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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 September 30, 2019
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: 1-12579
OGE ENERGY CORP.
(Exact name of registrant as specified in its charter)
Oklahoma
 
73-1481638
(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)

405-553-3000
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
OGE
New York Stock Exchange

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.   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).   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.
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).   Yes   No

At September 30, 2019, there were 200,176,215 shares of common stock, par value $0.01 per share, outstanding.
 



OGE ENERGY CORP.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2019

TABLE OF CONTENTS

 
Page
 
 
Part I - FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
Part II - OTHER INFORMATION
 
 
 
 
 
 
 
 
 
 
 


i


GLOSSARY OF TERMS

The following is a glossary of frequently used abbreviations that are found throughout this Form 10-Q.
Abbreviation
Definition
2018 Form 10-K
Annual Report on Form 10-K for the year ended December 31, 2018
2017 Tax Act
Tax Cuts and Jobs Act of 2017
AES
AES-Shady Point, Inc.
APSC
Arkansas Public Service Commission
ArcLight group
Bronco Midstream Holdings, LLC and Bronco Midstream Holdings II, LLC, collectively
ASC
FASB Accounting Standards Codification
ASU
FASB Accounting Standards Update
CenterPoint
CenterPoint Energy Resources Corp., wholly owned subsidiary of CenterPoint Energy, Inc.
CO2
Carbon dioxide
Company
OGE Energy Corp., collectively with its subsidiaries
CSAPR
Cross-State Air Pollution Rule
Dry Scrubber
Dry flue gas desulfurization unit with spray dryer absorber
Enable
Enable Midstream Partners, LP, a partnership between OGE Energy, the ArcLight group and CenterPoint Energy, Inc. formed to own and operate the midstream businesses of OGE Energy and CenterPoint
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 30, 2013, the name was changed to Enable Oklahoma Intrastate Transmission, LLC)
EPA
U.S. Environmental Protection Agency
FASB
Financial Accounting Standards Board
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.
MATS
Mercury and Air Toxics Standards
MBbl/d
Thousand barrels per day
MW
Megawatt
MWh
Megawatt-hour
NAAQS
National Ambient Air Quality Standards
NGLs
Natural gas liquids
NOX
Nitrogen oxide
OCC
Oklahoma Corporation Commission
OG&E
Oklahoma Gas and Electric Company, wholly owned subsidiary of OGE Energy
OGE Energy
Holding company
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
QF
Qualified cogeneration facility
Regional Haze Rule
The EPA's Regional Haze Rule
Restoration of Retirement Income Plan
Supplemental retirement plan to the Pension Plan
SIP
State Implementation Plan
SO2
Sulfur dioxide
SPP
Southwest Power Pool
System sales
Sales to OG&E's customers
TBtu/d
Trillion British thermal units per day
U.S.
United States of America

ii


FORWARD-LOOKING STATEMENTS

Except for the historical statements contained herein, the matters discussed in this Form 10-Q, including those matters discussed within "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations," are forward-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" and similar expressions. Actual results may vary materially from those expressed in forward-looking statements. In addition to the specific risk factors discussed within "Item 1A. Risk Factors" in the Company's 2018 Form 10-K and "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" herein, factors that could cause actual results to differ materially from the forward-looking statements include, 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 of the Company and its 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, natural gas and NGLs;
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;
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 pipelines, including the impact of natural gas and NGLs prices on the level of drilling and production activities in the regions Enable serves;
business conditions in the energy 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 by the Company;
the impact on demand for our services resulting from cost-competitive advances in technology, such as distributed electricity generation and customer energy efficiency programs;
technological developments, changing markets and other factors that result in competitive disadvantages and create the potential for impairment of existing 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 enters the Company's markets;
environmental laws, safety laws or other regulations that may impact the cost of operations or restrict or change the way the Company operates 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, 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;
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 the Company's equity investment in Enable that the Company does not control; and
other risk factors listed in the reports filed by the Company with the Securities and Exchange Commission, including those listed within "Item 1A. Risk Factors" in the Company's 2018 Form 10-K.

