OG&E 2015 Annual Report Download - page 23

OGE Energy Corp. 43
Property, Plant and Equipment
All฀property,฀plant฀and฀equipment฀is฀recorded฀at฀cost.฀Newly฀
constructed฀plant฀is฀added฀to฀plant฀balances฀at฀cost฀which฀includes฀
contracted฀services,฀direct฀labor,฀materials,฀overhead,฀transportation฀
costs฀and฀the฀allowance฀for฀funds฀used฀during฀construction.฀
Replacements฀of฀units฀of฀property฀are฀capitalized฀as฀plant.฀For฀assets฀
that฀belong฀to฀a฀common฀plant฀account,฀the฀replaced฀plant฀is฀removed฀
from฀plant฀balances฀and฀the฀cost฀of฀such฀property฀is฀charged฀to฀
Accumulated฀Depreciation.฀For฀assets฀that฀do฀not฀belong฀to฀a฀common฀
plant฀account,฀the฀replaced฀plant฀is฀removed฀from฀plant฀balances฀with฀
the฀related฀accumulated฀depreciation฀and฀the฀remaining฀balance฀net฀฀
of฀any฀salvage฀proceeds฀is฀recorded฀as฀a฀loss฀in฀the฀Consolidated฀
Statements฀of฀Income฀as฀Other฀Expense.฀Repair฀and฀replacement฀of฀
minor฀items฀of฀property฀are฀included฀in฀the฀Consolidated฀Statements฀฀
of฀Income฀as฀Other฀Operation฀and฀Maintenance฀Expense.฀
The฀table฀below฀presents฀OG&E’s฀ownership฀interest฀in฀the฀
jointly-owned฀McClain฀Plant฀and฀the฀jointly-owned฀Redbud฀Plant,฀and,฀
as฀disclosed฀below,฀only฀OG&E’s฀ownership฀interest฀is฀reflected฀in฀the
property,฀plant฀and฀equipment฀and฀accumulated฀depreciation฀balances฀
in฀these฀tables.฀The฀owners฀of฀the฀remaining฀interests฀in฀the฀McClain฀
Plant฀and฀the฀Redbud฀Plant฀are฀responsible฀for฀providing฀their฀own฀
financing฀of฀capital฀ xpenditures.฀Also,฀only฀OG&E’s฀proportionate฀
interests฀of฀any฀direct฀expenses฀of฀the฀McClain฀Plant฀and฀the฀฀
Redbud฀Plant,฀such฀as฀fuel,฀maintenance฀expense฀and฀other฀operating฀
expenses,฀are฀included฀in฀the฀applicable฀financial฀statement฀captions฀
in฀the฀Consolidated฀Statements฀of฀Income.
฀ ฀ Total฀Property,฀ ฀ Net฀Property,
December฀31,฀2015฀ Percentage฀ Plant฀and฀ Accumulated฀ Plant฀and
(In฀millions)฀ Ownership฀ Equipment฀ Depreciation฀ Equipment
McClain฀Plant฀(A)฀77% $220.4 $ 62.8 $157.6
Redbud฀Plant฀(A)(B)฀51% $487.5 $101.2 $386.3
(A)฀ ฀
Construction฀work฀in฀progress฀was฀$1.6฀million฀and฀$1.3฀million฀for฀the฀McClain฀and฀
Redbud฀Plants,฀respectively.฀
(B)฀ ฀
This฀amount฀includes฀a฀plant฀acquisition฀adjustment฀of฀$148.3฀million฀and฀
accumulated฀amortization฀of฀$39.8฀million.
฀ ฀ Total฀Property,฀ ฀ Net฀Property,
December฀31,฀2014฀ Percentage฀ Plant฀and฀ Accumulated฀ Plant฀and
(In฀millions)฀ Ownership฀ Equipment฀ Depreciation฀ Equipment
McClain฀Plant฀(A)฀ 77%฀ $207.7฀ $46.6฀ $161.1
Redbud฀Plant฀(A)(B)฀ 51%฀ $484.1฀ $81.8฀ $402.3
(A)฀ ฀
Construction฀work฀in฀progress฀was฀$0.5฀million฀and฀$0.4฀million฀for฀the฀McClain฀and฀
Redbud฀Plants,฀respectively.฀
(B)฀ ฀
This฀amount฀includes฀a฀plant฀acquisition฀adjustment฀of฀$148.3฀million฀and฀
accumulated฀amortization฀of฀$34.3฀million.
OGE Energy Consolidated
The฀Company’s฀property,฀plant฀and฀equipment฀and฀related฀
accumulated฀depreciation฀are฀divided฀into฀the฀following฀major฀฀
classes฀at:฀
฀ Total฀Property฀ ฀ Net฀Property,
December฀31,฀2015฀฀ Plant฀and฀ Accumulated฀ Plant฀and
(In฀millions)฀ Equipment฀ Depreciation฀ Equipment
OGE฀Energy฀(holding฀company)฀
฀ Property,฀plant฀and฀equipment฀ $ 139.0 $ 112.7 $ 26.3
฀ OGE฀Energy฀property,฀plant฀฀
฀ ฀ and฀equipment฀ 139.0 112.7 26.3
OG&E฀
Distribution฀assets฀ 3,728.8 1,152.8 2,576.0
Electric฀generation฀assets฀(A)฀3,837.4 1,407.0 2,430.4
Transmission฀assets฀(B)฀2,454.2 440.7 2,013.5
Intangible฀plant฀ 81.0 38.0 43.0
Other฀property฀and฀equipment฀ 356.4 123.2 233.2
฀ OG&E฀property,฀฀
฀ ฀ plant฀and฀equipment฀ 10,457.8 3,161.7 7,296.1
฀ ฀ Total฀property,฀plant฀฀
฀ ฀ ฀ and฀equipment฀ $10,596.8 $3,274.4 $7,322.4
(A)฀ ฀This฀amount฀includes฀a฀plant฀acquisition฀adjustment฀of฀$148.3฀million฀and฀
accumulated฀amortization฀of฀$39.8฀million.
(B)฀ ฀
This฀amount฀includes฀a฀plant฀acquisition฀adjustment฀of฀$3.3฀million฀and฀accumulated฀
amortization฀of฀$0.5฀million.
฀ Total฀Property฀ ฀ Net฀Property,
December฀31,฀2014฀฀ Plant฀and฀ Accumulated฀ Plant฀and
(In฀millions)฀ Equipment฀ Depreciation฀ Equipment
OGE฀Energy฀(holding฀company)฀
฀ Property,฀plant฀and฀equipment฀ $฀ ฀ ฀151.7฀ $฀ ฀113.3฀ $฀ ฀ ฀38.4
฀ OGE฀Energy฀property,฀plant฀฀
฀ ฀ and฀equipment฀ 151.7฀ 113.3฀ 38.4
OG&E฀
Distribution฀assets฀ 3,559.5฀ 1,086.7฀ 2,472.8
Electric฀generation฀assets฀(A)฀ 3,620.1฀ 1,345.1฀ 2,275.0
Transmission฀assets฀(B)฀ 2,370.0฀ 417.8฀ 1,952.2
Intangible฀plant฀ 67.6฀ 31.1฀ 36.5
Other฀property฀and฀equipment฀ 330.0฀ 125.0฀ 205.0
฀ OG&E฀property,฀฀
฀ ฀ plant฀and฀equipment฀ 9,947.2฀ 3,005.7฀ 6,941.5
฀ ฀ Total฀property,฀plant฀฀
฀ ฀ ฀ and฀equipment฀ $10,098.9฀ $3,119.0฀ $6,979.9
(A)฀ ฀This฀amount฀includes฀a฀plant฀acquisition฀adjustment฀of฀$148.3฀million฀and฀
accumulated฀amortization฀of฀$34.3฀million.
(B)฀ ฀
This฀amount฀includes฀a฀plant฀acquisition฀adjustment฀of฀$3.3฀million฀and฀accumulated฀
amortization฀of฀$0.4฀million.
The฀following฀table฀summarizes฀the฀Company’s฀unamortized฀
computer฀software฀costs.
Year฀ended฀December฀31฀(In฀millions)฀2015฀ 2014
OGE฀Energy฀(holding฀company)฀ $ 2.4฀ $฀ 4.5
OG&E฀ 34.3฀ 33.6
฀ Total฀ $36.7฀ $38.1
The฀following฀table฀summarizes฀the฀Company’s฀amortization฀
expense฀for฀computer฀software฀costs.
Year฀ended฀December฀31฀(In฀millions)฀2015฀ 2014฀ 2013
OGE฀Energy฀(holding฀company)฀ $2.0฀ $4.3฀ $฀ 6.4
OG&E฀ 6.9฀ 5.2฀ 4.0
Enogex฀LLC฀ —฀ —฀ 0.8
฀ Total฀ $8.9฀ $9.5฀ $11.2
42 OGE Energy Corp.
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฀a฀return฀on฀the฀capital฀expenditures฀along฀with฀
operation฀and฀maintenance฀expense฀and฀depreciation฀expense฀related฀
to฀the฀Crossroads฀wind฀farm฀through฀riders฀established฀by฀the฀OCC฀
and฀APSC.฀OG&E฀began฀recovery฀in฀the฀fourth฀quarter฀of฀2011฀in฀
Oklahoma฀and฀June฀of฀2013฀in฀Arkansas,฀and฀believes฀the฀rider฀will฀
continue฀until฀new฀rates฀are฀implemented฀in฀OG&E’s฀next฀general฀rate฀
case฀in฀each฀jurisdiction.฀
OG&E฀recovers฀the฀cost฀of฀system-wide฀deployment฀of฀smart฀grid฀
technology฀and฀implementing฀the฀smart฀grid฀pilot฀program,฀the฀
incremental฀costs฀for฀web฀portal฀access,฀education฀and฀providing฀home฀
energy฀reports.฀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฀associated฀with฀OG&E’s฀analog฀electric฀meters,฀
which฀have฀been฀replaced฀by฀smart฀meters฀and฀were฀accumulated฀
during฀the฀smart฀grid฀deployment฀and฀have฀been฀included฀in฀the฀Smart฀
Grid฀asset฀in฀the฀regulatory฀assets฀and฀liabilities฀table฀above.฀These฀
costs฀are฀expected฀to฀be฀recovered฀in฀base฀rates฀in฀OG&E’s฀next฀
general฀rate฀case.฀
Net฀accrued฀removal฀obligations฀represent฀asset฀retirement฀costs฀
previously฀recovered฀from฀ratepayers฀for฀other฀than฀legal฀obligations.฀
OG&E฀recovers฀specific฀amounts฀of฀pension฀and฀postretirement
medical฀costs฀in฀rates฀approved฀in฀its฀Oklahoma฀rate฀cases.฀In฀
accordance฀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฀regulatory฀assets฀and฀liabilities฀table฀above.฀
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฀e ects.฀
฀
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฀minimize฀the฀negative฀financial฀impact฀to฀the฀Compa y฀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฀ xercised฀for฀all฀Company฀segments฀includes฀
the฀determination฀of฀Pension฀Plan฀assumptions,฀income฀taxes,฀
contingency฀reserves,฀asset฀retirement฀obligations฀and฀depreciable฀
lives฀of฀property,฀plant฀and฀equipment.฀For฀the฀electric฀utility฀segment,฀
significant฀judgment฀is฀also฀ xercised฀in฀the฀determination฀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฀investments฀purchased฀with฀an฀original฀
maturity฀of฀three฀months฀or฀less฀to฀be฀cash฀equivalents.฀These฀
investments฀are฀carried฀at฀cost,฀which฀approximates฀fair฀value.฀
Allowance for Uncollectible Accounts Receivable
Customer฀balances฀are฀generally฀written฀off฀if฀not฀collected฀within฀
six฀months฀after฀the฀final฀billing฀dat .฀The฀allowance฀for฀uncollectible฀
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฀is฀a฀reduction฀to฀Accounts฀Receivable฀
on฀the฀Consolidated฀Balance฀Sheets฀and฀is฀included฀in฀the฀Other฀
Operation฀and฀Maintenance฀Expense฀on฀the฀Consolidated฀Statements฀
of฀Income.฀The฀allowance฀for฀uncollectible฀accounts฀receivable฀was฀
$1.4฀million฀and฀$1.6฀million฀at฀December฀31,฀2015฀and฀2014,฀
respectively.฀
New฀business฀customers฀are฀required฀to฀provide฀a฀security฀deposit฀฀
in฀the฀form฀of฀cash,฀bond฀or฀irrevocable฀letter฀of฀credit฀that฀is฀refunded฀
when฀the฀account฀is฀closed.฀New฀residential฀customers฀whose฀outside฀
credit฀scores฀indicate฀an฀elevated฀risk฀are฀required฀to฀provide฀a฀security฀
deposit฀that฀is฀refunded฀based฀on฀customer฀protection฀rules฀defined฀ y฀
the฀OCC฀and฀the฀APSC.฀The฀payment฀behavior฀of฀all฀existing฀customers฀
is฀continuously฀monitored฀and,฀if฀the฀payment฀behavior฀indicates฀
sufficient฀ isk฀within฀the฀meaning฀of฀the฀applicable฀utility฀regulation,฀
customers฀will฀be฀required฀to฀provide฀a฀security฀deposit.฀
Fuel Inventories
Fuel฀inventories฀for฀the฀generation฀of฀electricity฀consist฀of฀coal,฀natural฀
gas฀and฀oil.฀OG&E฀uses฀the฀weighted-average฀cost฀method฀of฀
accounting฀for฀inventory฀that฀is฀physically฀added฀to฀or฀withdrawn฀from฀
storage฀or฀stockpiles.฀The฀amount฀of฀fuel฀inventory฀was฀$119.3฀million฀
and฀$66.7฀million฀at฀December฀31,฀2015฀and฀2014,฀respectively.฀
Effective฀May฀1,฀2014,฀the฀gas฀storage฀services฀agreement฀with฀฀
Enable฀was฀terminated.฀As฀a฀result฀of฀this฀contract฀termination,฀
approximately฀5.3฀Bcf฀of฀cushion฀gas฀owned฀by฀OG&E฀and฀stored฀฀
on฀the฀Enable฀system฀is฀being฀directed฀to฀OG&E’s฀power฀plants฀over฀฀
a฀fi e฀year฀period฀during฀peak฀time฀of฀June฀1฀to฀August฀31฀at฀a฀rate฀฀
of฀11,500฀MMBtu/day฀for฀a฀total฀of฀1.06฀Bcf฀per฀year.฀In฀2014,฀
approximately฀$11.0฀million฀of฀cushion฀gas฀was฀reclassified฀from
Plant-in-Service฀to฀Other฀Deferred฀Assets฀and฀an฀additional฀
$2.7฀million฀was฀reclassified฀to฀current฀Fuel฀I ventories฀on฀the฀฀
Balance฀Sheets.฀As฀of฀December฀31,฀2015,฀the฀balance฀of฀cushion฀฀
gas฀in฀Other฀Deferred฀Assets฀is฀approximately฀$5.4฀million.