Vectren 2010 Annual Report Download - page 77

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75
Income Taxes
Deferred income taxes are provided for temporary differences between the tax basis (adjusted for related unrecognized tax
benefits, if any) of an asset or liability and its reported amount in the financial statements. Deferred tax assets and liabilities are
computed based on the currently-enacted statutory income tax rates that are expected to be applicable when the temporary
differences are scheduled to reverse. The Company’s rate-regulated utilities recognize regulatory liabilities for deferred taxes
provided in excess of the current statutory tax rate and regulatory assets for deferred taxes provided at rates less than the
current statutory tax rate. Such tax-related regulatory assets and liabilities are reported at the revenue requirement level and
amortized to income as the related temporary differences reverse, generally over the lives of the related properties. A valuation
allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that the deferred
tax assets will be realized.
Tax benefits associated with income tax positions taken, or expected to be taken, in a tax return are recorded only when the
more-likely-than-not recognition threshold is satisfied and measured at the largest amount of benefit that is greater than 50
percent likely of being realized upon settlement. The Company reports interest and penalties associated with unrecognized tax
benefits within Income taxes in the Consolidated Statements of Income and reports tax liabilities related to unrecognized tax
benefits as part of Deferred credits & other liabilities.
Investment tax credits (ITCs) are deferred and amortized to income over the approximate lives of the related property in
accordance with the regulatory treatment. Production tax credits (PTCs) are recognized as energy is generated and sold based
on a per kilowatt hour rate prescribed in applicable federal and state statutes.
Revenues
Most revenues are recorded as products and services are delivered to customers. Some nonutility revenues are recognized
using the percentage of completion method with such percentage based on project cost. The Company records revenues for all
gas and electricity delivered to customers but not billed at the end of the accounting period in Accrued unbilled revenues.
MISO Transactions
With the IURC’s approval, the Company is a member of the MISO, a FERC approved regional transmission organization. The
MISO serves the electrical transmission needs of much of the Midwest and maintains operational control over the Company’s
electric transmission facilities as well as that of other Midwest utilities. Since April 1, 2005, the Company has been an active
participant in the MISO energy markets, bidding its owned generation into the Day Ahead and Real Time markets and procuring
power for its retail customers at Locational Marginal Pricing (LMP) as determined by the MISO market.
MISO-related purchase and sale transactions are recorded using settlement information provided by MISO. These purchase
and sale transactions are accounted for on a net hourly position. Net purchases in a single hour are recorded in Cost of fuel &
purchased power and net sales in a single hour are recorded in Electric utility revenues. On occasion, prior period transactions
are resettled outside the routine process due to a change in MISO’s tariff or a material interpretation thereof. Expenses
associated with resettlements are recorded once the resettlement is probable and the resettlement amount can be estimated.
Revenues associated with resettlements are recognized when the amount is determinable and collectability is reasonably
assured.
The Company also receives transmission revenue that results from other members’ use of the Company’s transmission system.
These revenues are also included in Electric utility revenues. Generally, these transmission revenues along with costs charged
by the MISO are considered components of base rates and any variance from that included in base rates is recovered from /
refunded to retail customers through tracking mechanisms.
Share-Based Compensation
The Company grants share-based compensation to certain employees and board members. Liability classified share-based
compensation awards are re-measured at the end of each period based on their expected settlement date fair value. Equity
classified stock-based compensation awards are measured at the grant date, based on the fair value of the award. Expense
associated with share-based awards is recognized over the requisite service period, which generally begins on the date the
award is granted through the earlier of the date the award vests or the date the employee becomes retirement eligible.