The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

1


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

OGE ENERGY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
Three Months Ended September 30,
Nine Months Ended September 30,
(In millions, except per share data)
2019
2018
2019
2018
OPERATING REVENUES
 
 
 
 
Revenues from contracts with customers
$
739.2

$
684.5

$
1,717.7

$
1,710.1

Other revenues
16.2

14.3

41.4

48.4

Operating revenues
755.4

698.8

1,759.1

1,758.5

COST OF SALES
234.0

244.4

625.3

663.6

OPERATING EXPENSES
 
 


Other operation and maintenance
129.8

123.3

368.6

353.2

Depreciation and amortization
94.1

81.1

260.8

240.8

Taxes other than income
23.2

22.7

70.4

69.3

Operating expenses
247.1

227.1

699.8

663.3

OPERATING INCOME
274.3

227.3

434.0

431.6

OTHER INCOME (EXPENSE)
 
 


Equity in earnings of unconsolidated affiliates
38.3

40.1

104.8

103.3

Allowance for equity funds used during construction
1.0

6.7

3.7

20.0

Other net periodic benefit expense
(1.4
)
(0.7
)
(8.7
)
(10.7
)
Other income
4.6

4.1

16.3

14.2

Other expense
(5.5
)
(3.4
)
(15.6
)
(11.1
)
Net other income
37.0

46.8

100.5

115.7

INTEREST EXPENSE
 
 


Interest on long-term debt
37.5

40.2

101.9

119.5

Allowance for borrowed funds used during construction
(0.6
)
(3.3
)
(2.2
)
(9.8
)
Interest on short-term debt and other interest charges
2.7

1.8

10.4

8.5

Interest expense
39.6

38.7

110.1

118.2

INCOME BEFORE TAXES
271.7

235.4

424.4

429.1

INCOME TAX EXPENSE
20.8

30.3

26.2

58.3

NET INCOME
$
250.9

$
205.1

$
398.2

$
370.8

BASIC AVERAGE COMMON SHARES OUTSTANDING
200.2

199.7

200.1

199.7

DILUTED AVERAGE COMMON SHARES OUTSTANDING
200.8

200.6

200.6

200.4

BASIC EARNINGS PER AVERAGE COMMON SHARE
$
1.25

$
1.03

$
1.99

$
1.86

DILUTED EARNINGS PER AVERAGE COMMON SHARE
$
1.25

$
1.02

$
1.98

$
1.85












The accompanying Notes to Condensed Consolidated Financial Statements are an integral part hereof.

2


OGE ENERGY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
Three Months Ended September 30,
Nine Months Ended September 30,
(In millions)
2019
2018
2019
2018
Net income
$
250.9

$
205.1

$
398.2

$
370.8

Other comprehensive income, net of tax:
 
 
 
 
Pension Plan and Restoration of Retirement Income Plan:
 
 
 
 
Amortization of deferred net loss, net of tax of $0.3, $0.3, $0.8 and $0.8, respectively
0.9

0.8

2.6

2.5

Settlement cost, net of tax of $0.3, $1.1, $2.6 and $1.1, respectively
0.8

3.1

7.9

3.1

Postretirement Benefit Plans:
 
 
 
 
Amortization of prior service credit, net of tax of ($0.2), ($0.1), ($0.4) and ($0.4), respectively
(0.4
)
(0.5
)
(1.3
)
(1.3
)
Amortization of deferred net gain, net of tax of $0.0, $0.0, $0.0 and $0.0, respectively


(0.1
)

Other comprehensive loss from unconsolidated affiliates, net of tax of ($0.2), $0.0, ($0.2) and $0.0, respectively
(0.6
)

(0.6
)

Other comprehensive income, net of tax
0.7

3.4

8.5

4.3

Comprehensive income
$
251.6

$
208.5

$
406.7

$
375.1






























The accompanying Notes to Condensed Consolidated Financial Statements are an integral part hereof.

