OG&E 2011 Annual Report Download - page 45

Market risks are, in most cases, risks that are actively traded in a
marketplace and have been well studied in regards to quantification.
Market risks include, but are not limited to, changes in interest rates
and commodity prices. The Company’s exposure 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.
The Company’s Risk Oversight Committee, which consists primarily
of corporate officers, is responsible for the overall development, imple-
mentation 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 the
Company’s Board of Directors.
The Unregulated Business Unit Risk Management Committee is
comprised primarily of business unit leaders within Enogex. This com-
mittee’s purpose is to develop and maintain risk policies for Enogex,
to provide oversight and guidance for existing and prospective Enogex
business activities and to provide governance regarding compliance
with Enogex risk policies. This group is authorized by and reports to
the Risk Oversight Committee.
The Company also has a Corporate Risk Management Department
led by the Company’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 the Company’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.
OGE Energy Corp. 43
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
12/31/11
(Dollars in millions, year ended December 31) 2012 2013 2014 2015 2016 Thereafter Total Fair Value
Fixed-rate debt(A)
Principal amount $«– $«– $300.0 $«– $110.0 $2,050.0 $2,460.0 $2,990.2
Weighted-average interest rate – – 6.25% – 5.15% 6.40% 6.32%
Variable-rate debt (B)
Principal amount $«– $«– $÷÷÷«– $«– $150.0 $÷«135.4 $÷«285.4 $÷«285.4
Weighted-average interest rate ––––1.65%0.22%0.97%
(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 $2.9 million annually.