Edgar Filing: OGE ENERGY CORP.

Q1 2013 OGE 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013

o 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)

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. þ Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). þ Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer þ	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

At March 31, 2013, there were 99,116,609 shares of common stock, par value $0.01 per share, outstanding.

OGE ENERGY CORP.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2013

TABLE OF CONTENTS



	Page
GLOSSARY OF TERMS	ii
FORWARD-LOOKING STATEMENTS	1

Part I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income	2
Condensed Consolidated Statements of Comprehensive Income	3
Condensed Consolidated Statements of Cash Flows	4
Condensed Consolidated Balance Sheets	5
Condensed Consolidated Statements of Changes in Stockholders' Equity	7
Notes to Condensed Consolidated Financial Statements	8

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3. Quantitative and Qualitative Disclosures About Market Risk	43

Item 4. Controls and Procedures	44

Part II - OTHER INFORMATION
Item 1. Legal Proceedings	44

Item 1A. Risk Factors	44

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	45

Item 6. Exhibits	45

Signature	46

GLOSSARY OF TERMS

The following is a glossary of frequently used abbreviations that are found throughout this Form 10-Q.



Abbreviation	Definition
2012 Form 10-K	Annual Report on Form 10-K for the year ended December 31, 2012
APSC	Arkansas Public Service Commission
ArcLight group	Bronco Midstream Holdings, LLC, Bronco Midstream Holdings II, LLC, collectively
Atoka	Atoka Midstream LLC joint venture
BART	Best available retrofit technology
CenterPoint	CenterPoint Energy Resources Corp., wholly-owned subsidiary of CenterPoint Energy Inc.
Company	OGE Energy, collectively with its subsidiaries
DOJ	U.S. Department of Justice
Dry Scrubbers	Dry flue gas desulfurization units with spray dryer absorber
EBITDA	Enogex Holdings earnings before interest, taxes, depreciation and amortization
EER	Enogex Energy Resources LLC, wholly-owned subsidiary of Enogex LLC (prior to June 30, 2012, the legal name was OGE Energy Resources LLC)
Enogex	OGE Holdings, collectively with its subsidiaries
Enogex Holdings	Enogex Holdings LLC, the parent company of Enogex LLC and a majority-owned subsidiary of OGE Holdings
Enogex LLC	Enogex LLC, collectively with its subsidiaries
EPA	U.S. Environmental Protection Agency
FERC	Federal Energy Regulatory Commission
FIP	Federal implementation plan
GAAP	Accounting principles generally accepted in the United States
Midstream Partnership	Partnership between OGE Energy, the ArcLight group and CenterPoint Energy, Inc. formed to own and operate the midstream businesses of OGE Energy and CenterPoint
MMBtu	Million British thermal unit
NGLs	Natural gas liquids
NOX	Nitrogen oxide
NYMEX	New York Mercantile Exchange
OCC	Oklahoma Corporation Commission
Off-system sales	Sales to other utilities and power marketers
OG&E	Oklahoma Gas and Electric Company, wholly-owned subsidiary of OGE Energy
OGE Holdings	OGE Enogex Holdings, LLC, wholly-owned subsidiary of OGE Energy and parent company of Enogex Holdings
Pension Plan	Qualified defined benefit retirement plan
PRM	Price risk management
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

FORWARD-LOOKING STATEMENTS

Except for the historical statements contained herein, the matters discussed in this Form 10-Q, including those matters discussed in "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 in "Item 1A. Risk Factors" in the Company's 2012 Form 10-K and "Item 1A. Risk Factors" 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;


•	prices and availability of electricity, coal, natural gas and NGLs, each on a stand-alone basis and in relation to each other as well as the processing contract mix between percent-of-liquids, percent-of-proceeds, keep-whole and fixed-fee;


•	business conditions in the energy and natural gas midstream industries;


•	competitive factors including the extent and timing of the entry of additional competition in the markets served by the Company;


•	unusual weather;


•	availability and prices of raw materials for current and future construction projects;


•	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 and regulations that may impact the Company's operations;


•	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 cyber attacks and other catastrophic events;


•	advances in technology;


•	creditworthiness of suppliers, customers and other contractual parties;


•	the higher degree of risk associated with the Company's nonregulated business compared with the Company's regulated utility business;


•	the risk that the Midstream Partnership may not be able to successfully integrate the operations of Enogex and CenterPoint; and


•	other risk factors listed in the reports filed by the Company with the Securities and Exchange Commission including those listed in "Item 1A. Risk Factors" and in Exhibit 99.01 to the Company's 2012 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.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

OGE ENERGY CORP.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)



	Three Months Ended
	March 31,
(In millions except per share data)	2013			2012
OPERATING REVENUES
Electric Utility operating revenues	$	455.5		$	426.7
Natural Gas Midstream Operations operating revenues	445.9			414.0
Total operating revenues	901.4			840.7
COST OF GOODS SOLD (exclusive of depreciation and amortization shown below)
Electric Utility cost of goods sold	199.4			183.6
Natural Gas Midstream Operations cost of goods sold	353.6			301.7
Total cost of goods sold	553.0			485.3
Gross margin on revenues	348.4			355.4
OPERATING EXPENSES
Other operation and maintenance	148.0			147.6
Depreciation and amortization	91.9			86.6
Impairment of assets	—			0.2
Gain on insurance proceeds	—			(7.5		)
Taxes other than income	33.1			30.2
Total operating expenses	273.0			257.1
OPERATING INCOME	75.4			98.3
OTHER INCOME (EXPENSE)
Interest income	0.1			—
Allowance for equity funds used during construction	1.2			1.9
Other income	14.6			7.7
Other expense	(6.5		)	(1.9		)
Net other income	9.4			7.7
INTEREST EXPENSE
Interest on long-term debt	39.7			39.2
Allowance for borrowed funds used during construction	(0.7		)	(1.1		)
Interest on short-term debt and other interest charges	2.2			2.0
Interest expense	41.2			40.1
INCOME BEFORE TAXES	43.6			65.9
INCOME TAX EXPENSE	15.6			18.4
NET INCOME	28.0			47.5
Less: Net income attributable to noncontrolling interests	4.9			10.4
NET INCOME ATTRIBUTABLE TO OGE ENERGY	$	23.1		$	37.1
BASIC AVERAGE COMMON SHARES OUTSTANDING	98.9			98.3
DILUTED AVERAGE COMMON SHARES OUTSTANDING	99.4			98.8
BASIC EARNINGS PER AVERAGE COMMON SHARE ATTRIBUTABLE TO OGE ENERGY COMMON SHAREHOLDERS	$	0.23		$	0.38
DILUTED EARNINGS PER AVERAGE COMMON SHARES ATTRIBUTABLE TO OGE ENERGY COMMON SHAREHOLDERS	$	0.23		$	0.38
DIVIDENDS DECLARED PER COMMON SHARE	$	0.4175		$	0.3925

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

OGE ENERGY CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



	Three Months Ended
	March 31,
(In millions)	2013			2012
Net income	$	28.0		$	47.5
Other comprehensive income (loss), net of tax
Pension Plan and Restoration of Retirement Income Plan:
Amortization of deferred net loss, net of tax of $0.4 and $0.4, respectively	0.9			0.8
Postretirement Benefit Plans:
Amortization of deferred net loss, net of tax of $0.3 and $0.3, respectively	0.5			0.5
Amortization of prior service cost, net of tax of ($0.3) and ($0.3), respectively	(0.5		)	(0.5		)
Deferred commodity contracts hedging gains reclassified in net income, net of tax of ($0.1) and ($1.7), respectively	(0.1		)	(3.3		)
Amortization of deferred interest rate swap hedging losses, net of tax of $0.1 and $0.1, respectively	0.1			0.1
Other comprehensive income (loss), net of tax	0.9			(2.4		)
Comprehensive income (loss)	28.9			45.1
Less: Comprehensive income attributable to noncontrolling interests	5.0			9.5
Total comprehensive income attributable to OGE Energy	$	23.9		$	35.6

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

OGE ENERGY CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Three Months Ended
	March 31,
(In millions)	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	28.0		$	47.5
Adjustments to reconcile net income to net cash provided from operating activities
Depreciation and amortization	92.9			87.6
Impairment of assets	—			0.2
Deferred income taxes and investment tax credits, net	15.4			18.4
Allowance for equity funds used during construction	(1.2		)	(1.9		)
(Gain) loss on disposition and abandonment of assets	(8.7		)	0.5
Gain on insurance proceeds	—			(7.5		)
Stock-based compensation	(8.3		)	(11.8		)
Price risk management assets	0.1			(0.5		)
Price risk management liabilities	0.1			(4.9		)
Regulatory assets	5.5			5.6
Regulatory liabilities	(4.1		)	(3.4		)
Other assets	(0.1		)	1.4
Other liabilities	6.3			5.2
Change in certain current assets and liabilities
Accounts receivable, net	8.4			54.8
Accrued unbilled revenues	7.8			6.0
Fuel, materials and supplies inventories	(7.7		)	3.3
Gas imbalance assets	(3.7		)	(4.0		)
Fuel clause under recoveries	(0.4		)	1.8
Other current assets	(4.1		)	(6.3		)
Accounts payable	16.5			(59.2		)
Gas imbalance liabilities	0.7			(1.5		)
Fuel clause over recoveries	(27.6		)	31.5
Other current liabilities	(56.6		)	(42.5		)
Net Cash Provided from Operating Activities	59.2			120.3
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (less allowance for equity funds used during construction)	(325.1		)	(311.1		)
Proceeds from insurance	—			6.1
Reimbursement of capital expenditures	—			9.7
Proceeds from sale of assets	35.6			0.2
Net Cash Used in Investing Activities	(289.5		)	(295.1		)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term debt	276.1			212.2
Issuance of common stock	3.2			3.7
Distributions to noncontrolling interest partners	(2.5		)	(5.6		)
Dividends paid on common stock	(41.2		)	(38.5		)
Net Cash Provided from Financing Activities	235.6			171.8
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	5.3			(3.0		)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	1.8			4.6
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	7.1		$	1.6

