Vectren 2008 Annual Report Download - page 34

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32
Results of Operations of the Utility Group
The Utility Group is comprised of Utility Holdings’ operations. The operations of the Utility Group consist of the
Company’s regulated operations and other operations that provide information technology and other support
services to those regulated operations. Regulated operations consist of a natural gas distribution business that
provides natural gas distribution and transportation services to nearly two-thirds of Indiana and to west central Ohio
and an electric transmission and distribution business, which provides electric distribution services primarily to
southwestern Indiana, and the Company’s power generating and wholesale power operations. In total, these
regulated operations supply natural gas and/or electricity to over one million customers. Utility Group operating
results before certain intersegment eliminations and reclassifications for the years ended December 31, 2008, 2007,
and 2006, follow:
(In millions, except per share data) 2008 2007 2006
OPERATING REVENUES
Gas utilit
y
1,432.7$ 1,269.4$ 1,232.5$
Electric utilit
y
524.2 487.9 422.2
Othe
r
1.8 1.7 1.8
Total operating revenues 1,958.7 1,759.0 1,656.5
OPERATING EXPENSES
Cost of gas sold 983.1 847.2 841.5
Cost of fuel & purchased powe
r
182.9 174.8 151.5
Other operating 300.3 266.1 239.0
Depreciation & amortization 165.5 158.4 151.3
Taxes other than income taxes 72.3 68.1 64.2
Total operating expenses 1,704.1 1,514.6 1,447.5
OPERATING INCOME 254.6 244.4 209.0
Other income - net 4.0 9.4 7.6
Interest expense 79.9 80.6 77.5
INCOME BEFORE INCOME TAXES 178.7 173.2 139.1
Income taxes 67.6 66.7 47.7
NET INCOME 111.1$ 106.5$ 91.4$
CONTRIBUTION TO VECTREN BASIC EPS 1.42$ 1.40$ 1.21$
Year Ended December 31,
Significant Fluctuations
Utility Group Margin
Throughout this discussion, the terms Gas Utility margin and Electric Utility margin are used. Gas Utility margin
is calculated as Gas utility revenues less the Cost of gas. Electric Utility margin is calculated as Electric utility
revenues less Cost of fuel & purchased power. The Company believes Gas Utility and Electric Utility margins are
better indicators of relative contribution than revenues since gas prices and fuel costs can be volatile and are
generally collected on a dollar-for-dollar basis from customers.
Sales of natural gas and electricity to residential and commercial customers are seasonal and are impacted by
weather. Trends in average use among natural gas residential and commercial customers have tended to decline in
recent years as more efficient appliances and furnaces are installed and the price of natural gas has increased.
Normal temperature adjustment (NTA) and lost margin recovery mechanisms largely mitigate the effect on Gas
Utility margin that would otherwise be caused by variations in volumes sold to these customers due to weather and
changing consumption patterns. Indiana Gas’ territory has both an NTA since 2005 and lost margin recovery since
December 2006. SIGECO’s natural gas territory has an NTA since 2005, and lost margin recovery began when
new base rates went into effect August 1, 2007. The Ohio service territory had lost margin recovery since October