OG&E 2011 Annual Report Download - page 56

In accordance with the OCC order received by OG&E in December
2005 in its Oklahoma rate case, OG&E was allowed to recover a certain
amount of pension plan expenses. These deferred amounts have been
recorded as a regulatory asset as OG&E received an order in July 2009
allowing it to begin recovery of $16.8 million of these costs over a four-
year period. In accordance with the APSC order received by OG&E in
May 2009 in its Arkansas rate case, OG&E was allowed recovery of its
2006 and 2007 pension settlement costs. During the second quarter of
2009, OG&E reduced its pension expense and recorded a regulatory
asset for $3.2 million, which is being amortized over a 10-year period,
as allowed in the Arkansas rate order. Both the Oklahoma and Arkansas
pension plan expenses are reflected in Deferred Pension expenses asset
in the regulatory assets and liabilities table above. Also, in accordance
with the OCC order received by OG&E in August 2009 in its Oklahoma
rate case, OG&E was allowed to recover a certain amount of pension
plan expenses. In accordance with the OCC order received by OG&E
in September 2011 in its pension tracker modification filing, OG&E was
allowed to include postretirement medical expense in its pension tracker.
At December 31, 2011, OG&E had $22.5 million of expenses under this
level, which have been recorded as Pension tracker regulatory liability
in the regulatory assets and liabilities table above.
Accrued removal obligations represent asset retirement costs
previously recovered from ratepayers for other than legal obligations.
Management continuously monitors the future recoverability of
regulatory assets. When in management’s judgment future recovery
becomes impaired, the amount of the regulatory asset is adjusted, as
appropriate. If the Company were required to discontinue the applica-
tion of accounting principles for certain types of rate-regulated activities
for some or all of its operations, it could result in writing off the related
regulatory assets, which could have significant financial effects.
Use of Estimates
In preparing the Consolidated Financial Statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and contingent liabilities at the date of the Consolidated Financial
Statements and the reported amounts of revenues and expenses during
the reporting period. Changes to these assumptions and estimates
could have a material effect on the Company’s Consolidated Financial
Statements. However, the Company believes it has taken reasonable,
but conservative, positions where assumptions and estimates are used
in order to minimize the negative financial impact to the Company that
could result if actual results vary from the assumptions and estimates.
In management’s opinion, the areas of the Company where the most
significant judgment is exercised for all Company segments includes the
valuation of Pension Plan assumptions, impairment estimates of long-
lived assets (including intangible assets) and goodwill, income taxes,
contingency reserves, asset retirement obligations, fair value and cash
flow hedges and the allowance for uncollectible accounts receivable.
For the electric utility segment, the most significant judgment is also
exercised in the valuation of regulatory assets and liabilities and unbilled
revenues. For the natural gas transportation and storage, gathering and
processing and marketing segments, the most significant judgment is also
exercised in the valuation of operating revenues, natural gas purchases,
purchase and sale contracts, assets and depreciable lives of property,
plant and equipment and amortization methodologies related to
intangible assets.
Cash and Cash Equivalents
For purposes of the Consolidated Financial Statements, the Company
considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents. These invest-
ments are carried at cost, which approximates fair value.
Allowance for Uncollectible Accounts Receivable
For OG&E, customer balances are generally written off if not collected
within six months after the final billing date. The allowance for uncollectible
accounts receivable for OG&E is calculated by multiplying the last six
months of electric revenue by the provision rate. The provision rate is
based on a 12-month historical average of actual balances written off.
To the extent the historical collection rates are not representative of future
collections, there could be an effect on the amount of uncollectible
expense recognized. Beginning in August 2009 and going forward, there
was a change in the provision calculation as a result of the Oklahoma
rate case whereby the portion of the uncollectible provision related to
fuel is being recovered through the fuel adjustment clause. Due to the
extremely hot weather in OG&E’s service territory in 2011, OG&E recorded
an additional amount of uncollectible expense anticipating higher cus-
tomer defaults. The allowance for uncollectible accounts receivable for
Enogex is calculated based on outstanding accounts receivable balances
over 180 days old. In addition, other outstanding accounts receivable
balances less than 180 days old are reserved on a case-by-case basis
when Enogex believes the collection of specific amounts owed is unlikely
to occur. The allowance for uncollectible accounts receivable was $3.8 mil-
lion and $1.9 million at December 31, 2011 and 2010, respectively.
For OG&E, new business customers are required to provide a security
deposit in the form of cash, bond or irrevocable letter of credit that is
refunded when the account is closed. New residential customers, whose
outside credit scores indicate risk, are required to provide a security
deposit that is refunded based on customer protection rules defined by
the OCC and the APSC. The payment behavior of all existing customers
is continuously monitored and, if the payment behavior indicates sufficient
risk within the meaning of the applicable utility regulation, customers
will be required to provide a security deposit.
For Enogex, credit risk is the risk of financial loss to Enogex if
counterparties fail to perform their contractual obligations. Enogex
maintains credit policies with regard to its counterparties that manage-
ment believes minimize overall credit risk. These policies include the
evaluation of a potential counterparty’s financial position (including credit
rating, if available), collateral requirements under certain circumstances,
the use of standardized agreements which provide for the netting of cash
flows associated with a single counterparty and the monitoring of the
financial position of existing counterparties on an ongoing basis.
54 OGE Energy Corp.