Vectren 2010 Annual Report Download - page 105

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Vectren North Gas Base Rate Order Received
On February 13, 2008, the Company received an order from the IURC which approved the settlement agreement reached in its
Vectren North gas rate case. The order provided for a base rate increase of $16.3 million and a return on equity (ROE) of 10.2
percent, with an overall rate of return of 7.8 percent on rate base of approximately $793 million. The order also provided 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 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 from the in-service date for each specific project.
With this order, the Company has in place for its North gas territory weather normalization, a conservation and decoupling
mechanism, recovery of gas cost expense related to uncollectible accounts expense based on historical experience and
tracking of unaccounted for gas costs through the existing GCA mechanism, and tracking of pipeline integrity management
expense.
MISO Transactions
The Company is a member of the MISO, a FERC approved regional transmission organization. When the Company is a net
seller of its generation, such net revenues, which totaled $24.9 million, $20.8 million, and $57.6 million for the twelve months
ended December 31, 2010, 2009, and 2008, respectively, are included in Electric utility revenues. When the Company is a net
purchaser such net purchases, which totaled $46.1 million, $34.4 million, and $16.6 million for the twelve months ended
December 31, 2010, 2009, and 2008, respectively, are included in Cost of fuel & purchased power. Net positions are
determined on an hourly basis.
The Company also receives transmission revenue from the MISO which is included in Electric utility revenues and totaled $18.8
million, $14.6 million, and $9.3 million for the twelve months ended December 31, 2010, 2009, and 2008, respectively. These
revenues result from other MISO members’ use of the Company’s transmission system as well as the recovery of the
Company’s investment in certain new electric transmission projects meeting MISO’s transmission expansion plan criteria.
18. Fair Value Measurements
The carrying values and estimated fair values of the Company's other financial instruments follow:
Carrying
Amount Est. Fair Value
Carrying
Amount Est. Fair Value
Long-term debt 1,715.9$ 1,767.3$ 1,639.8$ 1,720.1$
Short-term borrowings & notes payable 118.3 118.3 213.5 213.5
Cash & cash equivalents 10.4
10.4 11.9 11.9
(In millions)
2010 2009
At December 31,
For the balance sheet dates presented in these financial statements, the Company had no material assets or liabilities recorded
at fair value outstanding, and no material assets or liabilities valued using Level 3 inputs.
Certain methods and assumptions must be used to estimate the fair value of financial instruments. The fair value of the
Company's long-term debt was estimated based on the quoted market prices for the same or similar issues or on the current
rates offered to the Company for instruments with similar characteristics. Because of the maturity dates and variable interest
rates of short-term borrowings and cash & cash equivalents, those carrying amounts approximate fair value. Because of the
inherent difficulty of estimating interest rate and other market risks, the methods used to estimate fair value may not always be
indicative of actual realizable value, and different methodologies could produce different fair value estimates at the reporting
date.