Vectren 2010 Annual Report Download - page 25

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A significant portion of Vectren’s electric utility sales are space heating and cooling. Accordingly, its operating results
may fluctuate with variability of weather.
Vectren’s electric utility sales are sensitive to variations in weather conditions. The Company forecasts utility sales on the basis
of normal weather. Since Vectren does not have a weather-normalization mechanism for its electric operations, significant
variations from normal weather could have a material impact on its earnings. However, the impact of weather on the gas
operations in the Company’s Indiana territories has been significantly mitigated through the implementation in 2005 of a normal
temperature adjustment mechanism. Additionally, the implementation of a straight fixed variable rate design in a January 2009
PUCO order mitigates most weather risk related to Ohio residential gas sales.
Risks related to the regulation of Vectren’s utility businesses, including environmental regulation, could affect the
rates the Company charges its customers, its costs and its profitability.
Vectren’s businesses are subject to regulation by federal, state, and local regulatory authorities and are exposed to public policy
decisions that may negatively impact the Company’s earnings. In particular, Vectren is subject to regulation by the FERC, the
NERC, the EPA, the IURC, and the PUCO. These authorities regulate many aspects of its transmission and distribution
operations, including construction and maintenance of facilities, operations, and safety, and its gas marketing operations
involving title passage, reliability standards, and future adequacy. In addition, these regulatory agencies approve its utility-
related debt and equity issuances, regulate the rates that Vectren’s utilities can charge customers, the rate of return that
Vectren’s utilities are authorized to earn, and its ability to timely recover gas and fuel costs. Further, there are consumer
advocates and other parties which may intervene in regulatory proceedings and affect regulatory outcomes. The Company’s
ability to obtain rate increases to maintain its current authorized rates of return depends upon regulatory discretion, and there
can be no assurance that Vectren will be able to obtain rate increases or rate supplements or earn its current authorized rates of
return.
Vectren’s operations and properties are subject to extensive environmental regulation pursuant to a variety of federal, state and
municipal laws and regulations. These environmental regulations impose, among other things, restrictions, liabilities, and
obligations in connection with storage, transportation, treatment, and disposal of hazardous substances and waste in connection
with spills, releases, and emissions of various substances in the environment. Such airborne emissions from electric generating
facilities include particulate matter, sulfur dioxide (SO2), nitrogen oxide (NOx), and mercury, among others.
Environmental legislation/regulation also requires that facilities, sites, and other properties associated with Vectren’s operations
be operated, maintained, abandoned, and reclaimed to the satisfaction of applicable regulatory authorities. The Company’s
current costs to comply with these laws and regulations are significant to its results of operations and financial condition. In
addition, claims against the Company under environmental laws and regulations could result in material costs and liabilities.
With the trend toward stricter standards, greater regulation, more extensive permit requirements and an increase in the number
and types of assets operated by Vectren subject to environmental regulation, its investment in environmentally compliant
equipment, and the costs associated with operating that equipment, have increased and are expected to increase in the future.
As examples of the trend toward stricter regulation, the EPA is currently reviewing/revising regulations involving fly ash disposal,
cooling tower intake facilities, greenhouse gases, and airborne emissions such as SO2 and NOx.
Climate change regulation could negatively impact operations.
There are proposals to address global climate change that would regulate carbon dioxide (CO2) and other greenhouse gases
and other proposals that would mandate an investment in renewable energy sources. Any future legislative or regulatory
actions taken by the EPA or other agencies to address global climate change or mandate renewable energy sources could
substantially affect both the costs and operating characteristics of the Company’s fossil fuel generating plants, nonutility coal
mining operations, and natural gas distribution businesses. Further, such legislation or regulatory action would likely impact the
Company’s generation resource planning decisions. At this time and in the absence of final legislation or regulatory mandates,
compliance costs and other effects associated with reductions in greenhouse gas emissions or obtaining renewable energy
sources remain uncertain. The Company has gathered preliminary estimates of the costs to control greenhouse gas emissions.
A preliminary investigation demonstrated costs to comply would be significant, first with regard to operating expenses and later
for capital expenditures as technology becomes available to control greenhouse gas emissions. However, these compliance
cost estimates are based on highly uncertain assumptions, including allowance prices if a cap and trade approach were
employed, and energy efficiency targets.