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

OGE ENERGY CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS



(In millions)	March 31, 2013 (Unaudited)		December 31, 2012
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	7.1	$	1.8
Accounts receivable, less reserve of $1.7 and $2.6, respectively	286.9		295.3
Accrued unbilled revenues	49.6		57.4
Income taxes receivable	7.2		7.2
Fuel inventories	99.7		93.3
Materials and supplies, at average cost	82.2		80.9
Price risk management	0.4		0.5
Gas imbalances	12.7		9.0
Deferred income taxes	40.6		187.7
Fuel clause under recoveries	0.4		—
Assets held for sale	—		25.5
Other	39.7		35.6
Total current assets	626.5		794.2
OTHER PROPERTY AND INVESTMENTS, at cost	55.9		52.2
PROPERTY, PLANT AND EQUIPMENT
In service	11,656.8		11,504.4
Construction work in progress	543.6		387.5
Total property, plant and equipment	12,200.4		11,891.9
Less accumulated depreciation	3,620.0		3,547.1
Net property, plant and equipment	8,580.4		8,344.8
DEFERRED CHARGES AND OTHER ASSETS
Regulatory assets	502.6		510.6
Intangible assets, net	126.0		127.4
Goodwill	39.4		39.4
Other	51.0		53.6
Total deferred charges and other assets	719.0		731.0
TOTAL ASSETS	$	9,981.8	$	9,922.2

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

OGE ENERGY CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)



(In millions)	March 31, 2013 (Unaudited)			December 31, 2012
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt	$	707.0		$	430.9
Accounts payable	409.5			396.7
Dividends payable	41.4			41.2
Customer deposits	71.3			70.3
Accrued taxes	28.8			48.1
Accrued interest	35.7			55.0
Accrued compensation	37.1			55.2
Price risk management	0.4			0.3
Gas imbalances	5.7			5.0
Fuel clause over recoveries	81.6			109.2
Other	63.7			64.5
Total current liabilities	1,482.2			1,276.4
LONG-TERM DEBT	2,848.7			2,848.6
DEFERRED CREDITS AND OTHER LIABILITIES
Accrued benefit obligations	399.9			399.8
Deferred income taxes	1,817.7			1,948.8
Deferred investment tax credits	3.4			3.9
Regulatory liabilities	245.5			245.1
Deferred revenues	38.5			37.7
Other	93.6			89.5
Total deferred credits and other liabilities	2,598.6			2,724.8
Total liabilities	6,929.5			6,849.8
COMMITMENTS AND CONTINGENCIES (NOTE 14)
STOCKHOLDERS' EQUITY
Common stockholders' equity	1,039.7			1,047.4
Retained earnings	1,754.1			1,772.4
Accumulated other comprehensive loss, net of tax	(48.3		)	(49.1		)
Treasury stock, at cost	—			(3.5		)
Total OGE Energy stockholders' equity	2,745.5			2,767.2
Noncontrolling interests	306.8			305.2
Total stockholders' equity	3,052.3			3,072.4
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	9,981.8		$	9,922.2

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

OGE ENERGY CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)



(In millions)	Common Stock		Premium on Common Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interest			Treasury Stock			Total
Balance at December 31, 2012	$	1.0	$	1,046.4		$	1,772.4		$	(49.1	)	$	305.2		$	(3.5	)	$	3,072.4
Net income	—		—			23.1			—			4.9			—			28.0
Other comprehensive income (loss), net of tax	—		—			—			0.8			0.1			—			0.9
Dividends declared on common stock	—		—			(41.4		)	—			—			—			(41.4		)
Issuance of common stock	—		3.2			—			—			—			—			3.2
Stock-based compensation and other	—		(10.9		)	—			—			(0.9		)	3.5			(8.3		)
Distributions to noncontrolling interest partners	—		—			—			—			(2.5		)	—			(2.5		)
Balance at March 31, 2013	$	1.0	$	1,038.7		$	1,754.1		$	(48.3	)	$	306.8		$	—		$	3,052.3

Balance at December 31, 2011	$	1.0	$	1,034.3		$	1,574.8		$	(40.6	)	$	256.0		$	(6.2	)	$	2,819.3
Net income	—		—			37.1			—			10.4			—			47.5
Other comprehensive income (loss), net of tax	—		—			—			(1.5		)	(0.9		)	—			(2.4		)
Dividends declared on common stock	—		—			(38.7		)	—			—			—			(38.7		)
Issuance of common stock	—		3.7			—			—			—			—			3.7
Stock-based compensation and other	—		(16.7		)	—			—			(2.6		)	5.9			(13.4		)
Distributions to noncontrolling interest partners	—		—			—			—			(5.6		)	—			(5.6		)
Balance at March 31, 2012	$	1.0	$	1,021.3		$	1,573.2		$	(42.1	)	$	257.3		$	(0.3	)	$	2,810.4

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

OGE ENERGY CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


1.	Summary of Significant Accounting Policies

Organization

The Company is an energy and energy services provider offering physical delivery and related services for both electricity and natural gas primarily in the south central United States. The Company conducts these activities through three business segments: (i) electric utility, (ii) natural gas transportation and storage and (iii) natural gas gathering and processing. All significant intercompany transactions have been eliminated in consolidation.

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. OG&E is the largest electric utility in Oklahoma and its franchised service territory includes the Fort Smith, Arkansas area. OG&E sold its retail natural gas business in 1928 and is no longer engaged in the natural gas distribution business.

Enogex is a provider of integrated natural gas midstream services. Enogex is engaged in the business of gathering, processing, transporting and storing natural gas. Most of Enogex's natural gas gathering, processing, transportation and storage assets are strategically located in the Arkoma and Anadarko basins of Oklahoma and the Texas Panhandle. Enogex's operations are organized into two business segments: (i) natural gas transportation and storage and (ii) natural gas gathering and processing. At March 31, 2013, OGE Energy indirectly owns a 79.9 percent membership interest in Enogex Holdings, which in turn owns all of the membership interests in Enogex LLC, a Delaware single-member limited liability company. At March 31, 2013, the Company consolidated Enogex Holdings in its Condensed Consolidated Financial Statements as OGE Energy had a controlling financial interest over the operations of Enogex Holdings. Also, at March 31, 2013, Enogex LLC held a 50 percent ownership interest in Atoka. At March 31, 2013, the Company consolidated Atoka in its Condensed Consolidated Financial Statements as Enogex acted as the managing member of Atoka and had control over the operations of Atoka.

On March 14, 2013, OGE Energy entered into a Master Formation Agreement with the ArcLight group and CenterPoint Energy, Inc., pursuant to which OGE Energy, the ArcLight group and CenterPoint Energy, Inc., agreed to form the Midstream Partnership to own and operate the midstream businesses of OGE Energy and CenterPoint. This transaction closed on May 1, 2013. Pursuant to the Master Formation Agreement, OGE Energy and the ArcLight group indirectly contributed Enogex LLC to the Midstream Partnership and CenterPoint Energy, Inc. contributed its midstream natural gas business to the Midstream Partnership. At May 1, 2013, OGE Energy holds 28.5 percent of the limited partners interests, CenterPoint holds 58.3 percent of the limited partner interests and the ArcLight group holds 13.2 percent of the limited partner interests in the Midstream Partnership. The general partner of the Midstream Partnership is equally controlled by CenterPoint and OGE Energy, who each have 50 percent of the management rights. Based on the 50/50 management ownership, with neither company having control, effective May 1, 2013, OGE Energy deconsolidated its interest in Enogex LLC and will account for its interest in the Midstream Partnership under the equity method of accounting. For additional information regarding the Midstream Partnership, see Note 3.

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 March 31, 2013 and December 31, 2012 and the results of its operations and cash flows for the three months ended March 31, 2013 and 2012, have been included and are of a normal recurring nature except as otherwise disclosed.

