OG&E 2010 Annual Report Download - page 53

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to changes in interest rates relates primarily to short-term variable-rate debt and commercial paper. The Company is exposed to
commodity prices in its operations.
Risk Committee and Oversight
Management monitors market risks using a risk committee structure. OGE Energy’s Risk Oversight Committee, which
consists primarily of corporate officers, is responsible for the overall development, implementation and enforcement of strategies and
policies for all market risk management activities of the Company. This committee’s emphasis is a holistic perspective of risk
measurement and policies targeting the Company’s overall financial performance. The Risk Oversight Committee is authorized by,
and reports quarterly to, the Audit Committee of OGE Energy’s Board of Directors.
OGE Energy also has a Corporate Risk Management Department led by OGE Energy’s Chief Risk Officer. This group, in
conjunction with the aforementioned committees, is responsible for establishing and enforcing the Company’s risk policies.
Risk Policies
Management utilizes risk policies to control the amount of market risk exposure. These policies are designed to provide the
Audit Committee of OGE Energy’s Board of Directors and senior executives of the Company with confidence that the risks taken on
by the Company’s business activities are in accordance with their expectations for financial returns and that the approved policies and
controls related to market risk management are being followed. Some of the measures in these policies include value-at-risk limits,
position limits, tenor limits and stop loss limits.
Interest Rate Risk
The Company’s exposure to changes in interest rates primarily relates to short-term variable-rate debt and commercial
paper. The Company manages its interest rate exposure by monitoring and limiting the effects of market changes in interest
rates. The Company utilizes interest rate derivatives to alter interest rate exposure in an attempt to reduce the effects of these
changes. Interest rate derivatives are used solely to modify interest rate exposure and not to modify the overall leverage of the debt
portfolio.
The fair value of the Company’s long-term debt is based on quoted market prices and estimates of current rates available for
similar issues with similar maturities. The following table shows the Company’s long-term debt maturities and the weighted-average
interest rates by maturity date. There are no maturities of the Company’s long-term debt during the next five years.
Year ended December 31 After 12/31/10
(Dollars in millions) 2015 Total Fair Value
Fixed-rate debt (A)
Principal amount $ 1,660.0 $ 1,660.0 $ 1,831.5
Weighted-average
interest rate 6.51% 6.51% ---
Variable-rate debt (B)
Principal amount $ 135.4 $ 135.4 $ 135.4
Weighted-average
interest rate 0.49 % 0.49% ---
(A) Prior to or when these debt obligations mature, the Company may refinance all or a portion of such debt at then-existing market
interest rates which may be more or less than the interest rates on the maturing debt.
(B) A hypothetical change of 100 basis points in the underlying variable interest rate incurred by the Company would change interest
expense by $1.4 million annually.
Commodity Price Risk
The Company occasionally uses commodity price swap contracts to manage the Company’s commodity price risk
exposures. Natural gas swaps are used to manage the Company’s natural gas exposure associated with a wholesale generation sales
contract as discussed in Note 5 of Notes to Financial Statements.
46