XML 42 R24.htm IDEA: XBRL DOCUMENT
v3.10.0.1

Commitments and Contingencies | 12 Months Ended
--- | ---
Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract] |
Commitments and Contingencies | Commitments and Contingencies Operating Lease Obligations The Company has operating lease obligations expiring at various dates, primarily for OG&E railcar leases, OG&E wind farm land leases and the Company's office space lease. Future minimum payments for noncancellable operating leases are as follows:
Year Ended December 31 (In millions) | 2019 | 2020 | 2021 | 2022 | 2023 | After 2023 | Total
Operating lease obligations: |  |  |  |  |  |  |
Railcars | $ | 18.6 |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 18.6 |
Wind farm land leases | 2.5 |  | 2.9 |  | 2.9 |  | 2.9 |  | 2.9 |  | 37.6 |  | 51.7 |
Office space lease | 1.0 |  | 1.0 |  | 0.6 |  | — |  | — |  | — |  | 2.6 |
Total operating lease obligations | $ | 22.1 |  | $ | 3.9 |  | $ | 3.5 |  | $ | 2.9 |  | $ | 2.9 |  | $ | 37.6 |  | $ | 72.9 |
Payments for operating lease obligations were $4.9 million, $6.2 million and $9.3 million for the years ended December 31, 2018, 2017 and 2016, respectively. OG&E Railcar Lease Agreement As of December 31, 2018, OG&E has a noncancellable operating lease with a purchase option, covering 1,093 rotary gondola railcars to transport coal from Wyoming to OG&E's coal-fired generation units. Rental payments are charged to fuel expense and are recovered through OG&E's tariffs and fuel adjustment clauses. At the end of the lease term, which was February 1, 2019, OG&E had the option to either purchase the railcars at a stipulated fair market value or renew the lease. If OG&E chose not to purchase the railcars or renew the lease agreement and the actual fair value of the railcars was less than the stipulated fair market value, OG&E would have been responsible for the difference in those values up to a maximum of $16.2 million. OG&E was also required to maintain all of the railcars it had under the operating lease. On February 1, 2019, OG&E renewed the lease agreement effective February 1, 2019, under similar terms and conditions, for a fleet of 780 railcars, expiring February 1, 2024. The number of railcars was reduced due to the conversion of Muskogee Units 4 and 5 to natural gas. At the end of the lease term, OG&E has the option to either purchase the railcars at a stipulated fair market value or renew the lease. If OG&E chooses not to purchase the railcars or renew the lease agreement and the actual fair value of the railcars is less than the stipulated fair market value, OG&E would be responsible for the difference in those values up to a maximum of $6.8 million. The railcar lease effective February 1, 2019 is not included in the operating lease obligations table above. OG&E Wind Farm Land Lease Agreements OG&E has operating leases related to land for its Centennial, OU Spirit and Crossroads wind farms expiring at various dates. The Centennial lease has rent escalations which increase annually based on the Consumer Price Index. The OU Spirit and Crossroads leases have rent escalations which increase after five and 10 years. Although the leases are cancellable, OG&E is required to make annual lease payments as long as the wind turbines are located on the land. OG&E does not expect to terminate the leases until the wind turbines reach the end of their useful life. Office Space Lease In August 2012, the Company executed a noncancellable lease agreement for office space from September 1, 2013 to August 31, 2018. This lease had rent escalations which increased after five years and allowed for leasehold improvements. In February 2018, the Company executed a noncancellable lease agreement for office space from September 1, 2018 to August 31, 2021. This lease allows for leasehold improvements. Other Purchase Obligations and Commitments The Company's other future purchase obligations and commitments estimated for the next five years are as follows:
(In millions) | 2019 | 2020 | 2021 | 2022 | 2023 | Total
Other purchase obligations and commitments: |  |  |  |  |  |
Cogeneration capacity and fixed operation and maintenance payments (A) | $ | 10.9 |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 10.9 |
Expected cogeneration energy payments (A) | 2.4 |  | — |  | — |  | — |  | — |  | 2.4 |
Minimum purchase commitments | 75.8 |  | 44.6 |  | 44.6 |  | 44.6 |  | 44.6 |  | 254.2 |
Expected wind purchase commitments | 56.3 |  | 56.9 |  | 57.1 |  | 57.5 |  | 58.0 |  | 285.8 |
Long-term service agreement commitments | 46.8 |  | 2.4 |  | 2.4 |  | 2.4 |  | 14.4 |  | 68.4 |
Environmental compliance plan expenditures | 5.8 |  | 0.2 |  | — |  | — |  | — |  | 6.0 |
Total other purchase obligations and commitments | $ | 198.0 |  | $ | 104.1 |  | $ | 104.1 |  | $ | 104.5 |  | $ | 117.0 |  | $ | 627.7 |
(A) | Cogeneration capacity, fixed operation and maintenance and energy payments will end in 2019, as a result of contract expiration. As described below, OG&E intends to acquire the AES and Oklahoma Cogeneration LLC power plants, pending regulatory approval.