Due to seasonal fluctuations and other factors, the Company's operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013 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 2012 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 actual or anticipated 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 actual or anticipated costs and obligations as regulatory assets or liabilities if it is probable, based on regulatory orders or other available evidence, that the cost or obligation 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 at:



(In millions)	March 31, 2013		December 31, 2012
Regulatory Assets
Current
Crossroads wind farm rider under recovery (A)	$	13.4	$	14.9
Oklahoma demand program rider under recovery (A)	9.4		9.2
Fuel clause under recoveries	0.4		—
Other (A)	7.6		2.9
Total Current Regulatory Assets	$	30.8	$	27.0
Non-Current
Benefit obligations regulatory asset	$	364.1	$	370.6
Income taxes recoverable from customers, net	54.9		54.7
Smart Grid	42.9		42.8
Unamortized loss on reacquired debt	12.7		13.0
Deferred storm expenses	12.3		12.7
Deferred pension expenses	3.4		4.5
Other	12.3		12.3
Total Non-Current Regulatory Assets	$	502.6	$	510.6
Regulatory Liabilities
Current
Fuel clause over recoveries	$	81.6	$	109.2
Smart Grid rider over recovery (B)	21.6		24.1
Other (B)	6.5		7.8
Total Current Regulatory Liabilities	$	109.7	$	141.1
Non-Current
Accrued removal obligations, net	$	219.4	$	218.2
Deferred pension credits	14.9		17.7
Pension tracker	11.2		9.2
Total Non-Current Regulatory Liabilities	$	245.5	$	245.1


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


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

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, which could have significant financial effects.

Asset Retirement Obligation

The following table summarizes changes to the Company's asset retirement obligations during the three months ended March 31, 2013 and 2012.



	Three Months Ended
	March 31,
(In millions)	2013			2012
Balance at January 1	$	54.0		$	24.8
Liabilities settled	(0.1		)	—
Accretion expense	0.6			0.4
Revisions in estimated cash flows (A)	—			26.7
Balance at March 31	$	54.5		$	51.9


(A)	Due to changes to OG&E's asset retirement obligations related to its wind farms due to a change in the assumption related to the timing of removal used in the valuation of the asset retirement obligations.

Accumulated Other Comprehensive Income (Loss)

In February 2013, the Financial Accounting Standards Board issued "Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." The new standard requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, the new standard requires an entity to present significant amounts reclassified out of accumulated other comprehensive income by the respective line items in net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. The Company adopted the new standard effective January 1, 2013 and these disclosures have been included below.

The following table summarizes changes in the components of accumulated other comprehensive loss attributable to OGE Energy during the three months ended March 31, 2013. At both March 31, 2013 and December 31, 2012, there was no accumulated other comprehensive loss related to Enogex's noncontrolling interest in Atoka. All amounts below are presented net of tax and noncontrolling interest.



	Pension Plan and Restoration of Retirement Income Plan					Postretirement Benefit Plans
	Net loss			Prior service cost		Net loss			Prior service cost			Deferred commodity contracts hedging gains			Deferred interest rate swap hedging losses			Noncontrolling interest			Total
Balance at December 31, 2012	$	(49.3	)	$	0.1	$	(15.7	)	$	7.2		$	0.1		$	(0.5	)	$	(9.0	)	$	(49.1	)
Amounts reclassified from accumulated other comprehensive income (loss)	0.9			—		0.5			(0.5		)	(0.1		)	0.1			0.1			0.8
Balance at March 31, 2013	$	(48.4	)	$	0.1	$	(15.2	)	$	6.7		$	—		$	(0.4	)	$	(8.9	)	$	(48.3	)

The following table summarizes significant amounts reclassified out of accumulated other comprehensive loss by the respective line items in net income during the three months ended March 31, 2013.



Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified from Accumulated Other Comprehensive Loss			Affected Line Item in the Statement Where Net Income is Presented

Gains (losses) on cash flow hedges
Commodity contracts	$	0.2		Cost of goods sold
Interest rate swap	(0.2		)	Interest expense
	$	—		Total before tax

Amortization of defined benefit pension items
Actuarial gains (losses)	$	(1.3	)	(A)
	(1.3		)	Total before tax
	(0.4		)	Tax benefit
	(0.9		)	Net of tax
	(0.1		)	Noncontrolling interest
	$	(0.8	)	Net of tax and noncontrolling interest

Amortization of postretirement benefit plan items
Actuarial gains (losses)	$	(0.8	)	(A)
Prior service cost	0.8			(A)
	—			Total before tax

Total reclassifications for the period	$	(0.8	)	Net of tax and noncontrolling interest


(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

As discussed in Note 13, during the third quarter of 2012, the operations and activities of EER were fully integrated with those of Enogex through the creation of a new commodity management organization. The operations of EER, including asset management activities, have been included in the natural gas transportation and storage segment and have been restated for all prior periods presented to conform to the 2013 presentation.


2.	Gas Gathering Divestiture

Texas Panhandle Gathering Divestiture

As previously reported in the Company's 2012 Form 10-K, on January 2, 2013, Enogex and one of its five largest customers entered into new agreements, effective January 1, 2013, relating to the customer's gathering and processing volumes on the Texas portion of Enogex's system. The effects of this new arrangement are (i) a fixed-fee processing agreement replaced the previous keep-whole agreement, (ii) the acreage dedicated by the customer to Enogex for gathering and processing in Texas was increased for an extended term and (iii) the sale by Enogex of certain gas gathering assets in the Texas Panhandle portion of Enogex's system to this customer for cash proceeds of approximately $35 million. Enogex recognized a pre-tax gain of $9.9 million in the first quarter of 2013 in its natural gas gathering and processing segment from the sale of these assets which is included in Other Income in the Condensed Consolidated Statements of Income.


3.	OGE Energy Midstream Partnership with CenterPoint Energy, Inc.

Pursuant to the Master Formation Agreement, OGE Energy and the ArcLight group indirectly contributed 100 percent of the equity interests in Enogex LLC to the Midstream Partnership. CenterPoint Energy Field Services, LLC, a Delaware limited liability company and wholly owned subsidiary of CenterPoint, was converted into a Delaware limited partnership that became the Midstream Partnership. CenterPoint contributed to the Midstream Partnership its equity interests in each of CenterPoint Energy Gas Transmission Company, LLC, a Delaware limited liability company, CenterPoint Energy - Mississippi River Transmission, LLC, a Delaware limited liability company, and certain of its other midstream subsidiaries and caused its subsidiary CenterPoint Energy Southeastern Pipelines Holding, LLC to contribute 49 percent of its interest in Southeast Supply Header, LLC, a Delaware limited liability company. CenterPoint Energy Field Services, LLC provides natural gas gathering and processing services for certain natural gas fields in the Mid-continent region of the United States that interconnect with CenterPoint Energy Gas Transmission Company, LLC and CenterPoint Energy - Mississippi River Transmission, LLC pipelines, as well as other interstate and intrastate pipelines. As of December 31, 2012, CenterPoint Energy Field Services, LLC gathered an average of approximately 2.5 billion cubic feet per day of natural gas. In addition, CenterPoint Energy Field Services, LLC has the capacity available to treat up to 2.5 billion cubic feet per day and process nearly 625 million cubic feet per day of natural gas. CenterPoint Energy Gas Transmission Company, LLC is an interstate pipeline that provides natural gas transportation, storage and pipeline services to customers principally in Arkansas, Louisiana, Oklahoma and Texas and includes the 1.9 billion cubic feet per day pipeline from Carthage, Texas to Perryville, Louisiana, which CenterPoint Energy Gas Transmission Company, LLC operates as a separate line with a fixed fuel rate. CenterPoint Energy - Mississippi River Transmission, LLC is an interstate pipeline that provides natural gas transportation, storage and pipeline services to customers principally in Arkansas, Illinois and Missouri. CenterPoint indirectly owns a 50 percent interest in Southeast Supply Header, LLC, which owns a 1.0 billion cubic feet per day, 274-mile interstate pipeline that runs from the Perryville Hub in Louisiana to Coden, Alabama. A wholly owned indirect subsidiary of Spectra Energy Corp. owns the remaining 50 percent interest in Southeast Supply Header, LLC. Upon closing, CenterPoint indirectly contributed 49 percent of its interest in the Southeast Supply Header, LLC to the Midstream Partnership. Upon receipt of certain consents, CenterPoint will contribute the remainder of its interest to the Midstream Partnership.

Immediately prior to closing, on May 1, 2013, the ArcLight group contributed $107.0 million and OGE Energy contributed $9.1 million to Enogex LLC in order to pay down short-term debt. At May 1, 2013, OGE Energy holds 28.5 percent of the limited partners interests, CenterPoint holds 58.3 percent of the limited partner interests and the ArcLight group holds 13.2 percent of the limited partner interests in the Midstream Partnership, provided, however, if CenterPoint obtains the approvals required to contribute its remaining indirect interest in Southeast Supply Header, LLC within 90 days after closing, CenterPoint will instead hold 59 percent of the limited partner interests, OGE would hold 28 percent of the limited partners interest and the ArcLight group would hold 13 percent of the limited partners interest.

After the expiration of the 90-day period after closing, CenterPoint has certain put rights, and the Midstream Partnership has certain call rights, exercisable with respect to any interest in Southeast Supply Header, LLC retained by CenterPoint following the formation of the Midstream Partnership, under which CenterPoint would contribute to the Midstream Partnership CenterPoint's retained interest in Southeast Supply Header, LLC at a price equal to the fair market value of such interest at the time the put right or call right is exercised. If CenterPoint were to exercise such put right or the Midstream Partnership were to exercise such call right, CenterPoint's retained interest in Southeast Supply Header, LLC would be contributed to the Midstream Partnership in exchange for consideration consisting of a specified number of limited partnership units and, subject to certain restrictions, a cash payment, payable either from CenterPoint to the Midstream Partnership or from the Midstream Partnership to CenterPoint, in an amount such that the total consideration exchanged is equal in value to the fair market value of the contributed interest in Southeast Supply Header, LLC.

