UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20202021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to_____
Commission File Number: 1-1097
Oklahoma Gas and Electric Company meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format permitted by General Instruction H(2).
OKLAHOMA GAS AND ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
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OklahomaCommission File Number | Exact name of registrants as specified in their charters, address of principal executive offices and registrants' telephone number | I.R.S. Employer Identification No. |
| 1-12579 | OGE ENERGY CORP. | 73-1481638 |
| 1-1097 | OKLAHOMA GAS AND ELECTRIC COMPANY | 73-0382390 |
(State or other jurisdiction of | | (I.R.S. Employer |
incorporation or organization) | | Identification No.) |
321 North Harvey
P.O. Box 321
Oklahoma City, Oklahoma 73101-0321
(Address of principal executive offices)
(Zip Code)
(Registrant's telephone number, including area code): 405-553-3000405-553-3000
State or other jurisdiction of incorporation or organization: Oklahoma
Securities registered pursuant to Section 12(b) of the Act:
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| Registrant | Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| OGE Energy Corp. | Common Stock | OGE | New York Stock Exchange |
| Oklahoma Gas and Electric Company | None | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
OGE Energy Corp. ☑ Yes ☐ No Oklahoma Gas and Electric Company ☑ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
OGE Energy Corp. ☑ Yes ☐ No Oklahoma Gas and Electric Company ☑ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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| OGE Energy Corp. | Large accelerated filer | ☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐ |
| Oklahoma Gas and Electric Company | Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☑ | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
| | | | | | | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
OGE Energy Corp. ☐ Yes ☑ No Oklahoma Gas and Electric Company ☐ Yes ☑ No
At SeptemberJune 30, 2020,2021, there were 200,174,361 shares of OGE Energy Corp.'s common stock, par value $0.01 per share, outstanding.
At June 30, 2021, there were 40,378,745 shares of Oklahoma Gas and Electric Company's common stock, par value $2.50 per share, outstanding, all of which were held by OGE Energy Corp. There were no other shares of capital stock of the registrantregistrants outstanding at such date.
Oklahoma Gas and Electric Company meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format permitted by General Instruction H(2).
OKLAHOMA GAS AND ELECTRIC COMPANY
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBERJUNE 30, 20202021
TABLE OF CONTENTS
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| Part I - FINANCIAL INFORMATION | |
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| Part II - OTHER INFORMATION | |
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GLOSSARY OF TERMS
The following is a glossary of frequently used abbreviations that are found throughout this Form 10-Q.
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| Abbreviation | Definition |
20192020 Form 10-K | Annual Report on Form 10-K for the year ended December 31, 20192020 |
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| APSC | Arkansas Public Service Commission |
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ASUASC | Accounting Standards Update from the Financial Accounting Standards Board Accounting Standards Codification |
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| CenterPoint | CenterPoint Energy Resources Corp., wholly-owned subsidiary of CenterPoint Energy, Inc. |
CO2 | Carbon dioxide |
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| COVID-19 | Novel Coronavirus disease |
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| Dry Scrubber | Dry flue gas desulfurization unit with spray dryer absorber |
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| Enable | Enable Midstream Partners, LP, a midstream partnership formed betweento own and operate the midstream businesses of OGE Energy and CenterPoint |
Energy Inc.Transfer | Energy Transfer LP, a Delaware limited partnership |
| Enogex Holdings | Enogex Holdings LLC, the parent company of Enogex LLC and a majority-owned subsidiary of OGE Holdings, LLC (prior to May 1, 2013) |
| Enogex LLC | Enogex LLC, collectively with its subsidiaries (effective July 31, 2013, the name was changed to Enable Oklahoma Intrastate Transmission, LLC) |
| EPA | U.S. Environmental Protection Agency |
| Federal Clean Air Act | Federal Clean Air Act of 1970, as amended |
| Federal Clean Water Act | Federal Water Pollution Control Act of 1972, as amended |
| FERC | Federal Energy Regulatory Commission |
| FIP | Federal Implementation Plan |
| GAAP | Accounting principles generally accepted in the U.S. |
| IRP | Integrated Resource Plan |
| ISO | Independent system operator |
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| MATS | Mercury and Air Toxics Standards |
| MBbl/d | Thousand barrels per day |
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| MW | Megawatt |
| MWh | Megawatt-hour |
| NAAQS | National Ambient Air Quality Standards |
| NGLs | Natural gas liquids, which are the hydrocarbon liquids contained within the natural gas stream |
| NOPR | Notice of proposed rulemaking |
NOX | Nitrogen oxide |
| OCC | Oklahoma Corporation Commission |
| ODEQ | Oklahoma Department of Environmental Quality |
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| OG&E | Oklahoma Gas and Electric Company, wholly ownedwholly-owned subsidiary of OGE Energy |
| OGE Energy | OGE Energy Corp., collectively with its subsidiaries, holding company and parent company of OG&E |
| OGE Holdings | OGE Enogex Holdings, LLC, wholly-owned subsidiary of OGE Energy, parent company of Enogex Holdings (prior to May 1, 2013) and 25.5 percent owner of Enable |
| Pension Plan | Qualified defined benefit retirement plan |
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| Regional Haze Rule | The EPA's Regional Haze Rule |
| Registrants | OGE Energy and OG&E |
| Restoration of Retirement Income Plan | Supplemental retirement plan to the Pension Plan |
| RTO | Regional transmission organization |
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| SIP | State Implementation Plan |
SO2 | Sulfur dioxide |
| SPP | Southwest Power Pool |
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| System sales | Sales to OG&E's customers |
| TBtu/d | Trillion British thermal units per day |
| U.S. | United States of America |
| USFWS | United States Fish and Wildlife Service |
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| Winter Storm Uri | Unprecedented, prolonged extreme cold weather event in February 2021 |
FILING FORMAT
This combined Form 10-Q is separately filed by OGE Energy and OG&E. Information in this combined Form 10-Q relating to each individual Registrant is filed by such Registrant on its own behalf. OG&E makes no representation regarding information relating to any other companies affiliated with OGE Energy. Neither OGE Energy, nor any of OGE Energy's subsidiaries, other than OG&E, has any obligation in respect of OG&E's debt securities, and holders of such debt securities should not consider the financial resources or results of operations of OGE Energy nor any of OGE Energy's subsidiaries, other than OG&E (in relevant circumstances), in making a decision with respect to OG&E's debt securities. Similarly, none of OG&E nor any other subsidiary of OGE Energy has any obligation with respect to debt securities of OGE Energy. This combined Form 10-Q should be read in its entirety. No one section of this combined Form 10-Q deals with all aspects of the subject matter of this combined Form 10-Q.
FORWARD-LOOKING STATEMENTS
Except for the historical statements contained herein, the matters discussed within this Form 10-Q, including those matters discussed within "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations," areforward-looking statements that are subject to certain risks, uncertainties and assumptions. Such forward-looking statements are intended to be identified in this document by the words "anticipate," "believe," "estimate," "expect," "intend," "objective," "plan," "possible," "potential," "project""project," "target" and similar expressions. Actual results may vary materiallyfrom those expressed in forward-looking statements. In addition to the specific risk factors discussed within "Item 1A. Risk Factors" inOG&E's the Registrants' 20192020 Form 10-K and within"Item "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Item 1A. Risk Factors" of "Part II - Other Information"herein, factors that could cause actual results to differ materiallyfrom the forward-looking statementsinclude, but are not limited to:
•general economic conditions, including the availability of credit, access to existing lines of credit, access to the commercial paper markets, actions of rating agencies and their impact on capital expenditures;
•the ability ofOG&E OGE Energy and OGE Energyits subsidiaries to access the capital markets and obtain financing on favorable terms as well as inflation rates and monetary fluctuations;
•the ability to obtain timely and sufficient rate relief to allow for recovery of items such as capital expenditures, fuel costs, operating costs, transmission costs and deferred expenditures;
•prices and availability of electricity, coal, and natural gas; and NGLs;
•for OGE Energy, the timing and extent of changes in commodity prices, particularly natural gas and NGLs, the competitive effects of the available pipeline capacity in the regions Enable serves and the effects of geographic and seasonal commodity price differentials, including the effects of these circumstances on re-contracting available capacity on Enable's interstate pipelines;
•for OGE Energy, the timing and extent of changes in the supply of natural gas, particularly supplies available for gathering by Enable's gathering and processing business and transporting by Enable's interstate and intrastate pipelines, including the impact of natural gas and NGLs prices on the level of drilling and production activities in the regions Enable serves;
•for OGE Energy, business conditions in the energy industry;and natural gas midstream industries, including the demand for natural gas, NGLs, crude oil and midstream services;
•competitive factors, including the extent and timing of the entry of additional competition in the markets served byOG&E; the Registrants;
•the impact on demand for our services resulting from cost-competitive advances in technology, such as distributed electricity generation and customer energy efficiency programs;programs;
•technological developments, changing markets and other factors that result in competitive disadvantages and create the potential for impairment of existing assets;assets;
•factors affecting utility operations such as unusual weather conditions; catastrophic weather-related damage; unscheduled generation outages, unusual maintenance or repairs; unanticipated changes to fossil fuel, natural gas or coal supply costs or availability due to higher demand, shortages, transportation problems or other developments; environmental incidents; or electric transmission or gas pipeline system constraints;
•availability and prices of raw materials for current and future construction projects;
•the effect of retroactive pricing of transactions in the SPP markets or adjustments in market pricing mechanisms by the SPP;
•federal or state legislation and regulatory decisions and initiatives that affect cost and investment recovery, have an impact on rate structures or affect the speed and degree to which competition entersOG&E's the Registrants' markets;
•environmental laws, safety laws or other regulations that may impact the cost of operations or restrict or change the way the Registrants' facilities are operated;
OG&Eoperates its facilities;
•changes in accounting standards, rules or guidelines;
•the discontinuance of accounting principles for certain types of rate-regulated activities;
•the cost of protecting assets against, or damage due to, terrorism or cyberattacks and other catastrophic events;
•creditworthiness of suppliers, customers and other contractual parties;
•social attitudes regarding the utility, industry;natural gas and power industries;
•identification of suitable investment opportunities to enhance shareholder returns and achieve long-term financial objectives through business acquisitions and divestitures;
•increased pension and healthcare costs;
•the impact of extraordinary external events, such as the current pandemic health event resulting from COVID-19, and their collateral consequences, including extended disruption of economic activity in ourthe Registrants' markets;
•costs and other effects of legal and administrative proceedings, settlements, investigations, claims and matters, including, but not limited to, those described in this Form 10-Q;
•difficulty in making accurate assumptions and projections regarding future revenues and costs associated with OGE Energy's equity investment in Enable that OGE Energy does not control;
•Enable's pending merger with Energy Transfer and the expected timing of the consummation of the merger; and
•other risk factors listed in the reports filed byOG&E the Registrants with the Securities and Exchange Commission, including those listed within"Item 1A.Risk Factors"in OG&E's2019 Form 10-Kand "Item 1A. Risk Factors" of "Part II - Other Information" herein.in the Registrants' 2020 Form 10-K.
OG&EundertakesThe Registrants undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
OKLAHOMA GAS AND ELECTRIC COMPANYOGE ENERGY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
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| Three Months Ended September 30, | Nine Months Ended September 30, |
| (In millions) | 2020 | 2019 | 2020 | 2019 |
| OPERATING REVENUES | | | | |
| Revenues from contracts with customers | $ | 687.8 | | $ | 739.2 | | $ | 1,600.2 | | $ | 1,717.7 | |
| Other revenues | 14.3 | | 16.2 | | 36.7 | | 41.4 | |
| Operating revenues | 702.1 | | 755.4 | | 1,636.9 | | 1,759.1 | |
| COST OF SALES | 209.1 | | 234.0 | | 481.5 | | 625.3 | |
| OPERATING EXPENSES | | | | |
| Other operation and maintenance | 110.1 | | 130.0 | | 348.8 | | 370.3 | |
| Depreciation and amortization | 100.5 | | 94.1 | | 292.2 | | 260.8 | |
| Taxes other than income | 23.9 | | 22.3 | | 72.8 | | 66.8 | |
| Operating expenses | 234.5 | | 246.4 | | 713.8 | | 697.9 | |
| OPERATING INCOME | 258.5 | | 275.0 | | 441.6 | | 435.9 | |
| OTHER INCOME (EXPENSE) | | | | |
| Allowance for equity funds used during construction | 1.1 | | 1.0 | | 3.7 | | 3.7 | |
| Other net periodic benefit expense | (1.3) | | (0.7) | | (2.8) | | (0.3) | |
| Other income | 1.1 | | 2.0 | | 3.7 | | 4.5 | |
| Other expense | (0.3) | | (2.4) | | (1.7) | | (3.9) | |
| Net other income | 0.6 | | (0.1) | | 2.9 | | 4.0 | |
| INTEREST EXPENSE | | | | |
| Interest on long-term debt | 38.7 | | 37.5 | | 114.1 | | 101.9 | |
| Allowance for borrowed funds used during construction | (0.5) | | (0.6) | | (1.5) | | (2.2) | |
| Interest on short-term debt and other interest charges | 1.3 | | 1.1 | | 3.1 | | 4.0 | |
| Interest expense | 39.5 | | 38.0 | | 115.7 | | 103.7 | |
| INCOME BEFORE TAXES | 219.6 | | 236.9 | | 328.8 | | 336.2 | |
| INCOME TAX EXPENSE | 20.1 | | 9.7 | | 30.5 | | 14.9 | |
| NET INCOME | $ | 199.5 | | $ | 227.2 | | $ | 298.3 | | $ | 321.3 | |
| Other comprehensive income, net of tax | 0 | | 0 | | 0 | | 0 | |
| COMPREHENSIVE INCOME | $ | 199.5 | | $ | 227.2 | | $ | 298.3 | | $ | 321.3 | |
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| Three Months Ended June 30, | Six Months Ended June 30, |
| (In millions, except per share data) | 2021 | 2020 | 2021 | 2020 |
| OPERATING REVENUES | | | | |
| Revenues from contracts with customers | $ | 564.5 | | $ | 492.0 | | $ | 2,185.5 | | $ | 912.4 | |
| Other revenues | 12.9 | | 11.5 | | 22.5 | | 22.4 | |
| Operating revenues | 577.4 | | 503.5 | | 2,208.0 | | 934.8 | |
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| FUEL, PURCHASED POWER AND DIRECT TRANSMISSION EXPENSE | 200.0 | | 137.4 | | 1,546.8 | | 272.4 | |
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| OPERATING EXPENSES | | | | |
| Other operation and maintenance | 119.2 | | 117.5 | | 228.5 | | 237.5 | |
| Depreciation and amortization | 102.9 | | 97.3 | | 201.6 | | 191.7 | |
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| Taxes other than income | 25.8 | | 25.9 | | 53.0 | | 51.5 | |
| Operating expenses | 247.9 | | 240.7 | | 483.1 | | 480.7 | |
| OPERATING INCOME | 129.5 | | 125.4 | | 178.1 | | 181.7 | |
| OTHER INCOME (EXPENSE) | | | | |
| Equity in earnings (losses) of unconsolidated affiliates | 33.5 | | 26.9 | | 86.7 | | (719.6) | |
| Allowance for equity funds used during construction | 1.6 | | 1.3 | | 2.9 | | 2.6 | |
| Other net periodic benefit expense | (1.3) | | (1.0) | | (2.7) | | (1.5) | |
| Other income | 6.3 | | 14.1 | | 9.3 | | 21.5 | |
| Other expense | (6.7) | | (12.4) | | (8.7) | | (18.5) | |
| Net other income (expense) | 33.4 | | 28.9 | | 87.5 | | (715.5) | |
| INTEREST EXPENSE | | | | |
| Interest on long-term debt | 37.8 | | 38.8 | | 76.2 | | 75.4 | |
| Allowance for borrowed funds used during construction | (0.7) | | (0.5) | | (1.5) | | (1.0) | |
| Interest on short-term debt and other interest charges | 2.8 | | 2.5 | | 4.6 | | 4.7 | |
| Interest expense | 39.9 | | 40.8 | | 79.3 | | 79.1 | |
| INCOME (LOSS) BEFORE TAXES | 123.0 | | 113.5 | | 186.3 | | (612.9) | |
| INCOME TAX EXPENSE (BENEFIT) | 10.1 | | 27.6 | | 20.7 | | (207.0) | |
| NET INCOME (LOSS) | $ | 112.9 | | $ | 85.9 | | $ | 165.6 | | $ | (405.9) | |
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| BASIC AVERAGE COMMON SHARES OUTSTANDING | 200.2 | | 200.2 | | 200.1 | | 200.2 | |
| DILUTED AVERAGE COMMON SHARES OUTSTANDING | 200.4 | | 200.5 | | 200.2 | | 200.2 | |
| BASIC EARNINGS (LOSS) PER AVERAGE COMMON SHARE | $ | 0.56 | | $ | 0.43 | | $ | 0.83 | | $ | (2.03) | |
| DILUTED EARNINGS (LOSS) PER AVERAGE COMMON SHARE | $ | 0.56 | | $ | 0.43 | | $ | 0.83 | | $ | (2.03) | |
The accompanying Combined Notes to Condensed Financial Statements are an integral part hereof.
OKLAHOMA GAS AND ELECTRIC COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
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| Nine Months Ended September 30, |
| (In millions) | 2020 | 2019 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | |
| Net income | $ | 298.3 | | $ | 321.3 | |
| Adjustments to reconcile net income to net cash provided from operating activities: | | |
| Depreciation and amortization | 292.2 | | 260.8 | |
| Deferred income taxes and investment tax credits, net | 23.9 | | 8.7 | |
| Allowance for equity funds used during construction | (3.7) | | (3.7) | |
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| Stock-based compensation expense | 2.2 | | 3.7 | |
| Regulatory assets | (8.5) | | (48.1) | |
| Regulatory liabilities | (48.6) | | (32.1) | |
| Other assets | (3.2) | | 2.8 | |
| Other liabilities | (27.6) | | 1.1 | |
| Change in certain current assets and liabilities: | | |
| Accounts receivable and accrued unbilled revenues, net | (62.4) | | (78.6) | |
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| Fuel, materials and supplies inventories | (2.0) | | 8.0 | |
| Fuel recoveries | 74.3 | | (44.8) | |
| Other current assets | (5.8) | | 8.9 | |
| Accounts payable | (59.6) | | (54.1) | |
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| Income taxes payable - parent | 9.6 | | 2.6 | |
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| Other current liabilities | (0.7) | | (13.1) | |
| Net cash provided from operating activities | 478.4 | | 343.4 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | |
| Capital expenditures (less allowance for equity funds used during construction) | (419.7) | | (476.5) | |
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| Net cash used in investing activities | (419.7) | | (476.5) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | |
| Dividends paid on common stock | (75.0) | | 0 | |
| Proceeds from long-term debt | 297.1 | | 296.4 | |
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| Payment of long-term debt | (0.1) | | (250.0) | |
| Changes in advances with parent | (248.7) | | 99.9 | |
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| Net cash provided from (used in) financing activities | (26.7) | | 146.3 | |
| NET CHANGE IN CASH AND CASH EQUIVALENTS | 32.0 | | 13.2 | |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 0 | | 0 | |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 32.0 | | $ | 13.2 | |
The accompanying Notes to Condensed Financial Statements are an integral part hereof.
OKLAHOMA GAS AND ELECTRIC COMPANYOGE ENERGY CORP.
CONDENSED BALANCE SHEETSCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited) | | | | | | | | | | | | | | |
| Three Months Ended June 30, | Six Months Ended June 30, |
| (In millions) | 2021 | 2020 | 2021 | 2020 |
| Net income (loss) | $ | 112.9 | | $ | 85.9 | | $ | 165.6 | | $ | (405.9) | |
| Other comprehensive income (loss), net of tax: | | | | |
| Pension Plan and Restoration of Retirement Income Plan: | | | | |
| Amortization of deferred net loss, net of tax of $0.2, $0.3, $0.4 and $0.6, respectively | 0.2 | | 1.2 | | 0.8 | | 2.0 | |
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| Settlement cost, net of tax of $0.6, $0.1, $1.6 and $0.1, respectively | 0.6 | | 0.2 | | 3.7 | | 0.2 | |
| Postretirement benefit plans: | | | | |
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| Amortization of prior service credit, net of tax of ($0.1), ($0.1), ($0.2) and ($0.3), respectively | (0.4) | | (0.4) | | (0.7) | | (0.8) | |
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| Amortization of deferred net gain, net of tax of $0.0, $0.0, $0.0 and $0.0, respectively | 0.1 | | (0.1) | | 0.1 | | (0.1) | |
| Other comprehensive gain (loss) from unconsolidated affiliates, net of tax of $0.1, $0.0, $0.1 and ($0.4), respectively | 0.2 | | 0 | | 0.3 | | (1.3) | |
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| Other comprehensive income (loss), net of tax | 0.7 | | 0.9 | | 4.2 | | 0 | |
| Comprehensive income (loss) | $ | 113.6 | | $ | 86.8 | | $ | 169.8 | | $ | (405.9) | |
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| September 30, | December 31, |
| (In millions) | 2020 | 2019 |
| ASSETS | | |
| CURRENT ASSETS | | |
| Cash and cash equivalents | $ | 32.0 | | $ | 0 | |
| Accounts receivable, less reserve of $2.6 and $1.5, respectively | 209.0 | | 153.8 | |
| Accrued unbilled revenues | 71.9 | | 64.7 | |
| Advances to parent | 293.9 | | 304.8 | |
| Fuel inventories | 36.5 | | 46.3 | |
| Materials and supplies, at average cost | 107.0 | | 90.6 | |
| Fuel clause under recoveries | 0 | | 39.5 | |
| Other | 25.4 | | 19.6 | |
| Total current assets | 775.7 | | 719.3 | |
| OTHER PROPERTY AND INVESTMENTS | 4.4 | | 4.7 | |
| PROPERTY, PLANT AND EQUIPMENT | | |
| In service | 13,109.1 | | 12,765.0 | |
| Construction work in progress | 128.9 | | 141.6 | |
| Total property, plant and equipment | 13,238.0 | | 12,906.6 | |
| Less: accumulated depreciation | 4,010.1 | | 3,868.1 | |
| Net property, plant and equipment | 9,227.9 | | 9,038.5 | |
| DEFERRED CHARGES AND OTHER ASSETS | | |
| Regulatory assets | 301.6 | | 306.0 | |
| Other | 13.7 | | 8.1 | |
| Total deferred charges and other assets | 315.3 | | 314.1 | |
| TOTAL ASSETS | $ | 10,323.3 | | $ | 10,076.6 | |
The accompanying Combined Notes to Condensed Financial Statements are an integral part hereof.
OGE ENERGY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) | | | | | | | | |
| Six Months Ended June 30, |
| (In millions) | 2021 | 2020 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | |
| Net income (loss) | $ | 165.6 | | $ | (405.9) | |
| Adjustments to reconcile net income (loss) to net cash provided from operating activities: | | |
| Depreciation and amortization | 201.6 | | 191.7 | |
| | |
| Deferred income taxes and investment tax credits, net | 15.5 | | (226.7) | |
| Equity in (earnings) losses of unconsolidated affiliates | (86.7) | | 719.6 | |
| Distributions from unconsolidated affiliates | 36.7 | | 55.0 | |
| Allowance for equity funds used during construction | (2.9) | | (2.6) | |
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| Stock-based compensation expense | 4.8 | | 4.3 | |
| | |
| Regulatory assets | (879.5) | | (6.1) | |
| Regulatory liabilities | (34.4) | | (26.7) | |
| Other assets | (5.8) | | 1.3 | |
| Other liabilities | (43.3) | | (15.6) | |
| Change in certain current assets and liabilities: | | |
| Accounts receivable and accrued unbilled revenues, net | (41.9) | | (35.8) | |
| | |
| Income taxes receivable | 4.0 | | 10.4 | |
| Fuel, materials and supplies inventories | (10.4) | | (1.5) | |
| Fuel recoveries | (24.3) | | 71.9 | |
| Other current assets | (5.6) | | (10.8) | |
| Accounts payable | (71.1) | | (51.2) | |
| | |
| | |
| Other current liabilities | 9.9 | | (8.0) | |
| Net cash (used in) provided from operating activities | (767.8) | | 263.3 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | |
| Capital expenditures (less allowance for equity funds used during construction) | (353.5) | | (280.8) | |
| Investment in unconsolidated affiliates | (3.3) | | (1.5) | |
| | |
| | |
| | |
| | |
| Net cash used in investing activities | (356.8) | | (282.3) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | |
| Proceeds from long-term debt | 999.6 | | 297.2 | |
| Increase (decrease) in short-term debt | 289.5 | | (37.0) | |
| | |
| Dividends paid on common stock | (162.2) | | (156.8) | |
| | |
| Cash paid for employee equity-based compensation and expense of common stock | (3.4) | | (7.2) | |
| | |
| | |
| Purchase of treasury stock | 0 | | (9.7) | |
| Net cash provided from financing activities | 1,123.5 | | 86.5 | |
| NET CHANGE IN CASH AND CASH EQUIVALENTS | (1.1) | | 67.5 | |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 1.1 | | 0 | |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 0 | | $ | 67.5 | |
The accompanying Combined Notes to Condensed Financial Statements are an integral part hereof.
OGE ENERGY CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) | | | | | | | | |
| June 30, | December 31, |
| (In millions) | 2021 | 2020 |
| ASSETS | | |
| CURRENT ASSETS | | |
| Cash and cash equivalents | $ | 0 | | $ | 1.1 | |
| Accounts receivable, less reserve of $1.8 and $2.6, respectively | 173.2 | | 157.8 | |
| | |
| Accrued unbilled revenues | 94.7 | | 67.6 | |
| Income taxes receivable | 4.1 | | 8.1 | |
| Fuel inventories | 46.1 | | 36.5 | |
| Materials and supplies, at average cost | 119.0 | | 116.2 | |
| | |
| Fuel clause under recoveries | 0.4 | | 0 | |
| | |
| Other | 47.1 | | 41.2 | |
| Total current assets | 484.6 | | 428.5 | |
| OTHER PROPERTY AND INVESTMENTS | | |
| Investment in unconsolidated affiliates | 451.7 | | 397.4 | |
| Other | 90.3 | | 86.7 | |
| Total other property and investments | 542.0 | | 484.1 | |
| PROPERTY, PLANT AND EQUIPMENT | | |
| In service | 13,582.7 | | 13,296.7 | |
| Construction work in progress | 181.0 | | 145.5 | |
| Total property, plant and equipment | 13,763.7 | | 13,442.2 | |
| Less: accumulated depreciation | 4,188.5 | | 4,067.6 | |
| Net property, plant and equipment | 9,575.2 | | 9,374.6 | |
| DEFERRED CHARGES AND OTHER ASSETS | | |
| Regulatory assets | 1,278.3 | | 415.6 | |
| | |
| | |
| Other | 19.4 | | 16.0 | |
| Total deferred charges and other assets | 1,297.7 | | 431.6 | |
| TOTAL ASSETS | $ | 11,899.5 | | $ | 10,718.8 | |
The accompanying Combined Notes to Condensed Financial Statements are an integral part hereof.
OGE ENERGY CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited) | | | | | | | | |
| June 30, | December 31, |
| (In millions) | 2021 | 2020 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | |
| CURRENT LIABILITIES | | |
| Short-term debt | $ | 384.5 | | $ | 95.0 | |
| | |
| Accounts payable | 189.8 | | 251.5 | |
| Dividends payable | 80.6 | | 80.5 | |
| Customer deposits | 80.9 | | 81.1 | |
| Accrued taxes | 56.5 | | 55.7 | |
| Accrued interest | 40.8 | | 40.2 | |
| Accrued compensation | 36.0 | | 31.1 | |
| Fuel clause over recoveries | 4.7 | | 28.6 | |
| Other | 37.5 | | 33.7 | |
| Total current liabilities | 911.3 | | 697.4 | |
| LONG-TERM DEBT | 4,495.2 | | 3,494.4 | |
| DEFERRED CREDITS AND OTHER LIABILITIES | | |
| | |
| Accrued benefit obligations | 179.8 | | 231.4 | |
| Deferred income taxes | 1,206.5 | | 1,268.6 | |
| Deferred investment tax credits | 10.9 | | 10.9 | |
| Regulatory liabilities | 1,259.7 | | 1,188.9 | |
| | |
| Other | 195.3 | | 195.4 | |
| Total deferred credits and other liabilities | 2,852.2 | | 2,895.2 | |
| Total liabilities | 8,258.7 | | 7,087.0 | |
| COMMITMENTS AND CONTINGENCIES (NOTE 14) | 0 | 0 |
| STOCKHOLDERS' EQUITY | | |
| Common stockholders' equity | 1,120.9 | | 1,124.6 | |
| Retained earnings | 2,547.9 | | 2,544.6 | |
| Accumulated other comprehensive loss, net of tax | (27.9) | | (32.1) | |
| Treasury stock, at cost | (0.1) | | (5.3) | |
| | |
| | |
| Total stockholders' equity | 3,640.8 | | 3,631.8 | |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 11,899.5 | | $ | 10,718.8 | |
The accompanying Combined Notes to Condensed Financial Statements are an integral part hereof.
OGE ENERGY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | Treasury Stock | | | | | |
(In millions) | Shares | Value | Shares | Value | Premium on Common Stock | Retained Earnings | Accumulated Other Comprehensive (Loss) Income | | Total |
| Balance at December 31, 2020 | 200.1 | | $ | 2.0 | | 0.1 | | $ | (5.3) | | $ | 1,122.6 | | $ | 2,544.6 | | $ | (32.1) | | | $ | 3,631.8 | |
| Net income | 0 | | 0 | | 0 | | 0 | | 0 | | 52.7 | | 0 | | | 52.7 | |
| Other comprehensive income, net of tax | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 3.5 | | | 3.5 | |
| Dividends declared on common stock ($0.4025 per share) | 0 | | 0 | | 0 | | 0 | | 0 | | (81.7) | | 0 | | | (81.7) | |
| Stock-based compensation | 0 | | 0 | | (0.1) | | 5.2 | | (6.0) | | 0 | | 0 | | | (0.8) | |
| | | | | | | | | |
| Balance at March 31, 2021 | 200.1 | | $ | 2.0 | | 0 | | $ | (0.1) | | $ | 1,116.6 | | $ | 2,515.6 | | $ | (28.6) | | | $ | 3,605.5 | |
| Net income | 0 | | 0 | | 0 | | 0 | | 0 | | 112.9 | | 0 | | | 112.9 | |
| Other comprehensive income, net of tax | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0.7 | | | 0.7 | |
| Dividends declared on common stock ($0.4025 per share) | 0 | | 0 | | 0 | | 0 | | 0 | | (80.6) | | 0 | | | (80.6) | |
| Stock-based compensation | 0 | | 0 | | 0 | | 0 | | 2.3 | | 0 | | 0 | | | 2.3 | |
| Balance at June 30, 2021 | 200.1 | $ | 2.0 | | 0 | | $ | (0.1) | | $ | 1,118.9 | | $ | 2,547.9 | | $ | (27.9) | | | $ | 3,640.8 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Balance at December 31, 2019 | 200.1 | | $ | 2.0 | | 0 | | $ | 0 | | $ | 1,129.3 | | $ | 3,036.1 | | $ | (27.9) | | | $ | 4,139.5 | |
| Net loss | 0 | | 0 | | 0 | | 0 | | 0 | | (491.8) | | 0 | | | (491.8) | |
| Other comprehensive loss, net of tax | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | (0.9) | | | (0.9) | |
| Dividends declared on common stock ($0.3875 per share) | 0 | | 0 | | 0 | | 0 | | 0 | | (79.3) | | 0 | | | (79.3) | |
| Stock-based compensation | 0 | | 0 | | (0.2) | | 9.4 | | (14.5) | | 0 | | 0 | | | (5.1) | |
| Purchase of treasury stock | 0 | | 0 | | 0.2 | | (9.7) | | 0 | | 0 | | 0 | | | (9.7) | |
| Balance at March 31, 2020 | 200.1 | | $ | 2.0 | | 0 | | $ | (0.3) | | $ | 1,114.8 | | $ | 2,465.0 | | $ | (28.8) | | | $ | 3,552.7 | |
| Net income | 0 | | 0 | | 0 | | 0 | | 0 | | 85.9 | | 0 | | | 85.9 | |
| Other comprehensive income, net of tax | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0.9 | | | 0.9 | |
| Dividends declared on common stock ($0.3875 per share) | 0 | | 0 | | 0 | | 0 | | 0 | | (77.6) | | 0 | | | (77.6) | |
| Stock-based compensation | 0 | | 0 | | 0 | | 0 | | 2.3 | | 0 | | 0 | | | 2.3 | |
| Balance at June 30, 2020 | 200.1 | $ | 2.0 | | 0 | | $ | (0.3) | | $ | 1,117.1 | | $ | 2,473.3 | | $ | (27.9) | | | $ | 3,564.2 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
The accompanying Combined Notes to Condensed Financial Statements are an integral part hereof.
OKLAHOMA GAS AND ELECTRIC COMPANY
CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited) | | | | | | | | | | | | | | |
| Three Months Ended June 30, | Six Months Ended June 30, |
| (In millions) | 2021 | 2020 | 2021 | 2020 |
| OPERATING REVENUES | | | | |
| Revenues from contracts with customers | $ | 564.5 | | $ | 492.0 | | $ | 2,185.5 | | $ | 912.4 | |
| Other revenues | 12.9 | | 11.5 | | 22.5 | | 22.4 | |
| Operating revenues | 577.4 | | 503.5 | | 2,208.0 | | 934.8 | |
| FUEL, PURCHASED POWER AND DIRECT TRANSMISSION EXPENSE | 200.0 | | 137.4 | | 1,546.8 | | 272.4 | |
| OPERATING EXPENSES | | | | |
| Other operation and maintenance | 118.3 | | 117.7 | | 228.6 | | 238.7 | |
| Depreciation and amortization | 102.9 | | 97.3 | | 201.6 | | 191.7 | |
| Taxes other than income | 25.0 | | 25.0 | | 50.7 | | 48.9 | |
| Operating expenses | 246.2 | | 240.0 | | 480.9 | | 479.3 | |
| OPERATING INCOME | 131.2 | | 126.1 | | 180.3 | | 183.1 | |
| OTHER INCOME (EXPENSE) | | | | |
| Allowance for equity funds used during construction | 1.6 | | 1.3 | | 2.9 | | 2.6 | |
| Other net periodic benefit expense | (1.2) | | (1.0) | | (2.1) | | (1.5) | |
| Other income | 1.1 | | 1.1 | | 2.8 | | 2.6 | |
| Other expense | (0.3) | | (0.9) | | (0.7) | | (1.4) | |
| Net other income | 1.2 | | 0.5 | | 2.9 | | 2.3 | |
| INTEREST EXPENSE | | | | |
| Interest on long-term debt | 37.4 | | 38.8 | | 75.8 | | 75.4 | |
| Allowance for borrowed funds used during construction | (0.7) | | (0.5) | | (1.5) | | (1.0) | |
| Interest on short-term debt and other interest charges | 1.2 | | 1.0 | | 2.0 | | 1.8 | |
| Interest expense | 37.9 | | 39.3 | | 76.3 | | 76.2 | |
| INCOME BEFORE TAXES | 94.5 | | 87.3 | | 106.9 | | 109.2 | |
| INCOME TAX EXPENSE | 9.4 | | 8.4 | | 10.6 | | 10.4 | |
| NET INCOME | $ | 85.1 | | $ | 78.9 | | $ | 96.3 | | $ | 98.8 | |
| Other comprehensive income, net of tax | 0 | | 0 | | — | | 0 | |
| COMPREHENSIVE INCOME | $ | 85.1 | | $ | 78.9 | | $ | 96.3 | | $ | 98.8 | |
The accompanying Combined Notes to Condensed Financial Statements are an integral part hereof.
OKLAHOMA GAS AND ELECTRIC COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited) | | | | | | | | |
| Six Months Ended June 30, |
| (In millions) | 2021 | 2020 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | |
| Net income | $ | 96.3 | | $ | 98.8 | |
| Adjustments to reconcile net income to net cash provided from operating activities: | | |
| Depreciation and amortization | 201.6 | | 191.7 | |
| Deferred income taxes and investment tax credits, net | 10.3 | | 6.7 | |
| Allowance for equity funds used during construction | (2.9) | | (2.6) | |
| | |
| Stock-based compensation expense | 1.0 | | 1.6 | |
| Regulatory assets | (879.5) | | (6.1) | |
| Regulatory liabilities | (34.4) | | (26.7) | |
| Other assets | (1.4) | | (2.3) | |
| Other liabilities | (38.3) | | (7.0) | |
| Change in certain current assets and liabilities: | | |
| Accounts receivable and accrued unbilled revenues, net | (43.9) | | (34.2) | |
| | |
| Fuel, materials and supplies inventories | (10.4) | | (1.5) | |
| Fuel recoveries | (24.3) | | 71.9 | |
| Other current assets | (1.3) | | (6.8) | |
| Accounts payable | (66.4) | | (45.6) | |
| | |
| Income taxes payable - parent | 2.6 | | 5.0 | |
| | |
| Other current liabilities | 8.2 | | (19.0) | |
| Net cash (used in) provided from operating activities | (782.8) | | 223.9 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | |
| Capital expenditures (less allowance for equity funds used during construction) | (353.5) | | (280.8) | |
| | |
| Net cash used in investing activities | (353.5) | | (280.8) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | |
| Capital contribution from OGE Energy | 530.0 | | 0 | |
| Proceeds from long-term debt | 499.8 | | 297.2 | |
| | |
| | |
| | |
| Changes in advances with parent | 106.5 | | (172.8) | |
| Net cash provided from financing activities | 1,136.3 | | 124.4 | |
| NET CHANGE IN CASH AND CASH EQUIVALENTS | 0 | | 67.5 | |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 0 | | 0 | |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 0 | | $ | 67.5 | |
The accompanying Combined Notes to Condensed Financial Statements are an integral part hereof.
OKLAHOMA GAS AND ELECTRIC COMPANY
CONDENSED BALANCE SHEETS (Continued)
(Unaudited) | | | | | | | | |
| June 30, | December 31, |
| (In millions) | 2021 | 2020 |
| ASSETS | | |
| CURRENT ASSETS | | |
| | |
| Accounts receivable, less reserve of $1.8 and $2.6, respectively | $ | 173.2 | | $ | 156.3 | |
| Accrued unbilled revenues | 94.7 | | 67.7 | |
| Advances to parent | 118.0 | | 272.0 | |
| Fuel inventories | 46.1 | | 36.5 | |
| Materials and supplies, at average cost | 119.0 | | 116.2 | |
| Fuel clause under recoveries | 0.4 | | 0 | |
| Other | 38.3 | | 36.9 | |
| Total current assets | 589.7 | | 685.6 | |
| OTHER PROPERTY AND INVESTMENTS | 3.9 | | 4.1 | |
| PROPERTY, PLANT AND EQUIPMENT | | |
| In service | 13,576.6 | | 13,290.6 | |
| Construction work in progress | 181.0 | | 145.5 | |
| Total property, plant and equipment | 13,757.6 | | 13,436.1 | |
| Less: accumulated depreciation | 4,188.5 | | 4,067.6 | |
| Net property, plant and equipment | 9,569.1 | | 9,368.5 | |
| DEFERRED CHARGES AND OTHER ASSETS | | |
| Regulatory assets | 1,278.3 | | 415.6 | |
| Other | 18.3 | | 15.2 | |
| Total deferred charges and other assets | 1,296.6 | | 430.8 | |
| TOTAL ASSETS | $ | 11,459.3 | | $ | 10,489.0 | |
| | | | | | | | |
| September 30, | December 31, |
| (In millions) | 2020 | 2019 |
| LIABILITIES AND STOCKHOLDER'S EQUITY | | |
| CURRENT LIABILITIES | | |
| | |
| | |
| Accounts payable | $ | 112.4 | | $ | 175.0 | |
| | |
| Customer deposits | 82.4 | | 83.0 | |
| Accrued taxes | 70.7 | | 41.9 | |
| Accrued interest | 40.4 | | 37.9 | |
| Accrued compensation | 24.4 | | 29.5 | |
| | |
| Fuel clause over recoveries | 39.6 | | 4.8 | |
| Other | 38.8 | | 65.1 | |
| Total current liabilities | 408.7 | | 437.2 | |
| LONG-TERM DEBT | 3,493.9 | | 3,195.2 | |
| DEFERRED CREDITS AND OTHER LIABILITIES | | |
| | |
| Accrued benefit obligations | 115.0 | | 133.3 | |
| Deferred income taxes | 996.2 | | 951.4 | |
| Deferred investment tax credits | 10.2 | | 7.1 | |
| Regulatory liabilities | 1,199.4 | | 1,223.5 | |
| | |
| Other | 166.1 | | 170.6 | |
| Total deferred credits and other liabilities | 2,486.9 | | 2,485.9 | |
| Total liabilities | 6,389.5 | | 6,118.3 | |
| COMMITMENTS AND CONTINGENCIES (NOTE 11) | | |
| STOCKHOLDER'S EQUITY | | |
| Common stockholder's equity | 1,038.8 | | 1,036.6 | |
| Retained earnings | 2,895.0 | | 2,921.7 | |
| | |
| Total stockholder's equity | 3,933.8 | | 3,958.3 | |
| TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | $ | 10,323.3 | | $ | 10,076.6 | |
The accompanying Combined Notes to Condensed Financial Statements are an integral part hereof.
OKLAHOMA GAS AND ELECTRIC COMPANY
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITYBALANCE SHEETS (Continued)
(Unaudited) | | | | | | | | |
| June 30, | December 31, |
| (In millions) | 2021 | 2020 |
| LIABILITIES AND STOCKHOLDER'S EQUITY | | |
| CURRENT LIABILITIES | | |
| | |
| | |
| Accounts payable | $ | 178.9 | | $ | 236.7 | |
| | |
| Customer deposits | 80.9 | | 81.1 | |
| Accrued taxes | 53.4 | | 53.3 | |
| Accrued interest | 40.5 | | 40.2 | |
| Accrued compensation | 26.6 | | 22.5 | |
| | |
| Fuel clause over recoveries | 4.7 | | 28.6 | |
| Other | 37.4 | | 33.5 | |
| Total current liabilities | 422.4 | | 495.9 | |
| LONG-TERM DEBT | 3,995.4 | | 3,494.4 | |
| DEFERRED CREDITS AND OTHER LIABILITIES | | |
| | |
| Accrued benefit obligations | 98.0 | | 135.4 | |
| Deferred income taxes | 951.2 | | 1,020.8 | |
| Deferred investment tax credits | 10.9 | | 10.9 | |
| Regulatory liabilities | 1,259.7 | | 1,188.9 | |
| | |
| Other | 163.7 | | 167.1 | |
| Total deferred credits and other liabilities | 2,483.5 | | 2,523.1 | |
| Total liabilities | 6,901.3 | | 6,513.4 | |
| COMMITMENTS AND CONTINGENCIES (NOTE 14) | 0 | 0 |
| STOCKHOLDER'S EQUITY | | |
| Common stockholder's equity | 1,570.6 | | 1,039.5 | |
| Retained earnings | 2,987.4 | | 2,936.1 | |
| | |
| Total stockholder's equity | 4,558.0 | | 3,975.6 | |
| TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | $ | 11,459.3 | | $ | 10,489.0 | |
| | | | | | | | | | | | | | | | | | |
| (In millions) | Shares Outstanding | Common Stock | Premium on Common Stock | Retained Earnings | | Total |
| Balance at December 31, 2019 | 40.4 | | $ | 100.9 | | $ | 935.7 | | $ | 2,921.7 | | | $ | 3,958.3 | |
| Net income | 0 | | 0 | | 0 | | 19.9 | | | 19.9 | |
| Stock-based compensation | 0 | | 0 | | 0.9 | | 0 | | | 0.9 | |
| Balance at March 31, 2020 | 40.4 | | $ | 100.9 | | $ | 936.6 | | $ | 2,941.6 | | | $ | 3,979.1 | |
| Net income | 0 | | 0 | | 0 | | 78.9 | | | 78.9 | |
| | | | | | |
| Dividends declared on common stock | 0 | | 0 | | 0 | | (75.0) | | | (75.0) | |
| Stock-based compensation | 0 | | 0 | | 0.7 | | 0 | | | 0.7 | |
| Balance at June 30, 2020 | 40.4 | | $ | 100.9 | | $ | 937.3 | | $ | 2,945.5 | | | $ | 3,983.7 | |
| Net income | 0 | | $ | 0 | | $ | 0 | | $ | 199.5 | | | $ | 199.5 | |
| | | | | | |
| Dividends declared on common stock | 0 | | 0 | | 0 | | (250.0) | | | (250.0) | |
| Stock-based compensation | 0 | | 0 | | 0.6 | | 0 | | | 0.6 | |
| Balance at September 30, 2020 | 40.4 | | $ | 100.9 | | $ | 937.9 | | $ | 2,895.0 | | | $ | 3,933.8 | |
| | | | | | |
| Balance at December 31, 2018 | 40.4 | | $ | 100.9 | | $ | 930.9 | | $ | 2,571.5 | | | $ | 3,603.3 | |
| Net income | 0 | | 0 | | 0 | | 19.6 | | | 19.6 | |
| Stock-based compensation | 0 | | 0 | | 1.0 | | 0 | | | 1.0 | |
| Balance at March 31, 2019 | 40.4 | | $ | 100.9 | | $ | 931.9 | | $ | 2,591.1 | | | $ | 3,623.9 | |
| Net income | 0 | | 0 | | 0 | | 74.5 | | | 74.5 | |
| | | | | | |
| | | | | | |
| Stock-based compensation | 0 | | 0 | | 1.0 | | 0 | | | 1.0 | |
| Balance at June 30, 2019 | 40.4 | | $ | 100.9 | | $ | 932.9 | | $ | 2,665.6 | | | $ | 3,699.4 | |
| Net income | 0 | | 0 | | 0 | | 227.2 | | | 227.2 | |
| | | | | | |
| | | | | | |
| Stock-based compensation | 0 | | 0 | | 1.6 | | 0 | | | 1.6 | |
| Balance at September 30, 2019 | 40.4 | | $ | 100.9 | | $ | 934.5 | | $ | 2,892.8 | | | $ | 3,928.2 | |
The accompanying Combined Notes to Condensed Financial Statements are an integral part hereof.
OKLAHOMA GAS AND ELECTRIC COMPANY
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(Unaudited) | | | | | | | | | | | | | | | | | | |
| (In millions) | Shares Outstanding | Common Stock | Premium on Common Stock | Retained Earnings | | Total |
| Balance at December 31, 2020 | 40.4 | | $ | 100.9 | | $ | 938.6 | | $ | 2,936.1 | | | $ | 3,975.6 | |
| Net income | 0 | | 0 | | 0 | | 11.2 | | | 11.2 | |
| Capital contribution from OGE Energy | 0 | | 0 | | 530.0 | | 0 | | | 530.0 | |
| Stock-based compensation | 0 | | 0 | | 0.5 | | 0 | | | 0.5 | |
| Balance at March 31, 2021 | 40.4 | | $ | 100.9 | | $ | 1,469.1 | | $ | 2,947.3 | | | $ | 4,517.3 | |
| Net income | 0 | | 0 | | 0 | | 85.1 | | | 85.1 | |
| | | | | | |
| Dividends declared on common stock | 0 | | 0 | | 0 | | (45.0) | | | (45.0) | |
| Stock-based compensation | 0 | | 0 | | 0.6 | | 0 | | | 0.6 | |
| Balance at June 30, 2021 | 40.4 | | $ | 100.9 | | $ | 1,469.7 | | $ | 2,987.4 | | | $ | 4,558.0 | |
| | | | | | |
| | | | | | |
| | | | | | |
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| | | | | | |
| | | | | | |
| Balance at December 31, 2019 | 40.4 | | $ | 100.9 | | $ | 935.7 | | $ | 2,921.7 | | | $ | 3,958.3 | |
| Net income | 0 | | 0 | | 0 | | 19.9 | | | 19.9 | |
| | | | | | |
| Stock-based compensation | 0 | | 0 | | 0.9 | | 0 | | | 0.9 | |
| Balance at March 31, 2020 | 40.4 | | $ | 100.9 | | $ | 936.6 | | $ | 2,941.6 | | | $ | 3,979.1 | |
| Net income | 0 | | 0 | | 0 | | 78.9 | | | 78.9 | |
| | | | | | |
| Dividends declared on common stock | 0 | | 0 | | 0 | | (75.0) | | | (75.0) | |
| Stock-based compensation | 0 | | 0 | | 0.7 | | 0 | | | 0.7 | |
| Balance at June 30, 2020 | 40.4 | | $ | 100.9 | | $ | 937.3 | | $ | 2,945.5 | | | $ | 3,983.7 | |
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The accompanying Combined Notes to Condensed Financial Statements are an integral part hereof.
COMBINED NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Index of Combined Notes to Condensed Financial Statements
The Combined Notes to the Condensed Financial Statements are a combined presentation for OGE Energy and OG&E. The following table indicates the Registrant(s) to which each Note applies.
| | | | | | | | |
| OGE Energy | OG&E |
| Note 1. Summary of Significant Accounting Policies | X | X |
| Note 2. Accounting Pronouncements | X | X |
| Note 3. Revenue Recognition | X | X |
| Note 4. Investment in Unconsolidated Affiliates | X | |
| Note 5. Related Party Transactions | X | X |
| Note 6. Fair Value Measurements | X | X |
| Note 7. Stock-Based Compensation | X | X |
| Note 8. Income Taxes | X | X |
| Note 9. Common Equity | X | |
| Note 10. Long-Term Debt | X | X |
| Note 11. Short-Term Debt and Credit Facilities | X | X |
| Note 12. Retirement Plans and Postretirement Benefit Plans | X | X |
| Note 13. Report of Business Segments | X | |
| Note 14. Commitments and Contingencies | X | X |
| Note 15. Rate Matters and Regulation | X | X |
1.Summary of Significant Accounting Policies
OG&E's significant accounting policies are detailed in "Note 1. Summary of Significant Accounting Policies" in OG&E's 2019 Form 10-K. Changes to OG&E's accounting policies as a result of adopting ASU 2016-13, "Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Information" are incorporated within "Allowance for Uncollectible Accounts Receivables" below and discussed in Note 2.
Organization
OGE Energy is a holding company with investments in energy and energy services providers offering physical delivery and related services for both electricity and natural gas primarily in the south-central U.S. OGE Energy conducts these activities through two business segments: (i) electric utility and (ii) natural gas midstream operations. The accounts of OGE Energy and its wholly-owned subsidiaries, including OG&E, are included in OGE Energy's condensed consolidated financial statements. All intercompany transactions and balances are eliminated in such consolidation. OGE Energy generally uses the equity method of accounting for investments where its ownership interest is between 20 percent and 50 percent and it lacks the power to direct activities that most significantly impact economic performance.
OG&E. OGE Energy's electric utility operations are conducted through OG&E, which generates, transmits, distributes and sells electric energy in Oklahoma and western Arkansas. Its operationsOG&E's rates 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.Territory and is a wholly-owned subsidiary of OGE Energy. 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. OG&E
Enable. OGE Energy's natural gas midstream operations segment represents OGE Energy's investment in Enable. The investment in Enable is aheld through wholly-owned subsidiarysubsidiaries and ultimately OGE Holdings. Formed in 2013, Enable is primarily 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 in the Anadarko, Arkoma and Ark-La-Tex Basins. Enable also owns crude oil gathering assets in the Anadarko and Williston Basins. Enable has intrastate natural gas transportation and storage assets that are located in Oklahoma as well as interstate assets that extend from western Oklahoma and the Texas Panhandle to Louisiana, from Louisiana to Illinois and from Louisiana to Alabama. Enable's general partner is equally controlled by OGE Energy and CenterPoint, who each have 50 percent management ownership. Based on the 50/50 management ownership, with neither company having control, OGE Energy accounts for its interest in Enable using the
equity method of accounting. In February 2021, Enable entered into a holding companydefinitive merger agreement with investments in energy and energy services providers offering physical delivery and related services for both electricity and natural gas primarily in the south-central U.S.Energy Transfer. For further discussion, see Note 4.
Basis of Presentation
The Condensed Financial Statementscondensed financial statements included herein have been prepared by OG&E,the Registrants, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations; however, OG&E believesthe Registrants believe that the disclosures are adequate to prevent the information presented from being misleading.
In the opinion of management, all adjustments necessary to fairly present the financial position of OG&Ethe Registrants at SeptemberJune 30, 20202021 and December 31, 2019,2020, the results of itsthe Registrants' operations for the three and ninesix months ended SeptemberJune 30, 2021 and 2020 and 2019 and itsthe Registrants' cash flows for the ninesix months ended SeptemberJune 30, 20202021 and 20192020 have been included and are of a normal, recurring nature except as otherwise disclosed. Management also has evaluated the impact of events occurring after SeptemberJune 30, 20202021 up to the date of issuance of these Condensed Financial Statements,condensed financial statements, and these statements contain all necessary adjustments and disclosures resulting from that evaluation.
Due to seasonal fluctuations and other factors, OG&E'sthe Registrants' operating results for the three and ninesix months ended SeptemberJune 30, 20202021 are not necessarily indicative of the results that may be expected for the year ending December 31, 20202021 or for any future period. The Condensed Financial Statementscondensed financial statements and Notesnotes thereto should be read in conjunction with the audited Financial Statementsfinancial statements and Notesnotes thereto included in OG&E'sthe Registrants' 20192020 Form 10-K.
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 flowback to customers in future rates. Management's expected recovery of deferred costs and flowback of deferred credits generally results from specific decisions by regulators granting such ratemaking treatment.
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 ispresents a summary of OG&E's regulatory assets and liabilities.
| | | September 30, | December 31, | | June 30, | December 31, |
| (In millions) | (In millions) | 2020 | 2019 | (In millions) | 2021 | 2020 |
| REGULATORY ASSETS | REGULATORY ASSETS | | REGULATORY ASSETS | |
| Current: | Current: | | Current: | |
| SPP cost tracker under recovery (A) | $ | 4.6 | | $ | 0 | | |
| Generation Capacity Replacement rider under recovery (A) | 1.2 | | 3.7 | | |
| SPP cost tracker under recoveries (A) | | SPP cost tracker under recoveries (A) | $ | 10.9 | | $ | 7.0 | |
| Generation Capacity Replacement rider under recoveries (A) | | Generation Capacity Replacement rider under recoveries (A) | 4.1 | | 4.4 | |
| Fuel clause under recoveries | Fuel clause under recoveries | 0 | | 39.5 | | Fuel clause under recoveries | 0.4 | | 0 | |
| Other (A) | Other (A) | 9.7 | | 5.5 | | Other (A) | 6.4 | | 8.4 | |
| Total current regulatory assets | Total current regulatory assets | $ | 15.5 | | $ | 48.7 | | Total current regulatory assets | $ | 21.8 | | $ | 19.8 | |
| | | |
| Non-current: | Non-current: | | Non-current: | |
| Oklahoma Winter Storm Uri costs | | Oklahoma Winter Storm Uri costs | $ | 754.8 | | $ | 0 | |
| Oklahoma deferred storm expenses | | Oklahoma deferred storm expenses | 181.8 | | 158.8 | |
| Benefit obligations regulatory asset | Benefit obligations regulatory asset | $ | 150.2 | | $ | 167.2 | | Benefit obligations regulatory asset | 135.6 | | 164.9 | |
| Deferred storm expenses | 70.2 | | 65.5 | | |
| Arkansas Winter Storm Uri costs | | Arkansas Winter Storm Uri costs | 92.3 | | 0 | |
| Pension tracker | | Pension tracker | 40.6 | | 18.1 | |
| Sooner Dry Scrubbers | Sooner Dry Scrubbers | 19.9 | | 20.6 | | Sooner Dry Scrubbers | 19.3 | | 19.7 | |
| Arkansas deferred pension expenses | | Arkansas deferred pension expenses | 11.6 | | 9.3 | |
| Unamortized loss on reacquired debt | | Unamortized loss on reacquired debt | 9.3 | | 9.7 | |
| Smart Grid | Smart Grid | 13.1 | | 18.4 | | Smart Grid | 7.6 | | 11.2 | |
| Unamortized loss on reacquired debt | 9.9 | | 10.6 | | |
| Arkansas deferred pension expenses | 8.4 | | 8.0 | | |
| Pension tracker | 8.1 | | 2.3 | | |
| COVID-19 deferred expenses | 4.9 | | 0 | | |
| Frontier Plant deferred expenses | | Frontier Plant deferred expenses | 7.5 | | 6.4 | |
| COVID-19 impacts | | COVID-19 impacts | 7.1 | | 6.4 | |
| Other | Other | 16.9 | | 13.4 | | Other | 10.8 | | 11.1 | |
| Total non-current regulatory assets | Total non-current regulatory assets | $ | 301.6 | | $ | 306.0 | | Total non-current regulatory assets | $ | 1,278.3 | | $ | 415.6 | |
| REGULATORY LIABILITIES | REGULATORY LIABILITIES | | REGULATORY LIABILITIES | |
| Current: | Current: | | Current: | |
| Fuel clause over recoveries | Fuel clause over recoveries | $ | 39.6 | | $ | 4.8 | | Fuel clause over recoveries | $ | 4.7 | | $ | 28.6 | |
| Oklahoma demand program rider over recovery (B) | 5.8 | | 2.0 | | |
| Reserve for tax refund and interim surcharge (B) | 1.3 | | 12.7 | | |
| SPP cost tracker over recovery (B) | 0 | | 2.6 | | |
| Oklahoma energy efficiency rider over recoveries (B) | | Oklahoma energy efficiency rider over recoveries (B) | 4.3 | | 1.5 | |
| | | Other (B) | Other (B) | 4.9 | | 6.9 | | Other (B) | 1.0 | | 5.0 | |
| Total current regulatory liabilities | Total current regulatory liabilities | $ | 51.6 | | $ | 29.0 | | Total current regulatory liabilities | $ | 10.0 | | $ | 35.1 | |
| Non-current: | Non-current: | | Non-current: | |
| Income taxes refundable to customers, net | Income taxes refundable to customers, net | $ | 875.5 | | $ | 899.2 | | Income taxes refundable to customers, net | $ | 947.5 | | $ | 867.4 | |
| Accrued removal obligations, net | Accrued removal obligations, net | 318.9 | | 318.5 | | Accrued removal obligations, net | 308.1 | | 316.8 | |
| | Other | Other | 5.0 | | 5.8 | | Other | 4.1 | | 4.7 | |
| Total non-current regulatory liabilities | Total non-current regulatory liabilities | $ | 1,199.4 | | $ | 1,223.5 | | Total non-current regulatory liabilities | $ | 1,259.7 | | $ | 1,188.9 | |
(A)Included in Other Current Assets in the Condensed Balance Sheets.balance sheets.
(B)Included in Other Current Liabilities in the Condensed Balance Sheets.balance sheets.
In responseFebruary 2021, Winter Storm Uri resulted in record winter peak demand for electricity and extremely high natural gas and purchased power prices in OG&E's service territory. OG&E's natural gas costs for the month of February 2021 exceeded the total cost for all of 2020. The OCC allowed OG&E to create a regulatory asset for the Oklahoma portion of all deferred costs with an initial carrying charge based on the effective cost of the related debt financing for an amortization period to be determined at a later date. The APSC allowed OG&E to create a regulatory asset for the Arkansas portion of all deferred costs with an initial carrying charge equal to the COVID-19 pandemic, the OCC and APSC issued orders allowing OG&Ecurrent customer deposit interest rate to defer certain expenses related to its COVID-19 response.be recovered over a period of 10 years beginning in May 2021. For additional information, about these orders, see Note 12 and "Item 2. Management's Discussion and Analysis - Recent Developments."15.
The Oklahoma deferred storm expenses regulatory asset is recovered through the Storm Cost Recovery Rider. Operation and maintenance expenses resulting from storm damage exceeding the amounts included in OG&E's base rates are deferred and typically amortized over a five-year period. To mitigate customer impact, OG&E has agreed to recover the portion related to 2020 excess storm costs through the Storm Cost Recovery Rider over a ten-year period.
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 or liabilities, which could have significant financial effects.
Allowance for Uncollectible Accounts Receivable
Customer balances are generally written off if not collected within six months after the final billing date. The allowance for uncollectible accounts receivable for OG&E is generally calculated by multiplying the last six months of electric revenue by the provision rate, which is based on a 12-month historical average of actual balances written off and is adjusted for current conditions and supportable forecasts as necessary. To the extent the historical collection rates, when incorporating forecasted conditions, are not representative of future collections, there could be an effect on the amount of uncollectible expense recognized, such as in response to COVID-19 impacts. 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 in the Condensed Balance Sheetscondensed balance sheets and is included in the Other Operation and Maintenance Expense in the Condensed Statementscondensed statements of Income.income.
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 may beis refunded based on customer protection rules defined by the OCC and the APSC. The payment behavior of all existing customers is continuously monitored, and, if the payment behavior indicates sufficient risk within the meaning of the applicable utility regulation, customers will be required to provide a security deposit.
OG&E
Investment in Unconsolidated Affiliates
OGE Energy's investment in Enable is considered COVID-19 pandemic impacts when calculatingto be a variable interest entity because the owners of the equity at risk in this entity have disproportionate voting rights in relation to their obligations to absorb the entity's expected losses or to receive its reserveexpected residual returns. However, OGE Energy is not considered the primary beneficiary of Enable since it does not have the power to direct the activities of Enable that are considered most significant to the economic performance of Enable; therefore, OGE Energy accounts for its investment in Enable using the equity method of accounting. Under the equity method, the investment will be adjusted each period for contributions made, distributions received and OGE Energy's share of the investee's comprehensive income as adjusted for basis differences. OGE Energy's maximum exposure to loss related to Enable is limited to its equity investment in Enable at June 30, 2021 as presented in Note 13.
OGE Energy considers distributions received from Enable which do not exceed cumulative equity in earnings subsequent to the date of investment to be a return on accounts receivableinvestment and are classified as operating activities in the condensed statements of Septembercash flows. OGE Energy considers distributions received from Enable in excess of cumulative equity in earnings subsequent to the date of investment to be a return of investment and are classified as investing activities in the condensed statements of cash flows.
Accumulated Other Comprehensive Income (Loss)
The following tables present changes in the components of accumulated other comprehensive income (loss) attributable to OGE Energy during the six months ended June 30, 2020, as further discussed2021 and 2020. All amounts below are presented net of tax. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| (In millions) | Pension Plan and Restoration of Retirement Income Plan | | Postretirement Benefit Plans | | Other Comprehensive Gain (Loss) from Unconsolidated Affiliates | | | | Total |
| Balance at December 31, 2020 | $ | (34.1) | | | | | $ | 3.3 | | | | $ | (1.3) | | | | | $ | (32.1) | |
| Other comprehensive income before reclassifications | 0 | | | | | 0 | | | | 0.3 | | | | | 0.3 | |
| Amounts reclassified from accumulated other comprehensive income (loss) | 0.8 | | | | | (0.6) | | | | 0 | | | | | 0.2 | |
| Settlement cost | 3.7 | | | | | 0 | | | | 0 | | | | | 3.7 | |
| | | | | | | | | | | | |
| Balance at June 30, 2021 | $ | (29.6) | | | | | $ | 2.7 | | | | $ | (1.0) | | | | | $ | (27.9) | |
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| (In millions) | Pension Plan and Restoration of Retirement Income Plan | | | Postretirement Benefit Plans | | Other Comprehensive Loss from Unconsolidated Affiliates | | Total |
| Balance at December 31, 2019 | $ | (35.1) | | | | | $ | 7.8 | | | | $ | (0.6) | | | $ | (27.9) | |
| Other comprehensive loss before reclassifications | 0 | | | | | 0 | | | | (1.3) | | | (1.3) | |
| Amounts reclassified from accumulated other comprehensive income (loss) | 2.0 | | | | | (0.9) | | | | 0 | | | 1.1 | |
| Settlement cost | 0.2 | | | | | 0 | | | | 0 | | | 0.2 | |
| | | | | | | | | | |
| | | | | | | | | | |
| Balance at June 30, 2020 | $ | (32.9) | | | | | $ | 6.9 | | | | $ | (1.9) | | | $ | (27.9) | |
The following table presents significant amounts reclassified out of accumulated other comprehensive income (loss) attributable to OGE Energy by the respective line items in "Item 2. Management's Discussionnet income (loss) during the three and Analysis - Recent Developments."six months ended June 30, 2021 and 2020.
| | | | | | | | | | | | | | | | | |
| Details about Accumulated Other Comprehensive Income (Loss) Components | Amount Reclassified from Accumulated Other Comprehensive Income (Loss) | Affected Line Item in
OGE Energy's Statements of Income |
| Three Months Ended | Six Months Ended | |
| June 30, | June 30, | |
| (In millions) | 2021 | 2020 | 2021 | 2020 | |
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Amortization of Pension Plan
and Restoration of Retirement Income Plan items: | | | | | |
| Actuarial losses | $ | (0.4) | | $ | (1.5) | | $ | (1.2) | | $ | (2.6) | | (A) |
| | | | | |
| Settlement cost | (1.2) | | (0.3) | | (5.3) | | (0.3) | | (A) |
| (1.6) | | (1.8) | | (6.5) | | (2.9) | | Income (Loss) Before Taxes |
| (0.8) | | (0.4) | | (2.0) | | (0.7) | | Income Tax Expense (Benefit) |
| $ | (0.8) | | $ | (1.4) | | $ | (4.5) | | $ | (2.2) | | Net Income (Loss) |
| | | | | |
| Amortization of postretirement benefit plans items: | | | | | |
| Prior service credit | $ | 0.5 | | $ | 0.5 | | $ | 0.9 | | $ | 1.1 | | (A) |
| Actuarial gains | (0.1) | | 0.1 | | (0.1) | | 0.1 | | (A) |
| | | | | |
| 0.4 | | 0.6 | | 0.8 | | 1.2 | | Income (Loss) Before Taxes |
| 0.1 | | 0.1 | | 0.2 | | 0.3 | | Income Tax Expense (Benefit) |
| $ | 0.3 | | $ | 0.5 | | $ | 0.6 | | $ | 0.9 | | Net Income (Loss) |
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| Total reclassifications for the period, net of tax | $ | (0.5) | | $ | (0.9) | | $ | (3.9) | | $ | (1.3) | | Net Income (Loss) |
(A)These accumulated other comprehensive income (loss) components are included in the computation of net periodic benefit cost (see Note 12 for additional information).
2.Accounting Pronouncements
Recently Adopted Accounting Standards
The following table provides an overview ofRegistrants believe that recently adopted and recently issued accounting pronouncements and their impactsstandards that are not yet effective do not appear to have a material impact on OG&E.
the Registrants' financial position, results of operations or cash flows upon adoption. | | | | | | | | | | | |
ASU Number and Name | Description | Date of Adoption | Financial Statements and Disclosures Impact |
ASU 2016-13, "Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Information" | This standard requires entities to measure all expected credit losses of financial assets held at a reporting date based on historical experience, current conditions and reasonable and supportable forecasts in order to record credit losses in a more timely manner. | January 1, 2020 | Utilizing a modified-retrospective approach, OG&E determined its only financial instrument requiring measurement under ASU 2016-13 is trade receivables. OG&E considers both future economic conditions and historical data to measure the reserve for trade receivables under this standard and determined no adjustments to its reserve were necessary upon adoption. |
ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)" | The standard aligns requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. | January 1, 2020 | The new standard did not have a material effect on OG&E's financial statements upon adoption. Prospectively, OG&E records applicable capitalized implementation costs in Other Current Assets and related amortization expense in Other Operation and Maintenance. |
ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework" | The standard removes, adds or modifies disclosure requirements that impact all levels of the fair value hierarchy, as well as investments measured using the net asset value practical expedient. | January 1, 2020 | OG&E applied the guidance on a retrospective or prospective basis, depending on the requirement, and did not experience a significant impact on its financial statement disclosures. |
ASU 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20)" | The standard removes, adds or clarifies disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. | January 1, 2020 | OG&E applied the guidance on a retrospective basis and did not experience a significant impact on its financial statement disclosures. |
ASU 2020-04, "Reference Rate Reform (Topic 848)" | This standard provides optional expedients and exceptions, if certain criteria are met, for applying GAAP to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. | January 1, 2020 | The guidance did not have a material impact upon adoption, nor does OG&E expect a material impact in the future, on its financial statements. |
| | | |
3.Revenue Recognition
The following table disaggregatespresents OG&E's revenues from contracts with customers disaggregated by customer classification. OG&E's operating revenues disaggregated by customer classification can be found in "Results"OG&E (Electric Utility) Results of Operations" within "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations."
| | | Three Months Ended | Nine Months Ended | |
| | September 30, | September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| (In millions) | (In millions) | 2020 | 2019 | 2020 | 2019 | (In millions) | 2021 | 2020 | | 2021 | 2020 |
| Residential | Residential | $ | 294.9 | | $ | 318.9 | | $ | 664.6 | | $ | 692.4 | | Residential | $ | 178.5 | | $ | 202.8 | | | $ | 746.7 | | $ | 369.7 | |
| Commercial | Commercial | 156.7 | | 172.9 | | 361.0 | | 383.7 | | Commercial | 108.3 | | 113.0 | | | 415.8 | | 204.3 | |
| Industrial | Industrial | 59.3 | | 66.8 | | 145.5 | | 172.0 | | Industrial | 37.5 | | 44.7 | | | 184.2 | | 86.2 | |
| Oilfield | Oilfield | 50.6 | | 58.6 | | 127.2 | | 156.9 | | Oilfield | 28.7 | | 38.4 | | | 189.5 | | 76.6 | |
| Public authorities and street light | Public authorities and street light | 57.8 | | 65.7 | | 133.1 | | 150.2 | | Public authorities and street light | 37.0 | | 40.6 | | | 160.1 | | 75.3 | |
| System sales revenues | System sales revenues | 619.3 | | 682.9 | | 1,431.4 | | 1,555.2 | | System sales revenues | 390.0 | | 439.5 | | | 1,696.3 | | 812.1 | |
| Provision for rate refund | Provision for rate refund | 4.8 | | (2.3) | | 3.2 | | (2.9) | | Provision for rate refund | 0 | | (1.0) | | | 0 | | (1.6) | |
| Integrated market | Integrated market | 18.0 | | 12.8 | | 33.7 | | 29.8 | | Integrated market | 128.3 | | 8.5 | | | 430.4 | | 15.7 | |
| Transmission | Transmission | 35.0 | | 36.7 | | 109.0 | | 112.6 | | Transmission | 36.7 | | 39.8 | | | 73.0 | | 74.0 | |
| Other | Other | 10.7 | | 9.1 | | 22.9 | | 23.0 | | Other | 9.5 | | 5.2 | | | (14.2) | | 12.2 | |
Revenues from contracts with customers | Revenues from contracts with customers | $ | 687.8 | | $ | 739.2 | | $ | 1,600.2 | | $ | 1,717.7 | | Revenues from contracts with customers | $ | 564.5 | | $ | 492.0 | | | $ | 2,185.5 | | $ | 912.4 | |
(A) In February 2021, Winter Storm Uri resulted in record winter peak demand for electricity and extremely high natural gas and purchased power prices in OG&E's service territory. Operating revenues significantly increased due to increased fuel, purchased power and direct transmission expenses, which are recoverable from customers, as a result of Winter Storm Uri. For further discussion, see Note 15 and "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation."
4.Investment in Unconsolidated Affiliates
At June 30, 2021, OGE Energy owned 111.0 million common units, or 25.5 percent, of Enable's outstanding common units. On June 30, 2021, Enable's common unit price closed at $9.11. OGE Energy recorded equity in earnings of unconsolidated affiliates of $33.5 million and $86.7 million for the three and six months ended June 30, 2021, respectively, compared to equity in earnings of unconsolidated affiliates of $26.9 million for the three months ended June 30, 2020 and equity in losses of unconsolidated affiliates of $719.6 million for the six months ended June 30, 2020. Equity in earnings (losses) of unconsolidated affiliates includes OGE Energy's share of Enable's earnings adjusted for the amortization of the basis difference of OGE Energy's original investment in Enogex LLC and its underlying equity in the net assets of Enable, as well as any impairment OGE Energy records on its investment in Enable. Equity in earnings (losses) of unconsolidated affiliates is also adjusted for the elimination of the Enogex Holdings fair value adjustments. These amortizations may also include gain or loss on dilution, net of proportional basis difference recognition. For more information concerning the formation of Enable and OGE Energy's accounting for its investment in Enable, see Note 5 within "Item 8. Financial Statements and Supplementary Data" in OGE Energy's 2020 Form 10-K.
The following tables present summarized unaudited financial information for 100 percent of Enable as of June 30, 2021 and December 31, 2020 and for the three and six months ended June 30, 2021 and 2020.
| | | | | | | | |
| June 30, | December 31, |
| Balance Sheet | 2021 | 2020 |
| (In millions) | |
| Current assets | $ | 475 | | $ | 381 | |
| Non-current assets | $ | 11,284 | | $ | 11,348 | |
| Current liabilities | $ | 1,317 | | $ | 582 | |
| Non-current liabilities | $ | 3,249 | | $ | 4,052 | |
| | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended |
| June 30, | June 30, |
| Income Statement | 2021 | 2020 | 2021 | 2020 |
| (In millions) | |
| Total revenues | $ | 787 | | $ | 515 | | $ | 1,757 | | $ | 1,163 | |
| Cost of natural gas and NGLs (excluding depreciation and amortization) | $ | 426 | | $ | 177 | | $ | 945 | | $ | 403 | |
| Operating income | $ | 124 | | $ | 80 | | $ | 330 | | $ | 226 | |
| Net income | $ | 79 | | $ | 35 | | $ | 234 | | $ | 138 | |
The following table presents a reconciliation of OGE Energy's equity in earnings (losses) of unconsolidated affiliates for the three and six months ended June 30, 2021 and 2020.
| | | | | | | | | | | | | | |
| | |
| Three Months Ended | Six Months Ended |
| June 30, | June 30, |
| (In millions) | 2021 | 2020 | 2021 | 2020 |
| Enable net income | $ | 79.0 | | $ | 35.0 | | $ | 234.0 | | $ | 138.0 | |
| OGE Energy's percent ownership at period end | 25.5 | % | 25.5 | % | 25.5 | % | 25.5 | % |
| OGE Energy's portion of Enable net income | $ | 20.0 | | $ | 8.8 | | $ | 59.5 | | $ | 35.1 | |
| | | | |
| | | | |
| | | | |
| Amortization of basis difference and dilution recognition (A) | 13.5 | | 18.1 | | 27.2 | | 25.3 | |
| Impairment of OGE Energy's equity method investment in Enable (B) | 0 | | 0 | | 0 | | (780.0) | |
| Equity in earnings (losses) of unconsolidated affiliates | $ | 33.5 | | $ | 26.9 | | $ | 86.7 | | $ | (719.6) | |
(A) Includes loss on dilution, net of proportional basis difference recognition.
(B) Effective March 31, 2020, OGE Energy estimated the fair value of its investment in Enable was below the book value and concluded the decline in value was not temporary due to the severity of the decline and recent rapid deterioration, as well as the near term future outlook, of the midstream oil and gas industry. Accordingly, OGE Energy recorded a $780.0 million impairment on its investment in Enable in 2020. Further discussion can be found in OGE Energy's 2020 Form 10-K.
The following table presents a reconciliation of the difference between OGE Energy's investment in Enable and its underlying equity in the net assets of Enable (basis difference) from December 31, 2020 to June 30, 2021. The basis difference is amortized over approximately 30 years.
| | | | | | | | |
| (In millions) | | |
| Basis difference at December 31, 2020 | | $ | 1,332.3 | |
| Amortization of basis difference (A) | | (28.4) | |
| Basis difference at June 30, 2021 | | $ | 1,303.9 | |
(A) Includes proportional basis difference recognition due to dilution.
Distributions received from Enable were $18.4 million and $18.3 million during the three months ended June 30, 2021 and 2020, respectively, and $36.7 million and $55.0 million during the six months ended June 30, 2021 and 2020, respectively.
On July 30, 2021, Enable announced a quarterly dividend distribution of $0.16525 per unit on its outstanding common units, which is unchanged from the previous quarter. 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 Energy 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.
Enable Merger Agreement with Energy Transfer
On February 16, 2021, Enable entered into a definitive merger agreement with Energy Transfer, pursuant to which, and subject to the conditions of the merger agreement, all outstanding common units of Enable will be acquired by Energy Transfer in an all-equity transaction. Under the terms of the merger agreement, Enable's common unitholders, including OGE Energy, will receive 0.8595 of one common unit representing limited partner interests in Energy Transfer for each common unit of Enable. The transaction is subject to the receipt of the required approvals from the holders of a majority of Enable's common units. Contemporaneously with the execution of the merger agreement, OGE Energy entered into a support agreement with Enable and Energy Transfer in which OGE Energy agreed to vote its common units in favor of the merger. In April 2021, CenterPoint and OGE Energy, who collectively own approximately 79.2 percent of Enable's common units, delivered written consents approving the merger agreement, and those consents are sufficient to approve the merger. The transaction also is subject to the receipt of anti-trust approvals and other customary closing conditions. The transaction is anticipated to close in 2021. Assuming the transaction closes, OGE Energy will own approximately three percent of Energy Transfer's outstanding limited partner units in lieu of the 25.5 percent interest in Enable that it currently owns.
The merger agreement contemplates a registration rights agreement with Energy Transfer to be executed at the closing of the merger that provides for customary resale registration, demand registration and piggy-back registration rights with respect to Energy Transfer common units issued to OGE Energy in the merger. Assuming the successful completion of the merger, OGE Energy intends to exit the midstream segment in a prudent manner.
5.Related Party Transactions
OGE Energy charges operating costs to OG&E and Enable based on several factors, and operating costs directly related to OG&E and/or Enable are assigned as such. Operating costs incurred for the benefit of OG&E are allocated either as overhead based primarily on labor costs or using the "Distrigas" method, which is a three-factor formula that uses an equal weighting of payroll, net operating revenues and gross property, plant and equipment.
OGE Energy and OG&E
OGE Energy charged operating costs to OG&E of $32.7$33.4 million and $37.0$36.9 million during the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively, and $107.5$69.1 million and $109.9$74.8 million during the ninesix months ended SeptemberJune 30, 2021 and 2020, respectively.
OGE Energy and Enable
OGE Energy and Enable are currently parties to several agreements whereby OGE Energy provides specified support services to Enable, such as certain information technology, payroll and benefits administration. Under these agreements, OGE Energy charged operating costs to Enable of $0.1 million during both the three months ended June 30, 2021 and 2020 and 2019, respectively.$0.2 million during both the six months ended June 30, 2021 and 2020.
Pursuant to a seconding agreement, OGE Energy provides seconded employees to Enable to support Enable's operations. As of June 30, 2021, 67 employees that participate in OGE Energy's defined benefit and retirement plans are seconded to Enable. OGE Energy billed Enable for reimbursement of $2.5 million and $3.8 million during the three months ended June 30, 2021 and 2020, respectively, and $7.8 million and $10.1 million during the six months ended June 30, 2021 and 2020, respectively, under the seconding agreement for employment costs. If the seconding agreement were terminated, and those employees were no longer employed by OGE Energy, and lump sum payments were made to those employees, OGE Energy would recognize a settlement or curtailment of the pension/retiree health care charges, which would increase expense at OGE Energy by $18.1 million. Settlement and curtailment charges associated with the Enable seconded employees are not reimbursable to OGE Energy by Enable. The seconding agreement can be terminated by mutual agreement of OGE Energy and Enable or solely by OGE Energy upon 120 days' notice.
OGE Energy had accounts receivable from Enable for amounts billed for support services, including the cost of seconded employees, of $1.1 million as of June 30, 2021 and $2.0 million as of December 31, 2020, which are included in Accounts Receivable in OGE Energy's condensed balance sheets.
Assuming the pending merger between Enable and Energy Transfer is completed, these agreements between OGE Energy and Enable, pursuant to which OGE Energy provides support services and seconded employees, will be terminated.
OG&E and Enable
Enable provides gas transportation services to OG&E pursuant to an agreementagreements that grantsgrant 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 fromcompensates Enable when Enable's deliveries exceed OG&E's pipeline receipts.nominations. Enable purchases gas fromcompensates OG&E when OG&E's pipeline receiptsnominations exceed Enable's deliveries. The following table summarizespresents summarized related party transactions between OG&E and Enable during the three and ninesix months ended SeptemberJune 30, 20202021 and 2019.2020.
| | | Three Months Ended | Nine Months Ended | | Three Months Ended | Six Months Ended |
| | September 30, | | June 30, |
| (In millions) | (In millions) | 2020 | 2019 | 2020 | 2019 | (In millions) | 2021 | 2020 | 2021 | 2020 |
| Operating revenues: | Operating revenues: | | Operating revenues: | |
| Electricity to power electric compression assets | Electricity to power electric compression assets | $ | 4.5 | | $ | 4.5 | | $ | 11.7 | | $ | 12.1 | | Electricity to power electric compression assets | $ | 3.3 | | $ | 3.5 | | $ | 5.9 | | $ | 7.2 | |
| Cost of sales: | | |
| Fuel, purchased power and direct transmission expense: | | Fuel, purchased power and direct transmission expense: | |
| Natural gas transportation services | Natural gas transportation services | $ | 9.3 | | $ | 9.4 | | $ | 23.4 | | $ | 33.5 | | Natural gas transportation services | $ | 9.3 | | $ | 9.4 | | $ | 14.0 | | $ | 14.1 | |
| | Natural gas purchases (sales) | Natural gas purchases (sales) | $ | 3.2 | | $ | (1.1) | | $ | 2.2 | | $ | (5.4) | | Natural gas purchases (sales) | $ | (8.4) | | $ | (1.7) | | $ | (20.6) | | $ | (1.0) | |
5.6.Fair Value Measurements
The classification of OG&E'sthe Registrants' fair value measurements requires judgment regarding the degree to which market data is observable or corroborated by observable market data. GAAP establishes a fair value hierarchy that prioritizes the inputs used to measure fair value based on observable and unobservable data. The hierarchy categorizes the inputs into three levels, with the highest priority given to quoted prices in active markets for identical unrestricted assets or liabilities (Level 1), and the lowest
priority given to unobservable inputs (Level 3). Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The three levels defined in the fair value hierarchy are as follows:
Level 1 inputs are quoted prices in active markets for identical unrestricted assets or liabilities that are accessible at the measurement date.
Level 2 inputs are inputs other than quoted prices in active markets included within Level 1 that are either directly or indirectly observable at the reporting date for the asset or liability for substantially the full term of the asset or liability. Level 2 inputs include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3 inputs are prices or valuation techniques for the asset or liability that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). Unobservable inputs reflect the reporting entity's own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).
OG&E
The Registrants had 0 financial instruments measured at fair value on a recurring basis at SeptemberJune 30, 20202021 and December 31, 2019.2020. The following table summarizespresents the carrying amount and fair value of OG&E'sthe Registrants' financial instruments at SeptemberJune 30, 20202021 and December 31, 2019.2020, as well as the classification level within the fair value hierarchy.
| | | | | | | | | | | | | | | | | |
| | September 30, | December 31, | |
| 2020 | 2019 | |
| (In millions) | Carrying Amount | Fair
Value | Carrying Amount | Fair
Value | Classification |
| Long-term Debt (including Long-term Debt due within one year): | | | | | |
| Senior Notes | $ | 3,349.0 | | $ | 4,116.5 | | $ | 3,050.3 | | $ | 3,500.4 | | Level 2 |
| | | | | |
| Industrial Authority Bonds | $ | 135.4 | | $ | 135.4 | | $ | 135.4 | | $ | 135.4 | | Level 2 |
| Tinker Debt | $ | 9.5 | | $ | 10.6 | | $ | 9.5 | | $ | 10.0 | | Level 3 |
| | | | | | | | | | | | | | | | | |
| June 30, | December 31, | |
| | 2021 | 2020 | |
| (In millions) | Carrying Amount | Fair
Value | Carrying Amount | Fair
Value | Classification |
| Long-term Debt (including Long-term Debt due within one year): | | | | | |
| OGE Energy Senior Notes | $ | 499.8 | | $ | 499.6 | | $ | 0 | | $ | 0 | | Level 2 |
| OG&E Senior Notes | $ | 3,850.6 | | $ | 4,510.5 | | $ | 3,349.6 | | $ | 4,182.1 | | Level 2 |
| OG&E Industrial Authority Bonds | $ | 135.4 | | $ | 135.4 | | $ | 135.4 | | $ | 135.4 | | Level 2 |
| OG&E Tinker Debt | $ | 9.4 | | $ | 10.4 | | $ | 9.4 | | $ | 10.7 | | Level 3 |
| | | | | |
6.7.Stock-Based Compensation
The following table summarizes OG&E'spresents the Registrants' pre-tax compensation expense and related income tax benefit duringfor the three and ninesix months ended SeptemberJune 30, 20202021 and 20192020 related to OGE Energy's performance units and restricted stock units for OG&Ethe Registrants' employees.
| | | | | | | | | | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
| (In millions) | 2020 | 2019 | 2020 | 2019 |
| Performance units: | | | | |
| Total shareholder return | $ | 0.5 | | $ | 0.8 | | $ | 1.8 | | $ | 2.3 | |
| Earnings per share | 0 | | 0.8 | | 0.1 | | 1.1 | |
| Total performance units | 0.5 | | 1.6 | | 1.9 | | 3.4 | |
| Restricted stock units | 0.1 | | 0.1 | | 0.3 | | 0.3 | |
| Total compensation expense | $ | 0.6 | | $ | 1.7 | | $ | 2.2 | | $ | 3.7 | |
| Income tax benefit | $ | 0.2 | | $ | 0.4 | | $ | 0.6 | | $ | 0.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| OGE Energy | | OG&E |
| Three Months Ended June 30, | Six Months Ended June 30, | | Three Months Ended June 30, | Six Months Ended June 30, |
| (In millions) | 2021 | 2020 | 2021 | 2020 | | 2021 | 2020 | 2021 | 2020 |
| Performance units: | | | | | | | | | |
| Total shareholder return | $ | 1.9 | | $ | 2.0 | | $ | 3.9 | | $ | 3.7 | | | $ | 0.5 | | $ | 0.6 | | $ | 0.9 | | $ | 1.3 | |
| Earnings per share | 0 | | 0.1 | | 0 | | 0.3 | | | 0 | | 0 | | 0 | | 0.1 | |
| Total performance units | 1.9 | | 2.1 | | 3.9 | | 4.0 | | | 0.5 | | 0.6 | | 0.9 | | 1.4 | |
| Restricted stock units | 0.4 | | 0.2 | | 0.9 | | 0.3 | | | 0.1 | | 0.1 | | 0.1 | | 0.2 | |
| Total compensation expense | $ | 2.3 | | $ | 2.3 | | $ | 4.8 | | $ | 4.3 | | | $ | 0.6 | | $ | 0.7 | | $ | 1.0 | | $ | 1.6 | |
| | | | | | | | | |
| | | | | | | | | |
| Income tax benefit | $ | 0.6 | | $ | 0.6 | | $ | 1.2 | | $ | 1.1 | | | $ | 0.2 | | $ | 0.2 | | $ | 0.3 | | $ | 0.4 | |
During the three and ninesix months ended SeptemberJune 30, 2020,2021, OGE Energy purchased 150,000 and 405,000issued 154,344 shares of its commontreasury stock respectively, and 89,225 of these shares were used during March 2020 to satisfy payouts of earned performance units to OG&E employees pursuant to OGE Energy's Stock Incentive Plan. OGE Energy intends to use the remaining shares to satisfy payouts of earned performance units and restricted stock unit grants to the Registrants' employees pursuant to itsOGE Energy's Stock Incentive Plan. The shares were purchased at an average cost of $38.04 and $33.14 per share on the open market during March 2020 and August 2020, respectively.
7.8.Income Taxes
OG&E is a member of an affiliated group thatOGE Energy files consolidated income tax returns in the U.S. federal jurisdiction and various state jurisdictions. OG&E is a part of the consolidated income tax return of OGE Energy. With few exceptions, OG&E isthe Registrants are no longer subject to U.S. federal tax or state and local examinations by tax authorities for years prior to 2016.2017. Income taxes are generally allocated to each company in the affiliated group, including OG&E, based on its stand-alone taxable income or loss. Federal investment tax credits previously claimed on electric utility property have been deferred and will be amortized to income over the life of the related property. Additionally, OG&E earns federal tax credits associated with production from its wind facilities. Oklahoma production and investment state tax credits are also earned on investments in electric and solar generating facilities which further reduce OG&E's effective tax rate.
Oklahoma Corporate Tax Rate Change
8.
In May 2021, Oklahoma enacted a reduction of the corporate income tax rate to four percent from the previous six percent. This rate reduction will take effect January 1, 2022. ASC 740, "Income Taxes," requires deferred tax assets and liabilities to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled. Therefore, during the second quarter of 2021, the Registrants revalued state deferred tax liabilities to reflect this change in tax rate. For entities subject to ASC 980, "Accounting for Regulated Entities," such as OG&E, those entities are required to recognize a regulatory liability for the decrease in taxes payable for the change in tax rates that are expected to be returned to customers through future rates and to recognize a regulatory asset for the increase in taxes receivable for the change in tax rates that are expected to be recovered from customers through future rates. The revaluation resulted in a regulatory liability of $97.7 million recorded for OG&E and an income tax benefit of $6.6 million for OGE Energy related to Enable and other operations (holding company).
9.Common Equity
Automatic Dividend Reinvestment and Stock Purchase Plan
OGE Energy issued 0 shares of common stock under its Automatic Dividend Reinvestment and Stock Purchase Plan during the three and six months ended June 30, 2021.
Earnings (Loss) Per Share
Basic earnings (loss) per share is calculated by dividing net income (loss) attributable to OGE Energy by the weighted average number of OGE Energy's common shares outstanding during the period. In the calculation of diluted earnings (loss) per share, weighted average shares outstanding are increased for additional shares that would be outstanding if potentially dilutive securities were converted to common stock. Potentially dilutive securities for OGE Energy consist of performance units and restricted stock units. The following table presents the calculation of basic and diluted earnings (loss) per share for OGE Energy.
| | | | | | | | | | | | | | |
| Three Months Ended June 30, | Six Months Ended June 30, |
| (In millions except per share data) | 2021 | 2020 | 2021 | 2020 |
| Net income (loss) | $ | 112.9 | | $ | 85.9 | | $ | 165.6 | | $ | (405.9) | |
| Average common shares outstanding: | | | | |
| Basic average common shares outstanding | 200.2 | | 200.2 | | 200.1 | | 200.2 | |
| Effect of dilutive securities: | | | | |
| Contingently issuable shares (performance and restricted stock units) | 0.2 | | 0.3 | | 0.1 | | 0 | |
| Diluted average common shares outstanding | 200.4 | | 200.5 | | 200.2 | | 200.2 | |
| Basic earnings (loss) per average common share | $ | 0.56 | | $ | 0.43 | | $ | 0.83 | | $ | (2.03) | |
| Diluted earnings (loss) per average common share | $ | 0.56 | | $ | 0.43 | | $ | 0.83 | | $ | (2.03) | |
| Anti-dilutive shares excluded from earnings per share calculation | 0 | | 0 | | 0 | | 0.3 | |
10.Long-Term Debt
At SeptemberJune 30, 2020, OG&E was2021, the Registrants were in compliance with all of itstheir debt agreements.
OG&E Industrial Authority Bonds
OG&E has tax-exempt pollution control bonds with optional redemption provisions that allow the holders to request repayment of the bonds on any business day. The following table presents information about these bonds, which can be tendered at the option of the holder during the next 12 months, are included in the following table.months.
| | | | | | | | | | | | | | |
| Series | Date Due | Amount |
| | | | (In millions) |
| 0.30% | - | 5.35% | Garfield Industrial Authority, January 1, 2025 | $ | 47.0 | |
| 0.33% | - | 4.31% | Muskogee Industrial Authority, January 1, 2025 | 32.4 | |
| 0.30% | - | 5.35% | Muskogee Industrial Authority, June 1, 2027 | 56.0 | |
| Total (redeemable during next 12 months) | $ | 135.4 | |
| | | | | | | | | | | | | | |
| Series | Date Due | Amount |
| | | | (In millions) |
| 0.17% | - | 0.27% | Garfield Industrial Authority, January 1, 2025 | $ | 47.0 | |
| 0.16% | - | 0.33% | Muskogee Industrial Authority, January 1, 2025 | 32.4 | |
| 0.17% | - | 0.27% | Muskogee Industrial Authority, June 1, 2027 | 56.0 | |
| Total (redeemable during next 12 months) | $ | 135.4 | |
All of these bonds are subject to an optional tender at the request of the holders, at 100 percent of the principal amount, together with accrued and unpaid interest to the date of purchase. The bond holders, on any business day, can request repayment of the bond by delivering an irrevocable notice to the tender agent stating the principal amount of the bond, payment instructions for the purchase price and the business day the bond is to be purchased. The repayment option may only be exercised by the holder of a bond for the principal amount. When a tender notice has been received by the trustee, a third-party remarketing agent for the bonds will attempt to remarket any bonds tendered for purchase. This process occurs once per week. Since the original issuance of these series of bonds in 1995 and 1997, the remarketing agent has successfully remarketed all tendered bonds. If the remarketing agent is unable to remarket any such bonds, OG&E is obligated to repurchase such unremarketed bonds. As OG&E has both the intent and ability to refinance the bonds on a long-term basis and such ability is supported by an ability to consummate the refinancing, the bonds are classified as Long-termLong-Term Debt in OG&E's Condensed Balance Sheets.the condensed balance sheets. OG&E believes that it has sufficient liquidity to meet these obligations.
Issuance of Long-Term Debt
In April 2020,May 2021, OGE Energy issued $500.0 million of 0.703 percent senior notes, and OG&E issued $300.0$500.0 million of 3.250.553 percent senior notes. Each series is due May 26, 2023 but may be redeemed by OGE Energy or OG&E on or after November 26, 2021 at a price equal to 100 percent of the principal amount of the senior notes due April 1, 2030.being redeemed, plus any accrued and unpaid interest. The proceeds from these issuances were used to repay $900.0 million of the issuance were added$1.0 billion term loan OGE
Energy entered into in March 2021 to OG&E's general funds to be used for general corporate purposes, including to fund ongoing capital expenditureshelp cover the fuel and working capital.purchased power costs incurred by OG&E during Winter Storm Uri.
9.11.Short-Term Debt and Credit FacilityFacilities
The Registrants borrow on a short-term basis, as necessary, by the issuance of commercial paper and by borrowings under their revolving credit agreements. OGE Energy also borrows under term credit agreements maturing in one year or less, as necessary. OGE Energy had $384.5 million and $95.0 million of short-term debt at June 30, 2021 and December 31, 2020, respectively. At June 30, 2021, OG&E had $118.0 million in advances to OGE Energy compared to $272.0 million at December 31, 2020.
In March 2021, OGE Energy entered into a $1.0 billion unsecured 364-day term loan agreement and borrowed the full $1.0 billion to help cover the increased fuel and purchased power costs incurred by OG&E has aduring Winter Storm Uri. The term loan contained substantially the same covenants as OGE Energy's $450.0 million revolving credit agreement, including various financial ratio covenants. Contemporaneously with the closing of the term loan agreement, in March 2021, OGE Energy made a capital contribution of $530.0 million to OG&E using the term loan proceeds, and OGE Energy also loaned $470.0 million to OG&E pursuant to an intercompany note issued by OG&E to OGE Energy. In May 2021, OG&E repaid the $470.0 million to OGE Energy, and OGE Energy used this repayment and other funds from its issuance of senior notes in May 2021 to repay $900.0 million of the $1.0 billion term loan, as further discussed in Note 10.