3



OGE ENERGY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

Nine Months Ended September 30,
(In millions)
2019
2018
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
Net income
$
398.2

$
370.8

Adjustments to reconcile net income to net cash provided from operating activities:


Depreciation and amortization
260.8

240.8

Deferred income taxes and investment tax credits, net
25.2

63.7

Equity in earnings of unconsolidated affiliates
(104.8
)
(103.3
)
Distributions from unconsolidated affiliates
107.3

103.3

Allowance for equity funds used during construction
(3.7
)
(20.0
)
Stock-based compensation expense
10.8

9.7

Regulatory assets
(48.1
)
(4.8
)
Regulatory liabilities
(32.1
)
(3.7
)
Other assets
(4.3
)
2.1

Other liabilities
5.1

(1.4
)
Change in certain current assets and liabilities:
 
 
Accounts receivable and accrued unbilled revenues, net
(76.4
)
(56.4
)
Fuel, materials and supplies inventories
8.0

14.9

Fuel recoveries
(44.8
)
37.5

Other current assets
3.4

19.3

Accounts payable
(69.1
)
(34.1
)
Other current liabilities
(17.5
)
73.3

Net cash provided from operating activities
418.0

711.7

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
Capital expenditures (less allowance for equity funds used during construction)
(476.5
)
(413.8
)
Investment in unconsolidated affiliates
(5.9
)
(1.9
)
Return of capital - unconsolidated affiliates

2.6

Net cash used in investing activities
(482.4
)
(413.1
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
Proceeds from long-term debt
296.4

396.0

Increase (decrease) in short-term debt
168.8

(168.4
)
Payment of long-term debt
(250.0
)
(250.0
)
Dividends paid on common stock
(221.7
)
(199.4
)
Cash paid for employee equity-based compensation and expense of common stock
(10.2
)
(0.5
)
Net cash provided from (used in) financing activities
(16.7
)
(222.3
)
NET CHANGE IN CASH AND CASH EQUIVALENTS
(81.1
)
76.3

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
94.3

14.4

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
13.2

$
90.7









The accompanying Notes to Condensed Consolidated Financial Statements are an integral part hereof.

4


OGE ENERGY CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

September 30,
December 31,
(In millions)
2019
2018
ASSETS
 
 
CURRENT ASSETS
 
 
Cash and cash equivalents
$
13.2

$
94.3

Accounts receivable, less reserve of $1.7 and $1.7, respectively
226.6

174.7

Accrued unbilled revenues
87.6

62.6

Income taxes receivable
12.6

9.9

Fuel inventories
43.6

57.6

Materials and supplies, at average cost
93.5

126.7

Fuel clause under recoveries
48.7

2.0

Other
23.3

29.5

Total current assets
549.1

557.3

OTHER PROPERTY AND INVESTMENTS




Investment in unconsolidated affiliates
1,175.9

1,177.5

Other
83.2

73.4

Total other property and investments
1,259.1

1,250.9

PROPERTY, PLANT AND EQUIPMENT
 
 
In service
12,662.1

11,994.8

Construction work in progress
125.2

376.4

Total property, plant and equipment
12,787.3

12,371.2

Less: accumulated depreciation
3,826.1

3,727.4

Net property, plant and equipment
8,961.2

8,643.8

DEFERRED CHARGES AND OTHER ASSETS
 
 
Regulatory assets
304.7

285.8

Other
9.6

10.8

Total deferred charges and other assets
314.3

296.6

TOTAL ASSETS
$
11,083.7

$
10,748.6





















The accompanying Notes to Condensed Consolidated Financial Statements are an integral part hereof.

