Fair Value Measurements

12 Months Ended

Dec. 31, 2011

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The classification of the Company's fair value measurements requires judgment regarding the degree to which market data are 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 and examples of each are as follows:

Level 1 inputs are quoted prices in active markets for identical unrestricted assets or liabilities that are accessibleat the measurement date. Instruments classified as Level 1 include natural gas futures, swaps and option transactions for contracts traded on the NYMEX and settled through a NYMEX clearing broker.

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.Instruments classified as Level 2 include over-the-counter NYMEX natural gas swaps, natural gas basis swaps and natural gas purchase and sales transactions in markets such that the pricing is closely related to the NYMEX pricing.

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 thereporting entity'sown assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).  Instruments classified as Level 3 include the revaluation of the Atoka plant assets (see Note 5).

The Company utilizes the market approach in determining the fair value of its derivative positions by using either NYMEX published market prices, independent broker pricing data or broker/dealer valuations.  The valuations of derivatives with pricing based on NYMEX published market prices may be considered Level 1 if they are settled through a NYMEX clearing broker account with daily margining.  Over-the-counter derivatives with NYMEX based prices are considered Level 2 due to the impact of counterparty credit risk.  Valuations based on independent broker pricing or broker/dealer valuations may be classified as Level 2 only to the extent they may be validated by an additional source of independent market data for an identical or closely related active market. In certain less liquid markets or for longer-term contracts, forward prices are not as readily available. In these circumstances, contracts are valued using internally developed methodologies that consider historical relationships among various quoted prices in active markets that result in management's best estimate of fair value.  These contracts are classified as Level 3.

The impact to the fair value of derivatives due to credit risk is calculated using the probability of default based on Standard & Poor's Ratings Services and/or internally generated ratings.The fair value of derivative assets is adjusted for credit risk.  The fair value of derivative liabilities is adjusted for credit risk only if the impact is deemed material.

Contracts with Master Netting Arrangements

Fair value amounts recognized for forward, interest rate swap, option and other conditional or exchange contracts executed with the same counterparty under a master netting arrangement may be offset.  The reporting entity's choice to offset or not must be applied consistently.  A master netting arrangement exists if the reporting entity has multiple contracts, whether for the same type of conditional or exchange contract or for different types of contracts, with a single counterparty that are subject to a contractual agreement that provides for the net settlement of all contracts through a single payment in a single currency in the event of default on or termination of any one contract. Offsetting the fair values recognized for forward, interest rate swap, option and other conditional or exchange contracts outstanding with a single counterparty results in the net fair value of the transactions being reported as an asset or a liability in the Consolidated Balance Sheets.  The Company has presented the fair values of its derivative contracts under master netting agreements using a net fair value presentation.

The following tables summarize the Company's assets and liabilities that are measured at fair value on a recurring basis at December 31, 2011 and 2010 as well as reconcile the Company's commodity contracts fair value to PRM Assets and Liabilities on the Company's Consolidated Balance Sheets at December 31, 2011 and 2010. There were no Level 3 investments held at December 31, 2011.

December 31, 2011
(In millions)	Commodity Contracts						Gas Imbalances (A)
	Assets			Liabilities			Assets		Liabilities (B)
Quoted market prices in active market for identical assets (Level 1)	$	57.1		$	52.3		$	—	$	—
Significant other observable inputs (Level 2)	4.2			1.2			1.8		7.8
Total fair value	61.3			53.5			1.8		7.8
Netting adjustments	(57.5		)	(53.0		)	—		—
Total	$	3.8		$	0.5		$	1.8	$	7.8
December 31, 2010
(In millions)	Commodity Contracts						Gas Imbalances (A)
	Assets			Liabilities			Assets		Liabilities (B)
Quoted market prices in active market for identical assets (Level 1)	$	20.6		$	20.2		$	—	$	—
Significant other observable inputs (Level 2)	2.7			30.7			2.5		2.8
Significant unobservable inputs (Level 3)	13.3			—			—		—
Total fair value	36.6			50.9			2.5		2.8
Netting adjustments	(34.4		)	(34.1		)	—		—
Total	$	2.2		$	16.8		$	2.5	$	2.8

(A) The Company uses the market approach to fair value its gas imbalance assets and liabilities, using an average of the Inside FERC Gas Market Report for Panhandle Eastern Pipe Line Co. (Texas, Oklahoma Mainline), ONEOK (Oklahoma) and ANR Pipeline (Oklahoma) indices.

(B) Gas imbalance liabilities exclude fuel reserves for over retained fuel due to shippers of $2.0 million and $3.9 million at December 31, 2011 and 2010, respectively, which fuel reserves are based on the value of natural gas at the time the imbalance was created and which are not subject to revaluation at fair market value.

The following table summarizes the Company's assets and liabilities that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3).

	Commodity Contracts
	Assets						Liabilities
(In millions)	2011			2010			2011		2010
Balance at January 1	$	13.3		$	49.0		$	—	$	14.7
Total gains or losses
Included in other comprehensive income	(5.4		)	(10.0		)	—		—
Settlements	(7.9		)	(25.7		)	—		(14.7		)
Balance at December 31	$	—		$	13.3		$	—	$	—

In the fourth quarter of 2011, OG&E recorded an asset retirement obligation for $13.0 million related to its Crossroads wind farm, which is measured at fair value on a nonrecurring basis and is considered level 3 in the fair value hierarchy. The inputs used in the valuation of the asset retirement obligation include the term of the Crossroads lease agreement, the average inflation rate, market risk premium and the credit-adjusted risk free interest rate. The term of the asset retirement obligation of 50 years was determined by the Crossroads lease agreement which states that OG&E will remove the wind turbines and related facilities at the time the lease expires. The inflation rate is calculated by using a 20-year average of the Consumer Price Index. The market risk premium is based on historical market returns relative to the U.S. Treasury rate. The credit-adjusted risk free interest rate is estimated from recent yields of OG&E's outstanding debt.

The following table summarizes the fair value and carrying amount of the Company's financial instruments, including derivative contracts related to the Company's PRM activities, at:

	2011				2010
December 31 (In millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Price Risk Management Assets
Energy Derivative Contracts	$	3.8	$	3.8	$	2.2	$	2.2
Price Risk Management Liabilities
Energy Derivative Contracts	$	0.5	$	0.5	$	16.8	$	16.8
Long-Term Debt
OG&E Senior Notes	$	1,903.8	$	2,383.8	$	1,655.0	$	1,831.5
OGE Energy Senior Notes	99.8		108.5		99.7		106.4
OG&E Industrial Authority Bonds	135.4		135.4		135.4		135.4
Enogex LLC Senior Notes	448.1		497.9		447.8		480.7
Enogex LLC Revolving Credit Agreement	150.0		150.0		25.0		25.0

The carrying value of the financial instruments on the Consolidated Balance Sheets not otherwise discussed above approximates fair value except for long-term debt which is valued at the carrying amount.The valuation of the Company's energy derivative contracts was determined generally based on quoted market prices.  However, in certain instances where market quotes are not available, other valuation techniques or models are used to estimate market values.  The valuation of instruments also considers the credit risk of the counterparties.The fair value ofthe Company'slong-term debt is based on quoted market prices and estimates of current rates available for similar issues with similar maturities.