OG&E 2013 Annual Report Download - page 48

Income taxes recoverable from customers, which represents
income tax benefits previously used to reduce OG&E’s revenues, are
treated as regulatory assets and liabilities and are being amortized over
the estimated remaining life of the assets to which they relate. These
amounts are being recovered in rates as the temporary differences that
generated the income tax benefit turn around. The income tax related
regulatory assets and liabilities are netted in Income taxes recoverable
from customers, net in the regulatory assets and liabilities table above.
OG&E recovers the cost of system-wide deployment of smart grid
technology and implementing the smart grid pilot program, the incremen-
tal costs for web portal access, education and providing home energy
reports and stranded costs associated with OG&E’s existing meters.
The costs recoverable from Oklahoma customers for system-wide
deployment of smart grid technology and implementing the smart grid
pilot program were capped at $366.4 million (inclusive of the U.S.
Department of Energy grant award of $130.0 million) subject to an
offset for any recovery of those costs from Arkansas customers. These
amounts are currently being recovered through a rider which will remain
in effect until the smart grid project costs are included in base rates in
OG&E’s next general rate case. Costs not included in the rider are the
incremental costs for web portal access, education and home energy
reports, which are capped at $6.9 million, and the stranded costs associ-
ated with OG&E’s existing meters, which have been replaced by smart
meters, which were accumulated during the smart grid deployment and
have been included in the Smart Grid asset in the table above. These
costs are expected to be recovered in base rates in OG&E’s next
general rate case.
OG&E defers annual Oklahoma storm-related operation and
maintenance expenses in excess of $2.7 million and expenses any
Oklahoma storm-related operation and maintenance expenses up to
$2.7 million. OG&E will recover the deferred amounts over a five-year
period ending in August 2017.
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 recorded in interest expenses and 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 the Pension tracker in the regu-
latory 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 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
positions where assumptions and estimates are used in order to mini-
mize 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, contingency reserves, asset
retirement obligations and assets and depreciable lives of property,
plant and equipment. For the electric utility segment, the most signifi-
cant judgment is also exercised in the existence of regulatory assets
and liabilities and unbilled revenues.
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 within the Oklahoma jurisdiction is being recovered through
the fuel adjustment clause. The allowance for uncollectible accounts
receivable was $1.9 million and $2.6 million at December 31, 2013
and 2012, respectively.
42 OGE Energy Corp.