OG&E 2014 Annual Report Download - page 24

44 OGE Energy Corp. OGE Energy Corp. 45
The following table summarizes significant amounts reclassified out
of accumulated other comprehensive loss by the respective line items
in net income during the year ended December 31, 2014.
Details Amount
about Accumulated Reclassified from Affected Line Item in the
Other Comprehensive Accumulated Other Statement Where Net
Loss Components Comprehensive Loss Income is Presented
Year Ended December 31,
(In millions) 2014 2013
Losses on cash flow hedges
Commodity contracts $ — $ (1.0) Cost of sales
Interest rate swap (0.3) (0.4) Interest expense
(0.3) (1.4) Total before tax
(0.1) (0.5) Tax benefit
$(0.2) $ (0.9) Net of tax
Amortization of defined
benefit pension items
Actuarial losses $(3.0) $ (6.1)
(A)
Settlement cost 0.2 (4.9)
(A)
(2.8) (11.0) Total before tax
(1.1) (4.3) Tax benefit
(1.7) (6.7) Net of tax
— (0.1) Noncontrolling interest
$(1.7) $ (6.6) Net of tax
Amortization of postretirement
benefit plan items
Actuarial losses $(1.4) $ (3.3)
(A)
Prior service cost 2.9 2.9
(A)
1.5 (0.4) Total before tax
0.6 (0.2) Tax benefit
$ 0.9 $ (0.2) Net of tax
Total reclassifications
for the period $(1.0) $ (7.7) Net of tax
(A) These accumulated other comprehensive income (loss) components are included in
the computation of net periodic benefit cost (see Note 12 for additional information).
The amounts in accumulated other comprehensive loss at
December 31, 2014 that are expected to be recognized into earnings
in 2015 are as follows:
(In millions)
Pension Plan and Restoration of Retirement Income Plan
Net loss $(5.1)
Postretirement Benefit Plans
Net loss (1.9)
Prior service cost 2.9
Total, net of tax $(4.1)
Environmental Costs
Accruals for environmental costs are recognized when it is probable
that a liability has been incurred and the amount of the liability can
be reasonably estimated. Costs are charged to expense or deferred
as a regulatory asset based on expected recovery from customers
in future rates, if they relate to the remediation of conditions caused
by past operations or if they are not expected to mitigate or prevent
contamination from future operations. Where environmental
expenditures relate to facilities currently in use, such as pollution
control equipment, the costs may be capitalized and depreciated over
the future service periods. Estimated remediation costs are recorded at
undiscounted amounts, independent of any insurance or rate recovery,
based on prior experience, assessments and current technology.
Accrued obligations are regularly adjusted as environmental
assessments and estimates are revised, and remediation efforts
proceed. For sites where OG&E has been designated as one of several
potentially responsible parties, the amount accrued represents OG&E’s
estimated share of the cost. The Company had $7.5 million and
$6.2 million in accrued environmental liabilities at December 31, 2014
and 2013, respectively, which are included in the asset retirement
obligations table.
2. Accounting Pronouncement
In May 2014, the FASB issued ASU 2014-09, “Revenue from
Contracts with Customers” (ASC Topic 606). The new standard
provides guidance for all revenue arising from contracts with customers
and provides a model for the measurement and recognition of gains
and losses arising from the sale of certain nonfinancial assets such as
property and equipment, including real estate. The core principle of the
revenue model is that an entity should recognize revenue at an amount
that reflects the consideration to which the entity expects to be entitled
in exchange for transferring goods or services to a customer. The
principles of the standard will be applied in five steps:
1. Identify the contract(s) with a customer
2. Identify the performance obligations in the contract
3. Determine the transaction price
4. Allocate the transaction price to the performance obligations in the
contract
5. Recognize revenue when (or as) the entity satisfies a performance
obligation
The new guidance is effective for fiscal years beginning after
December 15, 2016 and must be adopted using either a full
retrospective approach for all periods presented or a modified
retrospective approach. Early adoption is not permitted. The Company
is currently evaluating the potential impact the adoption will have on its
consolidated financial statements.
3. Investment in Unconsolidated Affiliate and
Related Party Transactions
On March 14, 2013, OGE Energy entered into a Master Formation
Agreement with the ArcLight group and CenterPoint Energy, Inc.,
pursuant to which OGE Energy, the ArcLight Group and CenterPoint
Energy, Inc., agreed to form Enable to own and operate the midstream
businesses of OGE Energy and CenterPoint that was initially
structured as a private limited partnership. This transaction closed
on May 1, 2013.
Pursuant to the Master Formation Agreement, OGE Energy and the
ArcLight group indirectly contributed 100 percent of the equity interests
in Enogex LLC to 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. Immediately
prior to closing, on May 1, 2013, the ArcLight group contributed
$107.0 million and OGE Energy contributed $9.1 million to Enogex LLC
in order to pay down short-term debt.
The general partner of Enable is equally controlled by CenterPoint
and OGE Energy, who each have 50 percent management ownership.
Based on the 50/50 management ownership, with neither company
having control, effective May 1, 2013, OGE Energy deconsolidated its
interest in Enogex Holdings LLC and began accounting for its interest
in Enable using the equity method of accounting.
