OG&E 2010 Annual Report Download - page 34

third of the state and on the western edge of the Company’s service territory. Although other U.S. utilities can develop wind farms in
this region, the Company’s close proximity to this resource does allow it to focus more on wind generation. In addition, the SPP
regional transmission organization has begun to address the relative lack of transmission lines capable of bringing renewable energy
out of the wind resource area in western Oklahoma, the Texas panhandle and western Kansas to load centers by planning for more
transmission to be built in the area and, due to the proximity of the Company’s service territory and its transmission construction
capabilities, the Company expects to benefit by building a substantial portion of this new transmission network. In addition to
significantly increasing overall system reliability, these new transmission resources should provide greater access to additional wind
resources that are currently constrained due to existing transmission delivery constraints.
Smart Grid Project
On July 1, 2010, the OCC approved a settlement with all parties to the OCC consideration of the Company’s application for
pre-approval for system-wide deployment of smart grid technology and a recovery rider. The recovery rider was implemented with
the first billing cycle in July 2010. For a discussion of the settlement agreement terms related to the Company’s Smart Grid program,
see Note 13 of Notes to Financial Statements.
Crossroads Wind Project
In July 2010, the OCC approved a settlement among all the parties to the OCC consideration of the Company’s application
for pre-approval of the 197.8 MWs of wind turbine generators and certain related balance of plant engineering, procurement and
construction services associated with Crossroads and a recovery rider. For a discussion of the settlement agreement terms approved
by the OCC related to the Company’s Crossroads application, see Note 13 of Notes to Financial Statements.
The Company is in the process of entering into an interconnection agreement with the SPP for Crossroads. As part of the
multi-study interconnection process, the SPP conducted an interim operational study to determine the impact Crossroads will have on
the existing transmission system. The SPP verbally indicated that limited interconnection would be necessary to address system
stability limitations. In order to enable full interconnection of Crossroads, the Company put forth a mitigation proposal, consisting of
a system protection relay system, which has recently received all the necessary SPP working group and committee approvals to be
implemented. This will allow Crossroads to interconnect at the anticipated 227.5 MWs. On December 30, 2010, the SPP posted the
results of its interim operational study to reflect the SPP approval of the mitigation strategy. The Company expects a final
interconnection agreement to be put in place by the second quarter of 2011.
Arkansas OU Spirit Application and Renewable Energy Filing
On January 19, 2011, the APSC issued an order finding that (i) OU Spirit is prudent and is in the public’s interest, (ii) the
$2.1 million of costs associated with OU Spirit from September 1, 2010 through June 30, 2011 should be recovered through the
Energy Cost Recovery rider, which is expected to be filed with the APSC by March 15, 2011 (beginning July 1, 2011, OU Spirit costs
are expected to be recovered in base rates resulting from the Company’s 2010 Arkansas rate case) and (iii) the 280 MW wind power
purchase agreements are prudent and should be recovered through the Energy Cost Recovery rider.
2010 Arkansas Rate Case Filing
On September 28, 2010, the Company filed a rate case with the APSC requesting a rate increase of $17.7 million, to recover
the cost of significant electric system expansions and upgrades, including high-voltage transmission lines and wind energy, that have
been completed since the last rate filing in August 2008, as well as rising operating costs. If approved, the targeted implementation
date for new electric rates is expected to be during the third quarter of 2011. A hearing in this matter is scheduled for May 24, 2011.
2011 Outlook
OGE Energy projects the Company to earn between $209 million and $219 million in 2011. The key factors and
assumptions include:
Ÿ Normal weather patterns are experienced for the year;
Ÿ Gross margin of $1.105 billion to $1.115 billion based on sales growth of 0.8 percent on a weather-adjusted basis;
Ÿ Operating expenses of $730 million to $740 million, with operation and maintenance expenses
comprising 60 percent of the total;
Ÿ Interest expense of $115 million to $120 million which assumes the issuance of $300 million of long-term debt in
mid-year 2011 and a $10 million reduction to interest expense due to the allowance for borrowed funds used during
construction;
Ÿ AEFUDC income of $35 million to $40 million; and
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