5


OGE ENERGY CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)

September 30,
December 31,
(In millions)
2019
2018
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
CURRENT LIABILITIES
 
 
Short-term debt
$
168.8

$

Accounts payable
159.0

239.3

Dividends payable
77.6

72.9

Customer deposits
82.7

83.6

Accrued taxes
60.7

44.0

Accrued interest
35.7

44.5

Accrued compensation
33.9

47.8

Long-term debt due within one year

250.0

Fuel clause over recoveries
2.2

0.3

Other
76.0

87.0

Total current liabilities
696.6

869.4

LONG-TERM DEBT
3,194.7

2,896.9

DEFERRED CREDITS AND OTHER LIABILITIES
 
 
Accrued benefit obligations
205.6

225.7

Deferred income taxes
1,362.1

1,310.9

Deferred investment tax credits
7.1

7.2

Regulatory liabilities
1,233.3

1,270.7

Other
198.1

162.7

Total deferred credits and other liabilities
3,006.2

2,977.2

Total liabilities
6,897.5

6,743.5

COMMITMENTS AND CONTINGENCIES (NOTE 14)


STOCKHOLDERS' EQUITY
 
 
Common stockholders' equity
1,128.3

1,127.7

Retained earnings
3,078.3

2,906.3

Accumulated other comprehensive loss, net of tax
(20.4
)
(28.9
)
Total stockholders' equity
4,186.2

4,005.1

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
11,083.7

$
10,748.6



















The accompanying Notes to Condensed Consolidated Financial Statements are an integral part hereof.

6


OGE ENERGY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)



(In millions)
Shares Outstanding
Common Stock
Premium on Common Stock
Retained Earnings
Accumulated Other Comprehensive (Loss) Income
Total
Balance at December 31, 2018
199.7

$
2.0

$
1,125.7

$
2,906.3

$
(28.9
)
$
4,005.1

Net income



47.1


47.1

Other comprehensive income, net of tax




6.8

6.8

Dividends declared on common stock ($0.3650 per share)



(75.6
)

(75.6
)
Stock-based compensation
0.5


(7.2
)


(7.2
)
Balance at March 31, 2019
200.2

$
2.0

$
1,118.5

$
2,877.8

$
(22.1
)
$
3,976.2

Net income



100.2


100.2

Other comprehensive income, net of tax




1.0

1.0

Dividends declared on common stock ($0.3650 per share)



(73.1
)

(73.1
)
Stock-based compensation


2.9



2.9

Balance at June 30, 2019
200.2
$
2.0

$
1,121.4

$
2,904.9

$
(21.1
)
$
4,007.2

Net income



250.9


250.9

Other comprehensive income, net of tax




0.7

0.7

Dividends declared on common stock ($0.3875 per share)



(77.5
)

(77.5
)
Stock-based compensation


4.9



4.9

Balance at September 30, 2019
200.2
$
2.0

$
1,126.3

$
3,078.3

$
(20.4
)
$
4,186.2

 
 
 
 
 
 
 
Balance at December 31, 2017
199.7

$
2.0

$
1,112.8

$
2,759.5

$
(23.2
)
$
3,851.1

Net income



55.0


55.0

Other comprehensive income, net of tax




0.2

0.2

Dividends declared on common stock ($0.3325 per share)



(66.5
)

(66.5
)
Stock-based compensation


2.3



2.3

Balance at March 31, 2018
199.7

$
2.0

$
1,115.1

$
2,748.0

$
(23.0
)
$
3,842.1

Net income



110.7


110.7

Other comprehensive income, net of tax




0.7

0.7

Dividends declared on common stock ($0.3325 per share)



(66.4
)

(66.4
)
Stock-based compensation


3.0



3.0

Balance at June 30, 2018
199.7
$
2.0

$
1,118.1

$
2,792.3

$
(22.3
)
$
3,890.1

Net income



205.1


205.1

Other comprehensive income, net of tax




3.4

3.4

Dividends declared on common stock ($0.3650 per share)



(72.9
)

(72.9
)
Stock-based compensation


3.9



3.9

Balance at September 30, 2018
199.7
$
2.0

$
1,122.0

$
2,924.5

$
(18.9
)
$
4,029.6







The accompanying Notes to Condensed Consolidated Financial Statements are an integral part hereof.

