Vectren 2010 Annual Report Download - page 50

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the year ended December 31, 2010, the Company paid approximately $0.7 million related to assessments issued to the mine
operators.
More detailed information about the Company’s mines, including safety-related data, can be found at MSHA’s website,
www.MSHA.gov. Prosperity operates under the MSHA identification number 1202249; the Oaktown mining complex operates
under the identification numbers 1202394 and 1202418; and Cypress Creek’s identification number is 1202178. Mine safety-
related data included on the MSHA website is influenced by the size of the mine, the level of activity at the mine, and the mine
inspector’s judgment, among other factors. These factors can impact the comparability of information from mine to mine and
time period to time period. Given the recent incidents at coal mines of other companies, a significant increase in the frequency
and scope of MSHA inspections continues. In addition, both houses of Congress are considering new mine safety legislation.
The Company is currently assessing the impact new laws and regulations may have on its investments.
Energy Marketing
Energy Marketing is comprised of the Company’s gas marketing operations, energy management services, and retail gas
supply operations. Operating entities contributing to these results include ProLiance and Vectren Source. Results, inclusive of
holding company costs from Energy Marketing for the year ended December 31, 2010, were a loss of $4.2 million, compared to
earnings of $4.1 million in 2009 and $18.0 million in 2008.
ProLiance
ProLiance, a nonutility energy marketing affiliate of Vectren and Citizens, provides services to a broad range of municipalities,
utilities, industrial operations, schools, and healthcare institutions located throughout the Midwest and Southeast United States.
ProLiance’s customers include Vectren’s Indiana utilities and nonutility gas supply operations and Citizens’ utilities. ProLiance’s
primary businesses include gas marketing, gas portfolio optimization, and other portfolio and energy management services.
Consistent with its ownership percentage, Vectren is allocated 61 percent of ProLiance’s profits and losses; however,
governance and voting rights remain at 50 percent for each member. Therefore, the Company accounts for its investment in
ProLiance using the equity method of accounting. Vectren received regulatory approval on April 25, 2006, from the IURC for
ProLiance to continue to provide natural gas supply services to the Company’s Indiana utilities through March 2011. On
November 3, 2010, a settlement agreement was filed with the IURC providing for ProLiance’s continued provision of gas supply
services to the Company’s Indiana utilities and Citizens Gas for the period of April 1, 2011 through March 31, 2016. The
settlement has been agreed to by all of the representatives that were parties to the prior settlement. An order is anticipated
during the first quarter of 2011.
Vectren Energy Marketing and Services, Inc (EMS), a wholly owned subsidiary, holds the Company’s investment in ProLiance.
Within the consolidated entity, EMS is responsible for certain financing costs associated with ProLiance and is also responsible
for income taxes and allocated corporate expenses related to the Company’s portion of ProLiance’s results. During the year
ended December 31, 2010, ProLiance’s results, inclusive of financing costs and income taxes, were a loss of approximately
$7.9 million compared to a loss of $2.3 million in 2009 and earnings of $16.5 million in 2008. Results in 2009 include an $11.9
million after tax charge associated with ProLiance’s investment in Liberty Gas Storage, as noted below.
In 2010 compared to 2009, results at EMS related to ProLiance decreased $5.6 million. Before the Liberty Charge, ProLiance’s
results decreased approximately $17.5 million year over year. The decrease reflects the impacts of new natural gas sources
from shale and greater transmission capacity as well as the impacts of reduced industrial demand for natural gas in the
Midwest. These conditions have resulted in plentiful natural gas supply and lower and less volatile natural gas prices. Historical
basis differences between physical and financial markets and summer and winter prices have narrowed. As a result, there have
been reduced opportunities to optimize ProLiance’s firm transportation and storage capacity. ProLiance has structured
optimization activities to remain flexible to maximize potential opportunities if market conditions improve and has undertaken
other actions to improve future results. However, if current market conditions continue, resulting in continued depressed asset
optimization opportunities, it is expected that ProLiance will experience a loss in 2011. Given the continuing compressed
margins experienced during the first few weeks of 2011, the Company currently estimates a first quarter 2011 net loss of
approximately $9.0 million to $13.0 million, compared to first quarter 2010 earnings of $3.9 million, and thereafter results are
expected to be about breakeven for the remainder of the year based upon the current market for basis and seasonal spreads.
ProLiance has approximately $80 million of annual fixed costs related to its transportation and storage contracts, with contracts
representing nearly a third of these fixed costs expiring over the next three years and half over the next five years. At