OG&E 2010 Annual Report Download - page 65

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is provided at the unit level for production plant and at the account or sub-account level for all other plant, and is based on the average
life group method. In 2011, the provision for depreciation is projected to be 3.0 percent of the average depreciable utility
plant. Amortization of intangibles is computed using the straight-line method. Of the remaining amortizable intangible plant balance
at December 31, 2010, 57.3 percent will be amortized over three years with 42.7 percent of the remaining amortizable intangible plant
balance at December 31, 2010 being amortized over their respective lives ranging from four to 25 years. Amortization of plant
acquisition adjustments is provided on a straight-line basis over the estimated remaining service life of the acquired asset. Plant
acquisition adjustments include $148.3 million for the Redbud Plant, which are being amortized over a 27-year life and $3.1 million
for certain substation facilities in the Company’s service territory, which are being amortized over a 26 to 59-year period.
Asset Retirement Obligations
The Company has previously recorded AROs that are being amortized over their respective lives ranging from 20 to 99
years. The Company also has certain AROs that have not been recorded because the Company determined that these assets, primarily
related to the Company’s power plant sites, have indefinite lives.
Allowance for Funds Used During Construction
AFUDC is calculated according to the FERC pronouncements for the imputed cost of equity and borrowed funds. AFUDC,
a non-cash item, is reflected as a credit in the Statements of Income and as a charge to Construction Work in Progress in the Balance
Sheets. AFUDC rates, compounded semi-annually, were 8.89 percent, 7.99 percent and 3.58 percent for the years 2010, 2009 and
2008, respectively. The increase in the AFUDC rates in 2010 was primarily due to the lack of short-term borrowings in conjunction
with a high level of capital spending.
Collection of Sales Tax
In the course of its operations, the Company collects sales tax from its customers. The Company records a current liability
for sales taxes when it bills its customers and eliminates this liability when the taxes are remitted to the appropriate governmental
authorities. The Company excludes the sales tax collected from its operating revenues.
Revenue Recognition
General
The Company reads its customers’ meters and sends bills to its customers throughout each month. As a result, there is a
significant amount of 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. The estimates that management uses in this calculation could vary from the actual
amounts to be paid by customers.
SPP Purchases and Sales
The Company participates in the SPP energy imbalance service market in a dual role as a load serving entity and as a
generation owner. The energy imbalance service market requires cash settlements for over or under schedules of generation and load.
Market participants, including the Company, are required to submit resource plans and can submit offer curves for each resource
available for dispatch. A function of interchange accounting is to match participants’ MWH entitlements (generation plus scheduled
bilateral purchases) against their MWH obligations (load plus scheduled bilateral sales) during every hour of every day. If the net
result during any given hour is an entitlement, the participant is credited with a spot-market sale to the SPP at the respective market
price for that hour; if the net result is an obligation, the participant is charged with a spot-market purchase from the SPP at the
respective market price for that hour. The SPP purchases and sales are not allocated to individual 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 and certain purchased power costs, as compared to the fuel
component in the cost-of-service for ratemaking, are passed through to the Company’s customers through fuel adjustment clauses,
which are subject to periodic review by the OCC, the APSC and the FERC.
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