OG&E 2011 Annual Report Download - page 59

Asset Retirement Obligations
The Company has previously recorded asset retirement obligations
that are being amortized over their respective lives ranging from 20 to
99 years. In the fourth quarter of 2011, OG&E recorded an asset retire-
ment obligation for $13.0 million related to its Crossroads wind farm.
Beginning December 1, 2011, OG&E began to amortize the value of the
related asset retirement obligation asset over the estimated remaining
life of 50 years. The Company also has certain asset retirement obliga-
tions that have not been recorded because the Company determined
that these assets, primarily related to Enogex’s processing plants and
compression sites and OG&E’s power plant sites, have indefinite lives.
Impairment of Long-Lived Assets
(Including Intangible Assets) and Goodwill
The Company assesses its long-lived assets, including intangible assets
with finite useful lives, for impairment when there is evidence that events
or changes in circumstances require an analysis of the recoverability of
an asset’s carrying amount. Estimates of future cash flows used to test
the recoverability of long-lived assets and intangible assets shall include
only the future cash flows (cash inflows less associated cash outflows)
that are directly associated with and that are expected to arise as a
direct result of the use and eventual disposition of the asset. The fair
value of these assets is based on third-party evaluations, prices for
similar assets, historical data and projected cash flows. An impairment
loss is recognized when the sum of the expected future net cash flows
is less than the carrying amount of the asset. The amount of any recog-
nized impairment is based on the estimated fair value of the asset subject
to impairment compared to the carrying amount of such asset. In 2011,
the Company recorded a pre-tax impairment loss of $5.0 million, of which
$2.5 million was the noncontrolling interest portion (see Note 5), related
to the Atoka processing plant. The Company recorded no other material
impairments in 2011, 2010 and 2009.
As a result of the gas gathering acquisitions on November 1, 2011
discussed in Note 3, Enogex recorded goodwill of $39.4 million and
intangible assets of $136.3 million. Enogex will assess its goodwill for
impairment at least annually as of October 1 and will assess the intan-
gible assets for impairment as discussed above.
Allowance for Funds Used During Construction
For OG&E, allowance for funds used during construction is calculated
according to the FERC pronouncements for the imputed cost of equity
and borrowed funds. Allowance for funds used during construction, a
non-cash item, is reflected as a reduction to interest expense in the
Consolidated Statements of Income and as an increase to Construction
Work in Progress in the Consolidated Balance Sheets. Allowance for
funds used during construction rates, compounded semi-annually,
were 8.71 percent, 8.89 percent and 7.99 percent for the years ended
December 31, 2011, 2010 and 2009, respectively. The decrease in
the allowance for funds used during construction rates in 2011 was
primarily due to the issuance of long-term debt which changed the
cost of capital weighting to shift towards debt which has a lower
effective rate than equity.
Collection of Sales Tax
In the course of its operations, OG&E collects sales tax from its
customers. OG&E records a current liability for sales taxes when it bills
its customers and eliminates this liability when the taxes are remitted to
the appropriate governmental authorities. OG&E excludes the sales tax
collected from its operating revenues.
Revenue Recognition
OG&E
General. OG&E reads its customers’ meters and sends bills to its
customers throughout each month. As a result, there is a significant
amount of customers’ electricity consumption that has not been billed
at the end of each month. Unbilled revenue is presented in Accrued
Unbilled Revenues on the Consolidated Balance Sheets and in Operating
Revenues on the Consolidated Statements of Income based on estimates
of usage and prices during the period. The estimates that management
uses in this calculation could vary from the actual amounts to be paid
by customers.
SPP Purchases and Sales. OG&E participates in the SPP energy
imbalance service market in a dual role as a load serving entity and as
a generation owner. The energy imbalance service market requires cash
settlements for over or under schedules of generation and load. Market
participants, including OG&E, are required to submit resource plans
and can submit offer curves for each resource available for dispatch.
A function of interchange accounting is to match participants’ MWH
entitlements (generation plus scheduled bilateral purchases) against
their MWH obligations (load plus scheduled bilateral sales) during every
hour of every day. If the net result during any given hour is an entitle-
ment, the participant is credited with a spot-market sale to the SPP at
the respective market price for that hour; if the net result is an obligation,
the participant is charged with a spot-market purchase from the SPP
at the respective market price for that hour. The SPP purchases and
sales are not allocated to individual customers. OG&E records the hourly
sales to the SPP at market rates in Operating Revenues and the hourly
purchases from the SPP at market rates in Cost of Goods Sold in its
Consolidated Financial Statements.
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