Pursuant to a Registration Rights Agreement dated as of May 1,
2013, OGE Energy and CenterPoint Energy, Inc. agreed to initiate the
process for the sale of an equity interest in Enable in an initial public
offering. On April 16, 2014, Enable completed an initial public offering
of 25,000,000 common units resulting in Enable becoming a publicly
traded Master Limited Partnership. The offering represented
approximately 6.0 percent of the limited partner interests and raised
approximately $464 million in net proceeds for Enable. In connection
with the offering, underwriters exercised their option to purchase
3,750,000 additional common units which were fulfilled with units held
by ArcLight. As a result of the offering, OGE Holding’s ownership was
reduced from 28.5 percent to 26.7 percent. On May 13, 2014,
CenterPoint exercised its put right with respect to a 24.95 percent
interest in SESH and pursuant to that right, on May 30, 2014, Enable
issued 6,322,457 common units representing limited partner interests
in Enable in exchange for CenterPoint’s 24.95 percent interest in
SESH. At December 31, 2014, OGE Energy held 26.3 percent of the
limited partner interests in Enable.
CenterPoint and OGE Energy also own a 40 percent and 60 percent
interest, respectively, in any incentive distribution rights to be held
by the general partner of Enable following the initial public offering.
See Note 1 for more information regarding incentive distributions.
Distributions received from Enable were $143.7 million during the
year ended December 31, 2014.
Related Party Transactions
Operating costs charged and related party transactions between the
Company and its affiliate, Enable, since its formation on May 1, 2013
are discussed below. Prior to May 1, 2013, operating costs charged
and related party transactions between the Company and Enogex
Holdings were eliminated in consolidation. OGE Energy’s interest in
Enogex Holdings was deconsolidated on May 1, 2013.
On May 1, 2013, OGE Energy and Enable entered into a Services
Agreement, Employee Transition Agreement, and other agreements
whereby OGE Energy agreed to provide certain support services to
Enable such as accounting, legal, risk management and treasury
functions for an initial term ending on April 30, 2016. The support
services automatically extend year-to-year at the end of the initial term,
unless terminated by Enable with at least 90 days’ notice. Enable may
terminate the initial support services at any time with 180 days notice
if approved by the board of Enable’s general partner. Under these
agreements, OGE Energy charged operating costs to Enable of
$16.8 million and $17.8 million for December 31, 2014 and
December 31, 2013, respectively. OGE Energy charges operating
costs to OG&E and Enable based on several factors. Operating costs
directly related to OG&E and Enable are assigned as such. Operating
costs incurred for the benefit of OG&E and Enable are allocated either
as overhead based primarily on labor costs or using the “Distrigas”
method. Effective April 1, 2014, Enable’s general partner, OGE Energy
and CenterPoint agreed to reduce certain governance related costs
billed to Enable for transition services.
Additionally, OGE Energy agreed to provide seconded employees
to Enable to support its operations for an initial term ending on
December 31, 2014. OGE Energy did not transfer any employees
to Enable at the formation of the partnership or any time through
December 31, 2014. In October 2014, CenterPoint, OGE Energy
and Enable agreed to continue the secondment to Enable for 192
OGE Energy employees that participate in OGE Energy’s defined
benefit and retirement plans, beyond December 31, 2014. The
remaining OGE Energy seconded employees were terminated from
OGE Energy on December 31, 2014 and were offered employment by
Enable. OGE Energy billed Enable for reimbursement of $104.8 million
and $67.7 million in 2014 and 2013, respectively, under the Transitional
Seconding Agreement for employment costs incurred on or after
May 1, 2013.
OGE Energy had accounts receivable from Enable of $5.6 million
and $12.4 million as of December 31, 2014 and December 31, 2013,
respectively, for amounts billed for transitional services, including the
cost of seconded employees.
Pursuant to the transition agreements, Enable has agreed to
reimburse OGE Energy for certain severance and termination costs
related to the termination of OGE Energy’s seconded employees.
Related Party Transactions with Enable
Year Ended
(In millions) December 31, 2014 December 31, 2013
Operating Revenues:
Electricity to power electric
compression assets $13.3 $ 7.7
Cost of Sales:
Natural gas transportation services $34.9 $23.2
Natural gas storage services 4.4 8.6
Natural gas purchases 8.7 14.8
Summarized Financial Information of Enable
Summarized unaudited financial information for 100 percent of Enable
is presented below at December 31, 2014 and for the eight months
ended December 31, 2013.
Balance Sheet Year Ended December 31,
(In millions) 2014 2013
Current assets $ 438 $ 549
Non-current assets 11,399 10,683
Current liabilities 671 720
Non-current liabilities 2,344 2,331
Income Statement Year Ended December 31,
(In millions) 2014 2013
Operating revenues $ 3,367 $ 2,123
Cost of sales 1,914 1,241
Operating income 586 322
Net income attributable to Enable 530 289
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, liabilities and
equity have accordingly been adjusted to estimated fair value as of
May 1, 2013, resulting in an increase to Enable’s equity of $2.2 billion.
Due to the contribution of Enogex LLC to Enable meeting the
requirements of being in substance real estate and the recording the