Public Utility Regulatory Policy Act of 1978 At December 31, 2018, OG&E has a QF contract with Oklahoma Cogeneration LLC which expires on August 31, 2019 and a QF contract with AES which expired on January 15, 2019. These contracts were entered into pursuant to the Public Utility Regulatory Policy Act of 1978. Stated generally, the Public Utility Regulatory Policy Act of 1978 and the regulations thereunder promulgated by the FERC require OG&E to purchase power generated in a manufacturing process from a QF. The rate for such power to be paid by OG&E was approved by the OCC. The rate generally consists of two components: one is a rate for actual electricity purchased from the QF by OG&E, and the other is a capacity charge, which OG&E must pay the QF for having the capacity available. However, if no electrical power is made available to OG&E for a period of time (generally three months), OG&E's obligation to pay the capacity charge is suspended. The total cost of cogeneration payments is recoverable in rates from customers. For the 320 MWs AES QF contract and the 120 MWs Oklahoma Cogeneration LLC QF contract, OG&E purchases 100 percent of the electricity generated by the QFs. As part of the QF contract with AES, OG&E had the option to provide notice to AES to terminate the contract, and on August 24, 2018, OG&E notified AES that OG&E was exercising this option to terminate the contract, effective January 15, 2019. OG&E subsequently issued a request for proposals to fill the capacity need created by the termination of this QF contract. On December 20, 2018, OG&E announced its plan to acquire power plants from AES and Oklahoma Cogeneration LLC, pending regulatory approval, to meet customers' energy needs. Further discussion can be found in Note 15. For the years ended December 31, 2018, 2017 and 2016, OG&E made total payments to cogenerators of $112.4 million, $115.2 million and $124.8 million, respectively, of which $60.0 million, $63.0 million and $66.3 million, respectively, represented capacity payments. All payments for purchased power, including cogeneration, are included in the Consolidated Statements of Income as Cost of Sales. OG&E Minimum Purchase Commitments OG&E has coal contracts for purchases through March 31, 2019, whereby OG&E has the right but not the obligation to purchase a defined quantity of coal. OG&E purchases its coal through spot purchases on an as-needed basis. As a participant in the SPP Integrated Marketplace, OG&E purchases its natural gas supply through short-term agreements. OG&E relies on a combination of natural gas call agreements, whereby OG&E has the right but not the obligation to purchase a defined quantity of natural gas, combined with day and intra-day purchases to meet the demands of the SPP Integrated Marketplace. OG&E has natural gas transportation service contracts with Enable and ONEOK, Inc. The contract with Enable expires in April 2019, and in October 2018, OG&E and Enable agreed to a new contract that will be effective as of April 2019 for a five year period ending May 2024. The contracts with ONEOK, Inc. end in March 2019 and August 2037. These transportation contracts grant Enable and ONEOK, Inc. the responsibility of delivering natural gas to OG&E's generating facilities. OG&E Wind Purchase Commitments OG&E owns the 120 MW Centennial, 101 MW OU Spirit and 228 MW Crossroads wind farms. OG&E's current wind power portfolio also includes purchased power contracts as listed in the table below.