The following table presents information regarding the Registrants' revolving credit agreements at June 30, 2021.
| | | | | | | | | | | | | | | | | | | | | |
| | Aggregate | Amount | Weighted-Average | | | | |
| Entity | Commitment | Outstanding (A) | Interest Rate | | Expiration | | |
| (In millions) | | | | | |
| OGE Energy (B) | $ | 450.0 | | $ | 284.5 | | 0.19 | % | (E) | March 8, 2024 | (F) | |
| OG&E (C)(D) | 450.0 | | 0.4 | | 1.15 | % | (E) | March 8, 2024 | (F) | |
| Total | $ | 900.0 | | $ | 284.9 | | 0.19 | % | | | | |
(A)Includes direct borrowings under the revolving credit agreements, commercial paper borrowings and letters of credit at June 30, 2021.
(B)This bank facility that matures on March 8, 2023.is available to back up OGE Energy's commercial paper borrowings and to provide revolving credit borrowings. This bank facility can also be used as a letter of credit facility.
(C)This bank facility is available to back up OG&E's commercial paper borrowings and to provide revolving credit borrowings andborrowings. This bank facility can also be used as a letter of credit facility. At September 30, 2020, there were $0.3 million supporting letters of credit outstanding at a weighted-average interest rate of 1.15 percent. There were 0 outstanding commercial paper borrowings at September 30, 2020.
At September 30, 2020, there were $293.9 million in advances to OGE Energy compared to $304.8 million at December 31, 2019. OG&E has an intercompany borrowing agreement with OGE Energy whereby OG&E has access to up to $350.0 million of OGE Energy's revolving credit amount. This agreement has a termination date of March 8, 2023.2024. At SeptemberJune 30, 2020,2021, there were 0 intercompany borrowings under this agreement.
(E)Represents the weighted-average interest rate for the outstanding borrowings under the revolving credit agreements, commercial paper borrowings and letters of credit.
(F)In March 2017, the Registrants entered into unsecured five-year revolving credit agreements totaling $900.0 million ($450.0 million for OGE Energy and $450.0 million for OG&E). Each of the revolving credit facilities contained an option, which could be exercised up to two times, to extend the term of the respective facility for an additional year. In March 2018, the Registrants each utilized one of those extensions to extend the maturity of their respective credit facility from March 8, 2022 to March 8, 2023. In January 2021, the Registrants each utilized the second of those extensions to extend the maturity of their respective credit facility from March 8, 2023 to March 8, 2024. Commitments of a single existing lender with respect to $50.0 million of OGE Energy's credit facility, however, were not extended and, unless the non-extending lender is replaced in accordance with the terms of the credit facility, such commitments will expire March 8, 2023. The non-extending lender is not party to the OG&E facility.
12In January 2021, the Registrants each entered into an amendment to their revolving credit facilities which gives each of the Registrants the option of extending such commitments for up to two additional one-year periods. In addition, the amendment addresses the establishment of an alternative rate of interest upon the occurrence of certain events related to the phase out of LIBOR.
OGE Energy's and OG&E'sThe Registrants' ability to access the commercial paper market could be adversely impacted by a credit ratings downgrade or major market disruptions. Pricing grids associated with OGE Energy's and OG&E'sthe Registrants' credit facilities could cause annual fees and borrowing rates to increase if an adverse rating impact occurs. The impact of any future downgrade could include an increase in the costs of OGE Energy's and OG&E'sthe Registrants' short-term borrowings, but a reduction in OGE Energy's and OG&E'sthe Registrants' credit ratings would not result
in any defaults or accelerations. Any future downgrade of OG&E could also lead to higher long-term borrowing costs and, if below investment grade, would require OG&Ethe Registrants to post collateral or letters of credit.
OG&E must obtain regulatory approval from the FERC in order to borrow on a short-term basis. OG&E has the necessary regulatory approvals to incur up to $800.0 million in short-term borrowings at any one time for a two-year period beginning January 1, 20192021 and ending December 31, 2020. OG&E has requested renewal of this authority for an additional two-year period and expects to receive approval prior to the expiration of its current authority.2022.
10.12.Retirement Plans and Postretirement Benefit Plans
In accordance with ASC Topic 715, "Compensation - Retirement Benefits," a one-time settlement charge is required to be recorded by an organization when lump sum payments or other settlements that relieve the organization from the responsibility for the pension benefit obligation during the plan year exceed the service cost and interest cost components of the organization's net periodic pension cost. During the ninefirst six months ended September 30, 2020, OG&Eof 2021, the Registrants experienced an increase in both the number of employees electing to retire and the amount of lump sum payments paid to such employees upon retirement, which resulted in OG&Ethe Registrants recording pension plan settlement charges of $10.8 million.as presented in the Pension Plan net periodic benefit cost table below. The pension settlement chargecharges did not require a cash outlay by OG&Ethe Registrants and did not increase OG&E's total pension expense over time, as the charge was an acceleration of costs that otherwise would be recognized as pension expense in future periods.
Net Periodic Benefit Cost
The following table presentstables present the net periodic benefit cost components, before consideration of capitalized amounts, of OG&E's portion of OGE Energy's Pension Plan, Restoration of Retirement Income Plan and postretirement benefit plans that are included in the Condensed Financial Statements.condensed financial statements. Service cost is presented within Other Operation and Maintenance Expense, and the remaining net periodic benefit cost components as listed in the table belowfollowing tables are presented within Other Net Periodic Benefit Expense in OG&E's Condensed Statementsthe statements of Income.income. OG&E recovers specific amounts of pension and postretirement medical costs in rates approved in its Oklahoma rate reviews. 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 review as a regulatory asset or regulatory liability. These amounts have been recorded in the Pension tracker in the regulatory assets and liabilities table in Note 1 and within Other Net Periodic Benefit Expense in OG&E's Condensed Statementsthe statements of Income.income.
| | | | Pension Plan | | Restoration of Retirement
Income Plan | | |
| | Three Months Ended | Nine Months Ended | | Three Months Ended | Nine Months Ended | | | Pension Plan | | Restoration of Retirement
Income Plan |
| | September 30, | | September 30, | | | Three Months Ended | Six Months Ended | | Three Months Ended | Six Months Ended |
| OGE Energy | | OGE Energy | June 30, | | June 30, |
| (In millions) | (In millions) | 2020 | 2019 | 2020 | 2019 | | 2020 | 2019 | 2020 | 2019 | | (In millions) | 2021 | 2020 | 2021 | 2020 | | 2021 | 2020 | 2021 | 2020 |
| | Service cost | Service cost | $ | 2.3 | | $ | 2.3 | | $ | 6.8 | | $ | 6.7 | | | $ | 0 | | $ | 0 | | $ | 0.1 | | $ | 0.1 | | | Service cost | $ | 2.6 | | $ | 2.8 | | $ | 5.6 | | $ | 6.5 | | | $ | 0.2 | | $ | 0.2 | | $ | 0.3 | | $ | 0.4 | |
| | Interest cost | Interest cost | 3.2 | | 3.5 | | 10.0 | | 11.7 | | | 0 | | 0 | | 0.1 | | 0.1 | | | Interest cost | 3.4 | | 4.6 | | 6.9 | | 9.2 | | | 0.1 | | 0 | | 0.1 | | 0.1 | |
| | Expected return on plan assets | Expected return on plan assets | (7.0) | | (7.2) | | (20.9) | | (20.7) | | | 0 | | 0 | | 0 | | 0 | | | Expected return on plan assets | (8.7) | | (9.2) | | (17.1) | | (18.6) | | | 0 | | 0 | | 0 | | 0 | |
| Amortization of net loss | Amortization of net loss | 3.0 | | 3.3 | | 9.0 | | 9.7 | | | 0.1 | | 0.1 | | 0.3 | | 0.3 | | | Amortization of net loss | 1.9 | | 4.6 | | 4.7 | | 8.4 | | | 0 | | 0.2 | | 0.1 | | 0.3 | |
| | Settlement cost | Settlement cost | 10.3 | | 1.7 | | 10.3 | | 12.9 | | | 0.5 | | 0.3 | | 0.5 | | 0.3 | | | Settlement cost | 5.3 | | 0 | | 31.7 | | 0 | | | 0.4 | | 0.3 | | 0.4 | | 0.3 | |
| Total net periodic benefit cost | Total net periodic benefit cost | 11.8 | | 3.6 | | 15.2 | | 20.3 | | | 0.6 | | 0.4 | | 1.0 | | 0.8 | | | Total net periodic benefit cost | 4.5 | | 2.8 | | 31.8 | | 5.5 | | | 0.7 | | 0.7 | | 0.9 | | 1.1 | |
| Plus: Amount allocated from OGE Energy | 1.5 | | 0.9 | | 2.5 | | 3.5 | | | 0.2 | | 0.2 | | 0.8 | | 0.4 | | | |
| Less: Amount paid by unconsolidated affiliates (A) | | Less: Amount paid by unconsolidated affiliates (A) | (0.2) | | 0.6 | | (0.1) | | 1.1 | | | 0 | | 0 | | 0 | | 0 | |
| | Net periodic benefit cost | Net periodic benefit cost | $ | 13.3 | | $ | 4.5 | | $ | 17.7 | | $ | 23.8 | | | $ | 0.8 | | $ | 0.6 | | $ | 1.8 | | $ | 1.2 | | | Net periodic benefit cost | $ | 4.7 | | $ | 2.2 | | $ | 31.9 | | $ | 4.4 | | | $ | 0.7 | | $ | 0.7 | | $ | 0.9 | | $ | 1.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | Pension Plan | | Restoration of Retirement
Income Plan |
| Three Months Ended | Six Months Ended | | Three Months Ended | Six Months Ended |
| OG&E | June 30, | June 30, | | June 30, | June 30, |
| (In millions) | 2021 | 2020 | 2021 | 2020 | | 2021 | 2020 | 2021 | 2020 |
| | | | | | | | | |
| Service cost | $ | 1.7 | | $ | 1.9 | | $ | 3.8 | | $ | 4.5 | | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0.1 | |
| Interest cost | 2.5 | | 3.4 | | 5.0 | | 6.8 | | | 0 | | 0.1 | | 0 | | 0.1 | |
| Expected return on plan assets | (6.2) | | (6.8) | | (12.3) | | (13.9) | | | 0 | | 0 | | 0 | | 0 | |
| Amortization of net loss | 1.5 | | 3.2 | | 3.5 | | 6.0 | | | 0.1 | | 0.1 | | 0.1 | | 0.2 | |
| | | | | | | | | |
| Settlement cost | 4.4 | | 0 | | 26.6 | | 0 | | | 0.3 | | 0 | | 0.3 | | 0 | |
| Total net periodic benefit cost | 3.9 | | 1.7 | | 26.6 | | 3.4 | | | 0.4 | | 0.2 | | 0.4 | | 0.4 | |
| | | | | | | | | |
| Plus: Amount allocated from OGE Energy (A) | 0.7 | | 0.5 | | 4.6 | | 1.0 | | | 0.3 | | 0.4 | | 0.5 | | 0.6 | |
| Net periodic benefit cost | $ | 4.6 | | $ | 2.2 | | $ | 31.2 | | $ | 4.4 | | | $ | 0.7 | | $ | 0.6 | | $ | 0.9 | | $ | 1.0 | |
(A) "Amount paid by unconsolidated affiliates" is only applicable to OGE Energy. "Amount allocated from OGE Energy" is only applicable to OG&E.
In addition to the net periodic benefit cost amounts recognized, as presented in the tabletables above, for the Pension and Restoration of Retirement Income Plans for the three and ninesix months ended SeptemberJune 30, 2021 and 2020, and 2019, OG&Ethe Registrants recognized the following:
| | | | | | | | | | | | | | | |
| Three Months Ended | Nine Months Ended | |
| September 30, | September 30, | |
| (In millions) | 2020 | 2019 | 2020 | 2019 | |
| Increase (decrease) of pension expense to maintain allowed recoverable amount in Oklahoma jurisdiction (A)(B) | $ | 2.4 | | $ | 1.5 | | $ | 5.7 | | $ | (0.2) | | |
| Deferral of pension expense related to pension settlement charges: | | | | | |
| Oklahoma jurisdiction (A)(B) | $ | 10.8 | | $ | 2.3 | | $ | 11.1 | | $ | 14.0 | | |
| Arkansas jurisdiction (A)(B) | $ | 1.0 | | $ | 0.2 | | $ | 1.0 | | $ | 1.3 | | |
| | | | | | | | | | | | | | |
| Three Months Ended June 30, | Six Months Ended June 30, |
| (In millions) | 2021 | 2020 | 2021 | 2020 |
| Increase of pension expense to maintain allowed recoverable amount in Oklahoma jurisdiction (A) | $ | 4.2 | | $ | 1.6 | | $ | 7.2 | | $ | 3.3 | |
| Deferral of pension expense related to pension settlement charges: | | | | |
| Oklahoma jurisdiction (A) | $ | 5.2 | | $ | 0.3 | | $ | 28.9 | | $ | 0.3 | |
| Arkansas jurisdiction (A) | $ | 0.5 | | $ | 0 | | $ | 2.7 | | $ | 0 | |
(A)Included in the pension regulatory asset or liability in each jurisdiction, as indicated in the regulatory assets and liabilities table in Note 1.
(B)Includes a portion of OGE Energy's pension expense.
| | | | | | | | | | | | | | | | | | OGE Energy | | OG&E |
| | Postretirement Benefit Plans | | Postretirement Benefit Plans | | Postretirement Benefit Plans |
| | Three Months Ended | Nine Months Ended | | Three Months Ended | Six Months Ended | | Three Months Ended | Six Months Ended |
| | September 30, | | June 30, | | June 30, |
| (In millions) | (In millions) | 2020 | 2019 | 2020 | 2019 | (In millions) | 2021 | 2020 | 2021 | 2020 | | 2021 | 2020 | 2021 | 2020 |
| Service cost | Service cost | $ | 0 | | $ | 0 | | $ | 0.1 | | $ | 0.1 | | Service cost | $ | 0 | | $ | 0 | | $ | 0.1 | | $ | 0.1 | | | $ | 0 | | $ | 0.1 | | $ | 0.1 | | $ | 0.1 | |
| Interest cost | Interest cost | 0.8 | | 1.1 | | 2.4 | | 3.2 | | Interest cost | 0.9 | | 1.0 | | 1.7 | | 2.1 | | | 0.7 | | 0.8 | | 1.3 | | 1.6 | |
| Expected return on plan assets | Expected return on plan assets | (0.4) | | (0.4) | | (1.2) | | (1.3) | | Expected return on plan assets | (0.5) | | (0.4) | | (1.0) | | (0.9) | | | (0.5) | | (0.4) | | (0.9) | | (0.8) | |
| | Amortization of net loss | Amortization of net loss | 0.5 | | 0.6 | | 1.6 | | 1.7 | | Amortization of net loss | 0.7 | | 0.4 | | 1.4 | | 1.0 | | | 0.7 | | 0.4 | | 1.4 | | 1.1 | |
| Amortization of unrecognized prior service cost (A) | Amortization of unrecognized prior service cost (A) | (1.5) | | (1.6) | | (4.6) | | (4.6) | | Amortization of unrecognized prior service cost (A) | (1.7) | | (2.1) | | (3.4) | | (4.2) | | | (1.2) | | (1.6) | | (2.5) | | (3.1) | |
| | Total net periodic benefit cost | Total net periodic benefit cost | (0.6) | | (0.3) | | (1.7) | | (0.9) | | Total net periodic benefit cost | (0.6) | | (1.1) | | (1.2) | | (1.9) | | | (0.3) | | (0.7) | | (0.6) | | (1.1) | |
| Plus: Amount allocated from OGE Energy | (0.2) | | (0.2) | | (0.6) | | (0.5) | | |
| Less: Amount paid by unconsolidated affiliates (B) | | Less: Amount paid by unconsolidated affiliates (B) | (0.2) | | (0.2) | | (0.3) | | (0.4) | | |
| Plus: Amount allocated from OGE Energy (B) | | Plus: Amount allocated from OGE Energy (B) | | (0.1) | | (0.2) | | (0.2) | | (0.4) | |
| Net periodic benefit cost | Net periodic benefit cost | $ | (0.8) | | $ | (0.5) | | $ | (2.3) | | $ | (1.4) | | Net periodic benefit cost | $ | (0.4) | | $ | (0.9) | | $ | (0.9) | | $ | (1.5) | | | $ | (0.4) | | $ | (0.9) | | $ | (0.8) | | $ | (1.5) | |
(A)Unamortized prior service cost is amortized on a straight-line basis over the average remaining service period to the first eligibility age of participants who are expected to receive a benefit and are active at the date of the plan amendment.
(B)"Amount paid by unconsolidated affiliates" is only applicable to OGE Energy. "Amount allocated from OGE Energy" is only applicable to OG&E.
In addition to the net periodic benefit income amounts recognized, as presented in the table above, for the postretirement benefit plans for the three and ninesix months ended SeptemberJune 30, 2021 and 2020, and 2019, OG&Ethe Registrants recognized the following:
| | | | Three Months Ended June 30, | Six Months Ended June 30, |
| (In millions) | | (In millions) | 2021 | 2020 | 2021 | 2020 |
| Increase of postretirement expense to maintain allowed recoverable amount in Oklahoma jurisdiction (A) | | Increase of postretirement expense to maintain allowed recoverable amount in Oklahoma jurisdiction (A) | $ | 0.1 | | $ | 0.6 | | $ | 0.2 | | $ | 0.8 | |
| | | Three Months Ended | Nine Months Ended | | |
| | September 30, | | |
| (In millions) | 2020 | 2019 | 2020 | 2019 | | |
| Increase of postretirement expense to maintain allowed recoverable amount in Oklahoma jurisdiction (A)(B) | $ | 0.4 | | $ | 0.1 | | $ | 1.2 | | $ | 0.9 | | | |
(A)Included in the Pension tracker, as presented in the regulatory assets and liabilities table in Note 1.
(B)Includes a portion of OGE Energy's pension expense.
| | | | | | | | | | | | | | | | | OGE Energy | | OG&E |
| | Three Months Ended | Nine Months Ended | | Three Months Ended | Six Months Ended | | Three Months Ended | Six Months Ended |
| | September 30, | | June 30, | | June 30, |
| (In millions) | (In millions) | 2020 | 2019 | 2020 | 2019 | (In millions) | 2021 | 2020 | 2021 | 2020 | | 2021 | 2020 | 2021 | 2020 |
| Capitalized portion of net periodic pension benefit cost | Capitalized portion of net periodic pension benefit cost | $ | 0.8 | | $ | 0.7 | | $ | 2.3 | | $ | 2.2 | | Capitalized portion of net periodic pension benefit cost | $ | 0.8 | | $ | 0.8 | | $ | 1.6 | | $ | 1.8 | | | $ | 0.7 | | $ | 0.6 | | $ | 1.4 | | $ | 1.5 | |
| Capitalized portion of net periodic postretirement benefit cost | Capitalized portion of net periodic postretirement benefit cost | $ | 0 | | $ | 0 | | $ | 0.1 | | $ | 0.1 | | Capitalized portion of net periodic postretirement benefit cost | $ | 0 | | $ | 0.1 | | $ | 0.1 | | $ | 0.1 | | | $ | 0.1 | | $ | 0.1 | | $ | 0.1 | | $ | 0.1 | |
Pension Plan Funding
In August 2020,January 2021, OGE Energy contributed $20.0made a $40.0 million contribution to its Pension Plan, of which $5.0$30.0 million was attributed to OG&E. No additional contributions are expected in 2020.2021.
11.13.Report of Business Segments
OGE Energy reports its operations in two business segments: (i) the electric utility segment, which is engaged in the generation, transmission, distribution and sale of electric energy and (ii) the natural gas midstream operations segment. Other operations primarily includes the operations of the holding company. Intersegment revenues are recorded at prices comparable to those of unaffiliated customers and are affected by regulatory considerations. The following tables present the results of OGE Energy's business segments for the three and six months ended June 30, 2021 and 2020.
| | | | | | | | | | | | | | | | | |
| | | | | |
| Three Months Ended June 30, 2021 | Electric Utility | Natural Gas Midstream Operations | Other
Operations | Eliminations | Total |
| (In millions) | | | | | |
| Operating revenues | $ | 577.4 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 577.4 | |
| Fuel, purchased power and direct transmission expense | 200.0 | | 0 | | 0 | | 0 | | 200.0 | |
| Other operation and maintenance | 118.3 | | 1.6 | | (0.7) | | 0 | | 119.2 | |
| Depreciation and amortization | 102.9 | | 0 | | 0 | | 0 | | 102.9 | |
| | | | | |
| | | | | |
| Taxes other than income | 25.0 | | 0.1 | | 0.7 | | 0 | | 25.8 | |
| Operating income (loss) | 131.2 | | (1.7) | | 0 | | 0 | | 129.5 | |
| Equity in earnings of unconsolidated affiliates | 0 | | 33.5 | | 0 | | 0 | | 33.5 | |
| Other income (expense) | 1.2 | | (0.2) | | (0.5) | | (0.6) | | (0.1) | |
| Interest expense | 37.9 | | 0 | | 2.6 | | (0.6) | | 39.9 | |
| Income tax expense (benefit) | 9.4 | | (0.6) | | 1.3 | | 0 | | 10.1 | |
| Net income (loss) | $ | 85.1 | | $ | 32.2 | | $ | (4.4) | | $ | 0 | | $ | 112.9 | |
| Investment in unconsolidated affiliates | $ | 0 | | $ | 425.4 | | $ | 26.3 | | $ | 0 | | $ | 451.7 | |
| Total assets | $ | 11,459.3 | | $ | 427.8 | | $ | 127.4 | | $ | (115.0) | | $ | 11,899.5 | |
| | | | | | | | | | | | | | | | | |
| | | | | |
| Three Months Ended June 30, 2020 | Electric Utility | Natural Gas Midstream Operations | Other
Operations | Eliminations | Total |
| (In millions) | | | | | |
| Operating revenues | $ | 503.5 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 503.5 | |
| Fuel, purchased power and direct transmission expense | 137.4 | | 0 | | 0 | | 0 | | 137.4 | |
| Other operation and maintenance | 117.7 | | 0.3 | | (0.5) | | 0 | | 117.5 | |
| Depreciation and amortization | 97.3 | | 0 | | 0 | | 0 | | 97.3 | |
| Taxes other than income | 25.0 | | 0.1 | | 0.8 | | 0 | | 25.9 | |
| Operating income (loss) | 126.1 | | (0.4) | | (0.3) | | 0 | | 125.4 | |
| Equity in earnings of unconsolidated affiliates | 0 | | 26.9 | | 0 | | 0 | | 26.9 | |
| Other income (expense) | 0.5 | | 0 | | 1.7 | | (0.2) | | 2.0 | |
| Interest expense | 39.3 | | 0 | | 1.7 | | (0.2) | | 40.8 | |
| Income tax expense | 8.4 | | 7.5 | | 11.7 | | 0 | | 27.6 | |
| Net income (loss) | $ | 78.9 | | $ | 19.0 | | $ | (12.0) | | $ | 0 | | $ | 85.9 | |
| Investment in unconsolidated affiliates | $ | 0 | | $ | 356.4 | | $ | 20.1 | | $ | 0 | | $ | 376.5 | |
| Total assets | $ | 10,367.6 | | $ | 360.2 | | $ | 109.1 | | $ | (397.8) | | $ | 10,439.1 | |
| | | | | | | | | | | | | | | | | |
| | | | | |
| Six Months Ended June 30, 2021 | Electric Utility | Natural Gas Midstream Operations | Other
Operations | Eliminations | Total |
| (In millions) | | | | | |
| Operating revenues | $ | 2,208.0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 2,208.0 | |
| Fuel, purchased power and direct transmission expense | 1,546.8 | | 0 | | 0 | | 0 | | 1,546.8 | |
| Other operation and maintenance | 228.6 | | 2.0 | | (2.1) | | 0 | | 228.5 | |
| Depreciation and amortization | 201.6 | | 0 | | 0 | | 0 | | 201.6 | |
| | | | | |
| | | | | |
| Taxes other than income | 50.7 | | 0.2 | | 2.1 | | 0 | | 53.0 | |
| Operating income (loss) | 180.3 | | (2.2) | | 0 | | 0 | | 178.1 | |
| Equity in earnings of unconsolidated affiliates | 0 | | 86.7 | | 0 | | 0 | | 86.7 | |
| Other income (expense) | 2.9 | | (0.7) | | (0.6) | | (0.8) | | 0.8 | |
| Interest expense | 76.3 | | 0 | | 3.8 | | (0.8) | | 79.3 | |
| Income tax expense (benefit) | 10.6 | | 13.7 | | (3.6) | | 0 | | 20.7 | |
| Net income (loss) | $ | 96.3 | | $ | 70.1 | | $ | (0.8) | | $ | 0 | | $ | 165.6 | |
| Investment in unconsolidated affiliates | $ | 0 | | $ | 425.4 | | $ | 26.3 | | $ | 0 | | $ | 451.7 | |
| Total assets | $ | 11,459.3 | | $ | 427.8 | | $ | 127.4 | | $ | (115.0) | | $ | 11,899.5 | |
| | | | | | | | | | | | | | | | | |
| | | | | |
| Six Months Ended June 30, 2020 | Electric Utility | Natural Gas Midstream Operations | Other
Operations | Eliminations | Total |
| (In millions) | | | | | |
| Operating revenues | $ | 934.8 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 934.8 | |
| Fuel, purchased power and direct transmission expense | 272.4 | | 0 | | 0 | | 0 | | 272.4 | |
| Other operation and maintenance | 238.7 | | 0.9 | | (2.1) | | 0 | | 237.5 | |
| Depreciation and amortization | 191.7 | | 0 | | 0 | | 0 | | 191.7 | |
| | | | | |
| | | | | |
| Taxes other than income | 48.9 | | 0.2 | | 2.4 | | 0 | | 51.5 | |
| Operating income (loss) | 183.1 | | (1.1) | | (0.3) | | 0 | | 181.7 | |
| Equity in losses of unconsolidated affiliates (A) | 0 | | (719.6) | | 0 | | 0 | | (719.6) | |
| Other income (expense) | 2.3 | | 0 | | 3.0 | | (1.2) | | 4.1 | |
| Interest expense | 76.2 | | 0 | | 4.1 | | (1.2) | | 79.1 | |
| Income tax expense (benefit) | 10.4 | | (171.7) | | (45.7) | | 0 | | (207.0) | |
| Net income (loss) | $ | 98.8 | | $ | (549.0) | | $ | 44.3 | | $ | 0 | | $ | (405.9) | |
| Investment in unconsolidated affiliates | $ | 0 | | $ | 356.4 | | $ | 20.1 | | $ | 0 | | $ | 376.5 | |
| Total assets | $ | 10,367.6 | | $ | 360.2 | | $ | 109.1 | | $ | (397.8) | | $ | 10,439.1 | |
(A) In 2020, OGE Energy recorded a $780.0 million impairment on its investment in Enable, as further discussed in Note 4.
14.Commitments and Contingencies
Except as set forth below, in Note 1215 and under "Environmental Laws and Regulations" in Item 2 of Part I and in Item 1 of Part II of this Form 10-Q, the circumstances set forth in Notes 1415 and 1516 to OG&E's Financial Statementsthe financial statements included in OG&E'sthe Registrants' 20192020 Form 10-K appropriately represent, in all material respects, the current status of OG&E'sthe Registrants' material commitments and contingent liabilities.
Environmental Laws and Regulations
The activities of OG&Ethe Registrants are subject to numerous stringent and complex federal, state and local laws and regulations governing environmental protection. These laws and regulations can change, restrict or otherwise impact OG&E'sthe Registrants' business activities in many ways, including the handling or disposal of waste material, planning for future construction activities to avoid or mitigate harm to threatened or endangered species and requiring the installation and operation of emissions or pollution control equipment. Failure to comply with these laws and regulations could result in the assessment of administrative, civil and criminal penalties, the imposition of remedial requirements and the issuance of orders enjoining future operations. Management believes that all of itsthe Registrants' operations are in substantial compliance with current federal, state and local environmental standards.
Environmental regulation can increase the cost of planning, design, initial installation and operation of OG&E's facilities. Management continues to evaluate its compliance with existing and proposed environmental legislation and regulations and implement appropriate environmental programs in a competitive market.
Other
In the normal course of business, OG&E isthe Registrants are confronted with issues or events that may result in a contingent liability. These generally relate to lawsuits or claims made by third parties, including governmental agencies. When appropriate, management consults with legal counsel and other experts to assess the claim. If, in management's opinion, OG&E hasthe Registrants have incurred a probable loss as set forth by GAAP, an estimate is made of the loss, and the appropriate accounting entries are reflected in OG&E's Condensed Financial Statements.the condensed financial statements. At the present time, based on currently available information, OG&E believesthe Registrants believe that any reasonably possible losses in excess of accrued amounts arising out of pending or threatened lawsuits or claims would not be quantitatively material to itstheir condensed financial statements and would not have a material adverse effect on OG&E'stheir financial position, results of operations or cash flows.
12.15.Rate Matters and Regulation
Except as set forth below, the circumstances set forth in Note 1516 to the Financial Statementsfinancial statements included in OG&E'sthe Registrants' 20192020 Form 10-K appropriately represent, in all material respects, the current status of OG&E'sthe Registrants' regulatory matters.
Completed Regulatory Matters
APSC Proceedings
Arkansas 20192020 Formula Rate Plan Filing
In October 2020, OG&E filed its secondthird evaluation report under its Formula Rate Plan, in October 2019. On Februaryand on January 28, 2020,2021, OG&E entered into a non-unanimous settlement agreement with the APSC approved a settlement agreement among OG&E, the General Staff of the APSC and the Office of the Arkansas Attorney General providingGeneral. The only non-signatory to the settlement agreement agreed not to oppose the settlement. The settlement agreement included a revenue increase of $6.7 million, which is the maximum amount statutorily allowed in this filing. Additionally, the settling parties did not object to OG&E's request for a $5.2 million revenue increase, with rates effective April 1, 2020. The settling parties agreedfinding that the Series I grid modernization projects are prudent in both action and cost and that theArkansas Series II grid modernization projects included in this filing are prudent in action onlycost. On March 9, 2021, the APSC issued a final order approving the non-unanimous settlement agreement, and the determination of prudence of costs will be reserved until the actual historical costs are reviewed. The settling parties also agreed that OG&E will no longer use projections for the remaining initial term or extension of its current Formula Rate Plan and that all costs will be included for recovery for the first time in the historical year.new rates became effective April 1, 2021.
Order Regarding COVID-19In September 2020, the APSC invited comments from all jurisdictional utilities and any other interested stakeholders on specific questions related to whether a moratorium on service terminations should be lifted and if so, how the resumption of disconnections should occur. The APSC also ordered utilities to submit a detailed "Transitional Plan" outlining how utilities proposed to reinstate routine service disconnection activities and collection of past due amounts once the moratorium was lifted. OG&E submitted its proposed Transitional Plan in October 2020.
On April 10, 2020,February 8, 2021, the APSC issued Order No. 1 relatedannounced a target date of May 3, 2021 to COVID-19lift the moratorium on disconnections and the provision of safe, adequatespecified certain conditions and reliable utility service at just and reasonable rates. Amongrequirements that utilities must meet before disconnections may resume. Such requirements include, among other things, immediate communication to customers, notice periods for disconnections and deferred payment arrangements. On March 26, 2021, the APSC orderedconfirmed the suspension of customer disconnects for non-payment during the pendencylifting of the Arkansas Governor's emergency declaration or until the directive is rescinded by the APSC, neither of which have occurred yet, although the APSC has requested comments as to whether the moratorium should be lifted. The order encourages companies to provide reasonable payment arrangements once the suspension is lifted. The APSC also authorizedon disconnections on May 3, 2021 and directed utilities to establish regulatory assetstake specific steps prior to record costs resulting from the suspensionresuming disconnections. OG&E resumed disconnections on May 3, 2021.
Arkansas Approval to Construct Out of disconnections. These regulatory assets will be reviewed in future proceedings for reasonableness. The APSC ordered the General Staff of the APSC to consult with utilities to create a quarterly report to be used to report the costs incurred and saved that have been booked to the regulatory asset. OG&E is monitoring the regulatory activity regarding COVID-19 at the APSC and will consider the request for additional regulatory action by the APSC as needed.State Generation
On May 1, 2020,March 3, 2021, OG&E filed an application with the APSC to request approval to construct a Request for Additional Actions and Tariff Deviation seeking relief from the Arkansas General Service Rules and OG&E's Terms and Conditions under the tariff,5 MW solar facility in order to allow for: more flexible deferred payment agreements for all customer classes, suspension of increased deposits due to non-payment and suspension of the removal of customers from certain billing and extended due date plans for late payments. In addition, OG&E requested that incremental expenses, such as additional personal protective equipment, increased sanitation efforts at facilities, implementing health-screening processes and securing temporary facilities for potential sequestration of critical operation personnel, be tracked in a regulatory asset. OG&E noted that all possible cost categories are not known currently and reserved the right to file subsequent requests as needed.
On May 27, 2020, theOklahoma. The APSC issued an order approvingon April 6, 2021, finding OG&E's request to deviate from the specified termsapplication in the public interest, conditioned on Arkansas General Service Rulescustomers being held harmless and OG&E's Terms and Conditionsnot subject to allow deferred payment arrangements to be offered to all customer classes and have more flexible payment arrangements.cost recovery associated with the project. OG&E is authorized to recordexpects the expenses requested in its regulatory asset to defer and seek future recovery. The APSC found that because each utility has different cost recovery mechanisms and the magnitude of the utilities' expenses are unknown at this time, the APSC finds that it is premature to decide the exact recovery mechanism for any utility for COVID-19 related costs.
Environmental Compliance Plan Rider
In May 2019, OG&E filed an environmental compliance plan rider in Arkansas to recover its investment for the environmentally mandated costs associated with the Sooner Dry Scrubbers project and the conversion of Muskogee Units 4 and 5constructing this solar facility to natural gas. The filing initiated an interim surcharge, subject to refund, that began with the first billing cycle of June 2019. OG&E had been reserving the amounts collected through the interim surcharge, pending APSC approval of OG&E's filing. A hearing on the merits was heldbe fully recovered in December 2019. Parties submitted additional briefs to the APSC in March 2020, which were requested due to certain intervenors questioning whether a company can utilize an environmental compliance plan rider while also being regulated under a formula rate plan. The APSC Staff concurred with OG&E that the rider may run concurrently with a formula rate plan, and the Arkansas Attorney General and other intervenors were in opposition. On July 31, 2020, OG&E's request to recover its investment for these environmentally mandated costs through the interim surcharge was not approved, as the APSC indicated OG&E could otherwise recover this investment, such as through the Formula Rate Plan Rider. As of September 30, 2020, OG&E has returned $5.3 million to customers that had been reserved for refund and has included those costs for recovery in its 2020 Formula Rate Plan filing.Oklahoma.
OCC Proceedings
OCC Public Utility Division Motion Regarding COVID-19Oklahoma Grid Enhancement Plan
On April 28,In November 2020, the DirectorOCC issued a final order approving a Joint Stipulation and Settlement Agreement that allows for interim recovery of the Public Utility Division filed an application requesting an order from the OCC authorizing action in response to COVID-19. The application requested that the OCC authorize the State's utilities to record as a regulatory asset increased bad debt expenses,OG&E's costs associated with expanded payment plans, waived feesits grid enhancement plan. The approved agreement included the following key terms: (i) cost recovery through a rider mechanism will be limited to projects placed in service in 2020 and incremental expenses that are directly related to2021, capped at a revenue requirement of $7.0 million annually and only include communication, automation and technology systems projects; (ii) no operation and maintenance expense will be included in the suspension of or delay in disconnection of service beginning March 15, 2020, which coincides withrider mechanism; (iii) the rider mechanism will terminate by the issuance of a final order in OG&E's next general rate review or October 31, 2022, whichever occurs first; (iv) the Oklahoma Governor's emergency declaration.rider mechanism rate of return will be capped at OG&E's current cost of capital; and (v) all cost recovery is subject to true-up and refund in OG&E's next general rate review. The application also requested that the OCC allow utilities to defer additional expenses associated with ensuring the continuity of utility service, such as additional personal protective equipment, increased sanitation efforts at facilities, implementing heath-screening processes and securing temporary facilities for potential sequestration of critical operation personnel. The application asked the OCC to consider in future proceedings whether each utility's request for recovery of these regulatory assets is reasonable and necessary and to consider issues such as the incremental bad debt experienced over normal periods, the appropriate period of recovery for any approved amount of regulatory asset, any amount of carrying costs and other related matters.rider mechanism became effective on February 1, 2021.
OG&E reports to the OCC new projects completed each quarter, and the cost recovery factor is adjusted to include those projects after a stakeholder review. OG&E has submitted its report for projects that were placed in service through June 30, 2021. The cost recovery factors that include those projects will become effective on September 1, 2021.
Any capital investment falling outside the criteria of the rider mechanism will be included in OG&E's next general rate review for recovery.
On May 7, 2020, the OCC ordered that each utility is authorized to record as a regulatory asset any increased bad debt expense, cost associated with expanded payment plans, waived fees and incremental expenses that are directly related to the suspension of or delay in disconnection of service beginning March 15, 2020 until September 2020, unless otherwise ordered by the OCC. The OCC will consider in future proceedings whether each utility's request for recovery of these regulatory assets is reasonable and necessary. The OCC will also consider issues such as the incremental bad debt experienced over normal periods, appropriate period of recovery for any approved amount of regulatory assets, any amounts of carrying costs thereon and other related matters. The OCC also authorized utilities to defer expenses associated with ensuring continuity of service and protecting utility personnel, customers and the general public.
Pending Regulatory Matters
Various proceedings pending before state or federal regulatory agencies are described below. Unless stated otherwise, OG&Ethe Registrants cannot predict when the regulatory agency will act or what action the regulatory agency will take. OG&E'sThe Registrants' financial results are dependent in part on timely and adequate decisions by the regulatory agencies that set OG&E's rates.
FERC Proceedings
Order for Sponsored Transmission Upgrades within SPP
Under the SPP Open Access Transmission Tariff, costs of participant-funded, or "sponsored," transmission upgrades may be recovered from other SPP customers whose transmission service depends on capacity enabled by the upgrade. The SPP Open Access Transmission Tariff required the SPP to charge for these upgrades beginning in 2008, but the SPP had not been charging its customers for these upgrades due to information system limitations. However, the SPP had informed participants in the market that these charges would be forthcoming. In July 2016, the FERC granted the SPP's request to recover the charges not billed since 2008. The SPP subsequently billed OG&E for these charges and credited OG&E related to transmission upgrades that OG&E had sponsored, which resulted in OG&E being a net receiver of sponsored upgrade credits. The majority of these net credits were refunded to customers through OG&E's various rate riders that include SPP activity with the remaining amounts retained by OG&E.
Several companies that were net payers of Z2 charges sought rehearing of the FERC's July 2016 order; however, in November 2017, the FERC denied the rehearing requests. In January 2018, one of the impacted companies appealed the FERC's decision to the U.S. Court of Appeals for the District of Columbia Circuit. In July 2018, that court granted a motion requested by the FERC that the case be remanded back to the FERC for further examination and proceedings. In February 2019, the FERC reversed its July 2016 order and November 2017 rehearing denial, ruled that the SPP violated its tariff to charge for the 2008 -through 2015 period in 2016, held that the SPP tariff provision that prohibited those charges could not be waived and ordered the SPP to develop a plan to refund the payments but not to implement the refunds until further ordered to do so. In response, in April 2019, OG&E filed a request for rehearing with the FERC, and in May 2019, OG&E filed a FERC 206 complaint against the SPP, alleging that the SPP's forced unwinding of the revenue credit payments to OG&E would violate the provisions of the Sponsored Upgrade Agreement and of the applicable tariff. OG&E's filing requested that the FERC rule that the SPP is not entitled to seek refunds or in any other way seek to unwind the revenue credit payments it had paid to OG&E pursuant to the Sponsored Upgrade Agreement. The SPP's response to OG&E's filing agreed that OG&E should be entitled to keep its Z2 payments and argued that the SPP should not be held responsible for those payments if refunds are ordered. Further, the SPP has requested the FERC to negotiate a global settlement with all impacted parties, including other project sponsors who, like OG&E, have also filed complaints at FERC contending that the payments they have received cannot properly be unwound.
OnIn February 20, 2020, the FERC denied OG&E's request for rehearing of its February 2019 order, denying the waiver and ruling that the SPP must seek refunds from project sponsors for Z2 payments for the 2008 through 2015 period and pay them back to transmission owners. The FERC also denied the SPP's request for a stay and for institution of settlement procedures. The FERC stated it would not institute settlement procedures unless parties on both sides of the matter requested them. The FERC did not rule on OG&E's complaint or the complaints of other project sponsors, or consider the SPP's refund plan. The FERC thus has not set any date for payment of refunds. OnIn March 2, 2020, OG&E petitioned the U.S. Court of Appeals for the District of Columbia Circuit for review of the FERC's order denying the waiver and requiring refunds. The appeal will likelywas argued on April 14, 2021 and is expected to be decided bybefore the second quarter ofcourt's current term ends in August 2021.
OG&EThe Registrants cannot predict the outcome of this proceeding based on currently available information, and as of SeptemberJune 30, 20202021 and at present time, OG&E hasthe Registrants have not reserved an amount for a potential refund. If the reversal of the July 2016 FERC order remains intact, OG&E estimates it would be required to refund $13.0 million, which is net of amounts paid to other utilities for upgrades and would be subject to interest at the FERC-approved rate. If refunds were required, recovery of these upgrade credits would shift to future periods. Of the $13.0 million, OG&Ethe Registrants would be impacted by $5.0 million in expense that initially benefited OG&Ethe Registrants in 2016, and OG&E customers would incur a net impact of $8.0 million in expense through rider mechanisms or the FERC formula rate.
OnIn January 31, 2020, the FERC acted on an SPP proposal to eliminate Attachment Z2 revenue crediting and replace it with a different rate mechanism that would provide project sponsors, such as OG&E, the same level of recovery, and rejected the proposal to the extent it would limit recovery to the amount of the upgrade sponsor's directly assigned upgrade costs with
interest. The SPP resubmitted a proposal onin April 29, 2020 without this limited recovery, and with the alternative rate mechanism, and the FERC approved it onin June 30, 2020, effective July 1, 2020. No party sought rehearing of the order, and it is now final. This order would only prospectively impact OG&E and its recovery of any future upgrade costs that it may incur as a project sponsor. All of the existing projects that are eligible to receive revenue credits under Attachment Z2, which includes the $13.0 million at issue in OG&E's appeal as discussed above, will continue to do so.
APSC ProceedingsIncentive Adders for Transmission Rates
ArkansasThe FERC issued a NOPR on March 20, 2020, Formula Rate Plan Filingand issued a supplemental NOPR on April 15, 2021, proposing to update its transmission incentives policy. Among other things, the NOPR proposes (i) the current 50-basis point return on equity adder for RTO/ISO participation would be applicable only to transmitting utilities that join an RTO/ISO, and this incentive would only apply for the first three years in which the utility is an RTO/ISO member and (ii) transmitting utilities that have been members of an RTO/ISO for three years or more, such as OG&E, would be required to make a compliance filing to remove the existing return on equity adder from their rates. OG&E is currently evaluating the potential impacts of this proposed rule.
On October 1, 2020, OG&E filed its third evaluation report under its Formula Rate Plan. If approved, new rates will be effective April 1, 2021.APSC Proceedings
Net Metering OrderWinter Storm Uri
In February 2021, Winter Storm Uri resulted in record winter peak demand for electricity and extremely high natural gas and purchased power prices in OG&E's service territory. On JuneApril 1, 2020,2021, OG&E filed with the APSC revised its net-metering rules. The revised rules retained 1:1 full credita Motion for net excess generation of residential customers and commercial customers upAuthority to 1 MW without demand charges. For larger commercial customers, 1 MWEstablish Special Regulatory Treatment within the Energy Cost Recovery Rider to 20 MW, the APSC found that some cost shiftingDefer Extraordinary Fuel Costs Incurred Due to non-net-metering customers may occur. While the rules retain 1:1 full credit for net excess generation, they allow for a grid charge. The grid charge is initially set at zero; however, a utility may requestWinter Storm Uri. More specifically, OG&E's Motion sought approval to revisedefer, amortize and recover the gridextraordinary fuel costs over a ten-year period with a carrying charge based on evidence that an unreasonable cost shift to non-net-metering customers is occurring.of OG&E does not currently have&E's pre-tax rate of return of 6.60 percent, through a significant numberspecial factor within OG&E's Energy Cost Recovery Rider beginning with the first billing cycle of net-metering customers in Arkansas. OG&E is reviewing its existing net-metering tariffs considering the new rules and will request the APSC approve any changes that are believed to be necessary.
Disconnection Procedures Related to COVID-19
May 2021. On September 17, 2020,April 13, 2021, the APSC issued Order No. 9 inviting comments from all jurisdictional utilities18 allowing OG&E interim recovery at an interest rate equal to the customer deposit interest rate, which is currently 0.8 percent, over a period of ten years beginning with the first billing cycle of May 2021. Recovery is subject to a true-up after the APSC determines the appropriate allocation, length of recovery and any other interested stakeholders on specific questions relatedcarrying charge. Such determinations are expected to whetherbe made by the APSC later this year. On May 4, 2021, OG&E filed testimony further supporting its 10-year amortization period and a moratorium on service terminations should be lifted and if so, how the resumptioncarrying charge of disconnections should occur. The APSC also ordered utilitiesOG&E's pre-tax rate of return of 6.60 percent. As of June 30, 2021, OG&E has deferred $92.3 million to submit a detailed "Transitional Plan" outlining how utilities propose to reinstate routine service disconnection activities and collection of past due amounts once the moratorium is lifted. OG&E submitted its proposed Transitional Plan on October 14, 2020. The APSC General Staff is directed to file reports addressing the adequacy of Investor Owned Utilities' Transitional Plans by November 5, 2020.regulatory asset, as indicated in Note 1.
In April 2021, Arkansas Solarenacted legislation to amend its storm recovery securitization statute to allow for both electric and gas utilities to recover through securitization extraordinary natural gas, fuel and purchased power costs caused by storms. The amended statute authorizes the APSC to issue a financing order for the issuance of securitization bonds upon a finding it is reasonably expected to lower overall costs or mitigate rate impacts as compared with traditional utility financing. Upon the initiation of a securitization application, the APSC has 135 days to issue an order. The requesting utility has two years from the date of the financing order to issue the securitization bonds. The amended statute allows carrying costs at a utility's weighted average cost of capital from the date of when the costs were incurred until the date when bonds are ultimately issued.
On July 29, 2020,May 20, 2021, OG&E submitted its applicationfiled a Motion for a CertificateSuspension of Public ConvenienceProcedural Schedule, which the APSC approved, to investigate and Necessity to construct and operate a five megawatt solar generation facility near Branch, Arkansas. On September 30, 2020,evaluate the parties reached a unanimous settlement agreement relating to the filing. The termspotential securitization recovery of the settlement, which is subject to approval by the APSC, are as follows: (i) parties agree that OG&E has complied with Arkansas law and rules of practice and procedure and recommend granting a Certificate of Public Convenience and Necessity for the construction, ownership and operationjurisdictional portion of the projectWinter Storm Uri costs. OG&E intends to apply for securitization in the second half of 2021 if it is deemed to strike the right balance between protecting the credit strength of OG&E and associated tariffs; (ii) OG&E agrees that it would not seek cost recovery until its next general rate review or Formula Rate Plan filing; (iii) OG&E agrees to keep detailed records of final cost, for review at such time that cost recovery is sought, including all cost variance estimates, whereby a determination of prudency of cost may be made; and (iv) OG&E agrees to reserve 50 percent of the total expected energy produced for residential customers for the first 90 days of the program's initial subscription period. OG&E is awaiting a final order from the APSC, which is expected by the end of November 2020.providing customer savings.
OCC Proceedings
Oklahoma Grid Enhancement Plan
On February 24, 2020, OG&E filed an application with the OCC for approval of a mechanism that allows for interim recovery of the costs associated with its grid enhancement plan. The plan includes approximately $800.0 million of strategic, data-driven investments, over five years, covering grid resiliency, grid automation, communication systems and technology platforms and applications. On May 19, 2020, the OCC temporarily suspended the procedural schedule in light of various conditions related to the COVID-19 pandemic and the uncertainty surrounding the method and date in which the hearing on the merits may occur. On July 9, 2020, a prehearing conference was held before the Administrative Law Judge to establish a procedural schedule and lift the stay ordered on May 19, 2020. On July 23, 2020, the OCC issued an order approving the amended procedural schedule and thereby lifting the stay.
On October 5, 2020, OG&E filed a Joint Stipulation and Settlement Agreement that included the following key terms: (i) cost recovery through a rider mechanism will be limited to projects placed in service in 2020 and 2021, capped at a revenue requirement of $7.0 million annually and only include communication, automation and technology systems projects; (ii) no operation and maintenance expense will be included in the rider mechanism; (iii) the rider mechanism will terminate by the issuance of a final order in OG&E's next general rate review or October 31, 2022, whichever occurs first; (iv) the rider mechanism rate of return will be capped at OG&E's current cost of capital; and (v) all cost recovery is subject to true-up and refund in OG&E's next general rate review. On October 8, 2020, a hearing on the agreement was held. The Administrative Law Judge recommended approval of the Joint Stipulation and Settlement Agreement and directed OG&E to prepare a draft order, on which the OCC is scheduled to deliberate on November 5, 2020.
Any capital investment falling outside the criteria of the rider mechanism will be included in OG&E's next general rate review for recovery.
2019 Oklahoma Fuel Prudency
On June 16, 2020, the Public Utility Division Staff filed their application initiating the review of the 2019 fuel adjustment clause and prudence review and on October 7, 2020, filed their recommendation for a finding of prudency for calendar year 2019. A hearing on the merits is scheduled for December 3, 2020.
Oklahoma Retail Electric Supplier Certified Territory Act Causes
Several rural electric cooperative electricity suppliers have filed complaints with the OCC alleging that OG&E has violated the Oklahoma Retail Electric Supplier Certified Territory Act. OG&E believes it is lawfully serving customers specifically exempted from this act and has presented evidence and testimony to the OCC supporting its position. There have been five complaint cases initiated at the OCC, and the OCC has issued decisions on each of them. The OCC ruled in favor of the electric cooperatives in three of those cases and ruled in favor of OG&E in two of those cases. All five of those cases have been appealed to the Oklahoma Supreme Court, where they have been made companion cases but will be individually briefed and have individual final decisions.
If the Oklahoma Supreme Court ultimately were to find that some or all of the customers being served are not exempted from the Oklahoma Retail Electric Supplier Certified Territory Act, OG&E would have to evaluate the recoverability of some plant investments made to serve these customers. The total amount of OG&E's plant investments made to serve the customers in all five cases is approximately $28.0$28.0 million, of which $11.7 million applies to the three cases where the OCC ruled in favor of the electric cooperatives. In addition to the evaluation of the recoverability of the investments, OG&E may also be required to reimburse certified territory suppliers for an amount of lost revenue. The amount of such lost revenue would depend on how the OCC calculates the revenue requirement but could range from approximately $13.0$22.2 million to $20.0$30.7 million for all five cases, of which $1.1$2.1 million to $1.8$3.3 million would apply to the three cases where the OCC ruled in favor of the electric cooperatives.
In October 2020, a major ice storm moved through OG&E's service territory which caused significant damage to the system. In November 2020, the Public Utility Division of the OCC initiated an examination and review of all distribution utilities and cooperatives affected by the storm into the mitigation efforts, restoration processes and proposed improvements for future related or similar events. Respondents are required to provide certain information related to the examination, and the OCC may request additional relief as the examination proceeds. No procedural schedule has been proposed currently; however, OG&E is responding to discovery requests.
Winter Storm Uri
In February 2021, Winter Storm Uri resulted in record winter peak demand for electricity and extremely high natural gas and purchased power prices in OG&E's service territory. On February 24, 2021, OG&E submitted an application to the OCC outlining a two-step approach for regulatory treatment for the fuel and purchased power costs associated with Winter Storm Uri. The steps included: (i) an intra-year fuel clause increase to be effective April 1, 2021; and (ii) a request for regulatory asset treatment at OG&E's weighted average cost of capital for the remaining fuel and purchased power costs. On March 18, 2021, the OCC approved OG&E's filing to establish a regulatory asset. The approval allowed OG&E to create a regulatory asset for all deferred costs with an initial carrying charge based on the effective cost of the debt financing, until such time where the prudency of this event is evaluated, the amortization period is decided on and a long-term carry cost is established.
In April 2021, Oklahoma enacted legislation to allow for the securitization of costs incurred during Winter Storm Uri. The new statute authorizes the OCC to issue a financing order for the issuance of securitization bonds after consideration of certain factors, including but not limited to, mitigated impacts and savings for customers through the use of ratepayer-backed securitization bonds as compared to traditional utility financing. The OCC must issue a financing order within 180 days after receiving all necessary information required by the statute. Under the statute, the Oklahoma Development Finance Authority is responsible for issuing the securitization bonds within two years from the date of the financing order. Carrying costs will be included at a rate and time determined by the OCC and continue until the bonds are issued. On April 26, 2021, OG&E filed an application pursuant to the Act seeking OCC approval to securitize its costs related to Winter Storm Uri and to receive an interim carrying charge on OG&E's regulatory asset balance at its weighted-average cost of capital for the period between April 2022 and the date when the securitized bonds are issued. On June 18, 2021, OG&E filed its direct testimony which supports the prudence of the costs incurred during Winter Storm Uri and demonstrates the customer savings associated with securitization as opposed to traditional utility financing. As of June 30, 2021, OG&E has deferred $754.8 million to a regulatory asset, as indicated in Note 1. The Oklahoma jurisdictional amount requested for recovery is subject to carrying costs and any updates from the SPP settlement process.
2020 Oklahoma Fuel Prudency
On June 28, 2021, the Public Utility Division Staff filed their application initiating the review of the 2020 fuel adjustment clause and prudence review. OG&E plans to file its Minimum Filing Requirements and Supporting Testimony on August 27, 2021.
Integrated Resource Plans
On August 2, 2021, OG&E released its draft triennial IRP and provided that draft to the OCC and the APSC. This 2021 IRP identified capacity needs of 145, 183, 417 and 514 MWs in 2023, 2024, 2025 and 2026, respectively. OG&E will be conducting technical conferences for stakeholder engagement in the Oklahoma and Arkansas jurisdictions and plans to issue its final 2021 IRP in October 2021.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following combined discussion is separately filed by OGE Energy and OG&E. However, OG&E does not make any representations as to information related solely to OGE Energy or the subsidiaries of OGE Energy other than itself.
Introduction
OGE Energy is a holding company with investments in energy and energy services providers offering physical delivery and related services for both electricity and natural gas primarily in the south-central U.S. OGE Energy conducts these activities through two business segments: (i) electric utility and (ii) natural gas midstream operations. The accounts of OGE Energy and its wholly-owned subsidiaries, including OG&E, are included in OGE Energy's condensed consolidated financial statements. All intercompany transactions and balances are eliminated in such consolidation. OGE Energy generally uses the equity method of accounting for investments where its ownership interest is between 20 percent and 50 percent and it lacks the power to direct activities that most significantly impact economic performance.
OG&E. OGE Energy's electric utility operations are conducted through OG&E, which generates, transmits, distributes and sells electric energy in Oklahoma and western Arkansas. Its operationsOG&E's rates 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.Territory and is a wholly-owned subsidiary of OGE Energy. 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. OG&E
Enable. OGE Energy's natural gas midstream operations segment represents OGE Energy's investment in Enable. The investment in Enable is held through wholly-owned subsidiaries and ultimately OGE Holdings. Formed in 2013, Enable is primarily 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 in the Anadarko, Arkoma and Ark-La-Tex Basins. Enable also owns crude oil gathering assets in the Anadarko and Williston Basins. Enable has intrastate natural gas transportation and storage assets that are located in Oklahoma as well as interstate assets that extend from western Oklahoma and the Texas Panhandle to Louisiana, from Louisiana to Illinois and from Louisiana to Alabama. Enable's general partner is equally controlled by OGE Energy and CenterPoint, who each have 50 percent management ownership. Based on the 50/50 management ownership, with neither company having control, OGE Energy accounts for its interest in Enable using the equity method of accounting. As disclosed in OGE Energy's 2020 Form 10-K, Enable is subject to a wholly-owned subsidiarynumber of risks, including contract renewal risk, the reliance on the drilling and production decisions of others and the volatility of natural gas, NGLs and crude oil prices. The effects of COVID-19, including negative impacts on demand and commodity prices, could exacerbate these risks, as experienced in 2020 which, along with actions of the Organization of Petroleum Exporting Countries and other oil exporting nations, influenced OGE Energy's impairment of its investment in Enable. If any of those risks were to occur or reoccur, OGE Energy's business, financial condition, results of operations or cash flows could be materially adversely affected.
In February 2021, Enable entered into a definitive merger agreement with Energy Transfer, which is further discussed under "Recent Developments - Enable Merger Agreement with Energy Transfer" below and in Note 4 within "Item 1. Financial Statements." For a discussion of risks related to the Enable and Energy Transfer merger, see "Item 1A. Risk Factors" in OGE Energy's 2020 Form 10-K. Overview
Strategy
OGE Energy's purpose is to energize life, providing life-sustaining and life-enhancing products and services, while honoring its commitment to strengthen communities. Its business model is centered around growth and sustainability for employees (internally referred to as "members"), communities and customers and the owners of OGE Energy, its shareholders.
OGE Energy is focused on creating long-term shareholder value by targeting the consistent growth of earnings per share of five percent at the electric utility, underscored by a holding company with investmentsstrategy of investing in energylower risk infrastructure projects that improve the economic vitality of the communities it serves in Oklahoma and energy services providers offering physical delivery and related services for both electricity andArkansas. OGE Energy utilizes cash distributions from its natural gas primarily in the south-central U.S.midstream operations segment to help fund its electric utility capital investments. OGE Energy's financial objectives also include maintaining investment grade credit ratings and providing a strong and reliable dividend for shareholders.
Overview
OG&E Mission and Focus
OGE Energy's mission, through OG&Elong-term sustainability is predicated on providing exceptional customer experiences, investing in grid improvements and OGE Energy's equity interest in Enable, is to fulfillincreasingly cleaner generation resources, environmental stewardship, strong governance practices and caring for and supporting its critical role in the nation's electric utilitymembers and natural gas midstream pipeline infrastructure and meet individual customer's needs for energy and related services, focusing on safety, efficiency, reliability, customer service and risk management.
communities.
Recent Developments
Enable Merger Agreement with Energy Transfer
In February 2021, Enable entered into a definitive merger agreement with Energy Transfer, pursuant to which, and subject to the conditions of the merger agreement, all outstanding common units of Enable will be acquired by Energy Transfer in an all-equity transaction. Under the terms of the merger agreement, Enable's common unitholders, including OGE Energy, will receive 0.8595 of one common unit representing limited partner interests in Energy Transfer for each common unit of Enable. The transaction is subject to the receipt of the required approvals from the holders of a majority of Enable's common units. In April 2021, CenterPoint and OGE Energy, who collectively own approximately 79.2 percent of Enable's common units, delivered written consents approving the merger agreement, and those consents are sufficient to approve the merger. The transaction also is subject to the receipt of anti-trust approvals and other customary closing conditions. The transaction is anticipated to close in 2021. Assuming the transaction closes, OGE Energy will own approximately three percent of Energy Transfer's outstanding limited partner units in lieu of the 25.5 percent interest in Enable that it currently owns. OGE Energy expects to incur transaction costs for investment bankers, advisors and attorneys as part of the transaction.
Assuming the transaction closes, OGE Energy expects to receive distributions from Energy Transfer instead of the distributions currently received from Enable. Therefore, OGE Energy does not expect significant changes to its cash requirements for funding operations or capital expenditures as a result of the merger between Enable and Energy Transfer. Assuming the successful completion of the merger, OGE Energy intends to exit the midstream segment in a prudent manner.
Winter Storm Uri
In February 2021, Winter Storm Uri resulted in record winter peak demand for electricity and extremely high natural gas and purchased power prices in OG&E's service territory. Both the OCC and APSC have approved regulatory mechanisms for OG&E's recovery of the significant fuel and purchased power costs associated with Winter Storm Uri, as further discussed in Note 15 within "Item 1. Financial Statements." As of June 30, 2021, OG&E has recorded regulatory assets of $754.8 million and $92.3 million for the Oklahoma and Arkansas jurisdictional portions, respectively, of fuel and purchased power costs incurred during Winter Storm Uri.
In March 2021, OGE Energy entered into a $1.0 billion unsecured 364-day term loan agreement and borrowed the full $1.0 billion to help cover the significant fuel and purchased power costs incurred during Winter Storm Uri. In May 2021, OGE Energy and OG&E each issued $500.0 million in senior notes, and using these proceeds, OGE Energy repaid $900.0 million of the $1.0 billion term loan, as further described in Notes 10 and 11 within "Item 1. Financial Statements." The Oklahoma and Arkansas legislatures have both passed legislation that would help alleviate the immediate burden on customers and OGE Energy by securitizing the cost impacts from Winter Storm Uri. The securitization of these costs could spread out the recovery of the costs over a longer period of time at a lower finance carrying charge. On April 26, 2021, OG&E filed an application seeking OCC approval to securitize its costs related to Winter Storm Uri, and on June 18, 2021, OG&E filed its direct testimony which supports the prudence of the costs incurred during Winter Storm Uri and demonstrates the customer savings associated with securitization as opposed to traditional utility financing. Further discussion can be found in Note 15 within "Item 1. Financial Statements."
COVID-19 Pandemic
In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, which continues to spread throughout the U.S. and world. In an effort to contain COVID-19 or slow its spread, the U.S. federal, state and local governments enacted various measures, including orders to close or place restrictions on businesses not deemed "essential," enact "shelter in place" restrictions on residents and practice social distancing when engaging in essential activities. The COVID-19 outbreak has adversely impacted global markets and activity, including the energy industry, and it is impossible to predict the ultimate impact of the COVID-19 pandemic, as the situation continues to evolve. InSince May 2020, there have been no Oklahoma City, OG&E's largest service territory, the mayor's "shelter in place" order required residents to stay home except for certain "essential" activities and closed down restaurant dining rooms, personal care services and other businesses that posed a high risk for spreading COVID-19. The order was effective from March 16, 2020 to April 30, 2020. Beginning May 1, 2020,City-wide or Oklahoma City began its phased "re-opening," and there are currently no city-wide or state-wide "shelter in place" restrictions.
OG&E's current Currently, COVID-19 vaccines are available to all Oklahoma and potential future responsesArkansas residents, depending upon the age requirements of the particular vaccine, and the Registrants have provided on-site access to the COVID-19 impacts on its employees, customers and shareholders are further discussed below.
•OG&E'svaccines to their members. The Registrants' top priority is to protect itstheir employees and their families, as well as itstheir customers. OG&E isThe Registrants are taking all precautionary measures as directed by health authorities and local and national governments. OG&E continuesgovernments and continue to monitor the outbreak of COVID-19 cases and whether any occupancy reductions or closures are necessary to help ensure the health and safety of itstheir employees and customers. In order to promote the safety of OG&E's employees and the continuity of utility service, OG&E implemented health-screening processes and increased sanitation efforts at its facilities and secured additional personal protective equipment, among other additional measures taken. The OCC and the APSC both issued accounting orders allowing OG&Ethe Registrants to defer thesefor recovery the incremental costs incurred for recovery.
•As a precautionary measure in order to increase OGE Energy's cash position and preserve financial flexibility in light of current uncertainty resulting from the COVID-19 pandemic, OGE Energy entered into a one-year $75.0 million term loan agreement in April 2020. The full $75.0 million was repaid in September 2020. Further, OG&E issued $300.0 million in senior notes in April 2020.
