OG&E 2012 Annual Report Download - page 36

34 OGE Energy Corp.
Natural Gas Inventory
Natural gas inventory is held by Enogex, through its transportation and
storage business, to provide operational support for its pipeline deliveries
and to manage its leased storage capacity. In an effort to mitigate market
price exposures, Enogex may enter into contracts or hedging instruments
to protect the cash flows associated with its inventory. All natural gas
inventory held by Enogex is valued using moving average cost and is
recorded at the lower of cost or market. As part of its asset manage-
ment activity, Enogex injects and withdraws natural gas into and out
of inventory under the terms of its storage capacity contracts. During
the years ended December 31, 2012, 2011 and 2010, Enogex recorded
write-downs to market value related to natural gas storage inventory of
$5.5 million, $4.8 million and $0.3 million, respectively. The amount of
Enogex’s natural gas inventory was $16.5 million and $23.7 million at
December 31, 2012 and 2011, respectively. The cost of gas associated
with sales of natural gas storage inventory is presented in Cost of
Goods Sold on the Consolidated Statements of Income.
Allowance for Uncollectible Accounts Receivable
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 bal-
ances 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
is a reduction to Accounts Receivable on the Consolidated Balance
Sheets and is included in Other Operation and Maintenance Expense
on the Consolidated Statements of Income. The aggregate allowance
for uncollectible accounts receivable for Enogex’s natural gas transporta-
tion and storage and natural gas gathering and processing segments
was less than $0.1 million at December 31, 2012 and 2011.
Accounting Pronouncements
See Note 2 of Notes to Consolidated Financial Statements for discussion
of current accounting pronouncements that are applicable to the Company.
Commitments and Contingencies
In the normal course of business, the Company is confronted with issues
or events that may result in a contingent liability. These generally relate
to lawsuits or claims made by third parties, including governmental
agencies. When appropriate, management consults with legal counsel
and other appropriate experts to assess the claim. If, in management’s
opinion, the Company has incurred a probable loss as set forth by GAAP,
an estimate is made of the loss and the appropriate accounting entries
are reflected in the Company’s Consolidated Financial Statements. At
the present time, based on currently available information, except as
disclosed otherwise in this Form 10-K, the Company believes that any
reasonably possible losses in excess of accrued amounts arising out
of pending or threatened lawsuits or claims would not be quantitatively
material to its financial statements and would not have a material adverse
effect on the Company’s consolidated financial position, results of
operations or cash flows. See Notes 16 and 17 of Notes to Consolidated
Financial Statements and Item 3 of Part I in the Company’s Form 10-K
for a discussion of the Company’s commitments and contingencies.
Environmental Laws and Regulations
The activities of OG&E and Enogex are subject to stringent and complex
Federal, state and local laws and regulations governing environmental
protection including the discharge of materials into the environment.
These laws and regulations can restrict or impact OG&E’s and Enogex’s
business activities in many ways, such as restricting the way it can
handle or dispose of their wastes, requiring remedial action to mitigate
pollution conditions that may be caused by their operations or that are
attributable to former operators, regulating future construction activities
to mitigate harm to threatened or endangered species and requiring
the installation and operation of pollution control equipment. Failure to
comply with these laws and regulations may result in the assessment
of administrative, civil and criminal penalties, the imposition of remedial
requirements and the issuance of orders enjoining future operations.
OG&E and Enogex believe that their operations are in substantial com-
pliance with current Federal, state and local environmental standards.
Environmental regulation can increase the cost of planning,
design, initial installation and operation of OG&E’s or Enogex’s facilities.
Historically, OG&E’s and Enogex’s total expenditures for environmental
control facilities and for remediation have not been significant in relation to
its consolidated financial position or results of operations. The Company
believes, however, that it is reasonably likely that the trend in environ-
mental legislation and regulations will continue towards more restrictive
standards. Compliance with these standards is expected to increase
the cost of conducting business.
OG&E expects that significant future capital expenditures necessary
to comply with the environmental laws and regulations discussed below
will qualify as part of a pre-approval plan to handle state and Federally
mandated environmental upgrades which will be recoverable in Oklahoma
from OG&E’s retail customers under House Bill 1910, which was enacted
into law in May 2005.
It is estimated that OG&E's and Enogex’s total expenditures to
comply with environmental laws, regulations and requirements for 2013
will be $63.0 million and $6.4 million, respectively, of which $45.3 million
and $0.7 million, respectively, are for capital expenditures. It is estimated
that OG&E’s and Enogex’s total expenditures to comply for environmental
laws, regulations and requirements for 2014 will be $37.7 million and
$6.3 million, respectively, of which $19.2 million and $0.5 million, respec-
tively, are for capital expenditures. The amounts for OG&E above include
capital expenditures for low NOX burners and exclude certain other capital
expenditures as discussed in the capital expenditures table and related
footnote D in “Future Capital Requirements and Financing Activities”
above. The Company’s management believes that all of its operations
are in substantial compliance with current Federal, state and local envi-
ronmental standards. Management continues to evaluate its compliance
with existing and proposed environmental legislation and regulations and
implement appropriate environmental programs in a competitive market.