OG&E 2012 Annual Report Download - page 19

OGE Energy Corp. 17
Variances in the actual cost of fuel used in electric generation and
certain purchased power costs, as compared to the fuel component
included in the cost-of-service for ratemaking, are passed through to
OG&E’s customers through fuel adjustment clauses. The fuel adjustment
clauses are subject to periodic review by the OCC, the APSC and the
FERC. The OCC, the APSC and the FERC have authority to review the
appropriateness of gas transportation charges or other fees OG&E pays
to Enogex.
Operating Expenses
Other operation and maintenance expenses were $446.3 million in
2012 as compared to $436.0 million in 2011, an increase of $10.3 million,
or 2.4 percent. The below factors contributed to the change in other
operations and maintenance expense:
(In millions) $ Change
Salaries and wages(A) $÷6.4
Contract professional and technical services
(related to smart grid)(B) 4.2
Employee benefits(C) 3.4
Administration and assessment fees (primarily SPP
and North American Electric Reliability Corporation) 3.4
Wind farm lease expense (primarily Crossroads)(B) 3.0
Injuries and damages 1.9
Ongoing maintenance at power plants(B) 1.9
Software (primarily smart grid)(B) 1.8
Other 0.2
Temporary labor (1.7)
Uncollectibles (2.4)
Vegetation management (primarily system hardening)(B) (3.0)
Allocations from holding company (primarily lower contract
professional services and lower payroll and benefits) (3.1)
Capitalized labor (5.7)
Change in other operation and maintenance expense $10.3
(A) Increased primarily due to salary increases and an increase in incentive compensation expense
partially offset by lower headcount in 2012 and a decrease in overtime expense.
(B) Includes costs that are being recovered through a rider.
(C) Increased primarily due to an increase in worker’s compensation accruals, an increase in medical
expense and an increase in postretirement medical expense partially offset by a decrease in
pension expense.
Depreciation and amortization expense was $248.7 million in 2012
as compared to $216.1 million in 2011, an increase of $32.6 million, or
15.1 percent, primarily due to additional assets being placed in service
throughout 2011 and 2012, including the Crossroads wind farm, which
was fully in service in January 2012, the Sooner-Rose Hill and Sunnyside-
Hugo transmission projects, which were fully in service in April 2012,
and the smart grid project which was completed in late 2012.
Additional Information
Allowance for Equity Funds Used During Construction. Allowance
for equity funds used during construction was $6.2 million in 2012
as compared to $20.4 million in 2011, a decrease of $14.2 million, or
69.6 percent, primarily due to higher levels of construction costs for
the Crossroads wind farm in 2011.
Other Income. Other income was $8.0 million in both 2012 and 2011.
Factors affecting other income included an increased margin of $8.8 mil-
lion recognized in the guaranteed flat bill program in 2012 as a result of
milder weather offset by a decrease of $8.9 million related to the benefit
associated with the tax gross-up of allowance for equity funds used
during construction.
Other Expense. Other expense was $4.3 million in 2012 as compared to
$8.4 million in 2011, a decrease of $4.1 million, or 48.8 percent primarily
due to a decrease in charitable contributions.
Interest Expense. Interest expense was $124.6 million in 2012 as
compared to $111.6 million in 2011, an increase of $13.0 million, or
11.6 percent, primarily due to a $6.9 million increase in interest expense
related to lower allowance for borrowed funds used during construction
costs for the Crossroads wind farm in 2011 and a $5.5 million increase
in interest expense related to the issuance of long-term debt in May 2011.
Income Tax Expense. Income tax expense was $94.6 million in 2012
as compared to $117.9 million in 2011, a decrease of $23.3 million, or
19.8 percent. The decrease in income tax expense was primarily due
to an increase in the amount of Federal renewable energy tax credits
recognized associated with the Crossroads wind farm and lower
pre-tax income in 2012 as compared to 2011.
2011 Compared to 2010
OG&E’s operating income increased $58.6 million, or 14.2 percent,
in 2011 as compared to 2010 primarily due to a higher gross margin
partially offset by higher other operation and maintenance expense.
Gross Margin
Operating revenues were $2,211.5 million in 2011 as compared to
$2,109.9 million in 2010, an increase of $101.6 million, or 4.8 percent.
Cost of goods sold was $1,013.5 million in 2011 as compared to
$1,000.2 million in 2010, an increase of $13.3 million, or 1.3 percent.
Gross margin was $1,198.0 million in 2011 as compared to $1,109.7 mil-
lion in 2010, an increase of $88.3 million, or 8.0 percent. The below
factors contributed to the change in gross margin: