OG&E 2012 Annual Report Download - page 52

Unamortized loss on reacquired debt is comprised of unamortized
debt issuance costs related to the early retirement of OG&E’s long-term
debt. These amounts are being amortized over the term of the long-term
debt which replaced the previous long-term debt. The unamortized loss
on reacquired debt is not included in OG&E’s rate base and does not
otherwise earn a rate of return.
OG&E recovers specific amounts of pension and postretirement
medical costs in rates approved in its Oklahoma rate cases. In accor-
dance with approved orders, OG&E defers the difference between actual
pension and postretirement medical expenses and the amount approved
in its last Oklahoma rate case as a regulatory asset or regulatory liability.
These amounts have been recorded in Pension tracker regulatory liability
in the regulatory assets and liabilities table above.
In July 2009, OG&E was allowed to recover previously deferred
pension costs over a four-year period ending in August 2013. OG&E
also recovers its 2006 and 2007 pension settlement costs in Arkansas,
which are being amortized over a 10-year period ending in January
2020. Both the Oklahoma and Arkansas pension plan expenses are
reflected in Deferred Pension expenses asset in the regulatory assets
and liabilities table above.
In September 2011, OG&E was allowed to include postretirement
medical expenses in its pension tracker. In August 2012, OG&E was
allowed to recover pension and postretirement medical expenses over a
two-year period ending July 2014 which is included in Deferred Pension
credits liability in the regulatory assets and liabilities table above.
Accrued removal obligations represent asset retirement costs
previously recovered from ratepayers for other than legal obligations.
Management continuously monitors the future recoverability of
regulatory assets. When in management’s judgment future recovery
becomes impaired, the amount of the regulatory asset is adjusted, as
appropriate. If OG&E were required to discontinue the application of
accounting principles for certain types of rate-regulated activities for
some or all of its operations, it could result in writing off the related
regulatory assets, which could have significant financial effects.
Use of Estimates
In preparing the Consolidated Financial Statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and contingent liabilities at the date of the Consolidated Financial
Statements and the reported amounts of revenues and expenses during
the reporting period. Changes to these assumptions and estimates
could have a material effect on the Company’s Consolidated Financial
Statements. However, the Company believes it has taken reasonable,
but conservative, positions where assumptions and estimates are used
in order to minimize the negative financial impact to the Company that
could result if actual results vary from the assumptions and estimates.
In management’s opinion, the areas of the Company where the most
significant judgment is exercised for all Company segments includes
the determination of Pension Plan assumptions, impairment estimates
of long-lived assets (including intangible assets), income taxes, contin-
gency reserves, asset retirement obligations, fair value and cash flow
hedges and the allowance for uncollectible accounts receivable. For the
electric utility segment, the most significant judgment is also exercised
in the valuation of regulatory assets and liabilities and unbilled revenues.
For the natural gas transportation and storage segment and the natural
gas gathering and processing segment, the most significant judgment
is also exercised in the valuation of operating revenues, natural gas pur-
chases, purchase and sale contracts, assets and depreciable lives of
property, plant and equipment, amortization methodologies related to
intangible assets and impairment assessments of goodwill.
Cash and Cash Equivalents
For purposes of the Consolidated Financial Statements, the Company
considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents. These invest-
ments are carried at cost, which approximates fair value.
Allowance for Uncollectible Accounts Receivable
For OG&E, customer balances are generally written off if not collected
within six months after the final billing date. The allowance for uncol-
lectible accounts receivable for OG&E is calculated by multiplying the
last six months of electric revenue by the provision rate. The provision
rate is based on a 12-month historical average of actual balances written
off. To the extent the historical collection rates are not representative of
future collections, there could be an effect on the amount of uncollectible
expense recognized. Also, a portion of the uncollectible provision related
to fuel is being recovered through the fuel adjustment clause. 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 balances 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 was $2.6 million
and $3.8 million at December 31, 2012 and 2011, respectively.
For OG&E, new business customers are required to provide a
security deposit in the form of cash, bond or irrevocable letter of credit
that is refunded when the account is closed. New residential customers,
whose outside credit scores indicate risk, are required to provide a
security deposit that is refunded based on customer protection rules
defined by the OCC and the APSC. The payment behavior of all exist-
ing customers is continuously monitored and, if the payment behavior
indicates sufficient risk within the meaning of the applicable utility
regulation, customers will be required to provide a security deposit.
For Enogex, credit risk is the risk of financial loss to Enogex if
counterparties fail to perform their contractual obligations. Enogex
maintains credit policies with regard to its counterparties that manage-
ment believes minimize overall credit risk. These policies include the
50 OGE Energy Corp.