OG&E 2013 Annual Report Download - page 22

16 OGE Energy Corp.
Additional Information
Interest Expense. Interest expense was $129.3 million in 2013 as
compared to $124.6 million in 2012, an increase of $4.7 million, or
3.8 percent, primarily due to a $6.4 million increase in interest on long
term debt related to a $250 million debt issuance that occurred in May
2013, partially offset by a $2.0 million decrease in interest related to
tax matters.
Income Tax Expense. Income tax expense was $113.5 million in 2013
as compared to $94.6 million in 2012, an increase of $18.9 million, or
20.0 percent primarily due to higher pre-tax income and a reserve related
to a portion of the Oklahoma investment tax credits generated in years
prior to 2013 but not yet utilized.
2012 Compared to 2011
OG&E’s operating income increased $17.1 million, or 3.6 percent, in 2012
as compared to 2011 primarily due to a higher gross margin partially
offset by higher other operation and maintenance expense and higher
depreciation and amortization expense.
Gross Margin
Operating revenues were $2,141.2 million in 2012 as compared to
$2,211.5 million in 2011, a decrease of $70.3 million, or 3.2 percent.
Fuel and purchased power was $879.1 million in 2012 as compared to
$1,013.5 million in 2011, a decrease of $134.4 million, or 13.3 percent.
Gross margin was $1,262.1 million in 2012 as compared to $1,198.0 mil-
lion in 2011, an increase of $64.1 million, or 5.4 percent. The below
factors contributed to the change in gross margin:
(In millions) $ Change
Price variance(A) $«54.1
Wholesale transmission revenue(B) 28.5
New customer growth 11.5
Non-residential demand and related revenues 4.9
Enogex transportation credit(C) 3.3
Arkansas rate increase 2.8
Oklahoma rate increase 2.7
Renewal of wholesale contract with customer 1.3
Other 0.3
Quantity variance (primarily weather) (45.3)
Change in gross margin $«64.1
(A) Increased due to revenues from the recovery of investments, including the Crossroads wind
farm and smart grid.
(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) Increased 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 $642.4 million in 2012 as compared to $775.0 million
in 2011, a decrease of $132.6 million, or 17.1 percent, primarily due to
lower natural gas prices. 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 2012, OG&E’s fuel mix was 52 percent coal, 42 percent
natural gas and six percent wind. In 2011, OG&E’s fuel mix was 58 per-
cent coal, 39 percent natural gas and three percent wind. Purchased
power costs were $223.0 million in 2012 as compared to $230.7 million
in 2011, a decrease of $7.7 million, or 3.3 percent, primarily due to a
decrease in cogeneration purchases and purchases in the energy imbal-
ance service market due to milder weather partially offset by an increase
in short-term power purchases. Transmission related charges were
$13.7 million in 2012 as compared to $7.8 million in 2011, an increase
of $5.9 million, or 75.6 percent, primarily due to higher SPP charges for
the base plan projects of other utilities.
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 opera-
tions 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.