OG&E 2012 Annual Report Download - page 20

18 OGE Energy Corp.
(In millions) $ Change
Quantity variance (primarily weather) $27.4
Price variance(A) 23.9
Transmission revenue(B) 15.3
New customer growth 13.1
Arkansas rate increase 6.0
Non-residential demand and related revenues 5.0
Renewal of wholesale contract with customer 3.1
Other 0.2
Enogex transportation credit(C) (5.7)
Change in gross margin $88.3
(A) Increased due to revenues from the recovery of investments, including the Windspeed transmission
line, Oklahoma demand program, smart grid, system hardening, storm recovery, the Crossroads
wind farm and the OU Spirit wind farm, and higher revenues from industrial and oilfield customers.
(B) Increased primarily due to the inclusion of construction work in progress in transmission rates
for specific FERC approved projects that previously accrued allowance for funds used during
construction.
(C) Decreased due to a credit to OG&E’s customers in 2011 related to the settlement of OG&E’s
2009 fuel adjustment clause review.
Fuel expense was $775.0 million in 2011 as compared to $771.0 million
in 2010, an increase of $4.0 million, or 0.5 percent, primarily due to higher
generation primarily due to warmer weather in OG&E’s service territory.
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 economic advantage for OG&E and its customers. In 2011, OG&E’s
fuel mix was 58 percent coal, 39 percent natural gas and three percent
wind. In 2010, OG&E’s fuel mix was 55 percent coal, 42 percent natural
gas and three percent wind. Purchased power costs were $230.7 million
in 2011 as compared to $226.5 million in 2010, an increase of $4.2 million,
or 1.9 percent, primarily due to an increase in short-term power purchases
partially offset by a decrease in purchases in the energy imbalance service
market and a decrease in cogeneration cost.
Operating Expenses
Other operation and maintenance expenses were $436.0 million in 2011
as compared to $418.1 million in 2010, an increase of $17.9 million, or
4.3 percent. The below factors contributed to the change in other opera-
tions and maintenance expense:
(In millions) $ Change
Allocations from holding company(A) $15.5
Salaries and wages(B) 12.1
Other marketing and sales expense
(primarily demand-side management initiatives)(C) 4.6
Uncollectible expense 3.1
Fleet transportation expense (primarily higher fuel costs in 2011) 1.6
Temporary labor expense 1.3
Administration and assessment fees (primarily SPP) 1.2
Vegetation management (primarily system hardening)(C) (2.9)
Other (3.8)
Injuries and damages (primarily higher reserves on claims in 2010) (5.0)
Employee benefits(D) (9.8)
Change in other operation and maintenance expense $17.9
(A) Increased primarily related to payroll and benefits expense, contract technical and construction
services and contract professional services.
(B) Increased primarily due to salary increases in 2011, increased incentive compensation expense
and increased overtime expense primarily due to storms in April and August 2011.
(C) Includes costs that are being recovered through a rider.
(D) Decreased primarily due to a decrease in postretirement benefits expense related to amend-
ments to the Company’s retiree medical plan adopted in January 2011 (see Note 14 of Notes to
Consolidated Financial Statements) partially offset by a modification to OG&E’s pension tracker
and a decrease in worker’s compensation accruals in 2011.
Additional Information
Allowance for Equity Funds Used During Construction. Allowance
for equity funds used during construction was $20.4 million in 2011
as compared 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
the Crossroads wind farm in 2011.
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 per-
cent, 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 construc-
tion costs for the Crossroads wind farm; 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.