OG&E 2015 Annual Report Download - page 36

OGE Energy Corp. 69
On฀February฀12,฀2016,฀OG&E฀filed฀an฀application฀requesting฀the
OCC฀to฀issue฀an฀order฀approving฀the฀installation฀of฀dry฀scrubbers฀at฀
the฀Sooner฀facility,฀on฀or฀before฀May฀2,฀2016.฀The฀application฀states฀
that฀if฀the฀application฀is฀not฀approved฀by฀May฀2,฀2016,฀OG&E฀will฀
decide฀at฀that฀time฀whether฀to฀cancel฀the฀dry฀scrubber฀equipment฀and฀
installation฀contracts฀and฀make฀plans฀to฀convert฀the฀Sooner฀coal฀units฀
to฀natural฀gas.฀As฀of฀December฀31,฀2015,฀OG&E฀had฀incurred฀
$94.8฀million฀of฀construction฀work฀in฀progress฀on฀the฀dry฀scrubbers.฀
OG&E฀estimates฀another฀$35.0฀million฀of฀in-process฀expenditures฀will฀
be฀incurred฀prior฀to฀May฀1,฀2016.฀Additionally,฀if฀the฀request฀is฀not฀
approved,฀OG&E฀expects฀to฀seek฀recovery฀in฀subsequent฀proceedings฀
for฀the฀expenditures฀incurred฀for฀the฀dry฀scrubber฀project฀and฀
reasonable฀stranded฀costs฀associated฀with฀the฀discontinuance฀of฀the฀
Sooner฀coal฀units.
Fuel฀Adjustment฀Clause฀Review฀for฀Calendar฀Year฀2014
On฀July฀28,฀2015,฀the฀OCC฀staff฀filed฀an฀application฀to฀r view฀OG&E’s฀
fuel฀adjustment฀clause฀for฀calendar฀year฀2014,฀including฀the฀prudence฀
of฀OG&E’s฀electric฀generation,฀purchased฀power฀and฀fuel฀procurement฀
costs.฀OG&E฀filed฀the฀necessa y฀information฀and฀documents฀needed฀to฀
satisfy฀the฀OCC’s฀minimum฀filing฀requirement฀ ules฀on฀September฀2,฀
2015.฀A฀hearing฀is฀scheduled฀to฀be฀held฀on฀April฀7,฀2016.฀
Integrated฀Resource฀Plans฀
In฀August฀2015,฀OG&E฀initiated฀the฀process฀to฀update฀its฀IRP฀pursuant฀
to฀the฀OCC฀rules.฀After฀engaging฀interested฀stakeholders฀in฀August฀฀
and฀September,฀OG&E฀finali ed฀the฀2015฀IRP฀and฀submitted฀it฀to฀the฀
OCC฀on฀October฀1,฀2015.฀The฀2015฀IRP฀updated฀certain฀assumptions฀
contained฀in฀the฀IRP฀submitted฀in฀2014,฀but฀did฀not฀make฀any฀material฀
changes฀to฀the฀ECP฀and฀other฀parts฀of฀the฀action฀plan฀contained฀in฀the฀
IRP฀submitted฀in฀2014.฀
Oklahoma฀Rate฀Case฀Filing฀
On฀December฀18,฀2015,฀OG&E฀filed฀a฀gene al฀rate฀case฀with฀the฀OCC฀
requesting฀a฀rate฀increase฀of฀$92.5฀million฀and฀a฀10.25฀percent฀return฀
on฀equity฀based฀on฀a฀June฀30,฀2015฀test฀year.฀OG&E฀primarily฀seeks฀฀
to฀recover฀$1.6฀billion฀of฀electric฀infrastructure฀additions฀since฀its฀last฀
general฀rate฀case฀in฀Oklahoma,฀the฀impact฀of฀the฀expiration฀of฀OG&E’s฀
wholesale฀contracts฀and฀increased฀operating฀costs฀such฀as฀vegetation฀
management.
Arkansas฀Rate฀Case฀Filing฀
OG&E฀intends฀to฀file฀a฀gene al฀rate฀case฀with฀the฀APSC฀by฀August฀15,฀
2016.฀
16. Quarterly Financial Data (Unaudited)
Due฀to฀the฀seasonal฀fluctuations฀and฀other฀ actors฀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฀ ollows:฀
Quarter฀ended฀(In฀millions฀except฀per฀share฀data)฀ ฀ March฀31฀ June฀30฀ September฀30฀ December฀31฀ Total
Operating฀revenues฀ 2015 $480.1 $549.9 $719.8 $447.1 $2,196.9
฀ 2014฀ $560.4฀ $611.8฀ $754.7฀ $526.2฀ $2,453.1
Operating฀income฀ 2015 $ 56.4 $127.2 $250.8 $ 46.8 $ 481.2
฀ 2014฀ $฀ 61.8฀ $141.8฀ $248.1฀ $฀ 85.1฀ $฀ ฀536.8
Net฀income฀ 2015 $ 43.2 $ 87.5 $111.2 $ 29.4 $ 271.3
฀ 2014฀ $฀ 49.3฀ $100.8฀ $187.3฀ $฀ 58.4฀ $฀ ฀395.8
Basic฀earnings฀per฀average฀common฀share฀attributable฀฀
฀ to฀OGE฀Energy฀common฀shareholders฀(A)฀2015 $ 0.22 $ 0.44 $ 0.55 $ 0.15 $ 1.36
฀ 2014฀ $฀ 0.25฀ $฀ 0.51฀ $฀ 0.94฀ $฀ 0.29฀ $฀ ฀ ฀1.99
Diluted฀earnings฀per฀average฀common฀share฀฀
฀ attributable฀to฀OGE฀Energy฀common฀shareholders฀(A)฀2015 $ 0.22 $ 0.44 $ 0.55 $ 0.15 $ 1.36
฀ 2014฀ $฀ 0.25฀ $฀ 0.50฀ $฀ 0.94฀ $฀ 0.29฀ $฀ ฀ ฀1.98
(A)฀ ฀
Due฀to฀the฀impact฀of฀dilution฀on฀the฀earnings฀per฀share฀calculation,฀quarterly฀earnings฀per฀share฀amounts฀may฀not฀add฀to฀the฀total.฀
68 OGE Energy Corp.
Oklahoma฀Demand฀Program฀Rider฀Review฀–฀SmartHours฀Program฀
In฀July฀2012,฀OG&E฀filed฀an฀application฀with฀the฀OCC฀to฀rec ver฀
certain฀costs฀associated฀with฀Demand฀Programs฀through฀the฀Demand฀
Program฀Rider,฀including฀the฀lost฀revenues฀associated฀with฀the฀
SmartHours฀program.฀The฀SmartHours฀program฀is฀designed฀to฀
incentivize฀participating฀customers฀to฀reduce฀on-peak฀usage฀or฀shift฀
usage฀to฀off-peak฀hours฀during฀the฀months฀of฀May฀through฀October,฀by฀
offering฀lower฀rates฀to฀those฀customers฀in฀the฀off-peak฀hours฀of฀those฀
months.฀Lost฀revenues฀are฀created฀by฀the฀difference฀in฀the฀standard฀
rates฀and฀the฀lower฀incentivized฀rates.฀Non-SmartHours฀program฀
customers฀benefit฀from฀the฀reduction฀of฀on-peak฀usage฀ y฀SmartHours฀
customers฀by฀the฀reduction฀of฀more฀costly฀on-peak฀generation฀and฀the฀
delay฀in฀adding฀new฀on-peak฀generation.฀
In฀December฀2012,฀the฀OCC฀issued฀an฀order฀approving฀the฀recovery฀
of฀costs฀associated฀with฀the฀Demand฀Programs,฀including฀the฀lost฀
revenues฀associated฀with฀the฀SmartHours฀program,฀subject฀to฀the฀
Oklahoma฀PUD฀staff฀review.฀
In฀March฀2014,฀the฀Oklahoma฀PUD฀staff฀began฀their฀review฀of฀the฀
Demand฀Program฀cost,฀including฀the฀lost฀revenues฀associated฀with฀the฀
SmartHours฀program.฀In฀November฀2014,฀OG&E฀believed฀that฀it฀had฀
reached฀an฀agreement฀with฀the฀Oklahoma฀PUD฀staff฀on฀the฀
methodology฀to฀be฀used฀to฀calculate฀lost฀revenues฀associated฀with฀the฀
SmartHours฀program฀and฀the฀amount฀of฀lost฀revenue฀for฀2013,฀which฀
totaled฀$10.1฀million.฀The฀agreement฀also฀included฀utilizing฀the฀same฀
methodology฀for฀calculating฀lost฀revenues฀for฀2014,฀which฀resulted฀in฀
lost฀revenues฀for฀2014฀of฀$11.6฀million.
In฀January฀2015,฀OG&E฀implemented฀rates฀that฀began฀recovering฀
the฀2013฀lost฀revenues,฀in฀accordance฀with฀the฀agreement฀that฀it฀
believed฀had฀been฀reached฀with฀the฀Oklahoma฀PUD฀staff.฀
In฀April฀2015,฀the฀Oklahoma฀PUD฀staff฀filed฀an฀application,฀seeking
an฀order฀from฀the฀OCC,฀for฀determining฀the฀proper฀methodology฀for฀
calculating฀lost฀revenues฀pursuant฀to฀OG&E’s฀Demand฀Program฀Rider,฀
primarily฀affecting฀the฀SmartHours฀program฀lost฀revenues.฀In฀the฀
application,฀the฀Oklahoma฀PUD฀staff฀recommends฀the฀OCC฀approve฀
the฀Oklahoma฀PUD฀staff฀methodology฀for฀calculating฀lost฀revenues฀
associated฀with฀the฀SmartHours฀program,฀which฀differs฀from฀the฀
methodology฀that฀OG&E฀believes฀it฀agreed฀upon฀and฀which฀would฀
result฀in฀recovery฀of฀lost฀revenue฀for฀2013฀of฀$4.9฀million,฀a฀reduction฀฀
of฀$5.2฀million฀from฀the฀amount฀recorded฀by฀OG&E฀for฀2013.฀
OG&E฀believes฀the฀methodology฀agreed฀to฀in฀November฀2014฀is฀
consistent฀with฀the฀2012฀OCC฀order฀and฀it฀is฀probable฀that฀OG&E฀will฀
recover฀the฀$10.1฀million฀of฀lost฀revenues฀associated฀with฀2013,฀the฀
$11.6฀million฀associated฀with฀2014฀and฀the฀$14.9฀million฀associated฀
with฀2015.฀A฀hearing฀was฀held฀on฀June฀30,฀2015฀and฀July฀1,฀2015.฀
OG&E฀is฀unable฀to฀predict฀when฀it฀will฀receive฀a฀ruling฀from฀the฀OCC.฀
฀
Environmental฀Compliance฀Plan฀
On฀August฀6,฀2014,฀OG&E฀filed฀an฀application฀with฀the฀OCC฀ or฀
approval฀of฀its฀plan฀to฀comply฀with฀the฀EPA’s฀MATS฀and฀Regional฀Haze฀
FIP฀while฀serving฀the฀best฀long-term฀interests฀of฀customers฀in฀light฀of฀
future฀environmental฀uncertainties.฀The฀application฀sought฀approval฀of฀
the฀ECP฀and฀for฀a฀recovery฀mechanism฀for฀the฀associated฀costs.฀The฀
ECP฀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฀OCC฀to฀predetermine฀the฀prudence฀of฀its฀Mustang฀
Modernization฀Plan฀which฀calls฀for฀replacing฀OG&E’s฀soon-to-be฀retired฀
Mustang฀steam฀turbines฀in฀late฀2017฀with฀400฀MWs฀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฀to฀be฀approximately฀$1.1฀billion.฀The฀OCC฀hearing฀฀
on฀OG&E’s฀application฀before฀an฀ALJ฀began฀on฀March฀3,฀2015฀and฀
concluded฀on฀April฀8,฀2015.฀Multiple฀parties฀advocating฀a฀variety฀of฀
positions฀intervened฀in฀the฀proceeding.฀
On฀June฀8,฀2015฀the฀ALJ฀issued฀his฀report฀on฀OG&E’s฀application.฀
While฀the฀ALJ฀in฀his฀report฀agreed฀that฀the฀installation฀of฀dry฀scrubbers฀
at฀Sooner฀Units฀1฀and฀2฀and฀the฀conversion฀of฀Muskogee฀Units฀4฀and฀5฀
to฀natural฀gas฀pursuant฀to฀OG&E’s฀ECP฀is฀the฀best฀approach,฀the฀ALJ’s฀
report฀included฀several฀recommendations.฀OG&E฀filed฀ xceptions฀to฀
the฀ALJ’s฀report฀and฀on฀July฀21,฀2015,฀Commissioner฀Bob฀Anthony฀
issued฀his฀deliberation฀statement฀that฀was฀consistent฀with฀many฀parts฀
of฀the฀ALJ’s฀report,฀including฀the฀ALJ’s฀support฀of฀OG&E’s฀ECP,฀the฀
ALJ’s฀recommendation฀to฀pre-approve฀certain฀estimated฀costs฀of฀the฀
environmental฀recovery฀plan,฀and฀the฀ALJ’s฀recommendation฀to฀defer฀
all฀other฀cost฀recovery฀issues฀until฀the฀next฀general฀rate฀case.฀
On฀December฀2,฀2015,฀OG&E฀received฀an฀order฀from฀the฀OCC฀
denying,฀by฀a฀two฀to฀one฀vote,฀its฀plan฀to฀comply฀with฀the฀environmental฀
mandates฀of฀the฀Federal฀Clean฀Air฀Act,฀Regional฀Haze฀and฀MATS.฀The฀
OCC฀also฀denied฀OG&E’s฀request฀for฀pre-approval฀of฀its฀Mustang฀
Modernization฀Plan,฀revised฀depreciation฀rates฀for฀both฀the฀retirement฀
of฀the฀Mustang฀units฀and฀the฀replacement฀combustion฀turbines฀and฀
pre-approval฀of฀early฀retirement฀and฀replacement฀of฀generating฀units฀at฀
its฀Mustang฀site,฀including฀cost฀recovery฀through฀a฀rider.฀
On฀December฀11,฀2015,฀OG&E฀filed฀a฀motion฀requesting฀modificati ฀
of฀the฀OCC฀order฀for฀the฀purposes฀of฀approving฀only฀the฀ECP.฀OG&E฀
did฀not฀seek฀modification฀to฀a y฀other฀provisions฀of฀the฀OCC฀order,฀
including฀cost฀recovery.฀OG&E฀also฀agreed฀that฀it฀would฀not฀implement฀
a฀rider฀for฀recovery฀of฀the฀costs฀of฀the฀ECP฀until฀and฀unless฀authorized฀
by฀the฀OCC฀in฀a฀subsequent฀proceeding.฀On฀December฀23,฀2015,฀the฀
OCC฀rejected,฀by฀a฀two฀to฀one฀vote,฀a฀proposal฀by฀Commissioner฀Dana฀
Murphy฀to฀grant฀OG&E’s฀December฀11,฀2015฀motion.฀