The general partner of the Midstream Partnership is equally controlled by CenterPoint and OGE Energy, who each have 50 percent of the management rights. CenterPoint and OGE Energy also own a 40 percent and 60 percent interest, respectively, in any incentive distribution rights to be held by the general partner of the Midstream Partnership following an initial public offering of the Midstream Partnership. In addition, for a period of time, the ArcLight group will have board observation rights and approval rights over certain material activities of the Midstream Partnership, including material increases in capital expenditures and certain equity issuances, entering into transactions with related parties and acquiring, pledging or disposing of certain material assets. The general partner of the Midstream Partnership will initially be governed by a board made up of an equal number of representatives designated by each of CenterPoint Energy, Inc. and OGE Energy. Based on the 50/50 management ownership, with neither company having control, effective May 1, 2013, OGE Energy deconsolidated its interest in Enogex LLC and will account for its interest in the Midstream Partnership under the equity method of accounting.

Pursuant to a Registration Rights Agreement dated as of May 1, 2013, OGE Energy and CenterPoint Energy, Inc. agreed to initiate the process for the sale of an equity interest in the Midstream Partnership in an initial public offering. OGE Energy can give no assurances that the initial public offering will be consummated. Prior to consummating the initial public offering, OGE Energy, CenterPoint Energy, Inc. and the Midstream Partnership will need to complete the negotiation of the financial and other terms, including the initial public offering price. In addition, consummation of the initial public offering is subject to market

conditions. For so long as the ArcLight group maintains a minimum ownership percentage, the ArcLight group is entitled to consult with the Midstream Partnership in connection with the initial public offering. The Midstream Partnership has agreed to file a registration statement for the initial public offering no later than May 1, 2014 and, subject to limited exceptions, consummate the initial public offering within 180 days of the filing of the registration statement.

In connection with the formation of the Midstream Partnership, on May 1, 2013, the Midstream Partnership entered into a $1.05 billion three-year senior unsecured term loan facility, the proceeds of which were used to repay $1.05 billion of intercompany indebtedness owed to CenterPoint. CenterPoint has guaranteed collection of the Midstream Partnership's obligations under the term loan, which guarantee is subordinated to all senior debt of CenterPoint. Effective May 1, 2013, the Midstream Partnership also entered into a $1.4 billion, five-year senior unsecured revolving credit facility in accordance with the terms of the Master Formation Agreement and Enogex LLC's $400 million revolving credit facility was terminated.

At March 31, 2013, Enogex LLC was obligated on approximately $700 million, in the aggregate, in indebtedness under its term loan, its revolving credit agreement and two series of its senior notes maturing in years 2014 and 2020. Certain of the entities contributed to the Midstream Partnership by CenterPoint are obligated on approximately $363 million of indebtedness owed to a wholly owned subsidiary of CenterPoint that is scheduled to mature in 2017.

Subject to the exceptions provided below, pursuant to the terms of an Omnibus Agreement dated as of May 1, 2013 among OGE Energy, the ArcLight group and CenterPoint Energy, Inc., each of OGE Energy and CenterPoint Energy, Inc. will be required to hold or otherwise conduct all of its respective Midstream Operations (as defined below) located within the United States in the Midstream Partnership. This restriction will cease to apply to both OGE Energy and CenterPoint Energy, Inc. as soon as either OGE Energy or CenterPoint Energy, Inc. ceases to hold (i) any interest in the general partner of the Midstream Partnership or (ii) at least 20 percent of the limited partner interests of the Midstream Partnership. "Midstream Operations" generally means, subject to certain exceptions, the gathering, compression, treatment, processing, blending, transportation, storage, isomerization and fractionation of crude oil and natural gas, its associated production water and enhanced recovery materials such as carbon dioxide, and its respective constituents and the following products: methane, NGLs (Y-grade, ethane, propane, normal butane, isobutane and natural gasoline), condensate, and refined products and distillates (gasoline, refined product blendstocks, olefins, naphtha, aviation fuels, diesel, heating oil, kerosene, jet fuels, fuel oil, residual fuel oil, heavy oil, bunker fuel, cokes, and asphalts), to the extent such activities are located within the United States.

In addition, if OGE Energy or CenterPoint Energy, Inc. acquires any assets or equity of any person engaged in Midstream Operations with a value in excess of $50 million (or $100 million in the aggregate with such party's other acquired Midstream Operations that have not been offered to the Midstream Partnership), the acquiring party will be required to offer the Midstream Partnership the opportunity to acquire such assets or equity for such value; provided, that the acquiring party will not be obligated to offer any such assets or equity to the Midstream Partnership if the acquiring party intends to cease using them in Midstream Operations within 12 months. If the Midstream Partnership does not exercise its option, then the acquiring party will be free to retain and operate such Midstream Operations; provided, however, that if the fair market value of such Midstream Operations is greater than 66 2/3 percent of the fair market value of all of the assets being acquired in such transaction, then the acquiring party will be required to dispose of such Midstream Operations within 24 months.

As long as the ArcLight group has board observation rights, the ArcLight group will be prohibited from pursuing any transaction independently from the Midstream Partnership (i) if the ArcLight group's consent is required for the Midstream Partnership to pursue such transaction and (ii) the ArcLight group affirmatively votes not to consent to such transaction.


4.	Noncontrolling Interests

There were no contributions by OGE Holdings or the ArcLight group to Enogex Holdings during the three months ended March 31, 2013.

Pursuant to the Enogex Holdings LLC Agreement, Enogex Holdings makes quarterly distributions to its partners. The following table summarizes the quarterly distributions during the three months ended March 31, 2013.



(In millions)	OGE Holdings' Portion		ArcLight group's Portion		Total Distribution
First quarter 2013	$	10.0	$	2.5	$	12.5

During the three months ended March 31, 2013, Atoka's noncontrolling interest partner made no contributions to Atoka. Enogex LLC made no distributions during the three months ended March 31, 2013 to its Atoka partner, as there is no minimum distribution requirement related to Atoka.


5.	Fair Value Measurements

The classification of the Company's 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 and examples of each 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. Instruments classified as Level 1 include natural gas futures, swaps and options 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 the reporting entity's own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).

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 Condensed 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 March 31, 2013 and December 31, 2012 as well as reconcile the Company's commodity contracts fair value to PRM Assets and Liabilities on the Company's Condensed Consolidated Balance Sheets at March 31, 2013 and December 31, 2012. The Company adopted the Financial Accounting Standards Board accounting guidance requiring additional disclosures for balance sheet offsetting of assets and liabilities effective January 1, 2013. The Company posted $0.1 million and $0.2 million of collateral at March 31, 2013 and December 31, 2012, respectively, which has been included within netting adjustments in the table below. The Company held no collateral at March 31, 2013 or December 31, 2012. The Company has offset all amounts subject to master netting agreements in the Company's Condensed Consolidated Balance Sheets at March 31, 2013 and December 31, 2012. The Company held no Level 1 investments at March 31, 2013 and no Level 3 investments at March 31, 2013 or December 31, 2012.



March 31, 2013
(In millions)	Commodity Contracts						Gas Imbalances (A)
	Assets			Liabilities			Assets (B)		Liabilities (C)
Significant other observable inputs (Level 2)	$	0.5		$	0.6		$	4.2	$	4.8
Total fair value	0.5			0.6			4.2		4.8
Netting adjustments	(0.1		)	(0.2		)	—		—
Total	$	0.4		$	0.4		$	4.2	$	4.8

December 31, 2012
(In millions)	Commodity Contracts						Gas Imbalances (A)
	Assets			Liabilities			Assets (B)		Liabilities (C)
Quoted market prices in active market for identical assets (Level 1)	$	5.0		$	5.0		$	—	$	—
Significant other observable inputs (Level 2)	0.5			0.5			3.1		3.8
Total fair value	5.5			5.5			3.1		3.8
Netting adjustments	(5.0		)	(5.2		)	—		—
Total	$	0.5		$	0.3		$	3.1	$	3.8


(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 assets exclude fuel reserves for under retained fuel due from shippers of $8.5 million and $5.9 million at March 31, 2013 and December 31, 2012, 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.


(C)	Gas imbalance liabilities exclude fuel reserves for over retained fuel due to shippers of $1.1 million and $1.2 million at March 31, 2013 and December 31, 2012, 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 fair value and carrying amount of the Company's financial instruments, including derivative contracts related to the Company's PRM activities, at March 31, 2013 and December 31, 2012.



	March 31, 2013				December 31, 2012
(In millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
PRM Assets
Energy Derivative Contracts	$	0.4	$	0.4	$	0.5	$	0.5
PRM Liabilities
Energy Derivative Contracts	$	0.4	$	0.4	$	0.3	$	0.3
Long-Term Debt
OG&E Senior Notes	$	1,904.3	$	2,368.3	$	1,904.2	$	2,401.6
OG&E Industrial Authority Bonds	135.4		135.4		135.4		135.4
OG&E Tinker Debt	10.6		10.3		10.7		10.0
OGE Energy Senior Notes	99.9		105.6		99.9		106.3
Enogex LLC Senior Notes	448.5		492.1		448.4		493.4
Enogex LLC Term Loan	250.0		250.0		250.0		250.0

The carrying value of the financial instruments included in the Condensed Consolidated Balance Sheets 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 of the Company's long-term debt is based on quoted market prices and estimates of current rates available for similar issues with similar maturities and is classified as Level 2 in the fair value hierarchy.


