Vectren 2008 Annual Report Download - page 5

Letter To Shareholders:
Live Smart. Simple words that have endless meaning.
For Vectren, it’s the philosophy we have adopted in our
partnership with customers that promotes using energy
wisely in the uncertain times ahead. In 2008, we modied
our mission statement and expanded our energy efciency
programs and sustainability efforts to reect this new
cooperative environment. In addition, we ofcially changed
our brand to Live Smart.
This concept is spreading throughout both our utility and
nonutility businesses. Whether we’re providing an incentive
for a residential customer to purchase a high-efciency water
heater, tapping an Indiana landll to harvest bio-fuel or
transitioning our energy delivery eet to hybrid vehicles, our
goal is to become an industry leader in helping customers
manage their energy usage as well as our own. This new
customer relationship will help us adapt to the ever-changing
energy business through innovative regulatory solutions and
an evolving business model that has helped us align our
interests with those of all our stakeholders.
2008 Financial Results
2008 was certainly a break-through year from a customer
focus standpoint; however, from a nancial perspective, we
encountered some challenges. Reported 2008 net income
was $129.0 million, or $1.65 per share, compared to 2007
results of $143.1 million, or $1.89 per share.
Vectren’s 2008 utility earnings were $111.1 million,
compared to $106.5 million in 2007. The $4.6 million
increase was primarily due to a full year of base rate
changes in the Indiana service territories and increased
earnings from wholesale power operations. Increases were
partially offset by increased operating costs associated with
maintenance and reliability programs contemplated in the
base rate cases and less favorable weather in 2008. Over
the last 18 months, Vectren has brought to conclusion base
rate adjustments in all of our service territories, the most
recent being the Ohio rate order approved in January 2009.
Included in our natural gas rate orders are mechanisms that
allow Vectren to promote customer conservation efforts while
maintaining and improving system reliability. These orders
also include new rate designs that provide a more stable
recovery of our xed operating costs.
Vectren’s 2008 nonutility earnings were $18.9 million,
compared to $37.0 million in 2007. Earnings from our
primary nonutility operations, Energy Marketing and Services,
Coal Mining and Energy Infrastructure Services in 2008
were $24.8 million, compared to $33.7 million in 2007. Coal
Mining operated at a loss, and results were approximately
$6.6 million lower than the prior year due primarily to
lower production and increased roong structure costs as
a result of revised Mine Safety and Health Administration
regulatory guidelines that necessitated changes to the mining
plan. ProLiance Energy’s (ProLiance) earnings were $3.6
million lower than the prior year due to lower operating
results as well as a reserve for a Federal Energy Regulatory
Commission matter pertaining to pipeline capacity release
policies. ProLiance has taken the corrective actions needed to
assure that current and future transactions are in compliance.
The results from the other primary nonutility operations
reect record earnings from the performance contracting
and renewable energy construction operations of Energy
Systems Group (ESG) and the retail gas marketing
operations of Vectren Source. Miller Pipeline’s (Miller)
results were comparable to the prior year, which was a
record year for Miller.
Other nonutility businesses are comprised of legacy
investments, including investments in commercial real
estate. As a result of the economy impacting commercial
real estate values during 2008, the company recorded an
after-tax impairment charge of $5.9 million associated
with these investments.
Vectren 2008 3