OG&E 2012 Annual Report Download - page 31

OGE Energy Corp. 29
Reinvestment and Stock Purchase Plan, funding for growth opportunities
at Enogex through the ArcLight group and quarterly distributions from
Enogex Holdings. Changes in working capital reflect the seasonal nature
of the Company’s business, the revenue lag between billing and collec-
tion from customers and fuel inventories. See “Working Capital” for a
discussion of significant changes in net working capital requirements
as it pertains to operating cash flow and liquidity.
Purchase of Treasury Stock
In November 2012, the Company purchased 60,000 shares of its common
stock at an average cost of $55.41 per share on the open market. These
shares will be used to satisfy Enogex’s portion of the Company’s obliga-
tion to deliver shares of common stock related to long-term incentive
payouts of earned performance units in 2013. The Company expects to
purchase shares in the future to satisfy a portion of its obligation under
its incentive plan.
Enogex Term Loan Agreement
On August 2, 2012, Enogex entered into a $250 million, three-year term
loan agreement with a maturity date of August 2, 2015. The loan was
used to fund capital expenditures and for working capital purposes.
Potential Collateral Requirements
Derivative instruments are utilized in managing the Company’s commodity
price exposures and in Enogex’s asset management and hedging activities
executed on behalf of the Company. Agreements governing the derivative
instruments may require the Company to provide collateral in the form of
cash or a letter of credit in the event mark-to-market exposures exceed
contractual thresholds or the Company’s credit ratings are lowered.
Future collateral requirements are uncertain, and are subject to terms
of the specific agreements and to fluctuations in natural gas and NGLs
market prices.
On July 21, 2010, President Obama signed into law the Dodd-Frank
Act. Among other things, the Dodd-Frank Act provides for a new regula-
tory regime for derivatives, including mandatory clearing of certain swaps
and margin requirements. The Dodd-Frank Act contains provisions that
should exempt certain derivatives end-users such asthe Company from
much of the clearing requirements. The regulations require that the deci-
sion on whether to use the end-user exception from mandatory clearing
for derivative transactions be reviewed and approved by an “appropriate
committee” of the Board of Directors. The scope of the margin require-
ments and their potential direct impact on the Company remain unclear
because final rules have not been issued. Further, even if the Company
qualifies for the end-user exception to clearing and margin requirements
are not imposed on end-users, its derivative counterparties may be
subject to new capital, margin and business conduct requirements as a
result of the new regulations, which may increase the Company’s trans-
action costs or make it more difficult to enter into derivative transactions
on favorable terms. The Company’s inability to enter into derivative
transactions on favorable terms, or at all, could increase operating
expenses and put the Company at increased exposure to risks of adverse
changes in commodities prices. The impact of the provisions of the
Dodd-Frank Act on the Company cannot be fully determined at this time
due to uncertainty over forthcoming regulations and potential changes
to the derivatives markets arising from new regulatory requirements.
Future Sources of Financing
Management expects that cash generated from operations, proceeds
from the issuance of long and short-term debt and proceeds from the
sales of common stock to the public through the Company’s Automatic
Dividend Reinvestment and Stock Purchase Plan or other offerings will
be adequate over the next three years to meet anticipated cash needs
and to fund future growth opportunities. Additionally, the Company will
have an additional source of funding for growth opportunities at Enogex
through the ArcLight group and from quarterly distributions from Enogex
Holdings. The Company utilizes short-term borrowings (through a com-
bination of bank borrowings and commercial paper) to satisfy temporary
working capital needs and as an interim source of financing capital
expenditures until permanent financing is arranged.
Short-Term Debt and Credit Facilities
Short-term borrowings generally are used to meet working capital
requirements. The Company borrows on a short-term basis, as neces-
sary, by the issuance of commercial paper and by borrowings under its
revolving credit agreements. The Company has revolving credit facilities
totaling in the aggregate $1,550.0 million. These bank facilities can also
be used as letter of credit facilities. The short-term debt balance was
$430.9 million and $277.1 million at December 31, 2012 and 2011,
respectively. The weighted-average interest rate on short-term debt at
December 31, 2012 was 0.43 percent. The average balance of short-
term debt in 2012 was $451.0 million at a weighted-average interest
rate of 0.45 percent. The maximum month-end balance of short-term
debt in 2012 was $608.2 million. At December 31, 2012, Enogex had
no outstanding borrowings under its revolving credit agreement as
compared to $150.0 million at December 31, 2011. As Enogex LLC’s
credit agreement matures on December 13, 2016, along with its intent
in utilizing its credit agreement, borrowings thereunder are classified
as long-term debt in the Company’s Consolidated Balance Sheets. At
December 31, 2012, the Company had $1,116.9 million of net available
liquidity under its revolving credit agreements. OG&E has the necessary
regulatory approvals to incur up to $800 million in short-term borrowings
at any one time for a two-year period beginning January 1, 2013 and
ending December 31, 2014. At December 31, 2012, the Company had
$1.8 million in cash and cash equivalents. See Note 13 of Notes to
Consolidated Financial Statements for a discussion of the Company’s
short-term debt activity.