Vectren 2010 Annual Report Download - page 24

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negative impact on utility industry spending for construction projects, demand for natural gas and coal, and spending on
performance contracting and renewable energy expansion. It is also possible that if the current conditions continue, they could
lead to further reductions in the value of certain nonutility real estate and other legacy investments.
Financial market volatility could have adverse impacts.
The capital and credit markets may experience volatility and disruption. If market disruption and volatility occurs, there can be
no assurance that the Company, or its unconsolidated affiliates, will not experience adverse effects, which may be material.
These effects may include, but are not limited to, difficulties in accessing the short and long-term debt capital markets and the
commercial paper market, increased borrowing costs associated with current short-term debt obligations, higher interest rates in
future financings, and a smaller potential pool of investors and funding sources. Finally, there is no assurance the Company will
have access to the equity capital markets to obtain financing when necessary or desirable.
A downgrade (or negative outlook) in or withdrawal of Vectren’s credit ratings could negatively affect its ability to
access capital and its cost.
The following table shows the current ratings assigned to certain outstanding debt by Moody’s and Standard & Poor’s:
Current Rating
Standard
Moody’s & Poor’s
Utility Holdings and Indiana Gas senior unsecured debt A3 A-
Utility Holdings commercial paper program P-2 A-2
SIGECO’s senior secured debt A1 A
The current outlook of both Standard and Poor’s and Moody’s is stable and both categorize the ratings of the above securities
as investment grade. A security rating is not a recommendation to buy, sell, or hold securities. The rating is subject to revision
or withdrawal at any time, and each rating should be evaluated independently of any other rating. Standard and Poor’s and
Moody’s lowest level investment grade rating is BBB- and Baa3, respectively.
If the rating agencies downgrade the Company’s credit ratings, particularly below investment grade, or initiate negative outlooks
thereon, or withdraw Vectren’s ratings or, in each case, the ratings of its subsidiaries, it may significantly limit Vectren’s access
to the debt capital markets and the commercial paper market, and the Company’s borrowing costs would increase. In addition,
Vectren would likely be required to pay a higher interest rate in future financings, and its potential pool of investors and funding
sources would likely decrease. Finally, there is no assurance that the Company will have access to the equity capital markets to
obtain financing when necessary or desirable.
Vectren’s gas and electric utility sales are concentrated in the Midwest.
The operations of the Company’s regulated utilities are concentrated in central and southern Indiana and west central Ohio and
are therefore impacted by changes in the Midwest economy in general and changes in particular industries concentrated in the
Midwest. These industries include automotive assembly, parts and accessories, feed, flour and grain processing, metal
castings, aluminum products, polycarbonate resin (Lexan®) and plastic products, gypsum products, electrical equipment, metal
specialties, glass, steel finishing, pharmaceutical and nutritional products, gasoline and oil products, ethanol and coal mining.
Vectren operates in an increasingly competitive industry, which may affect its future earnings.
The utility industry has been undergoing structural change for several years, resulting in increasing competitive pressure faced
by electric and gas utility companies. Increased competition may create greater risks to the stability of Vectren’s earnings
generally and may in the future reduce its earnings from retail electric and gas sales. Currently, several states, including Ohio,
have passed legislation that allows customers to choose their electricity supplier in a competitive market. Indiana has not
enacted such legislation. Ohio regulation also provides for choice of commodity providers for all gas customers. In 2003, the
Company implemented this choice for its gas customers in Ohio and is currently in the second of the three phase process to exit
the merchant function in its Ohio service territory. The state of Indiana has not adopted any regulation requiring gas choice in
the Company’s Indiana service territories; however, the Company operates under approved tariffs permitting certain industrial
and commercial large volume customers to choose their commodity supplier. Vectren cannot provide any assurance that
increased competition or other changes in legislation, regulation or policies will not have a material adverse effect on its
business, financial condition or results of operations.