OG&E 2011 Annual Report Download - page 23

OGE Energy Corp. 21
Additional Information
Allowance for Equity Funds Used During Construction. Allowance for
equity funds used during construction was $20.4 million in 2011 as com-
pared to $11.4 million in 2010, an increase of $9.0 million, or 78.9 percent,
primarily due to higher levels of construction costs for Crossroads.
Other Income. Other income was $8.0 million in 2011 as compared to
$6.5 million in 2010, an increase of $1.5 million, or 23.1 percent. The
increase in other income was primarily due to a benefit of $5.6 million
associated with the tax gross-up of allowance for equity funds used
during construction partially offset by increased losses of $4.2 million
recognized in the guaranteed flat bill program in 2011 from higher than
expected usage resulting from warmer weather.
Other Expense. Other expense was $8.4 million in 2011 as compared
to $1.6 million in 2010, an increase of $6.8 million, primarily due to an
increase in charitable contributions of $6.4 million as the holding
company made the charitable contributions in 2010.
Interest Expense. Interest expense was $111.6 million in 2011 as compared
to $103.4 million in 2010, an increase of $8.2 million, or 7.9 percent,
primarily due to a $14.0 million increase related to the issuance of long-
term debt in June 2010 and May 2011. This increase in interest expense
was partially offset by:
•A $4.9 million decrease in interest expense due to a higher allowance for
borrowed funds used during construction primarily due to construction
costs for Crossroads; and
•A $1.4 million decrease in interest expense in 2011 due to interest to
customers related to the fuel over recovery balance in 2010.
Income Tax Expense. Income tax expense was $117.9 million in 2011
as compared to $111.0 million in 2010, an increase of $6.9 million, or
6.2 percent. The increase in income tax expense was primarily due to
higher pre-tax income in 2011 as compared to 2010. This increase in
income tax expense was partially offset by:
•The one-time, non-cash charge in 2010 for the elimination of the tax
deduction for the Medicare Part D subsidy;
•The write-off of previously recognized Oklahoma investment tax credits
in 2010 primarily due to expenditures no longer eligible for the
Oklahoma investment tax credit related to the change in the tax method
of accounting for capitalization of repair expenditures; and
•Higher Oklahoma investment tax credits in 2011 as compared to 2010.
2010 Compared to 2009
OG&E’s operating income increased $59.6 million, or 16.8 percent, in
2010 as compared to 2009 primarily due to a higher gross margin partially
offset by higher other operation and maintenance expense and higher
depreciation and amortization expense.
Gross Margin
Gross margin was $1,109.7 million in 2010 as compared to $954.9 million
in 2009, an increase of $154.8 million, or 16.2 percent. The gross margin
increased primarily due to:
•Increased price variance, which included revenues from various rate
riders, including the Windspeed rider, the OU Spirit rider, the Oklahoma
demand program rider and the Smart Grid rider, and higher revenues
from the sales and customer mix, which increased the gross margin by
$74.5 million;
•Warmer weather in OG&E’s service territory resulting in a 25 percent
increase in cooling degree days, which increased the gross margin by
$46.8 million;
•Revenue from the full year effect of the August 2009 Oklahoma rate
increase, which increased the gross margin by $24.1 million;
•Higher demand and related revenues by non-residential customers in
OG&E’s service territory, which increased the gross margin by $6.9 million;
•New customer growth in OG&E’s service territory, which increased the
gross margin by $6.7 million; and
•Revenues from the full year effect of the June 2009 Arkansas rate
increase, which increased the gross margin by $3.5 million.
These increases in the gross margin were partially offset by lower other
revenues due to fewer transmission requests from others on OG&E’s
system, which decreased the gross margin by $7.7 million.
Fuel expense was $771.0 million in 2010 as compared to $618.5 million
in 2009, an increase of $152.5 million, or 24.7 percent, primarily due to
higher natural gas prices and increased natural gas generation due to
ongoing maintenance at some of OG&E’s coal-fired power plants. OG&E’s
electric generating capability is fairly evenly divided between coal and
natural gas and provides for flexibility to use either fuel to the best eco-
nomic advantage for OG&E and its customers. In 2010, OG&E’s fuel mix
was 55 percent coal, 42 percent natural gas and three percent wind. In
2009, OG&E’s fuel mix was 60 percent coal, 38 percent natural gas and
two percent wind. Purchased power costs were $226.5 million in 2010
as compared to $176.6 million in 2009, an increase of $49.9 million, or
28.3 percent, primarily due to an increase in purchases in the energy
imbalance service market to meet OG&E’s generation load requirements
and an increase in short-term power agreements resulting in short-term
spot market purchases.