Vectren 2008 Annual Report Download - page 46

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44
Energy Marketing & Services
Energy Marketing and Services is comprised of the Company’s gas marketing operations, energy management
services, and retail gas supply operations. Results, inclusive of holding company costs, from Energy Marketing and
Services for the year ended December 31, 2008, were earnings of $18.0 million compared to $22.3 million in 2007
and $14.9 million in 2006.
ProLiance
ProLiance, a nonutility energy marketing affiliate of Vectren and 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. Vectren received regulatory approval on April 25, 2006, from the IURC for ProLiance to
continue to provide natural gas supply services to the Company’s Indiana utilities through March 2011.
During 2008, ProLiance’s earnings contribution was $19.3 million compared to $22.9 million in 2007 and $18.3
million in 2006. The $3.6 million decrease in 2008 compared to 2007 reflects lower operating results and a reserve
for the FERC matter described below. Results in 2006 contain a $6.6 million after tax charge associated with the
settlement of a lawsuit which originated from a dispute over a contractual relationship with Huntsville Utilities
during 2000 – 2002. In 2007, increased earnings from greater storage capacity were offset by lower volatility in the
wholesale natural gas markets, compared to 2006. ProLiance’s storage capacity was 42 BCF at December 31, 2008
compared to 40 BCF at December 31, 2007 and 35 BCF at the end of 2006.
Regulatory Matter
ProLiance self reported to the Federal Energy Regulatory Commission (FERC) in October 2007 possible non-
compliance with the FERC’s capacity release policies. ProLiance has taken corrective actions to assure that current
and future transactions are compliant. ProLiance is committed to full regulatory compliance and is cooperating
fully with the FERC regarding these issues. ProLiance believes that it has adequately reserved for this matter.
Although the outcome of any legal or regulatory proceedings resulting from these matters cannot be predicted, the
final resolution of these matters is not expected to have a material impact on the Company’s consolidated operating
results, financial position or cash flows.
Investment in Liberty Gas Storage
Liberty Gas Storage, LLC (Liberty) is a joint venture between a subsidiary of ProLiance and a subsidiary of Sempra
Energy (SE). ProLiance is the minority member with a 25 percent interest, which it accounts for using the equity
method. Liberty holds a long-term lease of storage and mineral rights associated with existing salt dome storage
caverns in southern Louisiana, near Sulphur, Louisiana. Liberty also owns a second site near Hackberry, Louisiana
with three additional existing salt dome storage caverns. The members anticipated it would provide high
deliverability storage services via the salt dome caverns at both locations and, once developed under current plans,
there would be approximately 35 billion cubic feet of working gas capacity at the two sites. ProLiance has a long
term contract for approximately 5 Bcf of working gas capacity. The total project investment at the Sulphur site
through December 31, 2008 is approximately $200 million. ProLiance’s portion of the investment is estimated at
approximately $50 million.
On October 27, 2008, SE confirmed to ProLiance that the completion of this phase of Liberty’s development at the
Sulphur site has been delayed by subsurface and well-completion problems. Corrective measures are ongoing and
should they prove to be unsuccessful, the salt-cavern facility may not go into service, or may have reduced capacity
when placed in service. ProLiance has tested its investment in Liberty for impairment assuming the corrective
measures currently being deployed are successful and has determined that its investment is not impaired at
December 31, 2008. However, the success of these corrective measures may not be known until later in 2009.
Based on information received from SE concerning the maximum estimated possible exposure, ProLiance estimates