•In March 2020, President Trump signed into U.S. federal law the Coronavirus Aid, Relief, and Economic Security Act, or the "CARES Act," which is aimed at addressing the economic disruption resulting from the COVID-19 pandemic and providing certain tax relief to businesses in the U.S. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of the employer portion of FICA payroll taxes, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. OG&E concluded that the financial impact of the provisions it adopted is immaterial.
•OG&E voluntarily suspended all disconnects for nonpayment, effective March 16, 2020, and on June 25, 2020 announced that it would reinstate disconnects for nonpayment in Oklahoma, effective July 6, 2020. OG&E also
announced that it will provide broad payment options to customers who repay their past due balances, including a six-month installment planpandemic-related safety measures and the Average Monthly Billing plan which would spread past due balances over a 12-month period. The Arkansas disconnection moratorium is still in place. OG&E adjusted its reserve on accounts receivable as of September 30, 2020 in light of the current expected credit loss model (ASU 2016-13) and the COVID-19 pandemic. The adjustment, which was $1.0 million, incorporated concerns of continued slower customer payment due to unemployment. OG&E deferred this credit reserve amount to a regulatory asset, as both the OCC and the APSC issued accounting orders allowing OG&E to seek recovery of incremental bad debt resulting from COVID-19. OG&E will continue to monitorThese orders are further discussed in Note 15 within "Item 1. Financial Statements" and in the reserve as it gains better clarity on the impacts of COVID-19 on its customers and business.
•OG&E is also monitoring customer usage to determine any impact on load forecasts, in terms of both energy and demand usage. While other customer classes have experienced declines due to COVID-19, residential MWh sales have increased by 3.3 percent on a weather-adjusted basis for the nine months ended September 30, 2020 compared to the same period in 2019, likely due to more customers spending a higher percentage of time at home as a result of the pandemic. However, weather-adjusted commercial MWh sales, as well as industrial MWh sales, have improved since the second quarter, likely aided by the expiration of Oklahoma City's "shelter in place" restrictions in May 2020. Oilfield MWh sales have also improved since the second quarter. Due to different customer characteristics, the contribution to margin varies by customer class and applicable tariffs. The below table presents a one percent annual gross margin sensitivity by class, based on the gross margin guidance OG&E provided in itsRegistrants' 20192020 Form 10-K. OG&E believes providing this analysis based on annual gross margin is relevant due to its seasonality of earnings. This analysis only incorporates retail gross margin and excludes transmission and other gross margin sensitivities.
| | | | | |
Customer Class | 1% Annual Margin Sensitivity
(In millions)
|
Residential | $ | 6.5 | |
Commercial | $ | 3.6 | |
Industrial | $ | 1.3 | |
Oilfield | $ | 1.1 | |
Public authorities | $ | 1.2 | |
October 2020 Ice Storm
On October 26, 2020, a major ice storm moved into OG&E's territory where three separate waves of sleet, freezing rain and high winds caused significant damage to the system resulting in approximately 422,000 outages. OG&E's restoration personnel, including contractors and mutual assistance crews, are working to restore power. Operation and maintenance expense incurred during the ice-storm restoration will be deferred to a regulatory asset and subsequently submitted for recovery in rates.
Regulatory Matters
Further discussion can be foundCompleted regulatory matters affecting current period results are discussed in Note 1215 within "Item 1. Financial Statements."
Arkansas 2019 Formula Rate Plan Filing
OG&E filed its second evaluation report under its Formula Rate Plan in October 2019. On February 28, 2020, the APSC approved a settlement agreement among OG&E, the General Staff of the APSC and the Office of the Arkansas Attorney General providing for a $5.2 million revenue increase, with rates effective April 1, 2020. The settling parties agreed that the Series I grid modernization projects are prudent in both action and cost and that the Series II grid modernization projects are prudent in action only and the determination of prudence of costs will be reserved until the actual historical costs are reviewed. The settling parties also agreed that OG&E will no longer use projections for the remaining initial term or extension of its current Formula Rate Plan and that all costs will be included for recovery for the first time in the historical year.
APSC Order Regarding COVID-19
On May 27, 2020, the APSC issued an order approving OG&E's request to deviate from the specified terms in the Arkansas General Service Rules and OG&E's Terms and Conditions to allow deferred payment arrangements to be offered to all customer classes and have more flexible payment arrangements. OG&E is also authorized to defer to a regulatory asset
certain incremental expenses, such as additional personal protective equipment, increased sanitation efforts at facilities, implementing health-screening processes and securing temporary facilities for potential sequestration of critical operation personnel, and seek future recovery. The APSC found that it is premature to decide at this time the exact recovery mechanism for any utility for COVID-19 related costs.
OCC Public Utility Division Motion Regarding COVID-19
On May 7, 2020, the OCC ordered that the State's utilities, including OG&E, are authorized to record as a regulatory asset any increased bad debt expense, cost associated with expanded payment plans, waived fees and incremental expenses that are directly related to the suspension of or delay in disconnection of service beginning March 15, 2020 until September 2020, unless otherwise ordered by the OCC. The OCC will consider in future proceedings whether each utility's request for recovery of these regulatory assets is reasonable and necessary. The OCC will also consider issues such as the incremental bad debt experienced over normal periods, appropriate period of recovery for any approved amount of regulatory assets, any amounts of carrying costs thereon and other related matters. The OCC also authorized utilities to defer expenses associated with ensuring continuity of service and protecting utility personnel, customers and the general public.
APSC Environmental Compliance Plan Rider
In May 2019, OG&E filed an environmental compliance plan rider in Arkansas to recover its investment for the environmentally mandated costs associated with the Sooner Dry Scrubbers project and the conversion of Muskogee Units 4 and 5 to natural gas. The filing initiated an interim surcharge, subject to refund, that began with the first billing cycle of June 2019. On July 31, 2020, OG&E's request to recover its investment for these environmentally mandated costs through the interim surcharge was not approved, as the APSC indicated OG&E could otherwise recover this investment, such as through the Formula Rate Plan Rider. As of September 30, 2020, OG&E has returned $5.3 million to customers that had been reserved for refund and has included those costs for recovery in its 2020 Formula Rate Plan filing.
Summary of OGE Energy Operating Results
Three Months Ended SeptemberJune 30, 20202021 as compared to the Three Months Ended SeptemberJune 30, 20192020
OG&E reportedOGE Energy's net income was $112.9 million, or $0.56 per diluted share, during the three months ended June 30, 2021 as compared to $85.9 million, or $0.43 per diluted share, during the same period in 2020. The increase in net income of $199.5 million and $227.2 million during three months ended September 30, 2020 and 2019, respectively, a decrease of $27.7$27.0 million, or 12.2 percent,$0.13 per diluted share, is further discussed below.
•An increase in net income at OGE Holdings of $13.2 million, or $0.06 per diluted share of OGE Energy's common stock, was primarily due to lower gross marginan increase in equity in earnings of Enable, which was driven by milder weatherincreased net income from Enable's gathering and lower salesprocessing business resulting from higher average market prices for NGL products and increased crude oil and condensate gathered volumes, and a decrease in income tax expense, which was driven by the Oklahoma state tax rate impact on deferred taxes.
•An increase in net income at OG&E of $6.2 million, or $0.03 per diluted share of OGE Energy's common stock, was primarily due to higher utility margin (despite mild weather), partially impactedoffset by COVID-19, higher depreciation and amortization expense due to additional assets being placed into service and higherservice.
•A decrease in net loss of other operations (holding company) of $7.6 million, or $0.04 per diluted share of OGE Energy's common stock, was primarily due to lower income tax expense partially offset by lower other operation and maintenance expense.in 2021. In March 2020, OGE Energy recorded an impairment of its investment in Enable which had a corresponding income tax benefit due to a consolidating income tax adjustment related to the interim period that was eliminated in the ordinary course of business over the remainder of 2020.
NineSix Months Ended SeptemberJune 30, 20202021 as compared to the NineSix Months Ended SeptemberJune 30, 20192020
OG&E reportedOGE Energy's net income was $165.6 million, or $0.83 per diluted share, during the six months ended June 30, 2021 as compared to a net loss of $405.9 million, or $2.03 per diluted share, during the same period in 2020. The increase in net income of $298.3$571.5 million, and $321.3or $2.86 per diluted share, is further discussed below.
•Net income at OGE Holdings was $70.1 million, or $0.35 per diluted share of OGE Energy's common stock, during the ninesix months ended SeptemberJune 30, 2021 compared to a net loss of $549.0 million, or $2.74 per diluted share of OGE Energy's common stock, during the six months ended June 30, 2020. The increase was primarily due to the 2020 and 2019, respectively,impact of lower equity in earnings of Enable related to the impairment of OGE Energy's investment in Enable, partially offset by a decrease in income tax benefit related to this impairment charge. The increase in equity in earnings of $23.0Enable was also impacted by increased net income from Enable's transportation and storage business resulting from higher average natural gas sales prices.
•A decrease in net income at OG&E of $2.5 million, or 7.2 percent,$0.01 per diluted share of OGE Energy's common stock, was primarily due to higher depreciation and amortization expense due to additional assets being placed into service gross margin reductions from milder weather and COVID-19 impacts, higher income tax expense and higher interest expense driven by increased long-term debt outstanding. These decreases to net income were partially offset by increases to grosslower utility margin driven by recovery of additional assets placed into service throughlosses from the expiration of the cogeneration credit rider andguaranteed flat bill program during Winter Storm Uri, partially offset by lower other operation and maintenance expense.
•A decrease in net income of other operations (holding company) of $45.1 million, or $0.22 per diluted share of OGE Energy's common stock, was primarily due to a lower income tax benefit driven by the 2020 impairment of OGE Energy's investment in Enable. The income tax benefit impact was due to a consolidating income tax adjustment related to the interim period that was eliminated in the ordinary course of business over the remainder of 2020.
2020 Outlook
OG&E projects to earn approximately $336 million to $340 million, a decrease from the previously issued guidance of approximately $346 million to $357 million of net income, in 2020. The updated projections for 2020 are based on the following:
•normal weather patterns are experienced for the remainder of the year;
•gross margin on revenues of approximately $1.482 billion to $1.484 billion;
•operating expenses of approximately $956 million to $958 million with operation and maintenance expenses comprising approximately 49 percent of the total;
•net interest expense of approximately $155 million which assumes a $2 million allowance for borrowed funds used during construction reduction to interest expense;
•net other income of approximately $1 million including approximately $4.9 million of allowance for equity funds used during construction; and
•an effective tax rate of approximately 9.4 percent.
2021 Outlook
OG&E's 2021 earnings guidance remains unchanged and is between $352 million to $373 million, or $1.76 to $1.86 per average diluted share. Based on results for the first half of 2021, including the impacts of Winter Storm Uri and strong mitigation efforts, OG&E's full year earnings are currently projected to be in the lower half of this range. The guidance assumes, among other things, approximately 200 million average diluted shares outstanding and normal weather for the year. As indicated in its 2020 Form 10-K, OGE Energy is not issuing 2021 consolidated earnings guidance due to Enable not issuing an earnings outlook due to the announced merger between Enable and Energy Transfer. See OGE Energy's 2020 Form 10-K for other key factors and assumptions underlying its 2021 guidance.
Non-GAAP Financial Measures
GrossOG&E
Utility margin is defined by OG&E as operating revenuesOperating Revenues less cost of sales. Cost of sales,Fuel, Purchased Power and Direct Transmission Expense. Fuel, Purchased Power and Direct Transmission Expense, as reflected on the income statement, includes fuel used in electric generation, purchased power and certain transmission expenses. GrossUtility margin is a non-GAAP financial measure because it excludes operating expenses such as depreciation and amortization and other operation and maintenance expenses.amortization. Expenses for fuel, and purchased power and direct transmission are recovered through fuel adjustment clauses or other regulatory mechanisms, and as a result, changes in these expenses are offset in operating revenues with no impact on net income.operating income except for the portion of fuel, purchased power and direct transmission costs related to customers under the guaranteed flat bill program. OG&E believes grossutility margin provides a more meaningful basis for evaluating its operations across periods than operating revenues because grossutility margin excludes the revenue effect of fluctuations in these expenses. GrossUtility margin is used internally to measure performance against budget and in reports for management and the Board of Directors. OG&E's definition of grossutility margin may be different from similar terms used by other companies. Further, grossutility margin is not intended to replace operating revenuesincome as determined in accordance with GAAP as an indicator of operating performance. ForThe below table presents a reconciliation of grossutility margin to revenue,operating income, which is the most directly comparable financial measure calculated and presented in accordance with GAAP, for the three and ninesix months ended SeptemberJune 30, 20202021 and 2019, see "Results of Operations" below.2020.
Detailed | | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended |
| June 30, | June 30, |
| (In millions) | 2021 | 2020 | 2021 | 2020 |
| Operating income | $ | 131.2 | | $ | 126.1 | | $ | 180.3 | | $ | 183.1 | |
| Operating revenues | $ | 577.4 | | $ | 503.5 | | $ | 2,208.0 | | $ | 934.8 | |
| Fuel, purchased power and direct transmission expense | (200.0) | | (137.4) | | (1,546.8) | | (272.4) | |
| Utility margin | 377.4 | | 366.1 | | 661.2 | | 662.4 | |
| Other operation and maintenance | (118.3) | | (117.7) | | (228.6) | | (238.7) | |
| Depreciation and amortization | (102.9) | | (97.3) | | (201.6) | | (191.7) | |
| Taxes other than income | (25.0) | | (25.0) | | (50.7) | | (48.9) | |
| Operating income | $ | 131.2 | | $ | 126.1 | | $ | 180.3 | | $ | 183.1 | |
Enable
Enable margin is defined as total revenues minus costs of natural gas and NGLs, excluding depreciation and amortization. Total revenues consist of the fees that Enable charges its customers and the sales price of natural gas, NGLs, crude oil and condensate that Enable sells. The cost of natural gas and NGLs consists of the purchase price of natural gas and NGLs that Enable purchases. Enable deducts the cost of natural gas and NGLs from total revenues to arrive at a measure of the core profitability of their mix of fee-based and commodity-based customer arrangements. Enable margin allows for meaningful comparison of the operating results between Enable's fee-based revenues and Enable's commodity-based contracts which involve the purchase or sale of natural gas, NGLs and/or crude oil. In addition, OGE Energy believes Enable margin allows for a meaningful comparison of the results of Enable's commodity-based activities across different commodity price environments because it measures the spread between the product sales price and cost of products sold. The Enable margin definition used by OGE Energy may be different from similar terms used by other companies. Further, Enable margin is not intended to replace operating income as determined in accordance with GAAP as an indicator of operating performance. The below istable presents a
reconciliation of grossEnable margin to revenue includedoperating income, which is the most directly comparable financial measure calculated and presented in accordance with GAAP, for the 2020 Outlook.
| | | | | |
|
| |
(In millions) | Twelve Months Ended December 31, 2020
(A) |
Operating revenues | $ | 2,108 | |
Cost of sales | 625 | |
Gross margin | $ | 1,483 | |
three and six months ended June 30, 2021 and 2020.(A)
Based on the midpoint of OG&E earnings guidance for 2020.
| | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended |
| June 30, | June 30, |
| (In millions) | 2021 | 2020 | 2021 | 2020 |
| Operating income | $ | 124 | | $ | 80 | | $ | 330 | | $ | 226 | |
| Total revenues | $ | 787 | | $ | 515 | | $ | 1,757 | | $ | 1,163 | |
| Cost of natural gas and NGLs (excluding depreciation and amortization shown separately) | (426) | | (177) | | (945) | | (403) | |
| Enable margin | 361 | | 338 | | 812 | | 760 | |
| Operation and maintenance | (91) | | (115) | | (175) | | (217) | |
| General and administrative | (25) | | (21) | | (62) | | (45) | |
| Depreciation and amortization | (103) | | (105) | | (209) | | (209) | |
| Impairments of property, plant and equipment and goodwill | — | | — | | — | | (28) | |
| Taxes other than income tax | (18) | | (17) | | (36) | | (35) | |
| Operating income | $ | 124 | | $ | 80 | | $ | 330 | | $ | 226 | |
Results of Operations
The following discussion and analysis presents factors that affected OG&E'sthe Registrants' results of operations for the three and ninesix months ended SeptemberJune 30, 20202021 as compared to the same periods in 20192020 and OG&E'sthe Registrants' financial position at SeptemberJune 30, 2020.2021. Due to seasonal fluctuations and other factors, OG&E'sthe Registrants' operating results for the three and ninesix months ended SeptemberJune 30, 20202021 are not necessarily indicative of the results that may be expected for the year ending December 31, 20202021 or for any future period. The following information should be read in conjunction with the Condensed Financial Statementscondensed financial statements and Notesnotes thereto. Known trends and contingencies of a material nature are discussed to the extent considered relevant.
| | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended |
| OGE Energy | June 30, | June 30, |
| (In millions except per share data) | 2021 | 2020 | 2021 | 2020 |
| Net income (loss) | $ | 112.9 | | $ | 85.9 | | $ | 165.6 | | $ | (405.9) | |
| Basic average common shares outstanding | 200.2 | | 200.2 | | 200.1 | | 200.2 | |
| Diluted average common shares outstanding | 200.4 | | 200.5 | | 200.2 | | 200.2 | |
| Basic earnings (loss) per average common share | $ | 0.56 | | $ | 0.43 | | $ | 0.83 | | $ | (2.03) | |
| Diluted earnings (loss) per average common share | $ | 0.56 | | $ | 0.43 | | $ | 0.83 | | $ | (2.03) | |
| Dividends declared per common share | $ | 0.40250 | | $ | 0.38750 | | $ | 0.80500 | | $ | 0.77500 | |
| | | | | | | | | | | | | | |
| Three Months Ended | Nine Months Ended |
| September 30, | September 30, |
| (Dollars in millions) | 2020 | 2019 | 2020 | 2019 |
| Operating revenues | $ | 702.1 | | $ | 755.4 | | $ | 1,636.9 | | $ | 1,759.1 | |
| Cost of sales | 209.1 | | 234.0 | | 481.5 | | 625.3 | |
| Other operation and maintenance | 110.1 | | 130.0 | | 348.8 | | 370.3 | |
| Depreciation and amortization | 100.5 | | 94.1 | | 292.2 | | 260.8 | |
| Taxes other than income | 23.9 | | 22.3 | | 72.8 | | 66.8 | |
| Operating income | 258.5 | | 275.0 | | 441.6 | | 435.9 | |
| Allowance for equity funds used during construction | 1.1 | | 1.0 | | 3.7 | | 3.7 | |
| Other net periodic benefit expense | (1.3) | | (0.7) | | (2.8) | | (0.3) | |
| Other income | 1.1 | | 2.0 | | 3.7 | | 4.5 | |
| Other expense | 0.3 | | 2.4 | | 1.7 | | 3.9 | |
| Interest expense | 39.5 | | 38.0 | | 115.7 | | 103.7 | |
| Income tax expense | 20.1 | | 9.7 | | 30.5 | | 14.9 | |
| Net income | $ | 199.5 | | $ | 227.2 | | $ | 298.3 | | $ | 321.3 | |
| Operating revenues by classification: | | | | |
| Residential | $ | 302.7 | | $ | 328.0 | | $ | 683.4 | | $ | 710.0 | |
| Commercial | 160.3 | | 176.6 | | 370.5 | | 396.7 | |
| Industrial | 60.5 | | 68.1 | | 148.8 | | 176.0 | |
| Oilfield | 51.1 | | 59.4 | | 129.2 | | 159.5 | |
| Public authorities and street light | 59.0 | | 67.0 | | 136.2 | | 154.3 | |
| Sales for resale | — | | — | | — | | 0.1 | |
| System sales revenues | 633.6 | | 699.1 | | 1,468.1 | | 1,596.6 | |
| Provision for rate refund | 4.8 | | (2.3) | | 3.2 | | (2.9) | |
| Integrated market | 18.0 | | 12.8 | | 33.7 | | 29.8 | |
| Transmission | 35.0 | | 36.7 | | 109.0 | | 112.6 | |
| Other | 10.7 | | 9.1 | | 22.9 | | 23.0 | |
| Total operating revenues | $ | 702.1 | | $ | 755.4 | | $ | 1,636.9 | | $ | 1,759.1 | |
| Reconciliation of gross margin to revenue: | | | | |
| Operating revenues | $ | 702.1 | | $ | 755.4 | | $ | 1,636.9 | | $ | 1,759.1 | |
| Cost of sales | 209.1 | | 234.0 | | 481.5 | | 625.3 | |
| Gross margin | $ | 493.0 | | $ | 521.4 | | $ | 1,155.4 | | $ | 1,133.8 | |
MWh sales by classification (In millions) | | | | |
| Residential | 3.0 | | 3.2 | | 7.4 | | 7.6 | |
| Commercial | 1.9 | | 2.1 | | 4.9 | | 5.1 | |
| Industrial | 1.1 | | 1.2 | | 3.1 | | 3.4 | |
| Oilfield | 1.1 | | 1.2 | | 3.2 | | 3.5 | |
| Public authorities and street light | 0.9 | | 1.0 | | 2.2 | | 2.4 | |
| | | | |
| System sales | 8.0 | | 8.7 | | 20.8 | | 22.0 | |
| Integrated market | 0.7 | | 0.3 | | 1.5 | | 0.9 | |
| Total sales | 8.7 | | 9.0 | | 22.3 | | 22.9 | |
| Number of customers | 865,259 | | 855,904 | | 865,259 | | 855,904 | |
Weighted-average cost of energy per kilowatt-hour (In cents) | | | | |
| Natural gas | 2.137 | | 1.943 | | 1.935 | | 2.234 | |
| Coal | 1.772 | | 2.025 | | 1.838 | | 2.005 | |
| Total fuel | 1.931 | | 1.857 | | 1.787 | | 2.002 | |
| Total fuel and purchased power | 2.302 | | 2.528 | | 2.058 | | 2.616 | |
| Degree days (A) | | | | |
| Heating - Actual | 29 | | — | | 1,980 | | 2,277 | |
| Heating - Normal | 19 | | 19 | | 2,023 | | 2,023 | |
| Cooling - Actual | 1,163 | | 1,477 | | 1,745 | | 1,958 | |
| Cooling - Normal | 1,382 | | 1,382 | | 2,021 | | 2,021 | |
| | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended |
| June 30, | June 30, |
| (In millions) | 2021 | 2020 | 2021 | 2020 |
| Net income (loss): | | | | |
| OG&E (Electric Utility) | $ | 85.1 | | $ | 78.9 | | $ | 96.3 | | $ | 98.8 | |
| OGE Holdings (Natural Gas Midstream Operations) (A) | 32.2 | | 19.0 | | 70.1 | | (549.0) | |
| Other operations (A)(B) | (4.4) | | (12.0) | | (0.8) | | 44.3 | |
| OGE Energy net income (loss) | $ | 112.9 | | $ | 85.9 | | $ | 165.6 | | $ | (405.9) | |
(A)In 2020, OGE Energy recorded a $780.0 million impairment ($589.6 million after tax) on its investment in Enable, as further discussed in Note 4 within "Item 1. Financial Statements." Other operations' results for the three and six months ended June 30, 2020 included $16.4 million tax expense and $36.4 million tax benefit impacts, respectively, due to a consolidating tax adjustment related to the interim period that eliminated in the ordinary course of business over the remainder of the year.
(B)Other operations primarily includes the operations of the holding company and consolidating eliminations.
The following discussion of results of operations by business segment includes intercompany transactions that are eliminated in OGE Energy's condensed consolidated financial statements.
OG&E (Electric Utility) | | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended |
| June 30, | June 30, |
| (Dollars in millions) | 2021 | 2020 | 2021 | 2020 |
| Operating revenues | $ | 577.4 | | $ | 503.5 | | $ | 2,208.0 | | $ | 934.8 | |
| Fuel, purchased power and direct transmission expense | 200.0 | | 137.4 | | 1,546.8 | | 272.4 | |
| Other operation and maintenance | 118.3 | | 117.7 | | 228.6 | | 238.7 | |
| Depreciation and amortization | 102.9 | | 97.3 | | 201.6 | | 191.7 | |
| Taxes other than income | 25.0 | | 25.0 | | 50.7 | | 48.9 | |
| Operating income | 131.2 | | 126.1 | | 180.3 | | 183.1 | |
| Allowance for equity funds used during construction | 1.6 | | 1.3 | | 2.9 | | 2.6 | |
| Other net periodic benefit expense | 1.2 | | 1.0 | | 2.1 | | 1.5 | |
| Other income | 1.1 | | 1.1 | | 2.8 | | 2.6 | |
| Other expense | 0.3 | | 0.9 | | 0.7 | | 1.4 | |
| Interest expense | 37.9 | | 39.3 | | 76.3 | | 76.2 | |
| Income tax expense | 9.4 | | 8.4 | | 10.6 | | 10.4 | |
| Net income | $ | 85.1 | | $ | 78.9 | | $ | 96.3 | | $ | 98.8 | |
| Operating revenues by classification: | | | | |
| Residential | $ | 184.2 | | $ | 208.4 | | $ | 757.5 | | $ | 380.7 | |
| Commercial | 112.2 | | 116.1 | | 421.9 | | 210.2 | |
| Industrial | 38.7 | | 45.7 | | 186.4 | | 88.3 | |
| Oilfield | 29.6 | | 39.1 | | 190.9 | | 78.1 | |
| Public authorities and street light | 38.1 | | 41.6 | | 162.0 | | 77.2 | |
| Sales for resale | 0.1 | | 0.1 | | 0.1 | | — | |
| System sales revenues | 402.9 | | 451.0 | | 1,718.8 | | 834.5 | |
| Provision for rate refund | — | | (1.0) | | — | | (1.6) | |
| Integrated market | 128.3 | | 8.5 | | 430.4 | | 15.7 | |
| Transmission | 36.7 | | 39.8 | | 73.0 | | 74.0 | |
| Other | 9.5 | | 5.2 | | (14.2) | | 12.2 | |
| Total operating revenues | $ | 577.4 | | $ | 503.5 | | $ | 2,208.0 | | $ | 934.8 | |
MWh sales by classification (In millions) | | | | |
| Residential | 2.0 | | 2.2 | | 4.5 | | 4.4 | |
| Commercial | 1.7 | | 1.5 | | 3.2 | | 3.0 | |
| Industrial | 1.0 | | 0.9 | | 2.0 | | 2.0 | |
| Oilfield | 1.0 | | 1.0 | | 2.0 | | 2.1 | |
| Public authorities and street light | 0.8 | | 0.7 | | 1.4 | | 1.3 | |
| | | | |
| System sales | 6.5 | | 6.3 | | 13.1 | | 12.8 | |
| Integrated market | 0.4 | | 0.5 | | 0.7 | | 0.8 | |
| Total sales | 6.9 | | 6.8 | | 13.8 | | 13.6 | |
| Number of customers | 874,713 | | 863,234 | | 874,713 | | 863,234 | |
Weighted-average cost of energy per kilowatt-hour (In cents) | | | | |
| Natural gas | 2.919 | | 1.907 | | 20.973 | | 1.784 | |
| Coal | 1.897 | | 1.976 | | 1.835 | | 1.962 | |
| Total fuel | 2.346 | | 1.760 | | 11.634 | | 1.655 | |
| Total fuel and purchased power | 2.722 | | 1.919 | | 10.547 | | 1.902 | |
| Degree days (A) | | | | |
| Heating - Actual | 291 | | 302 | | 2,357 | | 1,951 | |
| Heating - Normal | 220 | | 204 | | 2,020 | | 2,004 | |
| Cooling - Actual | 460 | | 559 | | 466 | | 582 | |
| Cooling - Normal | 569 | | 626 | | 582 | | 639 | |
(A)Degree days are calculated as follows: The high and low degrees of a particular day are added together and then averaged. If the calculated average is above 65 degrees, then the difference between the calculated average and 65 is expressed as cooling degree days, with each degree of difference equaling one cooling degree day. If the calculated average is below 65 degrees, then the difference between the calculated average and 65 is expressed as heating degree days, with each degree of difference equaling one heating degree day. The daily calculations are then totaled for the particular reporting period.
OG&E's net income decreased $27.7increased $6.2 million, or 12.27.9 percent, and $23.0decreased $2.5 million, or 7.22.5 percent, during the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, as compared to the same periods in 2019. Primary2020. The following section discusses the primary drivers for these decreasesthe changes in net income are further discussed below.
Gross margin decreased $28.4 million, or 5.4 percent, and increased $21.6 million, or 1.9 percent, during the three and ninesix months ended SeptemberJune 30, 2020, respectively,2021, as compared to the same periods in 2019. The2020.
Operating revenues increased $73.9 million, or 14.7 percent, and increased $1,273.2 million during the three and six months ended June 30, 2021, respectively, primarily due to increased fuel, purchased power and direct transmission expenses which are typically recovered from customers. Operating revenues for the six months ended June 30, 2021 were significantly impacted by Winter Storm Uri.
Utility margin increased $11.3 million, or 3.1 percent, and decreased $1.2 million, or 0.2 percent, during the three and six months ended June 30, 2021, respectively, primarily driven by the below factors contributed to the changes in gross margin.factors.
| | | $ Change | | $ Change |
| | (In millions) | (In millions) | Three Months Ended | Nine Months Ended | (In millions) | Three Months Ended | Six Months Ended |
| Quantity impacts (primarily weather) (A) | $ | (34.4) | | $ | (30.4) | | |
| Price variance | | Price variance | $ | 9.2 | | $ | 17.4 | |
| Guaranteed flat bill program (A) | | Guaranteed flat bill program (A) | 3.9 | | (27.7) | |
| Non-residential demand and related revenues | | Non-residential demand and related revenues | 2.5 | | 3.6 | |
| Industrial and oilfield sales | Industrial and oilfield sales | (3.8) | | (8.5) | | Industrial and oilfield sales | 2.0 | | 0.6 | |
| Non-residential demand and related revenues | (3.8) | | (6.3) | | |
| New customer growth | | New customer growth | 1.7 | | 3.5 | |
| Other | Other | (0.1) | | (2.0) | | Other | (3.1) | | (1.5) | |
| Price variance (B) | 9.8 | | 59.7 | | |
| New customer growth | 3.9 | | 9.1 | | |
| Quantity impacts (primarily weather) (B) | | Quantity impacts (primarily weather) (B) | (4.9) | | 2.9 | |
| | Change in gross margin (C) | $ | (28.4) | | $ | 21.6 | | |
| Change in utility margin | | Change in utility margin | $ | 11.3 | | $ | (1.2) | |
(A)Increased during the three months ended June 30, 2021 primarily due to SPP purchased power resettlements related to Winter Storm Uri. Decreased during the six months ended June 30, 2021 primarily due to the loss from the guaranteed flat bill program related to Winter Storm Uri. The guaranteed flat bill program allows qualifying customers the opportunity to purchase their electricity needs at a set monthly price for an entire year, which resulted in those customers not being allocated incremental fuel and purchased power costs incurred during Winter Storm Uri.
(B)Decreased during the three months ended June 30, 2021 primarily due to a 21.3 percent and 10.917.7 percent decrease in cooling degree days fordays. Increased during the three and ninesix months ended SeptemberJune 30, 2020, respectively, as well as2021 primarily due to a 13.020.8 percent decreaseincrease in heating degree days, for the nine months ended September 30, 2020.
(B)Increased for the nine months ended September 30, 2020 primarily due to recovery of additional assets placed into service through the expiration of the cogeneration credit riderpartially offset by a 19.9 percent decrease in the second half of 2019.
(C)Gross margin for both the three and nine months ended September 30, 2020 was impacted by COVID-19, particularly as seen in the negative impacts within industrial and oilfield sales and non-residential demand and related revenues.cooling degree days.
