OG&E 2009 Annual Report Download - page 94

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 to Fuel Expense
and are recovered through the Company’s tariffs and fuel adjustment clauses. At the end of the lease term, which is January 31, 2011,
the Company has the option to either purchase the railcars at a stipulated fair market value or renew the lease. If the Company
chooses not to purchase the railcars or renew the lease agreement and the actual value of the railcars is less than the stipulated fair
market value, the Company would be responsible for the difference in those values up to a maximum of approximately $31.5 million.
On February 10, 2009, the Company executed a short-term lease agreement for 270 railcars in accordance with new coal
transportation contracts with BNSF Railway and Union Pacific. These railcars were needed to replace railcars that have been taken
out of service or destroyed. The lease agreement expires with respect to 135 railcars on March 5, 2010. The lease agreement with
respect to the remaining 135 railcars expired on November 2, 2009 and was not replaced.
The Company is also required to maintain all of the railcars it has under lease to transport coal from Wyoming and has
entered into agreements with Progress Rail Services and WATCO, both of which are non-affiliated companies, to furnish this
maintenance.
Coal Transportation Contracts
The Company has transportation contracts for the transportation of coal to its coal-fired power plants. The Company’s
transportation contracts expired on December 31, 2008. On December 19, 2008, the Company entered into a new rail transportation
agreement with the BNSF Railway for the movement of coal to the Company’s Sooner power plant. The rates in the new agreement
were higher than the rates in the Company’s previous transportation contracts.
The Company also filed a complaint at the Surface Transportation Board (“STB”) requesting the establishment of reasonable
rates, practices and service terms for the transportation of coal from Union Pacific served mines in the southern Powder River Basin,
Wyoming to the Company’s Muskogee power plant. The Company began paying interim shipping rates, subject to refund, while this
matter was pending with the STB. On July 24, 2009 the STB issued a decision awarding the Company a reduction in interim shipping
rates to its Muskogee power plant. In 2009, the Company received a refund of approximately $7.7 million from Union Pacific related
to payments the Company made in 2009. All refund amounts are being passed through to the Company’s customers.
The overall effect of the new BNSF Railway agreement and rail rate prescription from the STB 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 Cooperative (“AVEC”) that the
Company would terminate its wholesale power agreement to all points of delivery where the Company sells or has sold power to
AVEC, effective November 30, 2011. The Company is in the process of discussing an agreement with AVEC which could result in
the Company supplying wholesale power to AVEC in the future. Any such agreement would be conditioned on the FERC and state
regulatory approvals. The termination of the AVEC agreement is not expected to have a material impact to the Company’s financial
position or results of operations.
Public Utility Regulatory Policy Act of 1978
At December 31, 2009, the Company has agreements with two qualifying cogeneration facilities (“QF”) having terms of 15
to 32 years. These contracts were entered into pursuant to the Public Utility Regulatory Policy Act of 1978 (“PURPA”). Stated
generally, PURPA and the regulations thereunder promulgated by the FERC require the Company to purchase power generated in a
manufacturing process from a QF. The rate for such power to be paid by the Company was approved by the OCC. The rate generally
consists of two components: one is a rate for actual electricity purchased from the QF by the Company; the other is a capacity charge,
which the Company must pay the QF for having the capacity available. However, if no electrical power is made available to the
Company for a period of time (generally three months), the Company’s obligation to pay the capacity charge is suspended. The total
cost of cogeneration payments is recoverable in rates from customers. For the AES-Shady Point, Inc. (“AES”) QF contract for 320
MWs, the Company purchases 100 percent of the electricity generated by the QF. In addition, effective September 1, 2004, the
Company entered into a new 15-year power purchase agreement for
88