Vectren 2010 Annual Report Download - page 40

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38
Taxes Other Than Income Taxes
Taxes other than income taxes decreased $0.7 million in 2010 compared to 2009 and decreased $12.0 million in 2009
compared to 2008. These taxes are primarily revenue-related taxes. The variations are primarily attributable to volatility in
revenues, inclusive of changes in natural gas prices and gas volumes sold. These tax expenses are recovered through
revenue.
Other Income-Net
Other income-net reflects income of $5.4 million in 2010, compared to income of $7.8 million in 2009 and $4.0 million in 2008.
The higher earnings in 2009 reflect the partial recovery from the 2008 market declines associated with investments related to
benefit plans.
Interest Expense
For the year ended December 31, 2010, interest expense was $81.4 million, compared to $79.2 million in 2009 and $79.9
million in 2008. The $2.2 million increase in 2010 compared to 2009 reflects the impact of long-term financing transactions
completed in 2009, offset by lower interest from less debt outstanding overall. The slight decrease in interest expense in 2009
compared to 2008 reflects lower short-term interest rates and lower average short-term debt balances. The lower short-term
balances were reflective of lower gas prices and the issuance of new long-term debt. The long-term financing transactions
completed in 2009 include a second quarter issuance by Utility Holdings of $100 million in unsecured eleven year notes with an
interest rate of 6.28 percent and a third quarter completion by SIGECO of a $22.3 million debt issuance of 31 year tax exempt
first mortgage bonds with an interest rate of 5.4 percent.
Income Taxes
Federal and state income taxes were $77.1 million in 2010, compared to $59.2 million in 2009 and $67.6 million in 2008. The
annual change is primarily impacted by greater pre-tax income in 2010 and no manufacturing tax deduction in 2010 as a result
of significant bonus depreciation driving down qualifying income. In addition, the lower effective tax rate in 2009 reflects a
greater share of taxable income in states with low, or no, state income taxes.
During the first quarter of 2010, the Company recorded a $2.3 million increase to its deferred tax liabilities associated with a
change in the federal tax treatment of the Medicare Part D subsidy as a result of the Patient Protection and Affordable Care Act
and the Health Care and Education Reconciliation Act of 2010 signed by the President as of the end of March 2010. Like tax
law changes in the past, it is expected that the impact of this change will be reflected in customer rates in the future. As a
result, the Company has recorded a $5.1 million regulatory asset related to this matter in its financial statements at December
31, 2010.
Environmental Matters
Clean Air Act
The Clean Air Interstate Rule (CAIR) is an allowance cap and trade program that required reductions from coal-burning power
plants for NOx emissions beginning January 1, 2009 and SO2 emissions beginning January 1, 2010, with a second phase of
reductions in 2015. On July 11, 2008, the US Court of Appeals for the District of Columbia vacated the federal CAIR
regulations. Various parties filed motions for reconsideration, and on December 23, 2008, the Court reinstated the CAIR
regulations and remanded the regulations back to the EPA for promulgation of revisions in accordance with the Court’s July 11,
2008 order. Thus, the original version of CAIR promulgated in March of 2005 remains effective while EPA revises it per the
Court’s guidance. SIGECO is in compliance with the current CAIR Phase I annual NOx reduction requirements in effect on
January 1, 2009, and the Phase I annual SO2 reduction requirements in effect on January 1, 2010. Utilization of the Company’s
inventory of NOx and SO2 allowances may also be impacted if CAIR is further revised. Most of these allowances were granted
to the Company at zero cost; therefore, any reduction in carrying value that could result from future changes in regulations
would be immaterial.
Similarly, in March of 2005, EPA promulgated the Clean Air Mercury Rule (CAMR). CAMR is an allowance cap and trade
program requiring further reductions in mercury emissions from coal-burning power plants. The CAMR regulations were
vacated by the US Court of Appeals for the DC Circuit in July 2008. In response to the court decision, EPA has announced that
it intends to publish proposed Maximum Achievable Control Technology standards for mercury in 2011. It is uncertain what
emission limit the EPA is considering, and whether they will address hazardous pollutants in addition to mercury.