6.	Derivative Instruments and Hedging Activities

The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed using derivatives instruments are commodity price risk and interest rate risk. The Company is also exposed to credit risk in its business operations.

Commodity Price Risk

The Company has used forward physical contracts, commodity price swap contracts and commodity price option features to manage the Company's commodity price risk exposures in the past. Commodity derivative instruments used by the Company are as follows:


•	NGLs put options and NGLs swaps are used to manage Enogex's NGLs exposure associated with its processing agreements;


•	natural gas swaps are used to manage Enogex's keep-whole natural gas exposure associated with its processing operations and Enogex's natural gas exposure associated with operating its gathering, transportation and storage assets; and


•	natural gas futures and swaps, natural gas options and natural gas commodity purchases and sales are used to manage Enogex's natural gas exposure associated with its storage and transportation contracts and asset management activities.

Normal purchases and normal sales contracts are not recorded in PRM Assets or Liabilities in the Condensed Consolidated Balance Sheets and earnings are recognized in the period in which physical delivery of the commodity occurs. Management applies normal purchases and normal sales treatment to: (i) commodity contracts for the purchase and sale of natural gas used in or produced by Enogex's operations, (ii) commodity contracts for the purchase and sale of NGLs produced by Enogex's gathering and processing business, (iii) electric power contracts by OG&E and (iv) fuel procurement by OG&E.

The Company recognizes its non-exchange traded derivative instruments as PRM Assets or Liabilities in the Condensed Consolidated Balance Sheets at fair value with such amounts classified as current or long-term based on their anticipated settlement. Exchange traded transactions are settled on a net basis daily through margin accounts with a clearing broker and, therefore, are recorded at fair value on a net basis in Other Current Assets in the Condensed Consolidated Balance Sheets.

Interest Rate Risk

The Company's exposure to changes in interest rates primarily relates to short-term variable-rate debt and commercial paper. The Company manages its interest rate exposure by monitoring and limiting the effects of market changes in interest rates. The Company utilizes interest rate derivatives to alter interest rate exposure in an attempt to reduce the effects of these changes. Interest rate derivatives are used solely to modify interest rate exposure and not to modify the overall leverage of the debt portfolio.

Credit Risk

The Company is exposed to certain credit risks relating to its ongoing business operations. Credit risk includes the risk that counterparties that owe the Company money or energy will breach their obligations. If the counterparties to these arrangements fail to perform, the Company may be forced to enter into alternative arrangements. In that event, the Company's financial results could be adversely affected and the Company could incur losses.

Cash Flow Hedges

For derivatives that are designated and qualify as a cash flow hedge, the effective portion of the change in fair value of the derivative instrument is reported as a component of Accumulated Other Comprehensive Income (Loss) and recognized into earnings in the same period during which the hedged transaction affects earnings. The ineffective portion of a derivative's change in fair value or hedge components excluded from the assessment of effectiveness is recognized currently in earnings. The Company measures the ineffectiveness of commodity cash flow hedges using the change in fair value method whereby the change in the expected future cash flows designated as the hedge transaction are compared to the change in fair value of the hedging

instrument. Forecasted transactions, which are designated as the hedged transaction in a cash flow hedge, are regularly evaluated to assess whether they continue to be probable of occurring. If the forecasted transactions are no longer probable of occurring, hedge accounting will cease on a prospective basis and all future changes in the fair value of the derivative will be recognized directly in earnings.

The Company designates as cash flow hedges derivatives used to manage commodity price risk exposure for Enogex's NGLs volumes and corresponding keep-whole natural gas resulting from its natural gas processing contracts (processing hedges) and natural gas positions resulting from its natural gas gathering and processing operations and natural gas transportation and storage operations (operational gas hedges). The Company also designates as cash flow hedges certain derivatives used to manage natural gas commodity exposure for certain natural gas storage inventory positions. Enogex had no instruments designated as cash flow hedges at March 31, 2013.

Fair Value Hedges

For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedge risk are recognized currently in earnings. The Company includes the gain or loss on the hedged items in Operating Revenues as the offsetting loss or gain on the related hedging derivative.

At March 31, 2013 and December 31, 2012, the Company had no derivative instruments that were designated as fair value hedges.

Derivatives Not Designated as Hedging Instruments

Derivative instruments not designated as hedging instruments are utilized in Enogex's asset management activities. For derivative instruments not designated as hedging instruments, the gain or loss on the derivative is recognized currently in earnings.

Quantitative Disclosures Related to Derivative Instruments

At March 31, 2013, the Company had the following derivative instruments that were not designated as hedging instruments.



(In millions)	Gross Notional Volume (A)
	Purchases	Sales
Natural gas (B)
Physical (C)(D)	7.0	71.3
Fixed Swaps/Futures	0.1	0.1
Basis Swaps	5.2	11.6


(A)	Natural gas in MMBtu's.


(B)	94.2 percent of the natural gas contracts have durations of one year or less, 4.2 percent have durations of more than one year and less than two years and 1.6 percent have durations of more than two years.


(C)	Of the natural gas physical purchases and sales volumes not designated as hedges, the majority are priced based on a monthly or daily index and the fair value is subject to little or no market price risk.


(D)	Natural gas physical sales volumes exceed natural gas physical purchase volumes due to the marketing of natural gas volumes purchased via Enogex's processing contracts, which are not derivative instruments and are excluded from the table above.

Balance Sheet Presentation Related to Derivative Instruments

The fair value of the derivative instruments that are presented in the Company's Condensed Consolidated Balance Sheet at March 31, 2013 are as follows:



		Fair Value
Instrument	Balance Sheet Location	Assets		Liabilities
		(In millions)
Derivatives Not Designated as Hedging Instruments
Natural Gas
Financial Futures/Swaps	Other Current Assets	$	0.1	$	0.2
Physical Purchases/Sales	Current PRM	0.4		0.4
Total		$	0.5	$	0.6
Total Gross Derivatives (A)		$	0.5	$	0.6


(A)	See Note 5 for a reconciliation of the Company's total derivatives fair value to the Company's Condensed Consolidated Balance Sheet at March 31, 2013.

The fair value of the derivative instruments that are presented in the Company's Condensed Consolidated Balance Sheet at December 31, 2012 are as follows:



		Fair Value
Instrument	Balance Sheet Location	Assets		Liabilities
		(In millions)
Derivatives Designated as Hedging Instruments
Natural Gas
Financial Futures/Swaps	Other Current Assets	$	—	$	0.5
Total		$	—	$	0.5

Derivatives Not Designated as Hedging Instruments
Natural Gas
Financial Futures/Swaps	Current PRM	$	0.1	$	—
	Other Current Assets	5.0		4.7
Physical Purchases/Sales	Current PRM	0.4		0.3
Total		$	5.5	$	5.0
Total Gross Derivatives (A)		$	5.5	$	5.5


(A)	See Note 5 for a reconciliation of the Company's total derivatives fair value to the Company's Condensed Consolidated Balance Sheet at December 31, 2012.

Income Statement Presentation Related to Derivative Instruments

The following tables present the effect of derivative instruments on the Company's Condensed Consolidated Statement of Income for the three months ended March 31, 2013.

Derivatives in Cash Flow Hedging Relationships



(In millions)	Amount Recognized in Other Comprehensive Income		Amount Reclassified from Accumulated Other Comprehensive Income (Loss) into Income			Amount Recognized in Income
Natural Gas Financial Futures/Swaps	$	—	$	0.2		$	—
Interest Rate Swap	—		(0.2		)	—
Total	$	—	$	—		$	—

Derivatives Not Designated as Hedging Instruments



(In millions)	Amount Recognized in Income
Natural Gas Financial Futures/Swaps	$	(0.3	)
Total	$	(0.3	)

The following tables present the effect of derivative instruments on the Company's Condensed Consolidated Statement of Income for the three months ended March 31, 2012.

Derivatives in Cash Flow Hedging Relationships



(In millions)	Amount Recognized in Other Comprehensive Income		Amount Reclassified from Accumulated Other Comprehensive Income (Loss) into Income			Amount Recognized in Income
Natural Gas Financial Futures/Swaps	$	0.3	$	5.2		$	—
Interest Rate Swap	—		(0.2		)	—
Total	$	0.3	$	5.0		$	—

Derivatives Not Designated as Hedging Instruments



(In millions)	Amount Recognized in Income
Natural Gas Physical Purchases/Sales	$	(2.4	)
Natural Gas Financial Futures/Swaps	0.4
Total	$	(2.0	)

For derivatives designated as cash flow hedges in the tables above, amounts reclassified from Accumulated Other Comprehensive Income (Loss) into income (effective portion) and amounts recognized in income (ineffective portion) for the three months ended March 31, 2013 and 2012, if any, are reported in Operating Revenues. For derivatives not designated as hedges in the tables above, amounts recognized in income for the three months ended March 31, 2013 and 2012, if any, are reported in Operating Revenues.