Cost of sales
Fuel, purchased power and direct transmission expense for OG&E consists of fuel used in electric generation, purchased power and transmission related charges. The actual cost of fuel used in electric generation and certain purchased power costs are passed through to OG&E's customers through fuel adjustment clauses. The fuel adjustment clauses are subject to periodic review by the OCC and the APSC. OG&E's cost of sales decreased $24.9fuel, purchased power and direct transmission expense increased $62.6 million, or 10.645.6 percent, and $143.8increased $1,274.4 million or 23.0 percent, during the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, as compared toprimarily driven by the same periods in 2019. The below factors contributed to the changes in cost of sales.factors.
| | | $ Change | | % Change | | $ Change | | % Change |
| | (In millions) | (In millions) | Three Months Ended | Nine Months Ended | | Three Months Ended | Nine Months Ended | (In millions) | Three Months Ended | Six Months Ended | | Three Months Ended | Six Months Ended |
| Fuel expense (A) | Fuel expense (A) | $ | 18.5 | | $ | (15.0) | | | 16.7 | % | (5.6) | % | Fuel expense (A) | $ | 9.8 | | $ | 681.9 | | | 13.5 | % | * |
| Purchased power costs: | Purchased power costs: | | Purchased power costs: | |
| Purchases from SPP (B) | Purchases from SPP (B) | (38.6) | | (116.5) | | | (46.7) | % | (49.0) | % | Purchases from SPP (B) | 53.7 | | 591.3 | | | * |
| Cogeneration (C) | (2.9) | | (14.6) | | | (100.0) | % | (100.0) | % | |
| Wind (D) | Wind (D) | (2.7) | | 1.4 | | | (19.9) | % | 3.5 | % | Wind (D) | (1.8) | | (3.0) | | | (10.7) | % | (9.7) | % |
| Other | Other | (0.3) | | (0.3) | | | (5.2) | % | (3.5) | % | Other | (0.2) | | 3.0 | | | (12.7) | % | * |
| Transmission expense | Transmission expense | 1.1 | | 1.2 | | | 6.6 | % | 2.3 | % | Transmission expense | 1.1 | | 1.2 | | | 5.8 | % | 3.2 | % |
| Change in cost of sales | $ | (24.9) | | $ | (143.8) | | | |
| Change in fuel, purchased power and direct transmission expense | | Change in fuel, purchased power and direct transmission expense | $ | 62.6 | | $ | 1,274.4 | | |
*Change is greater than 100 percent variance.
(A)Increased primarily due to higher fuel usagecosts related to the generating assets utilized and decreasedWinter Storm Uri.
(B)Increased primarily due to lower fuel costs related to the generating assets utilized during the three and nine months ended September 30, 2020, respectively.
(B)Decreased primarily due to lowerhigher market prices as a result of decreased fuel costs for generators along with decreased MWhs purchased of 27.5 percent and 12.1 percent for the three and nine months ended September 30, 2020, respectively.
(C)Decreased primarily due to the expiration of cogeneration contracts in 2019.
(D)Decreased primarily due to a decrease of 19.1 percent in MWs purchased and increased primarily due to an increase of 4.7 percent in MWs purchased during the three and nine months ended September 30, 2020, respectively.
Other operation and maintenance expense decreased $19.9increased $0.6 million, or 15.30.5 percent, and $21.5decreased $10.1 million, or 5.84.2 percent, during the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, as compared to the same periods in 2019. The below factors contributed to the changes in other operation and maintenance expense.
| | | | | | | | | | | | | | | | | |
| $ Change | | % Change |
| | | |
| (In millions) | Three Months Ended | Nine Months Ended | | Three Months Ended | Nine Months Ended |
| Contract technical and construction services | $ | (6.9) | | $ | (13.1) | | | (50.8) | % | (33.2) | % |
| Capitalized labor | (4.5) | | (6.5) | | | (16.8) | % | (8.1) | % |
| Other | (4.2) | | (5.3) | | | (5.9) | % | (2.6) | % |
| Payroll and benefits | (2.7) | | 0.9 | | | (4.4) | % | 0.5 | % |
| Materials and supplies | (1.0) | | (4.3) | | | (15.0) | % | (21.5) | % |
| New expenses related to River Valley power plant (A) | (0.6) | | 6.8 | | | (10.5) | % | (97.8) | % |
| Change in other operation and maintenance expense (B) | $ | (19.9) | | $ | (21.5) | | | | |
(A)Additional other operation and maintenance expenses related to the purchase of the River Valley plant are primarily recovered through a rider mechanism, as approveddriven by the OCCbelow factors.
| | | | | | | | | | | | | | | | | |
| $ Change | | % Change |
| | | |
| (In millions) | Three Months Ended | Six Months Ended | | Three Months Ended | Six Months Ended |
| Corporate overheads and allocations | $ | (3.6) | | $ | (8.6) | | | (11.0) | % | (12.7) | % |
| Capitalized labor | (2.7) | | (6.1) | | | (10.1) | % | (11.0) | % |
| Payroll and benefits | (1.8) | | (4.9) | | | (2.8) | % | (3.8) | % |
| Contract technical and construction services (A) | 4.4 | | 7.7 | | | 38.1 | % | 35.8 | % |
| Other | 4.3 | | 1.8 | | | 11.1 | % | 2.4 | % |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Change in other operation and maintenance expense (B) | $ | 0.6 | | $ | (10.1) | | | | |
(A) Increased primarily due to intentional cost reduction and the delay of certain projects due to COVID-19 in 2019.2020.
(B) OG&E has been focused on reducing other operation and maintenance activities in light of COVID-19. Further, certain incremental expenses incurred by OG&E related
Depreciation and amortization expense increased $5.6 million, or 5.8 percent, and increased $9.9 million, or 5.2 percent, during the three and six months ended June 30, 2021, respectively, primarily due to additional assets being placed into service.
Income tax expense increased $1.0 million, or 11.9 percent, primarily due to higher pretax income during the three months ended June 30, 2021.
OGE Holdings (Natural Gas Midstream Operations)
| | | | | | | | | | | | | | |
| Three Months Ended June 30, | Six Months Ended June 30, |
| (In millions) | 2021 | 2020 | 2021 | 2020 |
| Operating revenues | $ | — | | $ | — | | $ | — | | $ | — | |
| Fuel, purchased power and direct transmission expense | — | | — | | — | | — | |
| Other operation and maintenance | 1.6 | | 0.3 | | 2.0 | | 0.9 | |
| | | | |
| | | | |
| | | | |
| Taxes other than income | 0.1 | | 0.1 | | 0.2 | | 0.2 | |
| Operating loss | (1.7) | | (0.4) | | (2.2) | | (1.1) | |
| Equity in earnings (losses) of unconsolidated affiliates (A) | 33.5 | | 26.9 | | 86.7 | | (719.6) | |
| Other expense | 0.2 | | — | | 0.7 | | — | |
| | | | |
| Income (loss) before taxes | 31.6 | | 26.5 | | 83.8 | | (720.7) | |
| Income tax expense (benefit) | (0.6) | | 7.5 | | 13.7 | | (171.7) | |
| | | | |
| | | | |
| Net income (loss) attributable to OGE Holdings | $ | 32.2 | | $ | 19.0 | | $ | 70.1 | | $ | (549.0) | |
(A)In March 2020, OGE Energy recorded a $780.0 million impairment on its COVID-19 response have been deferredinvestment in Enable, as further discussed in Note 4 within "Item 1. Financial Statements."
Reconciliation of Equity in Earnings (Losses) of Unconsolidated Affiliates
See Note 4 within "Item 1. Financial Statements" for the reconciliation of Enable's net income to OGE Energy's equity in earnings (losses) of unconsolidated affiliates and are includedthe reconciliation of the difference between OGE Energy's investment in Enable and its underlying equity in the regulatorynet assets of Enable (basis difference).
Enable Results of Operations and liabilities tableOperating Data
The following section presents summarized financial information of Enable for the three and six months ended June 30, 2021 and 2020 and related discussion of the primary drivers for the changes during the periods.
| | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended |
| June 30, | June 30, |
| (In millions) | 2021 | 2020 | 2021 | 2020 |
| Total revenues | $ | 787 | | $ | 515 | | $ | 1,757 | | $ | 1,163 | |
| Cost of natural gas and NGLs (excluding depreciation and amortization) | $ | 426 | | $ | 177 | | $ | 945 | | $ | 403 | |
| Operating income | $ | 124 | | $ | 80 | | $ | 330 | | $ | 226 | |
| Net income | $ | 79 | | $ | 35 | | $ | 234 | | $ | 138 | |
| | | | | | | | | | | | | | |
| Three Months Ended | Six Months Ended |
| June 30, | June 30, |
| 2021 | 2020 | 2021 | 2020 |
| Natural gas gathered volumes - TBtu/d | 4.39 | | 4.14 | | 4.24 | | 4.33 | |
| Natural gas processed volumes - TBtu/d (A) | 2.20 | | 2.04 | | 2.13 | | 2.24 | |
| NGLs sold - MBbl/d (B) | 147.62 | | 122.99 | | 133.82 | | 122.15 | |
| Crude oil and condensate gathered volumes - MBbl/d | 110.98 | | 84.68 | | 112.17 | | 112.97 | |
| Transported volumes - TBtu/d | 5.44 | | 5.40 | | 5.77 | | 5.98 | |
(A)Includes volumes under third-party processing arrangements.
(B)Excludes condensate. NGLs sold includes volumes of NGLs withdrawn from inventory or purchased for system balancing purposes.
OGE Holdings' net income increased $13.2 million, or 69.5 percent, during the three months ended June 30, 2021 as compared to the same period in 2020. This increase was primarily due to an increase in equity in earnings of Enable, which was driven by an increase in Enable's net income, and a decrease in income tax expense. OGE Holdings' net income was $70.1 million compared to a net loss of $549.0 million during the six months ended June 30, 2021 and 2020, respectively. This change was primarily due to the 2020 impact of the impairment of OGE Energy's investment in Enable, as discussed in Note 14 within "Item 1. Financial Statements."
Depreciation and amortization expense increased $6.4 million, or 6.8 percent, and $31.4 million, or 12.0 percent, duringThe following table presents summarized information regarding Enable's income statement changes for the three and ninesix months ended SeptemberJune 30, 2021, as compared to the same periods in 2020, and the corresponding impact those changes had on OGE Energy's equity in earnings of Enable. See Note 4 within "Item 1. Financial Statements" for further discussion of OGE Energy's equity investment in Enable. The increases in Enable's net income were primarily driven by the below factors.
| | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| | | |
| (In millions) | Income Statement Change at Enable | Impact to OGE Energy's Equity in Earnings | | Income Statement Change at Enable | Impact to OGE Energy's Equity in Earnings |
| Enable margin (A) | $ | 23.0 | | $ | 5.9 | | | $ | 52.0 | | $ | 13.3 | |
| Impairments of property, plant and equipment and goodwill (B) | $ | — | | $ | — | | | $ | (28.0) | | $ | 4.4 | |
| Operation and maintenance, General and administrative | $ | (20.0) | | $ | 5.1 | | | $ | (25.0) | | $ | 6.4 | |
| Depreciation and amortization | $ | (2.0) | | $ | 0.5 | | | $ | — | | $ | — | |
| | | | | |
(A)Enable margin is a non-GAAP measure and is defined and reconciled to its most directly comparable financial measure as calculated and presented within "Non-GAAP Financial Measures - Enable" above.
(B)Included in the $28.0 million of impairments recorded by Enable in 2020 is a $12.0 million goodwill impairment and a $16.0 million impairment for certain long-lived assets in their gathering and processing business segment. OGE Energy recorded a $4.4 million pre-tax charge for its share of Enable's goodwill and long-lived asset impairments, as adjusted for basis differences.
Enable's gathering and processing business segment reported an increase in operating income of $40.0 million and $30.0 million for the three and six months ended June 30, 2021, respectively, as compared to the same periods in 2019,2020. The following table presents summarized information regarding Enable's gathering and processing business segment income
statement changes for the three and six months ended June 30, 2021, as compared to the same periods in 2020, and the corresponding impact those changes had on OGE Energy's equity in earnings of Enable. The increases in Enable's gathering and processing business segment operating income were primarily driven by the below factors.
| | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| | | |
| (In millions) | Income Statement Change at Enable | Impact to OGE Energy's Equity in Earnings | | Income Statement Change at Enable | Impact to OGE Energy's Equity in Earnings |
| Enable margin (A) | $ | 21.0 | | $ | 5.4 | | | $ | (19.0) | | $ | (4.8) | |
| Impairments of property, plant and equipment and goodwill (B) | $ | — | | $ | — | | | $ | (28.0) | | $ | 4.4 | |
| Operating and maintenance, General and administrative | $ | (19.0) | | $ | 4.8 | | | $ | (21.0) | | $ | 5.4 | |
| | | | | |
(A)Enable margin is a non-GAAP measure and is defined and reconciled to its most directly comparable financial measure as calculated and presented within "Non-GAAP Financial Measures - Enable" above.
(B)Included in the $28.0 million of impairments recorded by Enable in 2020 is a $12.0 million goodwill impairment and a $16.0 million impairment for certain long-lived assets in their gathering and processing business segment. OGE Energy recorded a $4.4 million pre-tax charge for its share of Enable's goodwill and long-lived asset impairments, as adjusted for basis differences.
Gathering and processing Enable margin increased for the three months ended June 30, 2021 primarily due to:
•an increase in revenues from NGL sales less the cost of NGLs primarily due to additional assets being placed into service. Thean increase duringin the nine months ended September 30, 2020 was also impactedaverage realized sales price from higher average market prices for NGL products combined with higher recoveries of ethane and higher processed volumes;
•an increase in processing service fees due to higher consideration received from percent-of-proceeds, percent-of-liquids and keep-whole processing arrangements due to higher average market prices, partially offset by depreciation expense forlower processed volumes under fee-based arrangements and a decrease in the Sooner Dry Scrubbers no longer being deferredrecognition of certain annual minimum processing fees; and
•an increase in crude oil, condensate and produced water gathering revenues primarily due to an increase in gathered crude oil and condensate volumes; partially offset by
•a regulatory asset.decrease in revenues from natural gas sales less the cost of natural gas due to higher natural gas purchase costs;
•an increase in realized losses on natural gas, condensate and NGL derivatives;
•a decrease in changes in the fair value of natural gas, condensate and NGL derivatives; and
•a decrease in natural gas gathering fees due to lower volumes gathered under fee-based arrangements.
Taxes other thanGathering and processing Enable margin decreased for the six months ended June 30, 2021 primarily due to:
•an increase in realized losses on natural gas, condensate and NGL derivatives;
•a decrease in revenues from natural gas sales less the cost of natural gas due to higher natural gas purchase costs, inclusive of purchase costs related to Winter Storm Uri;
•a decrease in changes in the fair value of natural gas, condensate and NGL derivatives; and
•a decrease in natural gas gathering fees due to lower gathered volumes, inclusive of volume curtailments and production freeze-offs related to Winter Storm Uri, partially offset by higher assessed producer imbalance penalties; partially offset by
•an increase in revenues from NGL sales less the cost of NGLs primarily due to an increase in the average realized sales price from higher average market prices for NGL products combined with higher recoveries of ethane, partially offset by lower processed volumes;
•an increase in processing service fees due to higher consideration received from percent-of-proceeds, percent-of-liquids and keep-whole processing arrangements due to higher average market prices, partially offset by lower processed volumes under fee-based arrangements and a decrease in the recognition of certain annual minimum processing fees; and
•an increase in crude oil, condensate and produced water gathering revenues primarily due to an increase in gathered crude oil volumes in the Williston Basin, partially offset by a decrease in gathered crude oil and condensate volumes in the Anadarko Basin.
Enable's transportation and storage business segment reported an increase in operating income increased $1.6of $3.0 million or 7.2 percent, and $6.0$73.0 million or 9.0 percent, duringfor the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, as compared to the same periods in 2019,2020. The following table presents summarized information regarding Enable's transportation and storage business segment income statement changes for the three and six months ended June 30, 2021, as compared to the same periods in 2020, and the corresponding impact those changes had on OGE Energy's equity in earnings of Enable. The increases in Enable's transportation and storage business segment operating income were primarily driven by the below factors.
| | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| | | |
| | | | | |
| (In millions) | Income Statement Change at Enable | Impact to OGE Energy's Equity in Earnings | | Income Statement Change at Enable | Impact to OGE Energy's Equity in Earnings |
| Enable margin (A) | $ | 1.0 | | $ | 0.3 | | | $ | 70.0 | | $ | 17.9 | |
| Operation and maintenance, General and administrative | $ | (1.0) | | $ | 0.3 | | | $ | (4.0) | | $ | 1.0 | |
| Depreciation and amortization | $ | (2.0) | | $ | 0.5 | | | $ | — | | $ | — | |
| | | | | |
| | | | | |
(A)Enable margin is a non-GAAP measure and is defined and reconciled to its most directly comparable financial measure as calculated and presented within "Non-GAAP Financial Measures - Enable" above.
Transportation and storage Enable margin increased for the three months ended June 30, 2021 primarily due to:
•an increase in system management activities primarily due to increased ad valorem taxes.higher average natural gas sales prices, less the cost of natural gas;
•an increase in revenues from NGL sales, less the cost of NGLs due to an increase in average NGL prices; and
•a reduction in lower of cost or net realizable value adjustments related to natural gas storage inventories; partially offset by
•a decrease in firm transportation and storage services primarily due to interstate contract extensions at lower rates and terminations of certain intrastate firm transportation agreements;
•higher realized losses on natural gas derivatives; and
•a decrease in changes in the fair value of natural gas derivatives.
InterestTransportation and storage Enable margin increased for the six months ended June 30, 2021 primarily due to:
•an increase in system management activities primarily due to higher average natural gas sales prices, less the cost of natural gas;
•an increase in volume-dependent transportation and storage revenues due to an increase in assessed shipper imbalance penalties, partially offset by lower off-system intrastate transported volumes, inclusive of disruptions in natural gas supply associated with Winter Storm Uri and the recognition in 2020 of revenue upon the settlement of a certain rate case with no comparable item in 2021;
•a reduction in lower of cost or net realizable value adjustments related to natural gas storage inventories; and
•an increase in revenues from NGL sales, less the cost of NGLs due to an increase in average NGL prices, partially offset by lower volumes; partially offset by
•a decrease in firm transportation and storage services due to the recognition in 2020 of previously reserved revenue upon the settlement of a certain rate case with no comparable item in 2021 combined with interstate contract extensions at lower rates and terminations of certain intrastate firm transportation agreements;
•a decrease in changes in the fair value of natural gas derivatives; and
•higher realized losses on long-term debt increased $12.2natural gas derivatives.
OGE Holdings' income tax expense decreased $8.1 million or 12.0 percent, during the ninethree months ended SeptemberJune 30, 2020,2021, as compared to the same period in 2019,2020, primarily due to increased long-term debt outstanding and intereststate deferred tax adjustments related to OGE Energy's investment in Enable primarily driven by the decrease in the Oklahoma corporate tax rate, partially offset by higher pretax income. OGE Holdings' income tax expense forwas $13.7 million during the Sooner Dry Scrubbers no longer being deferredsix months ended June 30, 2021, as compared to an income tax benefit of $171.7 million during the same period in 2020. The change is primarily due to a regulatory asset.tax benefit of $190.4 million related to the impairment recorded in 2020 on OGE Energy's investment in Enable and higher pretax income in 2021, partially offset by state deferred tax adjustments related to OGE Energy's investment in Enable primarily driven by the decrease in the Oklahoma corporate tax rate.
Income tax expense increased $10.4 million and $15.6 million during the three and nine months ended September 30, 2020, respectively, as compared to the same periods in 2019, primarily due to reduced tax credit generation and amortization of net unfunded deferred taxes, partially offset by reduced taxes on lower pretax income.
Off-Balance Sheet Arrangements
There have been no significant changes in OG&E'sOGE Energy's off-balance sheet arrangements from those discussed in OG&E'sits 20192020 Form 10-K.
Liquidity and Capital Resources
Cash Flows
| | | | | | | | | | | | | | |
| Nine Months Ended | | |
| September 30, | 2020 vs. 2019 |
| (Dollars in millions) | 2020 | 2019 | $ Change | % Change |
| Net cash provided from operating activities (A) | $ | 478.4 | | $ | 343.4 | | $ | 135.0 | | 39.3 | % |
| Net cash used in investing activities (B) | $ | (419.7) | | $ | (476.5) | | $ | 56.8 | | (11.9) | % |
| Net cash provided from (used in) financing activities (C) | $ | (26.7) | | $ | 146.3 | | $ | (173.0) | | * |
OGE Energy
| | | | | | | | | | | | | | |
| Six Months Ended | | |
| June 30, | 2021 vs. 2020 |
| (Dollars in millions) | 2021 | 2020 | $ Change | % Change |
| Net cash (used in) provided from operating activities (A) | $ | (767.8) | | $ | 263.3 | | $ | (1,031.1) | | * |
| Net cash used in investing activities (B) | $ | (356.8) | | $ | (282.3) | | $ | (74.5) | | 26.4 | % |
| Net cash provided from financing activities (C) | $ | 1,123.5 | | $ | 86.5 | | $ | 1,037.0 | | * |
* Change is greater than 100 percent variance.
(A)Increased primarily due to a decrease in payments for purchased power.
(B)Decreased primarily due to environmentalan increase in vendor payments, including payments for fuel and purchased power costs related to Winter Storm Uri.
(B)Changed due to increased spend on grid modernization projects that were completed and placed into serviceat OG&E as well as fewertiming of plant outages in 2020, partially offset by increased reliability projects.outages.
(C)Increased primarily due to changesincreases in cash advances with parentlong- and an increase in dividends paid, partially offsetshort-term debt to provide additional liquidity for the increased fuel and purchased power costs incurred by the payment of long-term debt in January 2019.OG&E related to Winter Storm Uri.
Working Capital
Working capital is defined as the difference in current assets and current liabilities. OG&E'sOGE Energy's working capital requirements are driven generally by changes in accounts receivable, accounts payable, commodity prices, credit extended to and the timing of collections from OG&E's customers, the level and timing of spending for maintenance and expansion activity, inventory levels and fuel recoveries. The following discussion addresses changes in OGE Energy's working capital balances at SeptemberJune 30, 20202021 compared to December 31, 2019.
Cash and Cash Equivalents increased $32.0 million, primarily due to normal business operations. OG&E expects to use the cash over time for general corporate purposes.2020.
Accounts Receivable and Accrued Unbilled Revenues increased $62.4$42.5 million, or 28.618.9 percent, primarily due to an increase in billings to OG&E's retail customers reflecting higher seasonal usage in September 2020June 2021 as compared to December 2019, as well as increased customer balances due to the disconnection moratorium related to COVID-19, as discussed in "Recent Developments - COVID-19 Pandemic."2020.
Advances to ParentIncome Taxes Receivable decreased $10.9$4.0 million, or 3.649.4 percent, primarily due to a decreasecurrent year tax expense accruals in daily operational expenses, capital expenditures and dividends declared but not paid, partially offset by cash from customers and proceeds from long-term debt in April 2020.excess of the prior accrued receivable.
Fuel Inventories decreased $9.8increased $9.6 million, or 21.2 percent, primarily due to decreased coal inventory.
Materials and Supplies increased $16.4 million, or 18.126.3 percent, primarily due to increased materials and supplies inventory acquired for upcoming projects.
Fuel Clause Under Recoveries decreased $39.5 million, primarily due to increased collections from customers and lower fuel costs.coal inventory.
Other Current Assets increased $5.8$5.9 million, or 29.614.3 percent, primarily due to an increase in SPP deposits, prepayments associated with software expense and under-recovered riders, andpartially offset by a decrease in the SPP transmission formula rate partially offsettrue-up and prepaid insurance.
Short-term Debt increased $289.5 million, primarily due to borrowings under OGE Energy's revolving credit and term loan agreements to provide additional liquidity for the increased fuel and purchased power costs incurred as a result of Winter Storm Uri. OGE Energy borrows on a short-term basis, as necessary, by decreased prepaid insurance.the issuance of commercial paper and borrowings under its revolving credit agreements and term credit agreements.
Accounts Payable decreased $62.6$61.7 million, or 35.824.5 percent, primarily due to the timing of vendor payments and lower fuel costs.
Accrued Taxes increased $28.8 million, or 68.7 percent, primarily dueand purchased power accruals as a result of timing differences and SPP purchased power resettlements related to the timing of ad valorem payments and deferment of the employer portion of FICA payroll taxes as allowed by the CARES Act.Winter Storm Uri.
Accrued Compensation decreased $5.1increased $4.9 million, or 17.315.8 percent, primarily due to lowerincreased 2021 labor accruals foras a result of pay period timing differences, partially offset by 2020 incentive compensation due to 2019 payouts that occurred in the first quarter of 2020.2021.
Fuel Clause Over Recoveries increased $34.8 million, primarily due to increased collections from customers and lower fuel costs.
Other Current Liabilities decreased $26.3$23.9 million, or 40.483.6 percent, primarily due to changes in amounts owed to customers which includes an $18.9 million reduction in SPP reserves related to the transmission formula rate.both higher fuel costs and decreased collections from customers.
Future Capital Requirements
Future Capital Requirements
OG&E'sOGE Energy's primary needs for capital are related to acquiring or constructing new facilities and replacing or expanding existing facilities.facilities at OG&E. Other working capital requirements are expected to be primarily related to maturing debt, operating lease obligations, fuel clause under and over recoveries and other general corporate purposes. OG&EOGE Energy generally meets its cash needs through a combination of cash generated from operations, short-term borrowings (through a combination of bank borrowings and commercial paper and borrowings from OGE Energy)paper) and permanent financings.
Capital Expenditures
OG&E'sOGE Energy's estimates of capital expenditures, which represent base maintenance capital expenditures plus capital expenditures for known and committed projects, for the years 20202021 through 20242025 are discussedpresented in detail within "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in OG&E's 2019 Form 10-K.the following table. Estimated capital expenditures for Enable are not included. Additional capital expenditures beyond those identified in OG&E's 2019 Form 10-K,below, including additional incremental growth opportunities, in electric transmission assets, will be evaluated based upon the requirements of OG&E's power supply, transmission and distribution operational teams and the resultant customer benefits as well as their impact upon achieving OG&E'sOGE Energy's financial objectives. OG&E remains on track for its approximately $575.0 million in capital investment planned for 2020 as disclosed in OG&E's 2019 Form 10-K. However, the progression of, and global response to, the COVID-19 outbreak increases the risk of delays in construction activities and equipment deliveries related to OG&E's capital projects, including potential delays in obtaining permits from government agencies, resulting in potential deferral of capital expenditures in future periods. | | | | | | | | | | | | | | | | | | | | |
| (In millions) | 2021 | 2022 | 2023 | 2024 | 2025 | Total |
| Transmission | $ | 150 | | $ | 110 | | $ | 115 | | $ | 105 | | $ | 125 | | $ | 605 | |
| Oklahoma distribution | 275 | | 290 | | 265 | | 300 | | 300 | | 1,430 | |
| Arkansas distribution | 25 | | 20 | | 20 | | 20 | | 20 | | 105 | |
| Generation | 105 | | 85 | | 125 | | 125 | | 130 | | 570 | |
| Oklahoma Grid Advancement | 215 | | 180 | | 185 | | 185 | | 185 | | 950 | |
| Subscription Solar Plan | 15 | | 20 | | 20 | | 20 | | 20 | | 95 | |
| Other | 65 | | 80 | | 80 | | 80 | | 80 | | 385 | |
| Total | $ | 850 | | $ | 785 | | $ | 810 | | $ | 835 | | $ | 860 | | $ | 4,140 | |
Financing Activities and Future Sources of Financing
Management expects that cash generated from operations, proceeds from the issuance of long- and short-term debt, and funds received from OGE Energy (from proceeds from the sales of OGE Energy's common stock to the public through OGE Energy's Automatic Dividend Reinvestment and Stock Purchase Plan or other offerings)offerings and distributions from Enable (and assuming the merger transaction closes, Energy Transfer) will be adequate over the next three years to meet anticipated cash needs and to fund future growth opportunities. OG&EOGE Energy utilizes short-term borrowings (through a combination of bank borrowings and commercial paper and borrowings from OGE Energy)paper) to satisfy temporary working capital needs and as an interim source of financing capital expenditures until permanent financing is arranged. As indicated above, as a precautionary measure in order to increase OG&E's cash position and preserve financial flexibility in light of current uncertainty resulting from the COVID-19 pandemic, OGE Energy entered into a one-year $75.0 million term loan agreement in April 2020, which was repaid in September 2020. Further, OG&E issued $300.0 million in senior notes in April 2020. The disruption in the capital markets and the commercial paper markets caused by the COVID-19 outbreak could make additional financing more challenging, and there can be no assurance that OG&E will be able to obtain such financing on commercially reasonable terms or at all.
Short-Term Debt and CreditFacility Facilities
OGE Energy borrows on a short-term basis, as necessary, by issuance of commercial paper and borrowings under its revolving credit agreements and term credit agreements.
OG&EOGE Energy has aunsecured five-year revolving credit facilities totaling $900.0 million ($450.0 million for OGE Energy and $450.0 million revolving credit facility that matures on March 8, 2023. This facility is available to back upfor OG&E's commercial paper borrowings, to provide revolving credit borrowings and&E), which can also be used as a letter of credit facility. At September 30, 2020, there were $293.9 million in advances to OGE Energy compared to $304.8 million at December 31, 2019. OG&E has an intercompany borrowing agreement with OGE Energy whereby OG&E has access to up to $350.0 million offacilities. The following table presents information about OGE Energy's revolving credit amount. This agreement has a termination date of March 8, 2023. The following table highlights OG&E's short-term debt activity as of Septemberagreements at June 30, 2020.2021.
| | | | | | | | |
(Dollars in millions)millions) | | SeptemberJune 30, 20202021 |
| Balance of outstanding supporting letters of credit | $ | 0.30.4 | |
| Weighted-average interest rate of outstanding supporting letters of credit | 1.15 | % |
Balance of outstanding commercial paper borrowings | $ | — | |
| Net available liquidity under revolving credit agreements | $ | 449.7615.1 | |
Balance of outstanding intercompany borrowings with OGE Energycash and cash equivalents | $ | — | |
| | |
| | |
| | |
| | |
| | |
The following table presents information about OGE Energy's total short-term debt activity for the three and six months ended June 30, 2021.
| | | | | | | | |
| (Dollars in millions) | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 |
| Average balance of short-term debt | $ | 1,037.3 | | $ | 733.1 | |
| Weighted-average interest rate of average balance of short-term debt | 0.65 | % | 0.60 | % |
| Maximum month-end balance of short-term debt | $ | 1,443.4 | | $ | 1,443.4 | |
OG&E has the necessary regulatory approvals to incur up to $800.0 million in short-term borrowings at any one time for a two-year period beginning January 1, 20192021 and ending December 31, 2020.2022.
In March 2021, OGE Energy entered into a $1.0 billion unsecured 364-day term loan agreement to provide additional liquidity to help cover the increased fuel and purchased power costs incurred by OG&E has requested renewalduring Winter Storm Uri. In May 2021, $900.0 million of this authority for an additional two-year periodthe $1.0 billion term loan was repaid using the proceeds from the senior notes issued by both OGE Energy and expects to receive approval prior to the expiration of its current authority.OG&E, as further described below. See Note 911 within "Item 1. Financial Statements" for further discussion of OG&E'sthe Registrants' short-term debt activity.
Issuance of Long-Term Debt
In April 2020,May 2021, OGE Energy issued $500.0 million of 0.703 percent senior notes, and OG&E issued $300.0$500.0 million of 3.250.553 percent senior notes. Each series is due May 26, 2023 but may be redeemed by OGE Energy or OG&E on or after November 26, 2021 at a price equal to 100 percent of the principal amount of the senior notes due April 1, 2030.being redeemed, plus any accrued and unpaid interest. The proceeds from these issuances were used to repay $900.0 million of the issuance were added$1.0 billion term loan OGE Energy entered into in March 2021 to OG&E's general funds to be used for general corporate purposes, including to fund ongoing capital expenditureshelp cover the fuel and working capital.purchased power costs incurred by OG&E during Winter Storm Uri.
Security Ratings
Access to reasonably priced capital is dependent in part on credit and security ratings. Generally, lower ratings lead to higher financing costs. Pricing grids associated with OGE Energy's and OG&E's credit facilities could cause annual fees and borrowing rates to increase if an adverse rating impact occurs. The impact of any future downgrade could include an increase in the costs of OGE Energy's and OG&E's short-term borrowings, but a reduction in OGE Energy's and OG&E's credit ratings would not result in any defaults or accelerations. Any future downgrade of OGE Energy or OG&E could also lead to higher long-term borrowing costs and, if below investment grade, would require OG&EOGE Energy to post collateral or letters of credit.
