OG&E 2013 Annual Report Download - page 56

Related Party Transactions
As OGE Energy’s interest in Enogex Holdings was deconsolidated on
May 1, 2013, operating costs charged and related party transactions
between the Company and its affiliate, Enable, after May 1, 2013, which
were previously eliminated in consolidation, are discussed below.
OGE Energy charged operating costs to Enogex Holdings/Enable
of $17.8 million during 2013. 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 sub-
sidiaries 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 affili-
ate, 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 payroll, 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.
Related Party Transactions with Enable
(In millions, eight months ended December 31) 2013
Operating Revenues:
Electricity to power electric compression assets $÷7.7
Cost of Sales:
Natural gas transportation services $23.2
Natural gas storage services 8.6
Natural gas purchases 14.8
Summarized Financial Information of Enable
As Enable began operations on May 1, 2013, summarized unaudited
financial information for 100 percent of Enable is presented below at
December 31, 2013 and for the eight months ended December 31,
2013.
(In millions, December 31) 2013
Balance sheet
Current assets $÷÷549
Non-current assets 10,683
Current liabilities 720
Non-current liabilities 2,331
(In millions, eight months ended December 31) 2013
Income statement
Operating revenues $2,122.6
Cost of sales 1,240.5
Operating income 321.9
Net income 288.6
Enable concluded that the formation of Enable was considered a
business combination, and CenterPoint Midstream was the acquirer of
Enogex Holdings for accounting purposes. Under this method, the fair
value of the consideration paid by CenterPoint Midstream for Enogex
Holdings is allocated to the assets acquired and liabilities assumed on
May 1, 2013 based on their fair value. Enogex Holdings’ assets, liabili-
ties and equity have accordingly been adjusted to estimated fair value
as of May 1, 2013, resulting in an increase to equity of $2.2 billion.
Determining the fair value of certain assets and liabilities assumed is
judgmental in nature and often involves the use of significant estimates
and assumptions. Enable utilized appraisers to assist in the determina-
tion of fair value of certain assets.
OGE Energy recorded equity in earnings of unconsolidated affiliates
of $101.9 million for the eight months ended December 31, 2013.
Equity in earnings of unconsolidated affiliates includes OGE Energy’s
28.5 percent share of Enable Midstream Partners earnings adjusted
for the amortization of the basis difference of OGE Energy’s original
investment in Enogex and its underlying equity in net assets of Enable,
based on historical cost as of May 1, 2013. The basis difference is
being amortized over approximately 30 years, the average life of the
assets to which the basis difference is attributed. Equity in earnings
of unconsolidated affiliates is also adjusted for the elimination of the
Enogex Holdings fair value adjustments described above.
(In millions, eight months ended December 31) 2013
Reconciliation of equity in earnings
of unconsolidated affiliates
OGE’s 28.5% share of Enable net income $÷82.1
Amortization of basis difference 9.4
Elimination of Enogex Holdings fair value adjustments 10.4
OGE’s Equity in earnings of unconsolidated affiliates $101.9
4. Impairment of Assets
In August 2011, Enogex recorded a pre-tax impairment loss related
to its Atoka joint venture which operated a 20 MMcf/d refrigeration
processing plant which processed gas gathered in the Atoka, OK area.
The processing plant was leased on a month-to-month basis. In August
2011, management made a decision to use third-party processing
exclusively for gathered volumes dedicated to Atoka and, therefore,
to take the processing plant out of service and return it to the lessor in
accordance with the rental agreement. As a result Enogex recorded a
pre-tax impairment loss of $5.0 million associated with the cost it had
capitalized in connection with the installation of the leased plant as
those costs were determined to be not recoverable through future cash
flows. The noncontrolling interest portion of the pre-tax impairment
loss was $2.5 million which was included in Net Income Attributable
to Noncontrolling Interests in the Company’s Consolidated Statement
of Income.
50 OGE Energy Corp.