Vectren 2008 Annual Report Download - page 19

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17
Nonutility Group
The Company is involved in nonutility activities in three primary business areas: Energy Marketing and Services,
Coal Mining, and Energy Infrastructure Services.
Energy Marketing and Services
The Energy Marketing and Services group relies heavily on a customer focused, value added strategy in three areas:
gas marketing, energy management, and retail gas supply.
ProLiance
ProLiance Holdings, LLC (ProLiance), a nonutility energy marketing affiliate of Vectren and Citizens Energy
Group (Citizens), provides services to a broad range of municipalities, utilities, industrial operations, schools, and
healthcare institutions located throughout the Midwest and Southeast United States. ProLiance’s customers include
Vectren’s Indiana utilities and nonutility gas supply operations and Citizens’ utilities. ProLiance’s primary
businesses include gas marketing, gas portfolio optimization, and other portfolio and energy management services.
Consistent with its ownership percentage, Vectren is allocated 61 percent of ProLiance’s profits and losses;
however, governance and voting rights remain at 50 percent for each member; and therefore, the Company
accounts for its investment in ProLiance using the equity method of accounting. The Company, including its retail
gas supply operations, contracted for 75 percent of its natural gas purchases through ProLiance in 2008.
For the year ended December 31, 2008, ProLiance’s revenues, including sales to Vectren companies, were $2.9
billion, compared to $2.3 billion in 2007 and $2.5 billion in 2006. During the three years ended December 31,
2008, the pre-tax earnings of ProLiance have exceeded 20 percent of Vectren’s pre-tax earnings in certain annual
periods. In accordance with Regulation S-X, paragraph 3-09, ProLiance’s audited financial statements as of and for
its fiscal years ending September 30, 2008, 2007, and 2006, are included as Exhibit 99.1 to this Form 10-K.
Vectren Source
Vectren Retail, LLC (d/b/a Vectren Source) provides natural gas and other related products and services in the
Midwest and Northeast United States to over 170,000 residential and commercial customers. This customer base
reflects approximately 50,000 of VEDO’s customers that have voluntarily opted to choose their natural gas supplier
and the supply of natural gas to nearly 40,000 equivalent customers in VEDO’s service territory as part of VEDO’s
process of exiting the merchant function, which began October 1, 2008. Further, the customer base also reflects a
reduction due to exiting the Georgia market in 2008. Vectren Source generated approximately $182.6 million in
revenues for 2008 compared to $168.3 million in 2007 and $162.5 million in 2006. Gas sold approximated 16,210
MDth in 2008; 13,543 MDth in 2007; and 12,228 MDth in 2006. Average customers served by Vectren Source
were 157,000 in 2008; 154,000 in 2007; and 144,000 in 2006.
Coal Mining
The Coal Mining group mines and sells coal to the Company’s utility operations and to other third parties through
its wholly owned subsidiary, Vectren Fuels, Inc (Fuels). In 2008, the Company operated one underground mine
(Prosperity) and one surface mine (Cypress Creek). Both mines are located in Indiana. All coal is high-to-mid
sulfur bituminous coal from the Illinois Basin. The Company engages contract mining companies to perform
substantially all mining operations.
Oaktown Mine Expansion
In April 2006, Fuels announced plans to open two new underground mines. Production is expected to begin in mid
2009, with the second mine opening late the following year. Current reserves at the two mines are estimated at 88
million tons. Once in full production, the two new mines are expected to produce 5 million tons of coal per year.
Of the total $170 million expected investment, the Company has invested $68 million, inclusive of $23 million in
land and buildings, $38 million in mine development and equipment, and $7 million in advanced royalty payments,
through December 31, 2008.
The Oaktown mine infrastructure is located on 1,100 acres near Oaktown in Knox County, Indiana. Oaktown’s
location is within 50 miles of multiple coal-fired power plants including a coal gasification plant currently under
construction. It is estimated approximately 25,000 acres of coal will be mined during the life of the mine. Access