7



OGE ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.
Summary of Significant Accounting Policies

The Company's significant accounting policies are detailed in "Note 1. Summary of Significant Accounting Policies" in the Company's 2018 Form 10-K. Changes to the Company's accounting policies as a result of adopting ASU 2016-02, "Leases (Topic 842)," and the related ASU 2018-01 and ASU 2018-11 are discussed in Notes 2 and 4 in this Form 10-Q.

Organization

The Company 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. The Company conducts these activities through two business segments: (i) electric utility and (ii) natural gas midstream operations. The accounts of the Company and its wholly owned subsidiaries are included in the Condensed Consolidated Financial Statements. All intercompany transactions and balances are eliminated in consolidation. The Company 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.

The electric utility segment generates, transmits, distributes and sells electric energy in Oklahoma and western Arkansas. Its operations are conducted through OG&E and 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 and is a wholly owned subsidiary of the Company. 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.

The natural gas midstream operations segment represents the Company's investment in Enable through wholly owned subsidiaries and ultimately OGE Holdings. Enable was formed in 2013, and its general partner is equally controlled by the Company and CenterPoint, who each have 50 percent management ownership. Based on the 50/50 management ownership, with neither company having control, the Company accounts for its interest in Enable using the equity method of accounting. 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.

Basis of Presentation

The Condensed Consolidated Financial Statements included herein have been prepared by the Company, 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, the Company believes 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 consolidated financial position of the Company at September 30, 2019 and December 31, 2018, the consolidated results of its operations for the three and nine months ended September 30, 2019 and 2018 and its consolidated cash flows for the nine months ended September 30, 2019 and 2018 have been included and are of a normal, recurring nature except as otherwise disclosed. Management also has evaluated the impact of events occurring after September 30, 2019 up to the date of issuance of these Condensed Consolidated Financial Statements, and these statements contain all necessary adjustments and disclosures resulting from that evaluation.

Due to seasonal fluctuations and other factors, the Company's operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019 or for any future period. The Condensed Consolidated Financial Statements and Notes thereto should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto included in the Company's 2018 Form 10-K.


8



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 is a summary of OG&E's regulatory assets and liabilities.
 
September 30,
December 31,
(In millions)
2019
2018
REGULATORY ASSETS
 
 
Current:
 
 
Fuel clause under recoveries
$
48.7

$
2.0

Production tax credit rider over credit (A)
4.6

6.9

Oklahoma demand program rider under recovery (A)

6.4

Other (A)
4.4

3.2

Total current regulatory assets
$
57.7

$
18.5

Non-current:
 

 

Benefit obligations regulatory asset
$
168.0

$
188.2

Deferred storm expenses
64.5

36.5

Sooner Dry Scrubbers
20.8

4.5

Smart Grid
20.2

25.6

Unamortized loss on reacquired debt
10.8

11.4

Arkansas deferred pension expenses
7.8

6.8

Other
12.6

12.8

Total non-current regulatory assets
$
304.7

$
285.8

REGULATORY LIABILITIES
 

 

Current:
 

 

Reserve for tax refund and interim surcharge (B)
$
21.2

$
15.4

SPP cost tracker over recovery (B)
7.3

16.8

Oklahoma demand program rider over recovery (B)
4.8


Fuel clause over recoveries
2.2

0.3

Transmission cost recovery rider over recovery (B)
0.7

2.7

Other (B)
3.4

1.4

Total current regulatory liabilities
$
39.6

$
36.6

Non-current:
 

 

Income taxes refundable to customers, net
$
912.3

$
937.1

Accrued removal obligations, net
313.9

308.1

Pension tracker
1.0

18.7

Other
6.1

6.8

Total non-current regulatory liabilities
$
1,233.3

$
1,270.7

(A)
Included in Other Current Assets in the Condensed Consolidated Balance Sheets.
(B)
Included in Other Current Liabilities in the Condensed Consolidated Balance Sheets.    

