Vectren 2010 Annual Report Download - page 37

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Utility Group Margin
Throughout this discussion, the terms Gas Utility margin and Electric Utility margin are used. Gas Utility margin is calculated as
Gas utility revenues less the Cost of gas sold. Electric Utility margin is calculated as Electric utility revenues less Cost of fuel &
purchased power. The Company believes Gas Utility and Electric Utility margins are better indicators of relative contribution
than revenues since gas prices and fuel and purchased power costs can be volatile and are generally collected on a dollar-for-
dollar basis from customers. Following is a discussion and analysis of margin generated from regulated utility operations.
Gas Utility Margin (Gas utility revenues less Cost of gas sold)
Gas utility margin and throughput by customer type follows:
(In millions) 2010 2009 2008
Gas utility revenues 954.1$ 1,066.0$ 1,432.7$
Cost of gas sold 504.7 618.1 983.1
Total gas utility margin 449.4$ 447.9$ 449.6$
Margin attributed to:
Residential & commercial customers 385.1$ 388.8$ 385.5$
Industrial customers 52.4 46.8 51.2
Other 11.9 12.3 12.9
Sold & transported volumes in MMDth attributed to:
Residential & commercial customers 106.2 106.5 114.8
Industrial customers 90.8 78.0 91.5
Total sold & transported volumes 197.0 184.5 206.3
Year Ended December 31,
Over the three years ended December 31, 2010, there has been a decline in the volumes sold to residential and commercial
customers driven by weather and changing consumption patterns. However, the impact on margin has been generally offset as
planned by rate design strategies and the implementation of new base rates in two of the three gas service territories. Large
customer volumes were impacted by the recession, falling approximately 15 percent in 2009 compared to 2008. With the
economy stabilizing in 2010, volumes in 2010 returned to 2008 levels. The shifting volumes were the principal reason for the
change in large customer margin in those years. The average cost per dekatherm of gas purchased during 2010 was $5.99,
compared to $5.97 in 2009 and $9.61 in 2008.
For the year ended December 31, 2010, gas utility margins were $449.4 million and compared to 2009 increased $1.5 million.
Management estimates an increase of $2.4 million due to Ohio rate design changes, as described below. Large customer
margin, net of the impacts of regulatory initiatives and tracked costs, increased by $5.7 million due primarily to increased
volumes sold. Margin decreased $1.9 million due to lower miscellaneous revenues and other revenues associated with lower
gas costs. The remaining decrease is primarily due to a $5.0 million decrease for lower operating expenses and revenue taxes
directly recovered in margin.
For the year ended December 31, 2009, gas utility margins decreased $1.7 million compared to 2008. Management estimates
a $4.4 million year over year decrease in industrial customer margin associated with lower volumes sold, and slightly lower
residential and commercial customer counts decreased margin approximately $1.7 million. These recessionary impacts were
offset by margin associated with regulatory initiatives. Among all customer classes, margin increases associated with regulatory
initiatives, including the full impact of the Vectren North base rate increase effective in February 2008 and the Vectren Ohio
base rate increase effective February 2009, were $8.4 million year over year. The impact of operating costs, including revenue
and usage taxes, recovered in margin was unfavorable $2.9 million year over year, reflecting lower revenue taxes offset by
higher pass through operating expenses. The remaining decrease primarily relates to Ohio weather and lower miscellaneous
revenues associated with reconnection fees. The lower fees as well as the lower revenue and usage taxes correlate with lower
year over year gas costs.