OG&E 2011 Annual Report Download - page 19

OGE Energy Corp. 17
decrease based on a return on equity of 9.5 percent and a common
equity percentage of 48 percent. OG&E filed rebuttal testimony on
November 29, 2011 on the revenue requirement testimony filed by the
parties on November 9, 2011. On November 16, 2011, the parties filed
cost-of-service and rate design testimony and OG&E filed rebuttal testi-
mony in those areas on December 2, 2011. The hearing in this matter
began on December 13, 2011. OG&E expects to receive an order from
the OCC in the first quarter of 2012.
OG&E Contract and Wind Energy Purchase Agreement Filing
On December 1, 2011, OG&E filed an application with the OCC requesting
approval of a 20-year agreement that is intended to provide wind power
to help meet the current and future power generation needs of Oklahoma
State University. The project calls for OG&E to contract with NextEra
Energy to build a 60 MW wind farm near Blackwell, Oklahoma, to support
the Oklahoma State University project in which NextEra will build, own
and operate the wind farm and OG&E will purchase the electric output.
A procedural schedule has not yet been established in this matter. OG&E
expects to receive a decision from the OCC in the first quarter of 2012.
Enogex FERC Section 311 2009 Rate Case
On March 27, 2009, Enogex filed a petition for rate approval with the
FERC to set the maximum rates for its new firm East Zone Section 311
transportation service and to revise the rates for its existing East and
West Zone interruptible Section 311 transportation service. In anticipa-
tion of offering this new service, Enogex had filed with the FERC, as
required by the FERC’s regulations, a revised Statement of Operating
Conditions Applicable to Transportation Services to describe the terms,
conditions and operating arrangements for the new service. Enogex
made the Statement of Operating Conditions filing on February 27,
2009. Enogex began offering firm East Zone Section 311 transportation
service on April 1, 2009. The revised East and West Zone zonal rates
for the Section 311 interruptible transportation service became effective
June 1, 2009. The rates for the firm East Zone Section 311 transporta-
tion service and the increase in the rates for East and West Zone and
interruptible Section 311 service were collected, subject to refund,
pending the FERC approval of the proposed rates. A number of parties
intervened in both the rate case and the Statement of Operating Conditions
filing and some additionally filed protests. On January 4, 2010, the FERC
Staff submitted an offer proposing various adjustments to Enogex’s filed
cost of service. On April 27, 2010, Enogex submitted comments to the
FERC Staff stating that it would agree to the offer, contingent upon all
parties agreeing to support or not oppose. On October 4, 2011, Enogex
filed a settlement agreement with the FERC which included a proposed
refund to shippers of $2.1 million related to the increase in the rates for
East and West Zone and interruptible Section 311 service which were
collected, subject to refund, pending the FERC approval of the proposed
rates. This refund was made to shippers in January 2012. On December 16,
2011, the FERC issued an order approving the settlement agreement.
See Note 17 of Notes to Consolidated Financial Statements for a
further discussion.
Enogex Cox City Plant Fire
On December 8, 2010, a fire occurred at Enogex’s Cox City natural
gas processing plant destroying major components of one of the four
processing trains, representing 120 million cubic feet per day (“MMcf/d”)
of the total 180 MMcf/d of capacity, at that facility. Gas volumes normally
processed at the Cox City plant were diverted to other facilities or
bypassed around Enogex’s system to accommodate production and all
of the impacted gathered volumes were back online in December 2010.
The damaged train was replaced and the facility was returned to full
service in September 2011. The total cost necessary to return the facility
back to full service was $29.6 million. While Enogex believes that the
costs in excess of the $10 million deductible should be reimbursed by
insurance, the matter is currently being negotiated with the insurance
company and Enogex cannot predict the precise outcome of these
negotiations or the timing associated with the recovery. In the fourth
quarter of 2011, Enogex received a partial insurance reimbursement of
$7.4 million and recognized a gain of $3.0 million on insurance proceeds.
Enogex expects to receive additional reimbursement of portions of the
costs in 2012. Enogex will recognize insurance recoveries in earnings
as the insurance claims are resolved.
Enogex Contract Conversion
In August 2011, Enogex and one of its five largest customers entered
into new agreements, effective July 1, 2011, relating to the customer’s
gathering and processing volumes on the Oklahoma portion of Enogex’s
system. The effect of this new arrangement is that (i) the acreage dedicated
by the customer to Enogex for gathering and processing in Oklahoma has
been increased for an extended term and (ii) the processing arrangement
has been converted from keep-whole to fixed fee. This customer’s con-
verted volumes represented 8.4 percent of total inlet volumes from July 1,
2011 to December 31, 2011. Also, as a result of this transaction and as
part of the new agreements, Enogex recorded $6.4 million in Deferred
Revenues on the Company’s Consolidated Balance Sheet at December 31,
2011. Processing revenues under the agreements are recognized based
on the estimated average fee per million British thermal unit (“MMBtu”)
processed over the life of the agreements. Enogex expects to record
additional deferred revenues during 2012.
Enogex Western Oklahoma/Texas Panhandle Gathering
and Processing System Expansions
As previously reported, gathering and processing volumes grew at a
slower pace during the fourth quarter of 2011 than Enogex had antici-
pated. Enogex currently expects that this slower growth will continue
during 2012. Despite this slower volume growth, Enogex still anticipates
the need for additional processing capacity.
Enogex constructed a new 200 MMcf/d cryogenic processing plant in
Canadian County, Oklahoma. The new plant, which has inlet and residue
compression and is supported by the installation of 31 miles of 20-inch
gathering pipeline, as well as 11 miles of 24-inch transmission pipeline
providing takeaway capacity from the plant tailgate, was placed in service
in December 2011. The total capital expenditures associated with this
project were $140 million.