A security rating is not a recommendation to buy, sell or hold securities. Such rating may be subject to revision or withdrawal at any time by the credit rating agency, and each rating should be evaluated independently of any other rating.
On April 3, 2020, S&P's Global Ratings affirmed its issuer credit and commercial paper ratings, as listed in OGE Energy's 2019 Form 10-K, for both OGE Energy and OG&E. S&P's Global Ratings also affirmed both companies' stable outlooks. S&P's Global Ratings' affirmation follows the announcement that Enable will increase the level of cash it retains, which effectively reduces dividend distributions for OGE Energy by as much as half. However, S&P's Global Ratings indicated it does not expect OGE Energy's credit quality to weaken materially, given the cushion in its current financial measures. Further, S&P's Global Ratings indicated they continue to view OG&E as insulated from OGE Energy, reflecting the combination of OG&E's stronger stand-alone credit profile and sufficient separateness between OG&E and OGE Energy.
On June 24, 2020,March 1, 2021, Moody's Investors Service issued an opinion to update its credit analysis for OGE Energy and OG&E, in light of COVID-19 developments. Moody's Investors Service indicated it expects OGE Energy and its subsidiaries, including OG&E, to be resilient to recessionary pressures related to COVID-19 because of OGE Energy's and OG&E's primary rate regulated, essential service business model and cost recovery framework. Nevertheless, Moody's Investors Service indicated it is watching for electric usage declines, utility bill payment delinquency and the regulatory response to counter these effectsrevised their ratings outlook on earnings and cash flow. Further, Moody's Investor Service indicated that the effects of the pandemic could result in financial metrics that are weaker than expected but see these issues as temporary and not reflective of the core operations or long-term financial or credit profile of OGE Energy and OG&E. Moody's Investor Service indicated that it views OG&E's regulatory relationships in Oklahoma as generally supportive and is a key credit driver for both OGE Energy and OG&E. Additionally, while Enable's quarterly distribution reduction is credit negative, Moody's Investor Service indicated OGE Energy's financial metrics are expected to remain solid.
On July 27, 2020, S&P's Global Ratings issued their annual update for OG&E, indicating their issuer credit rating, commercial paper rating and outlook for OG&E are unchanged from those affirmed on April 3, 2020. In the update, S&P's Global Ratings indicated they believe OG&E is less vulnerable to volumetric decline caused by COVID-19 due to OG&E's limited commercial and industrial exposure, and any potential reduction in commercial and industrial load growth is expected to be mitigated by OG&E's large residential customer base. Further, S&P's Global Ratings indicated it expects OG&E to manage its regulatory risk effectively through its numerous constructive regulatory mechanisms.
On October 16, 2020, Fitch Ratings affirmed its long-term and short-term issuer credit ratings for both OGE Energy and OG&E. The outlooks for both OGE Energy and OG&E are stable. Fitchfrom stable to negative. Moody's Investors Service indicated that the negative outlook on OGE Energy's rating is consistent with OG&E's and reflects the increased regulatory uncertainty related to the recovery timeline of the cost incurred to procure fuel and purchased power during Winter Storm Uri.
On March 3, 2021, S&P's Global Ratings revised their ratings outlook on both OGE Energy and OG&E from stable to negative. S&P's Global Ratings indicated that the revised outlooks reflect their expectation for weaker financial measures directly associated with the significant increase in fuel and purchased power costs as a result of Winter Storm Uri, the uncertainty regarding timely recovery of those costs and the associated refinancing risk related to the 364-day $1.0 billion term loan. For OGE Energy's ratings and outlook primarily reflect the stable cash flows and earnings from OG&E, which help mitigate the operating risks and dividend distribution reduction from OGE Energy's investment in Enable. Fitch Ratings also indicated that OG&E's overall supportive regulatory framework is a key ratings driver. Further, FitchEnergy, S&P's Global Ratings indicated that it expects the financial impact from COVID-19revised outlook also reflects their expectation of execution risk associated with the closing of Energy Transfer's acquisition of Enable.
Distributions by Enable
Pursuant to be manageablethe Enable Limited Partnership Agreement, during the three and that there are no major operational issues at this time. Fitch Ratings indicated that this expectation is supported by Oklahoma re-opening in Maysix months ended June 30, 2021, Enable made distributions of $18.4 million and regulatory recovery mechanisms approved by the OCC and the APSC for incremental bad debt expense and other incremental costs incurred during$36.7 million to OGE Energy's response to COVID-19.Energy, respectively.
Critical Accounting Policies and Estimates
The Condensed Financial Statementscondensed financial statements and Notes to Condensed Financial Statementsnotes thereto contain information that is pertinent to Management's Discussion and Analysis. In preparing the Condensed Financial Statements,condensed 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 Condensed Financial Statementscondensed financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Changes to these assumptions and estimates could have a material effect on OG&E's Condensed Financial Statements. However, OG&E believes it hasthe condensed financial statements. The Registrants believe they have taken reasonable positions where assumptions and estimates are used in order to minimize the negative financial impact to OG&Ethe Registrants that could result if actual results vary from the assumptions and estimates.
In management's opinion, the areas of OG&E where the most significant judgment is exercised for the Registrants include the determination of Pension Plan assumptions, income taxes, contingency reserves, asset retirement obligations, depreciable lives of property, plant and equipment, regulatory assets and liabilities, unbilled revenues and unbilled revenues.the allowance for uncollectible accounts receivable. For OGE Energy, significant judgment is also exercised in the determination of any impairment of equity method investments. The selection, application and disclosure of OG&E'sthe critical accounting estimates have been discussed with the Audit Committee of OGE Energy's Audit CommitteeBoard of Directors and are discussed in detail within "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in OG&E'sthe Registrants' 20192020 Form 10-K.
Commitments and Contingencies
In the normal course of business, OG&E isthe Registrants are confronted with issues or events that may result in a contingent liability. These generally relate to lawsuits or claims made by third parties, including governmental agencies. When appropriate, management consults with legal counsel and other experts to assess the claim. If, in management's opinion, OG&E hasthe Registrants have incurred a probable loss as set forth by GAAP, an estimate is made of the loss, and the appropriate accounting entries are reflected in OG&E's Condensed Financial Statements.the condensed financial statements. At the present time, based on available information, OG&E believesthe Registrants believe that any reasonably possible losses in excess of accrued amounts arising out of pending or threatened lawsuits or claims would not be quantitatively material to itstheir condensed financial statements and would not have a material adverse effect on OG&E'stheir financial position, results of operations or cash flows. See Notes 1114 and 1215 within "Item 1. Financial Statements" for afurther discussion of OG&E'sthe Registrants' commitments and contingencies.
Environmental Laws and Regulations
The activities of OG&E are subject to numerous, stringent and complex federal, state and local laws and regulations governing environmental protection. These laws and regulations can change, restrict or otherwise impact OG&E's business activities in many ways, including the handling or disposal of waste material, planning for future construction activities to avoid or mitigate harm to threatened or endangered species and requiring the installation and operation of emissions or pollution control equipment. Failure to comply with these laws and regulations could result in the assessment of administrative, civil and criminal penalties, the imposition of remedial requirements and the issuance of orders enjoining future operations. Management believes that all of itsthe Registrants' operations are in substantial compliance with current federal, state and local environmental standards. These
President Biden has taken a number of actions that affect environmental
lawsregulations adopted by the Trump administration, including issuance of an executive order that instructs the EPA and
regulationsother executive agencies to review certain rules that affect OG&E with a view to achieving nationwide reductions in greenhouse gas emissions. OG&E is monitoring these actions which are
also discussed in
detail within "Item 7. Management's Discussion and Analysisthe preliminary stages of
Financial Condition and Resultsbeing implemented. At this point in time, the impacts of
Operations" in OG&E's 2019 Form 10-K.these actions on the Registrants' results of operations, if any, cannot be determined with any certainty.
Environmental regulation can increase the cost of planning, design, initial installation and operation of OG&E's facilities. Management continues to evaluate its compliance with existing and proposed environmental legislation and regulations and implement appropriate environmental programs in a competitive market.
Air
Federal Clean Air Act Overview
OG&E's operations are subject to the Federal Clean Air Act, as amended, and comparable state laws and regulations. These laws and regulations regulate emissions of air pollutants from various industrial sources, including electric generating units and also impose various monitoring and reporting requirements. Such laws and regulations may require that OG&E obtain
pre-approval for the construction or modification of certain projects or facilities expected to produce air emissions or result in the increase of existing air emissions, obtain and strictly comply with air permits containing various emissions and operational limitations or install emission control equipment. OG&E likely will be required to incur certain capital expenditures in the future for air pollution control equipment and technology in connection with obtaining and maintaining operating permits and approvals for air emissions.
Cross-State Air Pollution Rule
On September 7, 2016, the EPA finalized an update to the 2011 Cross-State Air Pollution Rule. The new ruleupdate applies to ozone-season NOXx emissions from power plants in 22 eastern states (including Oklahoma). The rule utilizes a cap and trade program for NOXx emissions and went into effect on May 1, 2017 in Oklahoma. The 2016 ruleupdate reduces the 2011 Cross-State Air Pollution Rule emissions cap for all of OG&E's coal and gas facilities (except the River Valley and Frontier facilities which were not owned by OG&E until 2019) by 47 percent combined. OG&E and numerous other parties filed petitions for judicial and administrative review of the 2016 rule. On September 13, 2019, the U.S. Court of Appeals for the District of Columbia Circuit issued an opinion that partially remanded the Cross-State Air Pollution Rule update and also deferred a decision on ourOG&E's challenges to the rule pending an EPA review and decision on a separate administrative petition that weOG&E filed. Subsequently, all of OG&E's judicial challenges were voluntarily dismissed, but the administrative petitions for reconsideration remain pending at the EPA. On October 30, 2020, the EPA published a proposed rule to revise the 2016 update rule and address the 2019 remand. OG&E is currently reviewingThe EPA published a final version of the remanded rule in the Federal Register on May 17, 2021. Consistent with the proposal, whichthe EPA does not propose anyrequire additional reductions in the emissions budget for Oklahoma based on a preliminary determination that the state does not cause or contribute to nonattainment of the ambient air quality standards in the relevant downwind areas.
OG&E continues to monitor these processes and their possible impact on its operations but, at this time, cannot determine with any certainty whether they will cause a material impact to OG&E's financial results. OG&E is in compliance with the 2016 rule requirements which remain in effect. OG&Eeffect and does not anticipate, at this time, additional capital expenditures for compliance with the 2016 rule.regulation.
Hazardous Air Pollutants Emission Standards
On February 16, 2012, the EPA published the final MATS rule regulating the emissions of certain hazardous air pollutants from electric generating units. OG&E complied with the MATS rule by the April 16, 2016 deadline that applied to OG&E's coal units. On May 22,April 16, 2020, the EPA publishedreleased a final rule which reconsidered certain elements of the 2012 rule in response to litigation in the D.C. Circuit Court. In the final rule, the EPA concluded that it is not "appropriate and necessary" to regulate MATS-related emissions from coal-fired units. Nonetheless, the EPA retained the emissions limits that were established in the 2012 rule, which remains in effect today. Petitions for judicial review of the final May 2020 rule have been filed at the D.C. Circuit Court. The consolidated challenges are being held in abeyance pending the EPA's review of the 2020 rule.
National Ambient Air Quality Standards
The EPA is required to set NAAQS for certain pollutants considered to be harmful to public health or the environment. The Clean Air Act requires the EPA to review each NAAQS every five years. As a result of these reviews, the EPA periodically has taken action to adopt more stringent NAAQS for those pollutants. If any areas of Oklahoma were to be designated as not attaining the NAAQS for a particular pollutant, OG&E could be required to install additional emission controls on its facilities to help the state achieve attainment with the NAAQS. As of SeptemberJune 30, 2020,2021, no areas of Oklahoma had been designated as non-attainment for pollutants that are likely to affect OG&E's operations.
The EPA proposed to designate part of Muskogee County, in which OG&E's Muskogee Power Plant is located, as non-attainment for the 2010 SO2 NAAQS on March 1, 2016, even though nearby monitors indicated compliance with the NAAQS. The proposed designation was based on modeling that did not reflect the conversion of two of the coal units at Muskogee to natural gas. The State of Oklahoma's monitoring preliminarily indicates that ambient SO2 emissions in the area are well within the NAAQS. After evaluation by Oklahoma and the EPA of the designation proposed in 2016, on August 13, 2020, the EPA notified Oklahoma that it intends to designate Muskogee County as attainment/unclassifiable. The EPA has indicated that it anticipates finalizing a designation at the end of 2020. At this time, OG&E cannot determine with any certainty whether the proposed designation of Muskogee County will cause a material impact to OG&E's financial results.
OG&E continues to monitor these processes and their possible impact on its operations but, at this time, cannot determine with any certainty whether they will cause a material impact to OG&E's financial results.
Climate Change and Greenhouse Gas Emissions
There is continuing discussion and evaluation of possible global climate change in certain regulatory and legislative arenas. The focus is generally on emissions of greenhouse gases, including CO2, sulfur hexafluoride and methane, and whether these emissions are contributing to the warming of the earth's atmosphere. On November 4, 2019,April 22, 2021, President TrumpBiden announced thata target for the U.S. has officially notifiedin association with the United Nations that the U.S. will withdraw from theNations' "Paris Agreement" on climate
change after having announced change. The target consists of a 50 to 52 percent reduction from 2005 levels in 2017economy-wide net greenhouse gas emissions in 2030. President Biden also has stated that a goal of his administration is to see the U.S. would begin negotiationselectric power industry fully decarbonized by 2035. The details surrounding the implementation of these targets are not finalized and the impact to re-enter the agreement with different terms. A new agreementOG&E, if any, is currently unknown. Such initiatives may result in future additional greenhouse gas emissions reductions in the U.S.; however, it is not possible to determine what the international legal
U.S. standards for greenhouse gas emissions will be in the future andor the extent to which these commitments will be implemented through the Clean Air Act or any other existing statutes and new legislation.
If legislation or regulations are passed at the federal or state levels in the future requiring mandatory reductions of CO2 and other greenhouse gases on OG&E's facilities, this could result in significant additional compliance costs that would affect OG&E's future financial position, results of operations and cash flows if such costs are not recovered through regulated rates. Several states outside the area where OG&E operates have passed laws, adopted regulations or undertaken regulatory initiatives to reduce the emission of greenhouse gases, primarily through the planned development of greenhouse gas emission inventories and/or regional greenhouse gas cap and trade programs.
OG&E's current business strategy has resulted in reduced carbon dioxide emissions by over 40 percent compared to 2005 levels, and during the same period, emissions of ozone-forming NOx have been reduced by approximately 75 percent and emissions of SO2 have been reduced by approximately 90 percent. OG&E expects to further reduce carbon dioxide emissions to 50 percent of 2005 levels by 2030. To comply with the EPA's MATS rule and Regional Haze Rule FIP, OG&E converted two coal-fired generating units at the Muskogee Station to natural gas, among other measures. OG&E's deployment of Smart Grid technology helps to reduce the peak load demand. OG&E is also deploying more renewable energy sources that do not emit greenhouse gases. OG&E's service territory borders one of the nation's best wind resource areas, and OG&E has leveraged its geographic position to develop renewable energy resources and completed transmission investments to deliver the renewable energy. The SPP has authorized the construction of transmission lines capable of bringing renewable energy out of the wind resource areas in western Oklahoma, the Texas Panhandle and western Kansas to load centers by planning for more transmission to be built in the area. In addition to increasing overall system reliability, these new transmission resources should provide greater access to additional wind resources that are currently constrained due to existing transmission delivery limitations.
On July 8, 2019, the EPA published the Affordable Clean Energy rule. Numerous parties, not including OG&E, have filed petitions for judicial review of the Affordable Clean Energy rule in the U.S. Court of Appeals for the District of Columbia Circuit. Oral argument was held on October 8, 2020. The Affordable Clean Energy rule requires states, including Oklahoma, to develop emission limitations for carbon dioxide for each existing coal-fired utility boiler within the state, including all of OG&E's coal units, and submit a compliance and implementation plan to the EPA by July 2022. The EPA will approve or disapprove the proposed state plan within 18 months of submittal and develop a federal implementation plan if the proposed state plan is disapproved. At this time, OG&E cannot determine with any certainty whether the implementation plan will cause a material impact to its financial results.
EPA Startup, Shutdown and Malfunction Policy
On May 22, 2015, the EPA issued a final rule to address the provisions in the SIPs of 36 states (including Oklahoma) regarding the treatment of emissions that occur during startup, shutdown and malfunction operations. The final rule clarifies the EPA's Startup, Shutdown and Malfunction Policy. Although judicial challenges to the rule are ongoing, the ODEQ submitted a SIP revision for the EPA's approval on November 7, 2016 to comply with this rule. This rule has resulted in permit modifications for certain OG&E units and applications remain pending for other units. OG&E does not anticipate capital expenditures, or a material impact to its financial position, results of operations or cash flows, as a result of adoption of this rule.
Regional Haze Regulation - Second Planning Period
In January 2017, the EPA finalized a rule that would revise certain provisions of the Regional Haze Rule. Notably, the EPA extended the due dateSIP deadline for the second Regional Haze implementation period by three years to 2021 and made changes to the provisions for impacts to national parks and other protected wilderness areas. Petitions for Reconsideration to the EPA were filed by industry groups. While not acting on the petitions, the EPA announced on January 17, 2018 that it intends to commence a notice-and-comment rulemaking revisiting certain aspects of the rule.rule, which has not commenced. During 2019, the EPA released technical resources to assist states in developing SIPs, including a significant non-binding guidance document and updated atmospheric modeling which will allow states to better account for international emissions affecting regional haze in the U.S. On July 8, 2021, the EPA issued a memorandum providing further information on the development of SIPs for the Regional Haze second implementation period.
On July 1, 2020, the ODEQ notified OG&E that the Horseshoe Lake generating units are to be included in the state's evaluation of visibility impairment impacts to the Wichita Mountains. OG&E conducted an analysis of all potential control measures for NOx on these units and submitted it to the ODEQ on September 15, 2020. The ODEQ will identify any cost-effective control measures in a Regional Haze SIP, to be submitted to the EPA for approval by July 31, 2021. It is unknown at this time what the outcome, or any potential material impacts, will be from the evaluations by OG&E, the ODEQ and the EPA.
Endangered Species
Certain federal laws, including the Bald and Golden Eagle Protection Act, the Migratory Bird Treaty Act and the Endangered Species Act, provide special protection to certain designated species. These laws and any state equivalents provide for significant civil and criminal penalties for unpermitted activities that result in harm to or harassment of certain protected animals and plants, including damage to their habitats. If such species are located in an area in which OG&E conducts operations, or if additional species in those areas become subject to protection, OG&E's operations and development projects, particularly transmission, wind or pipeline projects, could be restricted or delayed, or OG&E could be required to implement expensive mitigation measures.
On June 1, 2021, the USFWS published a proposed rule to list two distinct population segments of the lesser prairie chicken; the southern distinct population segment located in west Texas and eastern New Mexico is proposed as endangered status, and the northern distinct population located in northwest Texas, Oklahoma, Kansas and Colorado is proposed as threatened status. The northern population is proposed to be listed as threatened with a 4(d) rule which would prohibit take of the chicken, such as destroying its habitat by building a transmission line or substation, without a permit or special authorization from the USFWS. The final rule for the listing decision is expected to occur in June 2022.
Vegetation Management
On July 10, 2020, the U.S. Department of Agriculture – Forest Service published a final rule which updates procedures for creating operating plans and agreements for powerline facility maintenance and vegetation management within and abutting the linear boundary of a special use authorization for a powerline facility within Forest Service lands. This rule codifies the memorandum of understanding between utilities such as OG&E and the Forest Service regarding vegetation management best practices. All companies will be required to have an approved operating plan or agreement with the Forest Service. OG&E will be required to submit a draft operating plan to the Forest Service by August 10, 2023 for ongoing maintenance and vegetation management activities located within the Ozark National Forest in Arkansas.
Waste
OG&E's operations generate wastes that are subject to the Federal Resource Conservation and Recovery Act of 1976 as well as comparable state laws which impose detailed requirements for the handling, storage, treatment and disposal of waste.
In 2015, the EPA finalized a rule under the Federal Resource Conservation and Recovery Act for the handling and disposal of coal combustion residuals or coal ash. The rule regulates coal ash as a solid waste rather than a hazardous waste, which would have made the management of coal ash more costly. In August 2019, the EPA proposed revisions to the 2015 coal ash rule in response to the D.C. Circuit Court of Appeals issuing a decision regarding the ongoing Coal Combustion Residuals litigation. The proposed changes do not appear to be material to OG&E at this time. OG&E completed the clean closure of one regulated inactive coal ash impoundment in August 2019.
On June 28, 2018, the EPA approved the State of Oklahoma's application for a state coal ash permitting program that will operate in lieu of the federal coal ash program promulgated under the Federal Resource Conservation and Recovery Act. On September 26, 2018, a citizen suit was filed against the EPA in the U.S. District Court in the District of Columbia concerning the final approval, which was decided upon in the EPA's favor on April 15, 2020 and has subsequently been appealed.
OG&E currently recycles and provides approximately 89Over 95 percent of itsthe ash from OG&E's Muskogee and Sooner facilities was recovered and sold to the concrete and cement industries for use as a component within their products.in the last two years, and in 2021, River Valley became OG&E's third power plant to enter an agreement to have its fly ash reused. Using fly ash in this way enables aggregatealso helps cement manufacturers to minimize their impact on the environment by avoiding the need to extract and process other natural resources. Based on estimates from the American Coal Ash Association, OG&E fly ash reuse helped avoid over three million tons of CO2 emissions in the last 13 years.
OG&E has sought and will continue to seek pollution prevention opportunities and to evaluate the effectiveness of its waste reduction, reuse and recycling efforts. OG&E obtains refunds from the recycling of scrap metal, salvaged transformers and used transformer oil. Additional savings are expected to be gained through the reduction and/or avoidance of disposal costs and the reduction in material purchases due to the reuse of existing materials. Similar savings are anticipated in future years.
Water
OG&E's operations are subject to the Federal Clean Water Act and comparable state laws and regulations. These laws and regulations impose detailed requirements and strict controls regarding the discharge of pollutants into state and federal waters.
The EPA issued a final rule on May 19, 2014 to implement Section 316(b) of the Federal Clean Water Act, which requires that power plant cooling water intake structure location, design, construction and capacity reflect the best available technology for minimizing their adverse environmental impact via the impingement and entrainment of aquatic organisms. The ODEQ issued final permits on December 22, 2017 and August 22, 2018 for Muskogee Power Plant and Seminole Power Plant, respectively, in compliance with the final 316(b) rule, and OG&E did not incur any material costs associated with the rule's implementation at either location. OG&E expects to be able to provide a reasonable estimate of any material costs associated with the rule's implementation at other facilities following the future issuance of permits from the State of Oklahoma.
In 2015, the EPA issued a final rule addressing the effluent limitation guidelines for power plants under the Federal Clean Water Act. The final rule establishes technology- and performance-based standards that may apply to discharges of six waste streams including bottom ash transport water. Compliance with this rule will occur by 2023; however, on April 12, 2017, the EPA granted a Petition for Reconsideration of the 2015 Rule. On October 13, 2020, the EPA published a final rule to revise the technology-based effluent limitations for flue gas desulfurization waste water and bottom ash transport water. In light of the final rule, OG&E is evaluating what, if any, compliance actions are needed but is not able to quantify with any certainty what costs may be incurred.
OG&E expects to be able to provide a reasonable estimate of any material costs associated with the rule's implementation following issuance of the permits from the State of Oklahoma.
On April 21, 2020, the EPA and U.S. Army Corps of Engineers published ina rule to define the Federal Register "The Navigable Waters Protection Rule: Definitionscope of Waters of the United States."federal jurisdiction over wetlands. This final rule replaces the repealed definition of waters of the U.S. from 2015. The rule became effective date of this final rule will beon June 22, 2020.2020, and OG&E has not experienced, and does not expect to experience, any material impacts as a result of this rule.result.
Since the purchase of the Redbud facility in 2008, OG&E's average use of treated municipal effluent for all of the needed cooling water at Redbud and McClain is approximately 2.62.5 billion gallons per year. This use of treated municipal effluent offsets the need for fresh water as cooling water, making fresh water available for other beneficial uses like drinking water, irrigation and recreation.
Site Remediation
The Comprehensive Environmental Response, Compensation and Liability Act of 1980 and comparable state laws impose liability, without regard to the legality of the original conduct, on certain classes of persons responsible for the release of hazardous substances into the environment. Because OG&E utilizes various products and generates wastes that are considered hazardous substances for purposes of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, OG&E could be subject to liability for the costs of cleaning up and restoring sites where those substances have been released to the environment. At this time, it is not anticipated that any associated liability will cause a significant impact to OG&E.
For further discussion regarding contingencies relating to environmental laws and regulations, see Note 1114 within "Item 1. Financial Statements."
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
OG&E maintainsThe Registrants maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed by OG&Ethe Registrants in reports that it filesthey file or submitssubmit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. In addition, the disclosure controls and procedures ensure that information required to be disclosed is accumulated and communicated to management, including the chief executive officer and chief financial officer, allowing timely decisions regarding required disclosure. As of the end of the period covered by this report, based on an evaluation carried out under the supervision and with the participation of OG&E'sthe Registrants' management, including the chief executive officer and chief financial officer, of the effectiveness of OG&E'sthe Registrants' disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934), the chief executive officer and chief financial officer have concluded that OG&E'sthe Registrants' disclosure controls and procedures are effective.
No change in OG&E'sthe Registrants' internal control over financial reporting has occurred during OG&E'sthe most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, OG&E'sthe Registrants' internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934).
While remote work arrangements were temporarily implemented in response to the COVID-19 pandemic, OG&E believes there have been no material changes to the processes and procedures that impact financial reporting. OG&E continues to monitor potential internal control impacts of COVID-19 and plan accordingly to ensure the effectiveness of OG&E's internal controls over financial reporting and disclosures.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is made to Item 3 of Part I of OG&E'sthe Registrants' 20192020 Form 10-K for a description of certain legal proceedings presently pending. Except as described under "Environmental Laws and Regulations" within "Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations," there are no new significant cases to report against OG&Ethe Registrants, and there have been no material changes in the previously reported proceedings.
Item 1A. Risk Factors.
Except as detailed below, thereThere have been no significant changes in OG&E'sthe Registrants' risk factors from those discussed in OG&E'sthe Registrants' 20192020 Form 10-K, which are incorporated herein by reference.
We face risks related
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 5. Other Information.
On August 2, 2021, following a mid-year market-data review, the Compensation Committee of the Board of Directors approved adjustments to health epidemicsthe annual base salaries of W. Bryan Buckler, Chief Financial Officer, and Donnie O. Jones, Vice President – Utility Operations of OG&E. Mr. Buckler's 2021 base salary increased 10 percent from $400,000 to an annual rate of $440,000, and Mr. Jones's 2021 base salary increased 10 percent from $323,000 to an annual rate of $355,000. No other outbreaks.compensation changes were made for Messrs. Buckler and Jones; however, as the target amount of annual incentive is expressed as a percentage of salary, the increases will have the effect of potentially increasing the annual incentive amounts earned.
Also, on August 3, 2021, the Board of Directors amended and restated the OGE Energy Corp. Supplemental Executive Retirement Plan ("SERP"), to increase the benefit amount payable under the SERP. The SERP, which originally was adopted in 1993 and most recently amended in 2019, provides a supplemental executive retirement plan in order to attract and retain lateral hires or other executives designated by the Compensation Committee who may not otherwise qualify for a sufficient level of benefits under OGE Energy's Pension Plan and Restoration of Retirement Income Plan. The SERP is an unfunded supplemental executive retirement plan that is not subject to the benefit limits imposed by the Internal Revenue Code. Sean Trauschke, Chairman, President and Chief Executive Officer of OGE Energy, was designated as a participant in the SERP in 2019 and currently is the only employee of OGE Energy that participates in the SERP.
Prior to the amendment in August 2021, the SERP provided to designated participants a retirement benefit at or after age 60 equal to the actuarial equivalent of 1.32 percent of the participant's average compensation (equal to base salary, plus target amount of annual incentive award in effect) during his or her final 36 months of employment, multiplied by his or her years of service (or portions thereof). For this purpose, years of service commence upon the later to occur of the participant's commencement of employment with OGE Energy or January 1, 2019. SERP payments will be made in a lump sum after becoming eligible for benefits and following termination, as provided in the SERP, in an amount equal to the actuarial equivalent of the monthly annuity.
The outbreakSERP, as amended, will increase the retirement benefit from the actuarial equivalent of COVID-19 is a continually evolving situation around the globe that has adversely impacted economic activity and conditions worldwide. In particular, efforts to control the spread of COVID-19 have led to shutdowns of various facilities as well as disrupted supply chains around the world. Efforts to control the spread of COVID-19 have also resulted in remote work arrangements, increased unemployment, customer slow payment or non-payment and decreased commercial and industrial load. We expect these particular COVID-19 impacts will likely continue in the near future. We are continuing to monitor developments involving our workforce, customers and suppliers and cannot predict whether COVID-19 will have a material impact on our results of operations, financial condition and prospects. A slowdown1.32 percent of the United States' economic growth, demand for commodities and/participant's average compensation during his or material changes in governmental policy has resultedher final 36 months of employment to a certain extent and could continue to result in lower economic growth and lower demand for electricity in our key markets as well as the abilityactuarial equivalent of various customers, contractors, suppliers and other business partners to fulfill their obligations, which could have a material adverse effect on our results of operations, financial condition and prospects. Further, the negative impacts on the economy could also adversely impact the market value2.90 percent of the assets that fund our pension plans, which could necessitate accelerated fundingparticipant's average compensation during his or her final 36 months of the plans to meet minimum federal government requirements.employment, in each case, multiplied by his or her years of service (or portions thereof).
In addition, we cannot predict the ongoing impact that COVID-19 will have on our customers, suppliers, vendors and other business partners and each of their financial conditions; however, any material effect on these parties could adversely impact us. The impact of COVID-19 may also exacerbate other risks discussed in "Item 1A. Risk Factors" in OG&E's 2019 Form 10-K, any of which could have a material effect on us. This situation is changing rapidly, and additional impacts may arise that we are not aware of currently.
Item 6. Exhibits.
| | | | | | | | | | | |
| Exhibit No. | Description |
| OGE Energy | OG&E |
| 4.01 | |
| X | |
31.014.02 | | | X |
| 10.01*+ | | X | |
| 31.01+ | | X | |
32.0131.02+ | | | X |
| 32.01+ | | X | |
| 32.02+ | | | X |
| | | |
| | | |
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document. | X | X |
| 101.SCH | Inline XBRL Taxonomy Schema Document. | X | X |
| 101.PRE | Inline XBRL Taxonomy Presentation Linkbase Document. | X | X |
| 101.LAB | Inline XBRL Taxonomy Label Linkbase Document. | X | X |
| 101.CAL | Inline XBRL Taxonomy Calculation Linkbase Document. | X | X |
| 101.DEF | Inline XBRL Definition Linkbase Document. | X | X |
| 104 | Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document (included in Exhibit 101). | X | X |
| | | |
| * Represents executive compensation plans and arrangements. |
| + Represents exhibits filed herewith. All exhibits not so designated are incorporated by reference to a prior filing, as indicated. |
| | | |
| | |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant hasregistrants have duly caused this report to be signed on itstheir behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | | | | | | | | | | |
| | OGE ENERGY CORP. |
| OKLAHOMA GAS AND ELECTRIC COMPANY |
| | (Registrant) |
| | | | | | | |
| By: | /s/ Sarah R. Stafford |
| | Sarah R. Stafford |
| | Controller and Chief Accounting Officer |
| (On behalf of the RegistrantRegistrants and in her capacity as Chief Accounting Officer) |
NovemberAugust 4, 20202021