Credit-Risk Related Contingent Features in Derivative Instruments

In the event Moody's Investors Services or Standard & Poor's Ratings Services were to lower the Company's senior unsecured debt rating to a below investment grade rating, the Company would have been required to post no cash collateral to satisfy its obligation under its financial and physical contracts relating to derivative instruments that are in a net liability position at March 31, 2013. The Company could be required to provide additional credit assurances in future dealings with third parties, which could include letters of credit or cash collateral.


7.	Stock-Based Compensation

The following table summarizes the Company's pre-tax compensation expense and related income tax benefit during the three months ended March 31, 2013 and 2012 related to the Company's performance units and restricted stock.



	Three Months Ended
	March 31,
(In millions)	2013		2012
Performance units
Total shareholder return	$	2.0	$	1.8
Earnings per share	0.6		0.7
Total performance units	2.6		2.5
Restricted stock	0.1		0.2
Total compensation expense	$	2.7	$	2.7
Income tax benefit	$	1.0	$	1.1

The Company has issued new shares to satisfy stock option exercises, restricted stock grants and payouts of earned performance units. During the three months ended March 31, 2013, there were 62,632 of treasury stock shares and 258,260 shares of new common stock issued pursuant to the Company's stock incentive plans related to exercised stock options, restricted stock grants (net of forfeitures) and payouts of earned performance units. During the three months ended March 31, 2013, there were 332 shares of restricted stock returned to the Company to satisfy tax liabilities. The Company received $0.2 million during the three months ended March 31, 2013 related to exercised stock options. The Company did not realize an income tax benefit for the tax deductions from the exercised stock options during the three months ended March 31, 2013 due to the Company being in a tax net operating loss position in 2013.

The following table summarizes the activity of the Company's stock-based compensation during the three months ended March 31, 2013.



	Units/Shares	Fair Value
Grants
Performance units (Total shareholder return)	156,974	$	58.61
Performance units (Earnings per share)	37,094	$	53.45
Restricted stock	2,970	$	59.41
Conversions
Performance units (Total shareholder return) (A)	188,631	N/A
Performance units (Earnings per share) (A)	62,880	N/A


(A)	Performance units were converted based on a payout ratio of 200 percent of the target number of performance units granted in February 2010 and are included in the 258,260 and 62,632 shares of common stock issued during the three months ended March 31, 2013 as discussed above.


8.	Income Taxes

The Company files consolidated income tax returns in the U.S. Federal jurisdiction and various state jurisdictions. With few exceptions, the Company is no longer subject to U.S. Federal tax examinations by tax authorities for years prior to 2009 or state and local tax examinations by tax authorities for years prior to 2005. Income taxes are generally allocated to each company in the affiliated group based on its stand-alone taxable income or loss. Federal investment tax credits previously claimed on electric utility property have been deferred and are being amortized to income over the life of the related property. OG&E continues to amortize its Federal investment tax credits on a ratable basis throughout the year. OG&E earns both Federal and Oklahoma state tax credits associated with production from its wind farms. In addition, OG&E and Enogex earn Oklahoma state tax credits associated with their investments in electric generating and natural gas processing facilities which further reduce the Company's effective tax rate.

On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law. Among other things, the law included an extension of bonus depreciation for one year for property generally placed in service before January 1, 2014. Because this new law was enacted in 2013, GAAP requires the law to be considered retroactive legislation, the impact of which must be recorded in the period enacted. The impact of the new law was recorded during the first quarter of 2013 in the Condensed Consolidated

Financial Statements as an increase in Deferred Tax Liabilities with a corresponding increase in Deferred Tax Assets related to the net operating loss. With additional bonus depreciation in 2013, the amount of net operating loss classified as a Current Deferred Tax Asset is decreased. Accordingly, a portion of the Current Deferred Tax Asset was reclassified to non-current.

As previously reported in the Company's 2012 Form 10-K, in January 2013, OG&E learned that a portion of certain Oklahoma investment tax credits previously recognized but not yet utilized may not be available for utilization in future years. During the first quarter of 2013, OG&E recorded a reserve of $7.8 million ($5.1 million after tax) related to a portion of the Oklahoma investment tax credits generated in years prior to 2013 but not yet utilized due to management's determination that it is more likely than not that it will be unable to utilize these credits.


9.	Common Equity

Automatic Dividend Reinvestment and Stock Purchase Plan

The Company issued 53,601 shares of common stock under its Automatic Dividend Reinvestment and Stock Purchase Plan during the three months ended March 31, 2013 and received proceeds of $3.2 million. The Company may, from time to time, issue additional shares under its Automatic Dividend Reinvestment and Stock Purchase Plan to fund capital requirements or working capital needs. At March 31, 2013, there were 2,068,893 shares of unissued common stock reserved for issuance under the Company's Automatic Dividend Reinvestment and Stock Purchase Plan.

Earnings Per Share

Basic earnings per share is calculated by dividing net income attributable to OGE Energy by the weighted average number of the Company's common shares outstanding during the period. In the calculation of diluted earnings 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 the Company consist of performance units. Basic and diluted earnings per share for the Company were calculated as follows:



	Three Months Ended
	March 31,
(In millions)	2013		2012
Net Income Attributable to OGE Energy	$	23.1	$	37.1
Average Common Shares Outstanding
Basic average common shares outstanding	98.9		98.3
Effect of dilutive securities:
Contingently issuable shares (performance units)	0.5		0.5
Diluted average common shares outstanding	99.4		98.8
Basic Earnings Per Average Common Share Attributable to OGE Energy Common Shareholders	$	0.23	$	0.38
Diluted Earnings Per Average Common Share Attributable to OGE Energy Common Shareholders	$	0.23	$	0.38
Anti-dilutive shares excluded from earnings per share calculation	—		—


10.	Long-Term Debt

At March 31, 2013, the Company was in compliance with all of its 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 bonds, which can be tendered at the option of the holder during the next 12 months, are as follows:



SERIES	DATE DUE	AMOUNT
		(In millions)
0.23% - 0.28%	Garfield Industrial Authority, January 1, 2025	$	47.0
0.22% - 0.29%	Muskogee Industrial Authority, January 1, 2025	32.4
0.18% - 0.20%	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-term debt in the Company's Condensed Consolidated Financial Statements. OG&E believes that it has sufficient liquidity to meet these obligations.


11.	Short-Term Debt and Credit Facilities

The Company borrows on a short-term basis, as necessary, by the issuance of commercial paper and by borrowings under its revolving credit agreements. The short-term debt balance was $707.0 million and $430.9 million at March 31, 2013 and December 31, 2012, respectively. The following table provides information regarding the Company's revolving credit agreements and available cash at March 31, 2013.



Revolving Credit Agreements and Available Cash
	Aggregate		Amount		Weighted-Average
Entity	Commitment		Outstanding (A)		Interest Rate			Maturity
	(In millions)
OGE Energy (B)	$	750.0	$	663.9	0.38	%	(E)	December 13, 2016
OG&E (C)	400.0		45.2		0.33	%	(E)	December 13, 2016
Enogex LLC (D)	400.0		—		—	%	(E)	See (D) below
	1,550.0		709.1		0.38	%
Cash	7.1		N/A		N/A			N/A
Total	$	1,557.1	$	709.1	0.38	%


(A)	Includes direct borrowings under the revolving credit agreements, commercial paper borrowings and letters of credit at March 31, 2013.


(B)	This bank facility 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. At March 31, 2013, there was $663.9 million in outstanding commercial paper borrowings.


(C)	This bank facility is available to back up OG&E's commercial paper borrowings and to provide revolving credit borrowings. This bank facility can also be used as a letter of credit facility. At March 31, 2013, there was $43.1 million in outstanding commercial paper borrowings and $2.1 million in letters of credit.


(D)	This bank facility was available to provide revolving credit borrowings for Enogex LLC. Effective May 1, 2013, the Midstream Partnership entered into a $1.4 billion, five-year senior unsecured revolving credit facility in accordance with the terms of the Master Formation Agreement and Enogex LLC's $400 million revolving credit facility was terminated.


(E)	Represents the weighted-average interest rate for the outstanding borrowings under the revolving credit agreements, commercial paper borrowings and letters of credit.

The Company's ability to access the commercial paper market could be adversely impacted by a credit ratings downgrade or major market disruptions. Pricing grids associated with the Company's credit facilities could cause annual fees and borrowing rates to increase if an adverse ratings impact occurs. The impact of any future downgrade could include an increase in the costs of the Company's short-term borrowings, but a reduction in the Company's credit ratings would not result in any defaults or accelerations. Any future downgrade could also lead to higher long-term borrowing costs and, if below investment grade, would require the Company to post cash 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 million in short-term borrowings at any one time for a two-year period beginning January 1, 2013 and ending December 31, 2014.


12.	Retirement Plans and Postretirement Benefit Plans

The details of net periodic benefit cost of the Company's Pension Plan, the Restoration of Retirement Income Plan and the postretirement benefit plans included in the Condensed Consolidated Financial Statements are as follows:

Net Periodic Benefit Cost



	Pension Plan						Restoration of Retirement Income Plan
	Three Months Ended						Three Months Ended
	March 31,						March 31,
(In millions)	2013 (B)			2012 (B)			2013 (B)		2012 (B)
Service cost	$	5.0		$	4.5		$	0.3	$	0.3
Interest cost	6.6			7.5			0.1		0.1
Expected return on plan assets	(12.3		)	(11.5		)	—		—
Amortization of net loss	6.2			5.9			0.1		0.1
Amortization of unrecognized prior service cost (A)	0.5			0.6			0.1		0.2
Net periodic benefit cost	$	6.0		$	7.0		$	0.6	$	0.7


(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)

In addition to the $6.6 million and $7.7 million of net periodic benefit cost recognized during the three months ended March 31, 2013 and 2012, respectively, OG&E recognized an increase in pension expense during the three months ended March 31, 2013 and 2012 of $1.9 million and $2.9 million, respectively, to maintain the allowable amount to be recovered for pension expense in the Oklahoma jurisdiction which are included in the Pension tracker regulatory liability (see Note 1).



	Postretirement Benefit Plans
	Three Months Ended
	March 31,
(In millions)	2013 (B)			2012 (B)
Service cost	$	1.2		$	1.0
Interest cost	2.6			3.0
Expected return on plan assets	(0.6		)	(0.8		)
Amortization of transition obligation	—			0.7
Amortization of net loss	5.3			5.1
Amortization of unrecognized prior service cost (A)	(4.1		)	(4.1		)
Net periodic benefit cost	$	4.4		$	4.9


(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)

In addition to the $4.4 million and $4.9 million of net periodic benefit cost recognized during the three months ended March 31, 2013 and 2012, respectively, OG&E recognized an increase in postretirement medical expense during the three months ended March 31, 2013 and 2012 of $0.1 million and $0.4 million, respectively, to maintain the allowable amount to be recovered for postretirement medical expense in the Oklahoma jurisdiction which are included in the Pension tracker regulatory liability (see Note 1).

The capitalized portion of net periodic pension benefit cost was $1.1 million during the three months ended March 31, 2013 as compared to $1.5 million during the same period in 2012. The capitalized portion of net periodic postretirement benefit cost was $0.8 million during the three months ended March 31, 2013 as compared to $1.0 million during the same period in 2012.


13.	Report of Business Segments

Previously, the Company's business was divided into four segments as follows: (i) electric utility, which is engaged in the generation, transmission, distribution and sale of electric energy, (ii) natural gas transportation and storage, (iii) natural gas gathering and processing and (iv) natural gas marketing. During the third quarter of 2012, the operations and activities of EER were fully integrated with those of Enogex through the creation of a new commodity management organization. The operations of EER, including asset management activities, have been included in the natural gas transportation and storage segment and have been restated for all prior periods presented. As a result of this change, the Company's business is now divided into three segments for financial reporting purposes as follows: (i) electric utility, (ii) natural gas transportation and storage and (iii) natural gas gathering and processing. 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. In reviewing its segment operating results, the Company focuses on operating income as its measure of segment profit and loss, and, therefore, has presented this information below. The following tables summarize the results of the Company's business segments during the three months ended March 31, 2013 and 2012.



Three Months Ended March 31, 2013	Electric Utility		Natural Gas Transportation and Storage		Natural Gas Gathering and Processing		Other Operations			Eliminations			Total
(In millions)
Operating revenues	$	455.5	$	216.4	$	317.9	$	—		$	(88.4	)	$	901.4
Cost of goods sold	213.0		182.7		246.4		—			(89.1		)	553.0
Gross margin on revenues	242.5		33.7		71.5		—			0.7			348.4
Other operation and maintenance	105.1		10.9		34.3		(2.3		)	—			148.0
Depreciation and amortization	61.3		5.8		21.8		3.0			—			91.9
Taxes other than income	23.2		4.8		3.2		1.9			—			33.1
Operating income (loss)	$	52.9	$	12.2	$	12.2	$	(2.6	)	$	0.7		$	75.4

Total assets	$	7,138.4	$	2,453.0	$	1,948.9	$	387.2		$	(1,945.7	)	$	9,981.8



Three Months Ended March 31, 2012	Electric Utility		Natural Gas Transportation and Storage		Natural Gas Gathering and Processing			Other Operations			Eliminations			Total
(In millions)
Operating revenues	$	426.7	$	169.5	$	304.5		$	—		$	(60.0	)	$	840.7
Cost of goods sold	195.5		131.8		217.9			—			(59.9		)	485.3
Gross margin on revenues	231.2		37.7		86.6			—			(0.1		)	355.4
Other operation and maintenance	110.6		12.1		30.1			(5.3		)	0.1			147.6
Depreciation and amortization	59.7		5.6		17.8			3.5			—			86.6
Impairment of assets	—		—		0.2			—			—			0.2
Gain on insurance proceeds	—		—		(7.5		)	—			—			(7.5		)
Taxes other than income	21.1		4.8		2.5			1.8			—			30.2
Operating income (loss)	$	39.8	$	15.2	$	43.5		$	—		$	(0.2	)	$	98.3

Total assets	$	6,632.8	$	1,950.3	$	1,574.1		$	257.7		$	(1,340.4	)	$	9,074.5


14.	Commitments and Contingencies

Except as set forth below and in Note 15, the circumstances set forth in Notes 16 and 17 to the Company's Consolidated Financial Statements included in the Company's 2012 Form 10-K appropriately represent, in all material respects, the current status of the Company's material commitments and contingent liabilities.

OG&E Minimum Fuel Purchase Commitments

OG&E has coal contracts for purchases from January 2012 through December 2016. Also, as previously reported, OG&E had entered into multiple month term natural gas contracts for 26.1 percent of its 2013 annual forecasted natural gas requirements. In February 2013, through a request for proposal, OG&E entered into various multiple month term natural gas contracts for 55.8 percent of its remaining forecasted 2013 natural gas requirements. Additional gas supplies to fulfill OG&E's remaining 2013

natural gas requirements will be acquired through additional requests for proposal in mid-2013, along with monthly and daily purchases, all of which are expected to be made at market prices.

Environmental Laws and Regulations

OG&E Notice of Violation

As previously reported, in July 2008, OG&E received a request for information from the EPA regarding Federal Clean Air Act compliance at OG&E's Muskogee and Sooner generating plants. In recent years, the EPA has issued similar requests to numerous other electric utilities seeking to determine whether various maintenance, repair and replacement projects should have required permits under the Federal Clean Air Act's new source review process. In January 2012, OG&E received a supplemental request for an update of the previously provided information and for some additional information not previously requested. On May 1, 2012, OG&E responded to the EPA's supplemental request for information. On April 26, 2011, the EPA issued a notice of violation alleging that 13 projects occurred at OG&E's Muskogee and Sooner generating plants between 1993 and 2006 without the required new source review permits. The notice of violation also alleges that OG&E's visible emissions at its Muskogee and Sooner generating plants are not in accordance with applicable new source performance standards.

In March 2013, the DOJ informed OG&E that it was prepared to initiate enforcement litigation concerning the matters identified in the notice of violation. OG&E subsequently met with the EPA and DOJ representatives regarding the notice of violation and proposals for resolving the matter without litigation. OG&E cannot predict at this time when or if litigation will be filed against it as a result of the notice of violation and, if litigation is filed, OG&E cannot predict the outcome of such litigation, but at this time has no reason to believe that it has not acted in compliance with the Federal Clean Air Act. The Sierra Club, an environmental organization, also has threatened to file a citizen suit under the Federal Clean Air Act alleging similar violations against OG&E, and OG&E entered an agreement with the Sierra Club to toll the statute of limitations with respect to claims the Sierra Club may assert. The EPA and the Sierra Club could seek to require OG&E to install additional pollution control equipment and pay fines and significant penalties as a result of the allegations in the notice of violation. Section 113 of the Federal Clean Air Act (along with the Federal Civil Penalties Inflation Adjustment Act of 1996) provides for civil penalties as much as $37,500 per day for each violation. The cost of any required pollution control equipment could also be significant.

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 appropriate 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 Condensed Consolidated Financial Statements. At the present time, based on currently available information, except as otherwise stated above, in Note 15 below, under "Environmental Laws and Regulations" in Item 2 of Part 1 and in Item 1 of Part II of this Form 10-Q, in Notes 16 and 17 of Notes to Consolidated Financial Statements and Item 3 of Part I of the Company's 2012 Form 10-K, 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.


15.	Rate Matters and Regulation

Except as set forth below, the circumstances set forth in Note 17 to the Company's Consolidated Financial Statements included in the Company's 2012 Form 10-K appropriately represent, in all material respects, the current status of the Company's regulatory matters.

Completed Regulatory Matter

OG&E Crossroads Wind Farm

As previously reported, OG&E signed memoranda of understanding in February 2010 for approximately 197.8 megawatts of wind turbine generators and certain related balance of plant engineering, procurement and construction services associated with the Crossroads wind farm. Also as part of this project, on June 16, 2011, OG&E entered into an interconnection agreement with the SPP for the Crossroads wind farm which allowed the Crossroads wind farm to interconnect at 227.5 megawatts. On August 31, 2012, OG&E filed an application with the APSC requesting approval to recover the Arkansas portion of the costs of the Crossroads wind farm through a rider until such costs are included in OG&E's base rates as part of its next general rate proceeding. On April 15, 2013, the APSC issued an order authorizing OG&E to recover the Arkansas portion of the cost to construct the

Crossroads wind farm, effective retroactively to August 1, 2012. The costs will be recovered through the Energy Cost Recovery Rider.