9



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.
Investment in Unconsolidated Affiliates

The Company's investment in Enable is considered to 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 expected residual returns. However, the Company 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, the Company 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 the Company's share of the investee's comprehensive income as adjusted for basis differences. The Company's maximum exposure to loss related to Enable is limited to the Company's equity investment in Enable at September 30, 2019 as presented in Note 13. The Company evaluates its equity method investments for impairment when events or changes in circumstances indicate there is a loss in value of the investment that is other than a temporary decline.

The Company considers distributions received from Enable, which do not exceed cumulative equity in earnings subsequent to the date of investment, to be a return on investment and are classified as operating activities in the Condensed Consolidated Statements of Cash Flows. The Company 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 Consolidated Statements of Cash Flows.

Accumulated Other Comprehensive Income (Loss)
The following tables summarize changes in the components of accumulated other comprehensive income (loss) attributable to the Company during the nine months ended September 30, 2019 and 2018. All amounts below are presented net of tax.
 
Pension Plan and Restoration of Retirement Income Plan
 
Postretirement Benefit Plans
 
 
 
(In millions)
Net Gain
 (Loss)
Prior Service Cost (Credit)
 
Net Gain
 (Loss)
Prior Service Cost (Credit)
 
Other Comprehensive Loss from Unconsolidated Affiliates
Total
Balance at December 31, 2018
$
(38.8
)
$

 
$
4.6

$
5.3

 
$

$
(28.9
)
Other comprehensive income (loss) before reclassifications


 


 
(0.6
)
(0.6
)
Amounts reclassified from accumulated other comprehensive income (loss)
2.6


 
(0.1
)
(1.3
)
 

1.2

Settlement cost
7.9


 


 

7.9

Balance at September 30, 2019
$
(28.3
)
$

 
$
4.5

$
4.0

 
$
(0.6
)
$
(20.4
)


10



 
Pension Plan and Restoration of Retirement Income Plan
 
Postretirement Benefit Plans
 
(In millions)
Net Gain
 (Loss)
Prior Service Cost (Credit)
 
Net Gain
 (Loss)
Prior Service Cost (Credit)
Total
Balance at December 31, 2017
$
(32.7
)
$

 
$
2.5

$
7.0

$
(23.2
)
Amounts reclassified from accumulated other comprehensive income (loss)
2.5


 

(1.3
)
1.2

Settlement cost
3.1


 


3.1

Balance at September 30, 2018
$
(27.1
)
$


$
2.5

$
5.7

$
(18.9
)


The following table summarizes significant amounts reclassified out of accumulated other comprehensive income (loss) by the respective line items in net income during the three and nine months ended September 30, 2019 and 2018.
Details about Accumulated Other Comprehensive Income (Loss) Components
Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
Affected Line Item in the Condensed Consolidated Statements of Income
 
Three Months Ended
Nine Months Ended
 
 
September 30,
September 30,
 
(In millions)
2019
2018
2019
2018
 
Amortization of Pension Plan and Restoration of Retirement Income Plan items:
 
 
 
 
 
Actuarial losses
$
(1.2
)
$
(1.1
)
$
(3.4
)
$
(3.3
)
(A)
Settlement cost
(1.1
)
(4.2
)
(10.5
)
(4.2
)
(A)
 
(2.3
)
(5.3
)
(13.9
)
(7.5
)
Income Before Taxes
 
(0.6
)
(1.4
)
(3.4
)
(1.9
)
Income Tax Expense
 
$
(1.7
)
$
(3.9
)
$
(10.5
)
$
(5.6
)
Net Income
 
 
 
 
 
 
Amortization of postretirement benefit plans items:
 
