Vectren 2008 Annual Report Download - page 99

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97
million. The order also provides for the recovery of $10.6 million of costs through separate cost recovery
mechanisms rather than base rates.
Further, additional expenditures for a multi-year bare steel and cast iron capital replacement program will be
afforded certain accounting treatment that mitigates earnings attrition from the investment between rate cases. The
accounting treatment allows for the continuation of the accrual for allowance for funds used during construction
(AFUDC) and the deferral of depreciation expense after the projects go in service but before they are included in
base rates. To qualify for this treatment, the annual expenditures are limited to $20 million and the treatment
cannot extend beyond four years on each project.
With this order, the Company has in place for its North gas territory weather normalization, a conservation and lost
margin recovery tariff, tracking of gas cost expense related to a bad debt expense level based on historical
experience and unaccounted for gas through the existing gas cost adjustment mechanism, and tracking of pipeline
integrity management expense.
Vectren South (SIGECO) Electric Base Rate Order Received
On August 15, 2007, the Company received an order from the IURC which approved the settlement reached in
Vectren South’s electric rate case. The order provided for an approximate $60.8 million electric rate increase to
cover the Company’s cost of system growth, maintenance, safety and reliability. The order provided for, among
other things: recovery of ongoing costs and deferred costs associated with the MISO; operations and maintenance
(O&M) expense increases related to managing the aging workforce, including the development of expanded
apprenticeship programs and the creation of defined training programs to ensure proper knowledge transfer, safety
and system stability; increased O&M expense necessary to maintain and improve system reliability; benefit to
customers from the sale of wholesale power by Vectren sharing equally with customers any profit earned above or
below $10.5 million of wholesale power margin; recovery of and return on the investment in past demand side
management programs to help encourage conservation during peak load periods; timely recovery of the Company’s
investment in certain new electric transmission projects that benefit the MISO infrastructure; an overall rate of
return of 7.32 percent on rate base of approximately $1,044 million and an allowed ROE of 10.4 percent.
Vectren South Gas Base Rate Order Received
On August 1, 2007, the Company received an order from the IURC which approved the settlement reached in
Vectren South’s gas rate case. The order provided for a base rate increase of $5.1 million and a ROE of 10.15
percent, with an overall rate of return of 7.2 percent on rate base of approximately $122 million. The order also
provided for the recovery of $2.6 million of costs through separate cost recovery mechanisms rather than base rates.
Further, additional expenditures for a multi-year bare steel and cast iron capital replacement program will be
afforded certain accounting treatment that mitigates earnings attrition from the investment between rate cases. The
accounting treatment allows for the continuation of the accrual for allowance for funds used during construction
(AFUDC) and the deferral of depreciation expense after the projects go in service but before they are included in
base rates. To qualify for this treatment, the annual expenditures are limited to $3 million and the treatment cannot
extend beyond three years on each project.
With this order, the Company now has in place for its South gas territory weather normalization, a conservation and
lost margin recovery tariff, tracking of gas cost expense related to a bad debt expense level based on historical
experience and unaccounted for gas through the existing gas cost adjustment mechanism, and tracking of pipeline
integrity management expense.
MISO
Since February 2002 and with the IURC’s approval, the Company has been a member of the Midwest Independent
System Operator, Inc. (MISO), a FERC approved regional transmission organization. The MISO serves the
electrical transmission needs of much of the Midwest and maintains operational control over the Company’s
electric transmission facilities as well as that of other Midwest utilities. Since April 1, 2005, the Company has been
an active participant in the MISO energy markets, bidding its owned generation into the Day Ahead and Real Time
markets and procuring power for its retail customers at Locational Marginal Pricing (LMP) as determined by the
MISO market.