OG&E 2013 Annual Report Download - page 46

1. Summary of Significant Accounting Policies
Organization
The Company is an energy and energy services provider offering
physical delivery and related services for both electricity and natural
gas primarily in the south central United States. The Company conducts
these activities through two business segments: (i) electric utility and
(ii) natural gas midstream operations. For a discussion of the change in
the Company’s business segments due to the formation of Enable, see
Note 14. For periods prior to May 1, 2013, the Company consolidated
Enogex Holdings in its Condensed Consolidated Financial Statements.
All significant intercompany transactions have been eliminated in
consolidation.
Effective May 1, 2013, OGE Energy, the ArcLight group and
CenterPoint Energy, Inc., formed Enable Midstream Partners, LP to own
and operate the midstream businesses of OGE Energy and CenterPoint.
In the formation transaction, OGE Energy and ArcLight group con-
tributed Enogex LLC to Enable and the Company deconsolidated its
previously held investment in Enogex Holdings and acquired an equity
interest in Enable. The Company determined that its contribution of
Enogex LLC to Enable met the requirements of being in substance real
estate and was recorded at historical cost. The general partner of Enable
is equally controlled by CenterPoint and OGE Energy, who each have
50 percent of the management rights. Based on the 50/50 management
ownership, with neither company having control, effective May 1, 2013,
OGE Energy began accounting for its interest in Enable using the equity
method of accounting. At December 31, 2013, OGE Energy, through its
wholly owned subsidiary OGE Holdings, holds 28.5 percent of the limited
partner interests in Enable. OGE Energy also owns a 60 percent interest
in any incentive distribution rights in Enable. Incentive distribution rights
are expected to entitle the holder to increasing percentages, up to a
maximum of 50 percent of the cash distributed by Enable in excess of
the target quarterly distributions to be set in connection with Enable’s
initial public offering. On November 26, 2013, Enable filed a registration
statement on Form S-1 related to the proposed initial public offering of
limited partnership interests that will have the effect of making Enable
a publicly traded master limited partnership.
The electric utility segment generates, transmits, distributes and
sells electric energy in Oklahoma and western Arkansas. Its operations
are conducted through OG&E and are subject to regulation by the OCC,
the APSC and the FERC. OG&E was incorporated in 1902 under the
laws of the Oklahoma Territory. OG&E is the largest electric utility in
Oklahoma and its franchised service territory includes the Fort Smith,
Arkansas area. OG&E sold its retail natural gas business in 1928 and is
no longer engaged in the natural gas distribution business.
The natural gas midstream operations segment consists of the
Company’s investment in Enable. Enable is engaged in the business
of gathering, processing, transporting and storing natural gas. Enable’s
natural gas gathering and processing assets are strategically located in
four states and serve natural gas production from shale developments
in the Anadarko, Arkoma and Ark-La-Tex basins. Enable also owns an
emerging crude oil gathering business in the Bakken shale formation
that commenced initial operations in November 2013. Enable is contin-
uing to construct additional crude oil gathering capacity in this area.
Enable’s natural gas transportation and storage assets extend from
western Oklahoma and the Texas Panhandle to Alabama and from
Louisiana to Illinois.
As discussed below, the Company completed a 2-for-1 stock split of
the Company’s common stock effective July 1, 2013. All share and per
share amounts within this Form 10-K reflect the effects of the stock split.
OGE Energy charges operating costs to its subsidiaries and
unconsolidated affiliate based on several factors. Operating costs directly
related to specific subsidiaries or unconsolidated affiliate are assigned
to those subsidiaries or unconsolidated affiliate. Where more than one
subsidiary or unconsolidated affiliate benefits from certain expenditures,
the costs are shared between those subsidiaries and unconsolidated
affiliate receiving the benefits. Operating costs incurred for the benefit
of all subsidiaries and unconsolidated affiliate are allocated among
the subsidiaries and unconsolidated affiliate, either as overhead based
primarily on labor costs or using the “Distrigas” method. The Distrigas
method is a three-factor formula that uses an equal weighting of pay-
roll, net operating revenues and gross property, plant and equipment.
OGE Energy adopted the Distrigas method in January 1996 as a result
of a recommendation by the OCC Staff. OGE Energy believes this
method provides a reasonable basis for allocating common expenses.
Basis of Presentation
In the opinion of management, all adjustments necessary to fairly present
the consolidated financial position of the Company at December 31,
2013 and 2012 and the results of its operations and cash flows for the
years ended December 31, 2013, 2012 and 2011, have been included
and are of a normal recurring nature except as otherwise disclosed.
Accounting Records
The accounting records of OG&E are maintained in accordance with
the Uniform System of Accounts prescribed by the FERC and adopted
by the OCC and the APSC. Additionally, OG&E, as a regulated utility,
is subject to accounting principles for certain types of rate-regulated
activities, which provide that certain actual or anticipated costs that
would otherwise be charged to expense can be deferred as regulatory
assets, based on the expected recovery from customers in future rates.
Likewise, certain actual or anticipated credits that would otherwise
reduce expense can be deferred as regulatory liabilities, based on
the expected flowback to customers in future rates. Management’s
expected recovery of deferred costs and flowback of deferred credits
generally results from specific decisions by regulators granting such
ratemaking treatment.
40 OGE Energy Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS