OG&E 2015 Annual Report Download - page 22

OGE Energy Corp. 41
Certain฀prior฀year฀amounts฀have฀been฀reclassified฀to฀con orm฀with฀
the฀current฀year฀presentation.฀
OG&E฀records฀certain฀incurred฀costs฀and฀obligations฀as฀regulatory฀
assets฀or฀liabilities฀if,฀based฀on฀regulatory฀orders฀or฀other฀available฀
evidence,฀it฀is฀probable฀that฀the฀costs฀or฀obligations฀will฀be฀included฀฀
in฀amounts฀allowable฀for฀recovery฀or฀refund฀in฀future฀rates.
The฀following฀table฀is฀a฀summary฀of฀OG&E’s฀regulatory฀assets฀and฀
liabilities฀at:
December฀31฀(In฀millions)฀2015฀ 2014
Regulatory Assets
Current
Oklahoma฀demand฀program฀rider฀under฀recovery฀(A)฀$ 36.6฀ $฀ 19.7
Fuel฀clause฀under฀recoveries฀ —฀ 68.3
Other฀(A)(B)฀9.9฀ 10.2
Total฀Current฀Regulatory฀Assets฀ $ 46.5฀ $฀ 98.2
Non-Current
Benefit฀o ligations฀regulatory฀asset฀ $242.2฀ $261.1
Income฀taxes฀recoverable฀from฀customers,฀net฀ 56.7฀ 56.1
Smart฀Grid฀ 43.6฀ 43.9
Deferred฀storm฀expenses฀ 27.6฀ 17.5
Unamortized฀loss฀on฀reacquired฀debt฀ 14.8฀ 16.1
Other฀(B)฀17.3฀ 15.7
Total฀Non-Current฀Regulatory฀Assets฀ $402.2฀ $410.4
Regulatory Liabilities
Current
Fuel฀clause฀under฀recoveries฀ $ 61.3฀ $฀฀฀—
Crossroads฀wind฀farm฀rider฀over฀recovery฀(C)฀2.9฀ 10.3
Smart฀Grid฀rider฀over฀recovery฀(C)฀2.0฀ 12.5
Other฀(C)฀2.6฀ 1.6
Total฀Current฀Regulatory฀Liabilities฀ $ 68.8฀ $฀ 24.4
Non-Current
Accrued฀removal฀obligations,฀net฀ $254.9฀ $248.1
Pension฀tracker฀ 17.7฀ 14.9
Total฀Non-Current฀Regulatory฀Liabilities฀ $272.6฀ $263.0
(A)฀ Included฀in฀Other฀Current฀Assets฀on฀the฀Consolidated฀Balance฀Sheets.
(B)฀ ฀Prior฀year฀amount฀of฀$1.1฀million฀reclassified฀from฀Non-Current฀Other฀assets฀to
Current฀Other฀assets.
(C)฀ ฀Included฀in฀Other฀Current฀Liabilities฀on฀the฀Consolidated฀Balance฀Sheets.
Fuel฀clause฀under฀recoveries฀are฀generated฀from฀under฀recoveries฀
from฀OG&E’s฀customers฀when฀OG&E’s฀cost฀of฀fuel฀exceeds฀the฀
amount฀billed฀to฀its฀customers.฀Fuel฀clause฀over฀recoveries฀are฀
generated฀from฀over฀recoveries฀from฀OG&E’s฀customers฀when฀the฀
amount฀billed฀to฀its฀customers฀exceeds฀OG&E’s฀cost฀of฀fuel.฀OG&E’s฀
fuel฀recovery฀clauses฀are฀designed฀to฀smooth฀the฀impact฀of฀fuel฀price฀
volatility฀on฀customers’฀bills.฀As฀a฀result,฀OG&E฀under฀recovers฀fuel฀
costs฀in฀periods฀of฀rising฀fuel฀prices฀above฀the฀baseline฀charge฀for฀fuel฀
and฀over฀recovers฀fuel฀costs฀when฀prices฀decline฀below฀the฀baseline฀
charge฀for฀fuel.฀Provisions฀in฀the฀fuel฀clauses฀are฀intended฀to฀allow฀
OG&E฀to฀amortize฀under฀and฀over฀recovery฀balances.฀
OG&E฀recovers฀program฀costs฀related฀to฀the฀Demand฀and฀Energy฀
Efficiency฀Pro ram.฀An฀extension฀of฀the฀demand฀program฀rider฀was฀
approved฀in฀December฀2012,฀which฀allowed฀for฀the฀recovery฀of฀
demand฀program฀costs,฀lost฀revenues฀associated฀with฀certain฀achieved฀
energy,฀demand฀savings฀and฀performance฀based฀incentives฀and฀the฀
recovery฀of฀costs฀associated฀with฀research฀and฀development฀
investments฀through฀December฀2015.฀
The฀benefit฀o ligations฀regulatory฀asset฀is฀comprised฀of฀expenses฀
recorded฀which฀are฀probable฀of฀future฀recovery฀and฀that฀have฀not฀yet฀
been฀recognized฀as฀components฀of฀net฀periodic฀benefit฀cost,฀including
net฀loss฀and฀prior฀service฀cost.฀These฀expenses฀are฀recorded฀as฀a฀
regulatory฀asset฀as฀OG&E฀had฀historically฀recovered฀and฀currently฀
recovers฀pension฀and฀postretirement฀benefit฀plan฀ xpense฀in฀its฀฀
electric฀rates.฀If,฀in฀the฀future,฀the฀regulatory฀bodies฀indicate฀a฀change฀
in฀policy฀related฀to฀the฀recovery฀of฀pension฀and฀postretirement฀
benefit฀plan฀ xpenses,฀this฀could฀cause฀the฀benefit฀o ligations฀
regulatory฀asset฀balance฀to฀be฀reclassified฀to฀accu ulated฀other฀
comprehensive฀income.
The฀following฀table฀is฀a฀summary฀of฀the฀components฀of฀the฀benefit
obligations฀regulatory฀asset฀at:
December฀31฀(In฀millions)฀2015฀ 2014
Pension Plan and Restoration
of Retirement Income Plan
Net฀loss฀ $214.1฀ $196.7
Prior฀service฀cost฀ —฀ 0.6
Postretirement Benefit Plans
Net฀loss฀ 34.2฀ 83.6
Prior฀service฀cost฀ (6.1)฀ (19.8)
Total฀ $242.2฀ $261.1
The฀following฀amounts฀in฀the฀benefit฀o ligations฀regulatory฀asset฀at฀
December฀31,฀2015฀are฀expected฀to฀be฀recognized฀as฀components฀of฀
net฀periodic฀benefit฀cost฀in฀2016 ฀
(In฀millions)
Pension Plan and Restoration
of Retirement Income Plan
Net฀loss฀ $ 13.1
Prior฀service฀cost฀ —
Postretirement Benefit Plans
Net฀loss฀ 2.0
Prior฀service฀cost฀ 6.1
Total฀ $ 21.2
Income฀taxes฀recoverable฀from฀customers,฀which฀represents฀income฀
tax฀benefits฀pr viously฀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฀tu n฀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฀defers฀annual฀Oklahoma฀storm-related฀operation฀and฀
maintenance฀expenses฀in฀excess฀of฀$2.7฀million฀and฀includes฀in฀
expense฀any฀Oklahoma฀storm-related฀operation฀and฀maintenance฀
expenses฀up฀to฀$2.7฀million.฀OG&E฀expects฀to฀recover฀the฀amounts฀
deferred฀each฀year฀over฀a฀fi e-year฀period฀in฀accordance฀with฀฀
historical฀practice.
40 OGE Energy Corp.
Notes to Consolidated Financial Statements
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.฀The฀accounts฀of฀the฀
Company฀and฀its฀wholly฀owned฀subsidiaries฀are฀included฀in฀the฀
Consolidated฀Financial฀Statements.฀All฀intercompany฀transactions฀and฀
balances฀are฀eliminated฀in฀consolidation.฀The฀Company฀generally฀uses฀
the฀equity฀method฀of฀accounting฀for฀investments฀where฀its฀ownership฀
interest฀is฀between฀20฀percent฀and฀50฀percent฀and฀has฀the฀ability฀to฀
exercise฀significant฀influen .฀
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,฀and฀is฀a฀wholly฀owned฀subsidiary฀of฀
the฀Company.฀OG&E฀is฀the฀largest฀electric฀utility฀in฀Oklahoma฀and฀its฀
franchised฀service฀territory฀includes฀Fort฀Smith,฀Arkansas฀and฀the฀
surrounding฀communities.฀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฀currently฀represents฀
the฀Company’s฀investment฀in฀Enable฀through฀its฀wholly฀owned฀
subsidiary฀OGE฀Holdings.฀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฀a฀crude฀oil฀gathering฀business฀in฀the฀Bakken฀shale฀
formation,฀principally฀located฀in฀the฀Williston฀basin฀of฀North฀Dakota.฀
Enable’s฀natural฀gas฀transportation฀and฀storage฀assets฀extend฀from฀
western฀Oklahoma฀and฀the฀Texas฀Panhandle฀to฀Alabama฀and฀from฀
Louisiana฀to฀Illinois.฀For฀periods฀prior฀to฀the฀formation฀of฀Enable,฀the฀
natural฀gas฀midstream฀operations฀segment฀reflected฀the฀consolidated
results฀of฀Enogex฀Holdings.฀All฀significant฀intercompa y฀transactions฀
have฀been฀eliminated฀in฀consolidation.
Enable฀was฀formed฀effective฀May฀1,฀2013฀by฀the฀Company,฀the฀
ArcLight฀group฀and฀CenterPoint฀to฀own฀and฀operate฀the฀midstream฀
businesses฀of฀the฀Company฀and฀CenterPoint.฀In฀the฀formation฀
transaction,฀the฀Company฀and฀the฀ArcLight฀group฀contributed฀
Enogex฀LLC฀to฀Enable฀and฀the฀Company฀deconsolidated฀its฀previously฀
held฀investment฀in฀Enogex฀Holdings฀and฀acquired฀an฀equity฀interest฀in฀
Enable.฀The฀Company’s฀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฀management฀
ownership.฀Based฀on฀the฀50/50฀management฀ownership,฀with฀neither฀
company฀having฀control,฀effective฀May฀1,฀2013,฀the฀Company฀began฀
accounting฀for฀its฀interest฀in฀Enable฀using฀the฀equity฀method฀
of฀accounting.฀
In฀April฀2014,฀Enable฀completed฀an฀initial฀public฀offering฀of฀
25,000,000฀common฀units฀resulting฀in฀Enable฀becoming฀a฀publicly฀
traded฀Master฀Limited฀Partnership.฀At฀December฀31,฀2015,฀the฀Company฀
owned฀approximately฀111.0฀million฀limited฀partner฀units,฀or฀26.3฀percent,฀
of฀which฀68.2฀million฀limited฀partner฀units฀were฀subordinated.฀
On฀January฀22,฀2016,฀Enable฀announced฀a฀quarterly฀dividend฀
distribution฀of฀$0.31800฀per฀unit฀on฀its฀outstanding฀common฀and฀
subordinated฀units,฀which฀is฀unchanged฀from฀the฀previous฀quarter.฀
Based฀on฀current฀commodity฀prices,฀Enable฀has฀seen฀changes฀in฀
producer฀activity฀that฀have฀negatively฀impacted฀Enable’s฀operations฀
and฀financial฀position฀and฀could฀see฀additional฀changes฀in฀producer
activity฀that฀may฀negatively฀impact฀Enable’s฀operations฀and฀affect฀its฀
future฀distribution฀rates.฀If฀cash฀distributions฀to฀Enable’s฀unitholders฀
exceed฀$0.330625฀per฀unit฀in฀any฀quarter,฀the฀general฀partner฀will฀
receive฀increasing฀percentages,฀up฀to฀50฀percent,฀of฀the฀cash฀Enable฀
distributes฀in฀excess฀of฀that฀amount.฀OGE฀Holdings฀is฀entitled฀to฀
60฀percent฀of฀those฀“incentive฀distributions.”฀In฀certain฀circumstances,฀
the฀general฀partner฀has฀the฀right฀to฀reset฀the฀minimum฀quarterly฀
distribution฀and฀the฀target฀distribution฀levels฀at฀which฀the฀incentive฀
distributions฀receive฀increasing฀percentages฀to฀higher฀levels฀based฀฀
on฀Enable’s฀cash฀distributions฀at฀the฀time฀of฀the฀exercise฀of฀this฀฀
reset฀election.฀
The฀Company฀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.฀The฀“Distrigas”฀method฀
is฀a฀three-factor฀formula฀that฀uses฀an฀equal฀weighting฀of฀payroll,฀net฀
operating฀revenues฀and฀gross฀property,฀plant฀and฀equipment.฀The฀
Company฀adopted฀this฀method฀in฀January฀1996฀as฀a฀result฀of฀a฀
recommendation฀by฀the฀OCC฀Staff.฀The฀Company฀believes฀this฀method฀
provides฀a฀reasonable฀basis฀for฀allocating฀common฀expenses.฀
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฀incurred฀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฀fl wback฀to฀customers฀in฀future฀rates.฀Management’s฀
expected฀recovery฀of฀deferred฀costs฀and฀fl wback฀of฀deferred฀credits฀
generally฀results฀from฀specific฀decisions฀ y฀regulators฀granting฀such฀
ratemaking฀treatment.