Pending Regulatory Matters

OG&E Fuel Adjustment Clause Review for Calendar Year 2011

On July 31, 2012, the OCC Staff filed an application for a public hearing to review and monitor OG&E's application of the 2011 fuel adjustment clause and for a prudence review of OG&E's electric generation, purchased power and fuel procurement processes and costs in calendar year 2011. On December 19, 2012, witnesses for the OCC Staff filed responsive testimony recommending that the OCC approve OG&E's fuel adjustment clause costs and recoveries for the calendar year 2011 and recommending that the OCC find that OG&E's electric generation, purchased power, fuel procurement and other fuel related practices, policies and decisions during calendar year 2011 were fair, just and reasonable and prudent. The Oklahoma Industrial Energy Consumers filed a statement of position on December 19, 2012 and did not challenge OG&E's application of its fuel adjustment clause or prudency. The Oklahoma Industrial Energy Consumers reserved its right to file rebuttal testimony, cross examine witnesses and amend its statement of position should circumstances change or additional information becomes available in the course of this proceeding. On January 7, 2013, the Oklahoma Attorney General filed a statement of position stating that after reviewing the case information the Attorney General has no reason at this time to dispute the findings of the OCC Staff. On April 9, 2013, a hearing was held in this matter, at which time the OCC administrative law judge recommended that the OCC find that for the calendar year 2011 OG&E's electric generation, purchased power and fuel procurement processes and costs were prudent. OG&E expects to receive an order from the OCC by the end of the second quarter of 2013.

Enogex 2013 Fuel Filing

On March 1, 2013, Enogex submitted its annual fuel filing to establish the fixed fuel percentages for its East Zone and West Zone for the upcoming fuel year (April 1, 2013 through March 31, 2014). The deadline for interventions and protests on the filing was March 18, 2013 and no protests were filed. A FERC order is pending.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Introduction

Partnership under the equity method of accounting. The Company believes that this transaction forming the Midstream Partnership is consistent with the Company's strategy as the stronger financial and operational capabilities of the new Midstream Partnership should allow the Company to realize the full potential of its natural gas midstream assets. For additional information regarding the Midstream Partnership, see Note 3 of Notes to Condensed Consolidated Financial Statements.

Overview

Company Strategy

The Company's mission is to fulfill its critical role in the nation's electric utility and natural gas midstream pipeline infrastructure and meet individual customers' needs for energy and related services focusing on safety, efficiency, reliability, customer service and risk management. The Company's corporate strategy is to continue to maintain its existing business mix and diversified asset position of its regulated electric utility business and unregulated natural gas midstream business while providing competitive energy products and services to customers primarily in the south central United States as well as seeking growth opportunities in both businesses. Additionally, the Company wants to achieve a premium valuation of its businesses relative to its peers, grow earnings per share with a stable earnings pattern, create a high performance culture and achieve desired outcomes with target stakeholders. The Company's financial objectives include a long-term annual earnings growth rate of five to seven percent on a weather-normalized basis, maintaining a strong credit rating as well as increasing the dividend to meet the Company's dividend payout objectives. The Company's target payout ratio is to pay out dividends no more than 60 percent of its normalized earnings on an annual basis. The target payout ratio has been determined after consideration of numerous factors, including the largely retail composition of the Company's shareholder base, the Company's financial position, the Company's growth targets, the composition of the Company's assets and investment opportunities. The Company believes it can accomplish these financial objectives by, among other things, pursuing multiple avenues to build its business, maintaining a diversified asset position, continuing to develop a wide range of skills to succeed with changes in its industries, providing products and services to customers efficiently, managing risks effectively and maintaining strong regulatory and legislative relationships.

Summary of Operating Results

Three Months Ended March 31, 2013 as Compared to Three Months Ended March 31, 2012

Net income attributable to OGE Energy was $23.1 million, or $0.23 per diluted share, during the three months ended March 31, 2013 as compared to $37.1 million, or $0.38 per diluted share, during the same period in 2012. The decrease in net income attributable to OGE Energy of $14.0 million, or 37.7 percent, during the three months ended March 31, 2013 as compared to the same period in 2012 was primarily due to:


•	an increase in net income at OG&E of $0.9 million, or 7.4 percent, primarily due to (i) a higher gross margin mainly attributable to increased transmission revenue and higher usage partially offset by lower recovery of investments and (ii) lower other operation and maintenance expense. These increases in net income were partially offset by higher income tax expense;

•

a decrease in net income attributable to Enogex of $12.7 million, or 50.8 percent, or $0.13 per diluted share of the Company's common stock, primarily due to (i) a lower gross margin reflecting lower NGLs prices, lower keep-whole processing spreads and the contract conversion of the Texas production volumes of one of Enogex’s five largest customers from keep-whole to fixed-fee partially offset by increased gathering rates and volumes and inlet processing volumes associated with ongoing expansion projects and the gas gathering assets acquired in August 2012, (ii) higher other operation and maintenance expense, (iii) higher depreciation and amortization expense and (iv) a gain on insurance proceeds during the three months ended March 31, 2012. These decreases in net income were partially offset by higher other income, primarily due to a pre-tax gain of $9.9 million related to the sale of certain gas gathering assets in the Texas Panhandle in January 2013, and lower income tax expense; and

•

a decrease in net income attributable to OGE Energy of $2.2 million, or $0.02 per diluted share of the Company's common stock, primarily due to losses associated with valuation differences between the deferred compensation assets and liabilities for investments that are based on the Company's common stock and expenses related to the Midstream Partnership as discussed in Note 3 of Notes to Condensed Consolidated Financial Statements.

Non-Recurring Items. During the three months ended March 31, 2013, Enogex had an increase in net income of $6.1 million related to a gain on the sale of certain gas gathering assets in the Texas Panhandle, as discussed below, which Enogex does not consider to be reflective of its ongoing performance.

During the three months ended March 31, 2012, Enogex had an increase in net income of $4.6 million due to a gain on insurance proceeds related to the reimbursement of costs incurred to replace the damaged train at the Cox City natural gas processing plant, which Enogex does not consider to be reflective of its ongoing performance.

Other Recent Developments

Texas Panhandle Gathering Divestiture

2013 Outlook

The Company's 2013 consolidated earnings guidance is unchanged at approximately $335 million to $360 million of net income, or $3.35 to $3.60 per average diluted share. This guidance assumes normal weather for the remainder of the year, but excludes any impact from the formation of the Midstream Partnership or the operations of the CenterPoint midstream assets contributed to the Midstream Partnership. See the Company's 2012 Form 10-K for the key factors and assumptions underlying its 2013 earnings guidance.

Results of Operations

The following discussion and analysis presents factors that affected the Company's consolidated results of operations for the three months ended March 31, 2013 as compared to the same period in 2012 and the Company's consolidated financial position at March 31, 2013. Due to seasonal fluctuations and other factors, the Company's operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013 or for any future period. The following information should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto. Known trends and contingencies of a material nature are discussed to the extent considered relevant.



	Three Months Ended
	March 31,
(In millions except per share data)	2013		2012
Operating income	$	75.4	$	98.3
Net income attributable to OGE Energy	$	23.1	$	37.1
Basic average common shares outstanding	98.9		98.3
Diluted average common shares outstanding	99.4		98.8
Basic earnings per average common share attributable to OGE Energy common shareholders	$	0.23	$	0.38
Diluted earnings per average common share attributable to OGE Energy common shareholders	$	0.23	$	0.38
Dividends declared per common share	$	0.4175	$	0.3925

In reviewing its consolidated operating results, the Company believes that it is appropriate to focus on operating income as reported in its Condensed Consolidated Statements of Income, as operating income indicates the ongoing profitability of the Company excluding the cost of capital and income taxes.

Operating Income (Loss) by Business Segment



	Three Months Ended
	March 31,
(In millions)	2013			2012
OG&E (Electric Utility)	$	52.9		$	39.8
Enogex (Natural Gas Midstream Operations)
Natural gas transportation and storage (A)	12.2			15.2
Natural gas gathering and processing	12.2			43.5
Other Operations (B)	(1.9		)	(0.2		)
Consolidated operating income	$	75.4		$	98.3


(A)	During the third quarter of 2012, the operations and activities of EER were fully integrated with those of Enogex through the creation of a new commodity management organization. The operations of EER, including asset management activities, have been included in the natural gas transportation and storage segment and have been restated for all prior periods presented.


(B)	Other Operations primarily includes the operations of the holding company and consolidating eliminations.

The following operating income analysis by business segment includes intercompany transactions that are eliminated in the Condensed Consolidated Financial Statements.

OG&E (Electric Utility)



	Three Months Ended
	March 31,
(Dollars in millions)	2013		2012
Operating revenues	$	455.5	$	426.7
Cost of goods sold	213.0		195.5
Gross margin on revenues	242.5		231.2
Other operation and maintenance	105.1		110.6
Depreciation and amortization	61.3		59.7
Taxes other than income	23.2		21.1
Operating income	52.9		39.8
Interest income	0.1		—
Allowance for equity funds used during construction	1.2		1.9
Other income	2.6		5.2
Other expense	0.5		0.7
Interest expense	31.4