Company | Location | Original Term of Contract | Expiration of Contract | MWs
CPV Keenan | Woodward County, OK | 20 years | 2030 | 152.0
Edison Mission Energy | Dewey County, OK | 20 years | 2031 | 130.0
NextEra Energy | Blackwell, OK | 20 years | 2032 | 60.0
The following table summarizes OG&E's wind power purchases for the years ended December 31, 2018, 2017 and 2016.
Year Ended December 31 (In millions) | 2018 | 2017 | 2016
CPV Keenan | $ | 27.0 |  | $ | 29.0 |  | $ | 29.2 |
Edison Mission Energy | 21.7 |  | 22.1 |  | 21.1 |
NextEra Energy | 6.8 |  | 7.4 |  | 7.3 |
FPL Energy (A) | 2.1 |  | 2.6 |  | 3.4 |
Total wind power purchased | $ | 57.6 |  | $ | 61.1 |  | $ | 61.0 |
(A) | OG&E's purchased power contract with FPL Energy for 50 MWs expired in 2018.
OG&E Long-Term Service Agreement Commitments OG&E has a long-term parts and service maintenance contract for the upkeep of the McClain Plant. In May 2013, a new contract was signed that is expected to run for the earlier of 128,000 factored-fired hours or 4,800 factored-fired starts. On December 30, 2015, the McClain Long-Term Service Agreement was amended to define the terms and conditions for the exchange of spare rotors between OG&E and General Electric International, Inc. Based on historical usage and current expectations for future usage, this contract is expected to run until 2031. The contract requires payments based on both a fixed and variable cost component, depending on how much the McClain Plant is used. OG&E has a long-term parts and service maintenance contract for the upkeep of the Redbud Plant. In March 2013, the contract was amended to extend the contract coverage for an additional 24,000 factored-fired hours resulting in a maximum of the earlier of 144,000 factored-fired hours or 4,500 factored-fired starts. Based on historical usage and current expectations for future usage, this contract is expected to run until 2029. The contract requires payments based on both a fixed and variable cost component, depending on how much the Redbud Plant is used. Environmental Laws and Regulations The activities of the Company 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 the Company'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 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 its 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. Air Quality Control System The Dry Scrubber system on Sooner Unit 1 completed certain emission testing in October 2018 and was placed into service. The Dry Scrubber system on Sooner Unit 2 completed certain emission testing in January 2019 and was placed into service. More detail regarding the ECP can be found under "Pending Regulatory Matters" in Note 15. Clean Power Plan On October 23, 2015, the EPA published the final Clean Power Plan that established standards of performance for CO 2 emissions from existing fossil-fuel-fired power plants along with state-specific CO 2 reduction standards expressed as both rate-based (lbs./MWh) and mass-based (tons/yr.) goals. However, the rule was challenged in court when it was issued, and the U.S. Supreme Court issued orders staying implementation of the Clean Power Plan on February 9, 2016 pending resolution of the court challenges. The EPA published a proposal on October 16, 2017 to repeal the Clean Power Plan. On August 31, 2018, without acting on the proposed repeal of the Clean Power Plan, the EPA published a proposed rule to replace the Clean Power Plan. The ultimate timing and impact of these standards on OG&E's operations cannot be determined with certainty at this time, although a requirement for significant reduction of CO 2 emissions from existing fossil-fuel-fired power plants ultimately could result in significant additional compliance costs that would affect the Company's future consolidated financial position, results of operations and cash flows if such costs are not recovered through regulated rates. Other In the normal course of business, the Company is 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, the Company has incurred a probable loss as set forth by GAAP, an estimate is made of the loss, and the appropriate accounting entries are reflected in the Company's Consolidated Financial Statements. At the present time, based on current available information, the Company believes 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 its financial statements and would not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows.

X
- References No definition available. + Details
Name: | us-gaap_CommitmentsAndContingenciesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for commitments and contingencies. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 450 -URI http://asc.fasb.org/topic&trid=2127136 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 440 -URI http://asc.fasb.org/topic&trid=2144648 + Details
Name: | us-gaap_CommitmentsAndContingenciesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration