Vectren 2010 Annual Report Download - page 54

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52
Estimating fair value using a discounted cash flow model is subjective and requires significant judgment in applying a discount
rate, growth assumptions, company expense allocations, and longevity of cash flows. A 100 basis point increase in the discount
rate utilized to calculate the Gas Utility Services segment’s fair value also would have resulted in no impairment charge.
The Company also annually tests non-amortizing intangible assets for impairment and amortizing intangible assets are tested
on an event and circumstance basis. During the last three years, these tests yielded no impairment charges.
Pension & Other Postretirement Obligations
The Company estimates the expected return on plan assets, discount rate, rate of compensation increase, and future health
care costs, among other inputs, and obtains actuarial estimates to assess the future potential liability and funding requirements
of the Company's pension and postretirement plans. The Company used the following weighted average assumptions to
develop 2010 periodic benefit cost: a discount rate of 6.0 percent, an expected return on plan assets of 8.0 percent, a rate of
compensation increase of 3.5 percent, and an inflation assumption of 3.0 percent. Due to the impacts of the recession, these
assumptions were each lowered 25 basis points from assumptions used in 2009. To estimate 2011 costs, the discount rate,
expected return on plan assets, rate of compensation increase, and inflation assumption were 5.5 percent, 8.0 percent, 3.5
percent, and 3.0 percent respectively, reflecting the lower interest rate environment. Management currently estimates a pension
and postretirement cost of approximately $13 million in 2011, compared to approximately $14 million in 2010, $15 million in
2009, and $11 million in 2008. Future changes in health care costs, work force demographics, interest rates, asset values or
plan changes could significantly affect the estimated cost of these future benefits.
Management estimates that a 50 basis point decrease in the discount rate used to estimate retirement costs generally increases
periodic benefit cost by approximately $1.5 million to $2.0 million.
Unbilled Revenues
To more closely match revenues and expenses, the Company records revenues for all gas and electricity delivered to
customers but not billed at the end of the accounting period. The Company uses actual units billed during the month to allocate
unbilled units by customer class. Those allocated units are multiplied by rates in effect during the month to calculate unbilled
revenue at balance sheet dates.
Regulation
At each reporting date, the Company reviews current regulatory trends in the markets in which it operates. This review involves
judgment and is critical in assessing the recoverability of regulatory assets as well as the ability to continue to account for its
activities based on the criteria set forth in FASB guidance related to accounting for the effects of certain types of regulation.
Based on the Company’s current review, it believes its regulatory assets are probable of recovery. If all or part of the
Company's operations cease to meet the criteria, a write off of related regulatory assets and liabilities could be required. In
addition, the Company would be required to determine any impairment to the carrying value of its utility plant and other
regulated assets and liabilities. In the unlikely event of a change in the current regulatory environment, such write-offs and
impairment charges could be significant.