Vectren 2008 Annual Report Download - page 37

Download and view the complete annual report

Please find page 37 of the 2008 Vectren annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 123

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123

35
Further detail of Wholesale activity follows:
(In millions) 2008 2007 2006
Off-system sales, net of sharing in 2008 23.2$ 16.9$ 14.2$
Transmission system sales 9.3 4.0 3.5
Other - - (4.1)
Total wholesale margin 32.5$ 20.9$ 13.6$
Year Ended December 31,
For the year ended December 31, 2008, wholesale margins were $32.5 million, representing an increase of $11.6
million, compared to 2007.
During 2008, margin from off-system sales retained by the Company increased $6.3 million. The Company
experienced higher wholesale power marketing margins due to the increase in off peak volumes available for sale
off system, driven primarily by expiring municipal contracts, and increases in wholesale prices. The base rate case
effective August 17, 2007, requires that wholesale margin from off-system sales earned above or below $10.5
million be shared equally with customers, and 2008 results reflect the impact of that sharing. Off-system sales
totaled 1,512.9 GWh in 2008, compared to 921.3 GWh in 2007 and 889.4 GWh in 2006.
Beginning in June 2008, the Company began earning a return on electric transmission projects constructed by the
Company in its service territory that benefit reliability throughout the region. These returns primarily account for
the year over year increase of $4.8 million in transmission system sales.
For the year ended December 31, 2007, wholesale margins were $20.9 million, which represents an increase of $7.3
million, compared to 2006. The increase is primarily due to losses on financial contracts experienced in 2006 and
higher fourth quarter wholesale prices. In 2006, the availability of excess capacity was reduced by scheduled
outages associated with the installation of environmental compliance equipment.
Utility Group Operating Expenses
Other Operating
For the year ended December 31, 2008, other operating expenses were $300.3 million, which represents an increase of
$34.2 million, compared to 2007. Costs in 2008 resulting from increased maintenance and other reliability activities,
including amortization of prior deferred costs contemplated in base rate increases, increased approximately $35.3
million year over year. Operating costs that are directly recovered in utility margin increased $4.2 million year over
year. Costs associated with lower performance compensation and share based compensation and other cost reductions
partially offset these increases.
In 2007, other operating expenses increased $27.1 million compared to 2006. Operating costs that are directly
recovered in utility margin, including costs funding Indiana energy efficiency programs, increased $9.5 million year
over year. Increases in operating costs associated with lost margin recovery and conservation initiatives that are not
directly recovered in margin increased $1.3 million year over year. Costs directly attributable to the Vectren South
rate cases, including amortization of prior deferred costs, totaled $3.6 million in 2007. Expenses in 2006 are offset
by the gain on the sale of a storage asset of approximately $4.4 million. The remaining increases are primarily due
to increased wage and benefit costs.
Depreciation & Amortization
Depreciation expense increased $7.1 million in 2008 compared to 2007 as well as in 2007 compared to 2006. Expense
in 2008 and 2007 includes $3.8 million and $1.8 million, respectively of increased amortization associated with prior
electric demand side management costs pursuant to the August 15, 2007 electric base rate order. The remaining
increases are also attributable to increased utility plant in service.