OG&E 2014 Annual Report Download - page 34

64 OGE Energy Corp. OGE Energy Corp. 65
Completed Regulatory Matters
Market-Based Rate Authority
On June 29, 2012, OG&E filed its triennial market power update with
the FERC to retain its market-based rate authorization in the SPP’s
energy imbalance service market but to surrender its market-based
rate authorization for any market-based rates sales outside of the
SPP’s energy imbalance service market. On May 2, 2013, the FERC
issued an order accepting OG&E’s June 2012 triennial market
power update.
On December 30, 2013, OG&E submitted to the FERC a market-
based rate change in status filing and a revised market-based rate
tariff that would authorize OG&E to (i) sell electric energy and capacity
at market-based rates without geographic restriction, and (ii) sell
ancillary services in the SPP and Midcontinent Independent System
Operator, Inc. markets. The primary goal of this filing was to implement
the market-based rate authority OG&E needs to fully participate in
SPP’s Integrated Marketplace. On February 28, 2014, FERC issued
a letter order accepting OG&E’s market-based rate filing and tariff
effective March 1, 2014. FERC found that OG&E passed the market
power screens and satisfied requirements related to horizontal market
power and vertical market power.
Section 206 Complaint
On November 26, 2013, Arkansas Electric Cooperative Corporation
filed a complaint at the FERC against OG&E, arguing that the
wholesale formula rate contract between OG&E and Arkansas Electric
Cooperative Corporation (formerly between OG&E and Arkansas
Valley Electric Cooperative) is unjust and unreasonable with respect to
several items. OG&E and Arkansas Electric Cooperative Corporation
agreed to terms of a settlement and filed the offer of settlement with
the FERC on February 24, 2014. On April 17, 2014, the FERC
accepted the settlement making it effective March 1, 2014. The
reduction in revenue for 2014 was $0.9 million.
Fuel Adjustment Clause Review for Calendar Year 2012
The OCC routinely reviews the costs recovered from customers
through OG&E’s fuel adjustment clause. On July 31, 2013, the OCC
Staff filed an application to review OG&E’s fuel adjustment clause for
calendar year 2012, including the prudence of OG&E’s electric
generation, purchased power and fuel procurement costs. OG&E filed
the necessary information and documents needed to satisfy the OCC’s
minimum filing requirement rules on October 9, 2013. On April 24,
2014, the OCC administrative law judge at the hearing, on the merits,
recommended that the OCC find that OG&E’s 2012 electric generation,
purchased power and fuel procurement processes and costs were
prudent. On June 10, 2014, the OCC issued an order approving
OG&E’s practices, policies and judgment regarding its electric
generation, purchased power, and fuel procurement processes and
costs for the calendar year 2012. The order also found that the costs
were prudent, reasonable, and mathematically correct.
Integrated Resource Plans
In June 2014, OG&E initiated the process to update its Integrated
Resource Plans in Oklahoma and Arkansas at OG&E’s discretion.
The prior Integrated Resource Plan, submitted in 2012, assumed that
the Oklahoma SIP would be followed to comply with Regional Haze
requirements. Subsequent to holding technical conferences and public
stakeholder meetings, OG&E submitted its revised Integrated
Resource Plans, which included its environmental compliance plan
described below, to the OCC on August 4, 2014 and to the APSC on
September 8, 2014.
Pending Regulatory Matters
FERC Order No. 1000, Final Rule on Transmission Planning and
Cost Allocation
On July 21, 2011, the FERC issued Order No. 1000, which revised
the FERC’s existing regulations governing the process for planning
enhancements and expansions of the electric transmission grid in a
particular region, along with the corresponding process for allocating
the costs of such expansions. Order No. 1000 leaves to individual
regions to determine whether a previously-approved project is subject
to reevaluation and is therefore governed by the new rule.
Order No. 1000 requires, among other things, public utility
transmission providers, such as the SPP, to participate in a process
that produces a regional transmission plan satisfying certain standards,
and requires that each such regional process consider transmission
needs driven by public policy requirements (such as state or Federal
policies favoring increased use of renewable energy resources). Order
No. 1000 also directs public utility transmission providers to coordinate
with neighboring transmission planning regions. In addition, Order
No. 1000 establishes specific regional cost allocation principles and
directs public utility transmission providers to participate in regional
and interregional transmission planning processes that satisfy
these principles.
On the issue of determining how entities are to be selected to
develop and construct the specific transmission projects, Order
No. 1000 directs public utility transmission providers to remove from
the FERC-jurisdictional tariffs and agreements provisions that establish
any Federal “right of first refusal” for the incumbent transmission owner
(such as OG&E) regarding transmission facilities selected in a regional
transmission planning process, subject to certain limitations. However,
Order No. 1000 is not intended to affect the right of an incumbent
transmission owner (such as OG&E) to build, own and recover costs
for upgrades to its own transmission facilities, and Order No. 1000 does
not alter an incumbent transmission owner’s use and control of existing
rights of way. Order No. 1000 also clarifies that incumbent transmission
owners may rely on regional transmission facilities to meet their
reliability needs or service obligations. The SPP’s pre-Order No. 1000
tariff included a “right of first refusal” for incumbent transmission
owners and this provision has played a role in OG&E being selected by
the SPP to build previous transmission projects in Oklahoma. These
changes to the “right of first refusal” apply only to “new transmission
facilities,” which are facilities subject to evaluation or reevaluation
(under the applicable local or regional transmission planning process)
after November 13, 2012. On May 29, 2013, the Governor signed
House Bill 1932 into law which establishes a right of first refusal for
Oklahoma incumbent transmission owners, including OG&E, to build
new transmission projects with voltages under 300 kilovolts that
interconnect to those incumbent owners’ existing facilities. OG&E
believes this law is consistent with the language of Order No. 1000.
On August 15, 2014, the U.S. Court of Appeals for the D.C. Circuit
issued an order denying all appeals of Order No. 1000.
The FERC has issued two orders on the SPP’s Order No. 1000
compliance filings. In its most recent order, issued October 16, 2014,
the FERC confirmed that “right of first refusal” language should be
removed from the SPP tariff and Membership Agreement as applied to
most transmission facilities, but that several types of facilities would
remain subject to a right of first refusal. Projects that retained the right
of first refusal included facilities that would operate below 100 kilovolts,
facilities selected as part of the SPP’s Aggregate Study process, and
short-term reliability projects. The FERC also approved SPP’s new
competitive solicitation process for projects that are not subject to a
right of first refusal. FERC found that SPP may consider state and
local laws and regulations when deciding whether SPP will hold a
competitive solicitation for a proposed project. On December 15, 2014,
OG&E filed an appeal in the District of Columbia Circuit Court of
Appeals of a portion of the October 2014 FERC order requiring
removal of the right of first refusal language from the Membership
Agreement. The court has not yet acted on OG&E’s appeal.
OGE Energy cannot, at this time, determine the precise impact of
Order No. 1000 on OG&E. OGE Energy has no reason to believe that
the implementation of Order No. 1000 will impact OG&E’s transmission
projects currently under development and construction for which OG&E
has received a notice to proceed from the SPP.
Energy Efficiency Program Filing
On February 14, 2014, OG&E filed an application with the APSC
requesting approval of interim modifications to approved Energy
Efficiency Programs, new tariff revisions and the waiver of certain
provisions of the Commission’s Rules for Conservation and Energy
Efficiency Programs.
Environmental Compliance Plan
On August 6, 2014, OG&E filed an application with the OCC for
approval of its plan to comply with EPA’s MATS and Regional Haze FIP
while serving the best long-term interests of customers in light of future
environmental uncertainties. The application seeks approval of the
environmental compliance plan and for a recovery mechanism for the
associated costs. The environmental compliance plan includes
installing dry scrubbers at Sooner Units 1 and 2 and the conversion of
Muskogee Units 4 and 5 to natural gas. The application also asks the
Commission to predetermine the prudence of replacing OG&E’s
soon-to-be retired Mustang steam turbines in late 2017 (approximately
460 MW) with 400 MW of new, efficient combustion turbines at the
Mustang site in 2018 and 2019 and approval for a recovery mechanism
for the associated costs. OG&E estimates the total capital cost
associated with its environmental compliance plan included in this
application to be approximately $1.1 billion. The OCC hearing on
OG&E’s application is scheduled to commence on March 3, 2015.
Multiple parties advocating a variety of positions have intervened in
the proceeding. OG&E expects a ruling from the OCC in the second
quarter of 2015. At this time, OG&E cannot predict the outcome of the
proceeding. OG&E plans to file applications in the first quarter of 2015
seeking related approvals from the APSC.
Fuel Adjustment Clause Review for Calendar Year 2013
The OCC routinely reviews the costs recovered from customers
through OG&E’s fuel adjustment clause. On July 31, 2014, the OCC
Staff filed an application to review OG&E’s fuel adjustment clause for
calendar year 2013, including the prudence of OG&E’s electric
generation, purchased power and fuel procurement costs. OG&E filed
the necessary information and documents needed to satisfy the OCC’s
minimum filing requirement rules on September 29, 2014. A procedural
schedule has not been established as of this date. OG&E expects an
order in the second quarter of 2015.
16. Quarterly Financial Data (Unaudited)
Due to the seasonal fluctuations and other factors of the Company’s
businesses, the operating results for interim periods are not
necessarily indicative of the results that may be expected for the year.
In the Company’s opinion, the following quarterly financial data
includes all adjustments, consisting of normal recurring adjustments,
necessary to fairly present such amounts. Summarized consolidated
quarterly unaudited financial data is as follows:
Quarter ended (In millions except per share data) March 31 June 30 September 30 December 31 Total
Operating revenues 2014 $560.4 $611.8 $754.7 $526.2 $2,453.1
2013 $901.4 $734.2 $723.2 $508.9 $2,867.7
Operating income 2014 $ 61.8 $141.8 $248.1 $ 85.1 $ 536.8
2013 $ 75.4 $143.9 $260.9 $ 73.3 $ 553.5
Net income 2014 $ 49.3 $100.8 $187.3 $ 58.4 $ 395.8
2013 $ 28.0 $ 93.0 $215.2 $ 57.6 $ 393.8
Net income attributable to OGE Energy 2014 $ 49.3 $100.8 $187.3 $ 58.4 $ 395.8
2013 $ 23.1 $ 91.7 $215.2 $ 57.6 $ 387.6
Basic earnings per average common share attributable
to OGE Energy common shareholders (A) 2014 $ 0.25 $ 0.51 $ 0.94 $ 0.29 $ 1.99
2013 $ 0.12 $ 0.46 $ 1.08 $ 0.29 $ 1.96
Diluted earnings per average common share
attributable to OGE Energy common shareholders (A) 2014 $ 0.25 $ 0.50 $ 0.94 $ 0.29 $ 1.98
2013 $ 0.12 $ 0.46 $ 1.08 $ 0.29 $ 1.94
(A)
Due to the impact of dilution on the earnings per share calculation, quarterly earnings per share amounts may not add to the total.