OG&E 2010 Annual Report Download - page 47

The Company has the necessary regulatory approvals to incur up to $800 million in short-term borrowings at any time for a
two-year period beginning January 1, 2011 and ending December 31, 2012. See Note 10 of Notes to Financial Statements for a
discussion of the Company’s short-term debt activity.
Expected Issuance of Long-Term Debt
The Company expects to issue between $250 million and $300 million of long-term debt in mid-2011, depending on market
conditions, to fund capital expenditures, repay short-term borrowings and for general corporate purposes.
Critical Accounting Policies and Estimates
The Financial Statements and Notes to Financial Statements contain information that is pertinent to Management’s
Discussion and Analysis. In preparing the 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
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 Financial Statements. However, the Company believes it has taken
reasonable, but conservative, 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 are in the valuation of pension plan assumptions, contingency reserves,
AROs, fair value and cash flow hedges, regulatory assets and liabilities, unbilled revenues and the allowance for uncollectible
accounts receivable. The selection, application and disclosure of the following critical 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 is no longer being offered to employees hired on or after
December 1, 2009. OGE Energy also has defined benefit postretirement plans that cover substantially all of its employees. Pension
and other postretirement plan expenses and liabilities are determined on an actuarial basis and are affected by the market value of plan
assets, estimates of the expected return on plan assets, assumed discount rates and the level of funding. Actual changes in the fair
market value of plan assets and differences between the actual return on plan assets and the expected return on plan assets could have
a material effect on the amount of pension expense ultimately recognized. The pension plan rate assumptions are shown in Note 11 of
Notes to Financial Statements. The assumed return on plan assets is based on management’s expectation of the long-term return on
the plan assets portfolio. The discount rate used to compute the present value of plan liabilities is based generally on rates of high-
grade corporate bonds with maturities similar to the average period over which benefits will be paid. The level of funding is
dependent on returns on plan assets and future discount rates. Higher returns on plan assets and an increase in discount rates will
reduce funding requirements to the Pension Plan. The following table indicates the sensitivity of the Pension Plan funded status to
these variables.
Impact on
Change Funded Status
Actual plan asset returns +/- 5 percent +/- $28.7 million
Discount rate +/- 0.25 percent +/- $17.4 million
Contributions + $10 million + $10 million
Commitments and Contingencies
In the normal course of business, the Company is confronted with issues or events that may result in a contingent
liability. These generally relate to lawsuits, claims made by third parties, environmental actions or the action of various regulatory
agencies. When appropriate, management consults with legal counsel and other appropriate experts to assess the claim. If in
management’s opinion, the Company has incurred a probable loss as set forth by GAAP, an estimate is made of the loss and the
appropriate accounting entries are reflected in the Company’s Financial Statements.
Except as otherwise disclosed in this Form 10-K, management, after consultation with legal counsel, does not currently
anticipate that liabilities arising out of these pending or threatened lawsuits, claims and contingencies will have a material adverse
effect on the Company’s financial position, results of operations or cash flows. See Note 12 of Notes to Financial Statements and Item
3 of Part I in this Form 10-K for a discussion of the Company’s commitments and contingencies.
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