OG&E 2010 Annual Report Download - page 76

Medicare Part D Subsidy
The Health Care Reform Acts effectively change the tax treatment of Federal subsidies paid to sponsors of retiree health
benefit plans that provide prescription drug benefits that are at least actuarially equivalent to the corresponding benefits provided
under Medicare Part D.
The Federal subsidy paid to employers was introduced as part of the Medicare Act. OGE Energy has been recognizing the
Federal subsidy since 2005 related to certain retiree prescription drug plans that were determined to be actuarially equivalent to the
benefit provided under Medicare Part D. Under the Medicare Act, the Federal subsidy does not reduce an employer’s income tax
deduction for the costs of providing such prescription drug plans nor is it subject to income tax individually.
Under the Health Care Reform Acts, beginning in 2013 an employer’s income tax deduction for the costs of providing
Medicare Part D-equivalent prescription drug benefits to retirees will be reduced by the amount of the Federal subsidy. Under GAAP,
any impact from a change in tax law must be recognized in earnings in the period enacted regardless of the effective date. As retiree
healthcare liabilities and related tax impacts are already reflected in OGE Energy’s Consolidated Financial Statements, OGE Energy
recognized a one-time, non-cash charge of $11.4 million during the quarter ended March 31, 2010 for the write-off of previously
recognized tax benefits relating to Medicare Part D subsidies to reflect the change in the tax treatment of the Federal subsidy, of which
$7.0 million was the Company’s portion.
Other
The Company had a Federal renewable energy tax credit carryover from 2009 of $17.2 million with an additional $15.5
million in credits being generated during 2010. The Company currently believes that $11.2 million of these Federal tax credit
amounts will be utilized in the 2010 tax year with $21.5 million being carried over to 2011 and later tax years. In addition, the
Company has an Oklahoma tax credit carryover from 2009 of $42.0 million. During 2010, additional Oklahoma tax credits of $22.5
million were generated or purchased by the Company. The Company currently believes that $12.2 million of these state tax credit
amounts will be utilized in the 2010 tax year with $52.3 million being carried over to 2011 and later tax years. These Federal and
state tax credits will begin to expire in 2019; however, the Company expects that all Federal and state tax credits will be fully utilized
prior to expiration.
8. Common Stock and Cumulative Preferred Stock
There were no new shares of common stock issued in 2010, 2009 or 2008. The Company’s Restated Certificate of
Incorporation permits the issuance of a new series of preferred stock with dividends payable other than quarterly.
9. Long-Term Debt
A summary of the Company’s long-term debt is included in the Statements of Capitalization. At December 31, 2010, the
Company was in compliance with all of its debt agreements.
The Company has tax-exempt pollution control bonds with optional redemption provisions that allow the holders to request
repayment of the bonds at various dates prior to the maturity. The bonds, which can be tendered at the option of the holder during the
next 12 months, are as follows:
SERIES DATE DUE AMOUNT
(In millions)
0.30% - 0.50% Garfield Industrial Authority, January 1,
2025 $ 47.0
0.35% - 0.52% Muskogee Industrial Authority, January 1,
2025 32.4
0.33% - 0.55% Muskogee Industrial Authority, June 1,
2027 56.0
Total (redeemable during next 12 months) $ 135.4
All of these bonds are subject to an optional tender at the request of the holders, at 100 percent of the principal amount,
together with accrued and unpaid interest to the date of purchase. The bond holders, on any business day, can request repayment of
the bond by delivering an irrevocable notice to the tender agent stating the principal amount of the bond, payment instructions for the
purchase price and the business day the bond is to be purchased. The repayment option may only be exercised by the holder of a bond
for the principal amount. When a tender notice has been received by the trustee, a third party remarketing agent for the bonds will
attempt to remarket any bonds tendered for purchase. This process occurs once per week. Since the original issuance of these series
of bonds in 1995 and 1997, the remarketing agent has successfully remarketed all tendered bonds. If the remarketing agent is unable
to remarket any such bonds, the Company is obligated to repurchase such unremarketed bonds. As the Company has both the intent
and ability to refinance the bonds on a long-term basis and such ability is supported by an ability to consummate the refinancing, the
bonds are classified as long-term debt in the Company’s Financial Statements. The Company believes that it has sufficient liquidity to
meet these obligations.
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