OG&E 2015 Annual Report Download - page 25

OGE Energy Corp. 47
Equivalent)”฀(ASU฀2015-07).฀ASU฀2015-07฀removes฀the฀requirement฀฀
to฀categorize฀within฀the฀fair฀value฀hierarchy฀all฀investments฀for฀which฀
fair฀value฀is฀measured฀using฀the฀net฀asset฀value฀per฀share฀practical฀
expedient.฀It฀also฀eliminates฀certain฀disclosures฀for฀investments฀
measured฀at฀fair฀value฀using฀the฀net฀asset฀value฀per฀share฀practical฀
expedient.฀The฀guidance฀is฀effective฀for฀fiscal฀ ears฀beginning฀after฀
December฀15,฀2015,฀and฀interim฀periods฀within฀those฀fiscal฀ ears฀and฀
requires฀retrospective฀presentation.฀Adoption฀of฀this฀new฀standard฀is฀
applicable฀to฀the฀Company’s฀benefit฀plans฀and฀will฀not฀impact฀the
Company’s฀Pension฀Plan’s฀Statement฀of฀Net฀Assets฀Available฀for฀
Benefits฀or฀Statement฀of฀Changes฀in฀Net฀Assets฀ vailable฀for฀Benefit .฀
Income฀Taxes.฀In฀November฀2015,฀the฀FASB฀issued฀ASU฀2015-17฀
“Income฀Taxes฀(Topic฀740)”.฀The฀amendments฀in฀ASU฀2015-17฀require฀
that฀deferred฀tax฀liabilities฀and฀assets฀be฀classified฀as฀non-current฀in
the฀statements฀of฀financial฀position ฀The฀classification฀change฀ or฀all฀
deferred฀taxes฀as฀non-current฀simplifies฀entities ฀processes฀as฀it฀
eliminates฀the฀need฀to฀separately฀identify฀the฀net฀current฀and฀net฀
non-current฀deferred฀tax฀asset฀or฀liability.฀For฀public฀business฀entities,฀
the฀amendments฀in฀this฀ASU฀are฀effective฀for฀financial฀statements
issued฀for฀annual฀periods฀beginning฀after฀December฀15,฀2016,฀and฀
interim฀periods฀within฀those฀annual฀periods.฀Because฀ASU฀2015-17฀
simplifies฀balance฀sheet฀presentation,฀the฀Compa y฀has฀elected฀to฀
prospectively฀adopt฀the฀accounting฀standard฀for฀2015.
3. Investment in Unconsolidated Affiliate and
Related Party Transactions
On฀March฀14,฀2013,฀the฀Company฀entered฀into฀a฀Master฀Formation฀
Agreement฀with฀the฀ArcLight฀group฀and฀CenterPoint฀pursuant฀to฀which฀
the฀Company,฀the฀ArcLight฀Group฀and฀CenterPoint,฀agreed฀to฀form฀
Enable฀to฀own฀and฀operate฀the฀midstream฀businesses฀of฀the฀Company฀
and฀CenterPoint฀that฀was฀initially฀structured฀as฀a฀private฀limited฀
partnership.฀This฀transaction฀closed฀on฀May฀1,฀2013.฀
Pursuant฀to฀the฀Master฀Formation฀Agreement,฀the฀Company฀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,฀the฀Company฀deconsolidated฀its฀
interest฀in฀Enogex฀Holdings฀and฀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.฀
CenterPoint฀and฀the฀Company฀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฀$139.3฀million฀and฀
$143.7฀million฀during฀the฀years฀ended฀December฀31,฀2015฀and฀2014,฀
respectively.฀
Related Party Transactions
Operating฀costs฀charged฀and฀related฀party฀transactions฀between฀the฀
Company฀and฀its฀affiliat ,฀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.฀The฀Company’s฀interest฀in฀
Enogex฀Holdings฀was฀deconsolidated฀on฀May฀1,฀2013.
On฀May฀1,฀2013,฀the฀Company฀and฀Enable฀entered฀into฀a฀Services฀
Agreement,฀Employee฀Transition฀Agreement,฀and฀other฀agreements฀
whereby฀the฀Company฀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.฀As฀of฀December฀31,฀
2015,฀Enable฀terminated฀all฀support฀services฀except฀IT,฀payroll฀and฀
benefit .฀Under฀these฀agreements,฀the฀Company฀charged฀operating฀
costs฀to฀Enable฀of฀$12.0฀million฀and฀$16.8฀million฀for฀December฀31,฀
2015฀and฀2014,฀respectively.฀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฀Ena le฀are฀allocated฀either฀as฀
overhead฀based฀primarily฀on฀labor฀costs฀or฀using฀the฀“Distrigas”฀
method.฀Effective฀April฀1,฀2014,฀Enable’s฀general฀partner,฀the฀Company฀
and฀CenterPoint฀agreed฀to฀reduce฀certain฀governance฀related฀costs฀
billed฀to฀Enable฀for฀transition฀services.
Additionally,฀the฀Company฀agreed฀to฀provide฀seconded฀employees฀to฀
Enable฀to฀support฀its฀operations฀for฀an฀initial฀term฀ending฀on฀
December฀31,฀2014.฀The฀Company฀did฀not฀transfer฀any฀employees฀to฀
Enable฀at฀the฀formation฀of฀the฀partnership฀or฀any฀time฀through฀
December฀31,฀2014.฀In฀October฀2014,฀CenterPoint,฀the฀Company฀and฀
Enable฀agreed฀to฀continue฀the฀secondment฀to฀Enable฀for฀192฀employees฀
that฀participate฀in฀the฀Company’s฀defined฀benefit฀and etirement฀plans,฀
beyond฀December฀31,฀2014.฀The฀remaining฀seconded฀employees฀were฀
terminated฀from฀the฀Company฀on฀December฀31,฀2014,฀and฀were฀
offered฀employment฀by฀Enable.฀The฀Company฀billed฀Enable฀for฀
reimbursement฀of฀$32.1฀million฀and฀$104.8฀million฀in฀2015฀and฀2014,฀
respectively,฀under฀the฀Transitional฀Seconding฀Agreement฀for฀
employment฀costs฀incurred฀on฀or฀after฀May฀1,฀2013.฀
The฀Company฀had฀accounts฀receivable฀from฀Enable฀of฀$1.7฀million฀
and฀$5.6฀million฀as฀of฀December฀31,฀2015฀and฀2014,฀respectively,฀฀
for฀amounts฀billed฀for฀transitional฀services,฀including฀the฀cost฀of฀
seconded฀employees.฀
Enable฀reimbursed฀the฀Company฀for฀Mr.฀Delaney’s฀services฀as฀
interim฀President฀and฀Chief฀Executive฀Officer฀ or฀the฀months฀of฀June฀
through฀November,฀2015.฀Enable฀paid฀Mr.฀Delaney฀directly฀for฀his฀
services฀for฀the฀period฀from฀December฀1,฀2015฀to฀December฀31,฀2015.
OG&E฀entered฀into฀a฀new฀contract฀with฀Enable฀to฀provide฀
transportation฀services฀effective฀May฀1,฀2014฀which฀eliminated฀the฀
natural฀gas฀storage฀services.฀This฀transportation฀agreement฀grants฀
Enable฀the฀responsibility฀of฀delivering฀natural฀gas฀to฀OG&E’s฀
generating฀facilities฀and฀performing฀an฀imbalance฀service.฀With฀this฀
imbalance฀service,฀in฀accordance฀with฀the฀cash-out฀provision฀of฀the฀
contract,฀OG&E฀purchases฀gas฀from฀Enable฀when฀Enable’s฀deliveries฀
exceed฀OG&E’s฀pipeline฀receipts.฀Enable฀purchases฀gas฀from฀OG&E฀
46 OGE Energy Corp.
The฀following฀table฀summarizes฀significant฀amounts฀reclassified฀ou
of฀accumulated฀other฀comprehensive฀loss฀by฀the฀respective฀line฀items฀
in฀net฀income฀during฀the฀years฀ended฀December฀31,฀2015฀and฀2014.
Details฀ Amount฀Reclassified Affected฀Line฀Item
about฀Accumulated฀ from฀Accumulated฀ in฀the฀Statement
Other฀Comprehensive฀ Other฀Comprehensive฀ Where฀Net฀Income
Income฀(Loss)฀Components฀ Income฀(Loss)฀ is฀Presented฀
฀ Year฀Ended฀December฀31,฀
(In฀millions)฀2015฀ 2014
Losses฀on฀cash฀fl w฀hedges฀
฀ Interest฀rate฀swap฀ $ —฀ $(0.3)฀ Interest฀expense
฀—฀ (0.3)฀ Total฀before฀tax
฀—฀ (0.1)฀ Tax฀benefi
฀$ —฀ $(0.2)฀ Net฀of฀tax
฀
Amortization฀of฀defined฀
฀ benefit฀pension฀and฀
฀ restoration฀of฀retirement฀฀
฀ income฀plan฀items฀
฀ Actuarial฀losses฀ $ (4.7)฀ $(3.0)฀
(A)
฀ (Settlement)฀curtailment฀cost฀ (7.5)฀ 0.2฀ (A)
฀(12.2)฀ (2.8)฀ Total฀before฀tax
฀(5.1)฀ (1.1)฀ Tax฀benefi
฀$ (7.1)฀ $(1.7)฀ Net฀of฀tax
฀
Amortization฀of฀postretirement฀฀
฀ benefit฀plan฀items
฀ Actuarial฀losses฀ $ (2.0)฀ $(1.4)฀
(A)
฀ Prior฀service฀cost฀ 2.9฀ 2.9฀ (A)
฀0.9฀ 1.5฀ Total฀before฀tax
฀0.3฀ 0.6฀ Tax฀benefi
฀$ 0.6฀ $฀0.9฀ Net฀of฀tax
฀
Total฀reclassifications฀
฀ for฀the฀period฀ $ (6.5)฀ $(1.0)฀ Net฀of฀tax
(A)฀ ฀These฀accumulated฀other฀comprehensive฀income฀(loss)฀components฀are฀included฀in฀
the฀computation฀of฀net฀periodic฀benefit฀cost฀(see฀Note฀12฀ or฀additional฀information).
The฀amounts฀in฀accumulated฀other฀comprehensive฀loss฀at฀
December฀31,฀2015฀that฀are฀expected฀to฀be฀recognized฀into฀earnings฀
in฀2016฀are฀as฀follows:
(In฀millions)
Pension฀Plan฀and฀Restoration฀of฀Retirement฀Income฀Plan
฀ Net฀loss฀ $(4.8)
Postretirement฀Benefit฀Plan
฀ Net฀loss฀ —
฀ Prior฀service฀cost฀ (2.6)
฀ Total,฀net฀of฀tax฀ $(7.4)
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฀$10.0฀million฀and฀
$7.5฀million฀in฀accrued฀environmental฀liabilities฀at฀December฀31,฀2015฀
and฀2014,฀respectively,฀which฀are฀included฀in฀the฀asset฀retirement฀
obligations฀table.฀
2. Accounting Pronouncements
Revenue฀from฀Contracts฀with฀Customers.฀In฀May฀2014,฀the฀FASB฀
issued฀ASU฀2014-09,฀“Revenue฀from฀Contracts฀with฀Customers฀
(Topic฀606)”.฀The฀new฀guidance฀was฀intended฀to฀be฀effective฀for฀fiscal
years฀beginning฀after฀December฀15,฀2016.฀On฀July฀9,฀2015,฀the฀FASB฀
decided฀to฀delay฀the฀effective฀date฀of฀the฀new฀revenue฀standard฀by฀
one฀year.฀Reporting฀entities฀may฀choose฀to฀adopt฀the฀standard฀as฀of฀
the฀original฀effective฀date.฀The฀deferral฀results฀in฀the฀new฀revenue฀
standard฀being฀effective฀for฀fiscal฀ ears,฀and฀interim฀periods฀within฀
those฀fiscal฀ ears,฀beginning฀after฀December฀15,฀2017.฀The฀standard฀
permits฀the฀use฀of฀either฀the฀retrospective฀or฀cumulative฀effect฀
transition฀method.฀The฀Company฀has฀yet฀to฀select฀a฀transition฀method฀
or฀determine฀the฀impact฀on฀its฀Consolidated฀Financial฀Statements,฀
however,฀the฀impact฀is฀not฀expected฀to฀be฀material.฀
Consolidation.฀In฀February฀2015,฀the฀FASB฀issued฀ASU฀2015-02,฀
“Consolidation฀(Topic฀810)”.฀The฀amendments฀in฀ASU฀2015-02฀affect฀
reporting฀entities฀that฀are฀required฀to฀evaluate฀whether฀they฀should฀
consolidate฀certain฀legal฀entities.฀The฀new฀standard฀modifies฀th ฀
evaluation฀of฀whether฀limited฀partnerships฀and฀similar฀legal฀entities฀are฀
variable฀interest฀entities฀or฀voting฀interest฀entities฀along฀with฀eliminating฀
the฀presumption฀that฀a฀general฀partner฀should฀consolidate฀a฀limited฀
partnership.฀The฀new฀standard฀is฀effective฀for฀fiscal฀ ears฀beginning฀
after฀December฀15,฀2015.฀The฀Company฀does฀not฀believe฀the฀new฀
standard฀will฀result฀in฀the฀consolidation฀of฀any฀non-consolidated฀entities.฀
Simplifying฀the฀Presentation฀of฀Debt฀Issuance฀Costs.฀In฀April฀2015,฀
the฀FASB฀issued฀ASU฀2015-03,฀“Interest฀-฀Imputation฀of฀Interest฀
(Subtopic฀835-30):฀Simplifying฀the฀Presentation฀of฀Debt฀Issuance฀
Costs”.฀The฀amendments฀in฀ASU฀2015-03฀require฀that฀debt฀issuance฀
costs฀related฀to฀a฀recognized฀debt฀liability฀be฀presented฀in฀the฀balance฀
sheet฀as฀a฀direct฀deduction฀from฀the฀carrying฀amount฀of฀that฀debt฀
liability฀consistent฀with฀debt฀discounts.฀The฀amendments฀in฀this฀ASU฀
are฀effective฀for฀financial฀statements฀issued฀ or฀fiscal฀ ears฀beginning฀
after฀December฀15,฀2015,฀and฀interim฀periods฀within฀those฀fiscal฀ ears.฀
The฀Company฀will฀reflect฀the฀impact฀of฀this฀ASU฀in฀the฀first฀qu ter฀of฀
2016.฀The฀Company฀does฀not฀believe฀the฀new฀standard฀will฀have฀a฀
material฀effect฀on฀its฀financial฀statement .฀
Intangibles-Goodwill฀and฀Other-Internal฀Use฀Software.฀In฀April฀2015,฀
the฀FASB฀issued฀ASU฀2015-05,฀“Intangibles-Goodwill฀and฀Other-
Internal฀Use฀Software฀(Subtopic฀350-40)”.฀The฀amendments฀in฀
ASU฀2015-05฀provide฀guidance฀to฀customers฀about฀whether฀a฀cloud฀
computing฀arrangement฀includes฀a฀software฀license.฀The฀absence฀of฀a฀
software฀license฀requires฀accounting฀for฀the฀arrangement฀as฀a฀service฀
contract.฀For฀public฀business฀entities,฀the฀amendments฀in฀this฀ASU฀are฀
effective฀for฀financial฀statements฀issued฀ or฀fiscal฀ ears฀beginning฀after฀
December฀15,฀2015,฀and฀interim฀periods฀within฀those฀fiscal฀ ears.฀The฀
Company฀will฀reflect฀the฀impact฀of฀this฀ASU฀in฀the฀first฀qu ter฀of฀2016฀
and฀does฀not฀believe฀the฀new฀standard฀will฀have฀a฀material฀effect฀on฀its฀
financial฀statement .฀
Fair฀Value฀Measurement.฀In฀May฀2015,฀the฀FASB฀issued฀ASU฀2015-07฀
“Fair฀Value฀Measurement฀(Topic฀820):฀Disclosures฀for฀Investments฀in฀
Certain฀Entities฀That฀Calculate฀Net฀Asset฀Value฀per฀Share฀(or฀Its฀