma February...

  • Page 125

  • Page 126
    ...OKLAHOMA GAS AND ELECTRIC COMPANY, an Oklahoma corporation (herein referred to as the "Company"), is about to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, its annual report on Form 10-K for the year ended December 31, 2009...

  • Page 127

  • Page 128
    ... that: 1. I have reviewed this annual report on Form 10-K of Oklahoma Gas and Electric Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under...

  • Page 129
    ... that: 1. I have reviewed this annual report on Form 10-K of Oklahoma Gas and Electric Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under...

  • Page 130

  • Page 131
    ... to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report of Oklahoma Gas and Electric Company (the "Company") on Form 10-K for the period ended December 31, 2009, as filed with the Securities and Exchange Commission (the "Report"), each of the undersigned does hereby...

  • Page 132

  • Page 133
    ... former customers entering the generation market; Factors affecting utility operations such as unusual weather conditions; catastrophic weather-related damage; unscheduled generation outages, unusual maintenance or repairs; unanticipated changes to fossil fuel or gas supply costs or availability due...

  • Page 134
    ... time to time in the Company's SEC filings or in other publicly disseminated written documents; Approval of future regulatory filings with the Oklahoma Corporation Commission or the Arkansas Public Service Commission; and Discontinuance of accounting principles for certain types of rate-regulated...

  • Page 135