 
 
 
 
Prior service credit
$
0.6

$
0.6

$
1.7

$
1.7

(A)
Actuarial gains


0.1


(A)
 
0.6

0.6

1.8

1.7

Income Before Taxes
 
0.2

0.1

0.4

0.4

Income Tax Expense
 
$
0.4

$
0.5

$
1.4

$
1.3

Net Income
 
 
 
 
 
 
Total reclassifications for the period, net of tax
$
(1.3
)
$
(3.4
)
$
(9.1
)
$
(4.3
)
Net Income
(A)
These accumulated other comprehensive income (loss) components are included in the computation of net periodic benefit cost (see Note 12 for additional information).

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.


11



2.
Accounting Pronouncements

Recently Adopted Accounting Standards

Leases. In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)." The main difference between prior lease accounting and Topic 842 is the recognition of right-of-use assets and lease liabilities by lessees for those leases classified as operating leases under current accounting guidance. Lessees, such as the Company, recognize a right-of-use asset and a lease liability for virtually all of their leases, other than leases that meet the definition of a short-term lease. The liability is equal to the present value of lease payments. The asset is based on the liability, subject to adjustment for items such as initial direct costs. For income statement purposes, Topic 842 retains a dual model, requiring leases to be classified as either operating or finance. Operating leases result in straight-line expense, while finance leases result in a front-loaded expense pattern, similar to prior capital leases. Classification of operating and finance leases is based on criteria that are largely similar to those applied in prior lease guidance but without the explicit thresholds. The Company adopted this standard in the first quarter of 2019 utilizing the modified retrospective transition method.

Various practical expedients for the application of Topic 842 were approved, and the Company elected to apply the below:

a package of practical expedients allowing entities to not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases;
an option that permits an entity to elect a transitional practical expedient, to be applied consistently, to not evaluate under Topic 842 land easements that exist or expired before the entity's adoption of Topic 842 and that were not previously accounted for as leases under ASC 840, "Leases"; and
an option that permits an entity to elect to initially apply ASU 2016-02 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, provided that if an entity elects this additional (and optional) transition method, the entity will provide the required Topic 840 disclosures for all periods that continue to be reported under Topic 840.

The Company evaluated its current lease contracts and, at January 1, 2019, recognized $34.5 million and $39.1 million of operating lease right-of-use assets and liabilities, respectively, for railcar, wind farm land and office space leases in the Condensed Consolidated Balance Sheet. The new standard did not have a material impact on the Company's 2019 periods within the Condensed Consolidated Statements of Income. Further, the Company evaluated its existing processes and controls regarding lease identification, accounting and presentation and implemented changes as necessary in order to adequately address the requirements of Topic 842. Additional information regarding the Company's adoption of Topic 842 can be found in the Company's 2018 Form 10-K.

Issued Accounting Standards Not Yet Adopted

Financial Instruments-Credit Losses. In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Information." The amendments in this update require 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. ASU 2016-13 also amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 is effective for fiscal years beginning after December 2019 and will be applied utilizing a modified-retrospective approach. Early adoption is permitted. The Company continues to evaluate the impact of this ASU and does not believe it will have a material effect on its Condensed Consolidated Financial Statements.

Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." The new guidance aligns the 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. ASU 2018-15 is effective for fiscal years beginning after December 2019 and can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Early adoption is permitted. The Company continues to evaluate the impact of this ASU on its Condensed Consolidated Financial Statements.


12



3.
Revenue Recognition

The following table disaggregates the Company's revenues from contracts with customers by customer classification. The Company's operating revenues disaggregated by customer classification can be found in "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 September 30,
 
Nine Months Ended September 30,
(In millions)
2019
2018
 
2019
2018
Residential
$
318.9

$
281.0

 
$
692.4

$
694.6

Commercial
172.9

150.8

 
383.7

386.6

Industrial
66.8

67.2

 
172.0

174.6

Oilfield
58.6