Vectren 2012 Annual Report Download - page 104

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102
17. Commitments & Contingencies
Commitments
Future minimum lease payments required under operating leases that have initial or remaining noncancelable lease terms in
excess of one year during the five years following 2012 and thereafter (in millions) are $6.8 in 2013, $5.5 in 2014, $3.8 in 2015,
$2.2 in 2016, $1.2 in 2017, and $3.3 thereafter. Total lease expense (in millions) was $8.5 in 2012, $6.9 in 2011, and $7.3 in
2010.
The Company’s regulated utilities have both firm and non-firm commitments to purchase natural gas, electricity, and coal as well
as certain transportation and storage rights. Costs arising from these commitments, while significant, are pass-through costs,
generally collected dollar-for-dollar from retail customers through regulator-approved cost recovery mechanisms.
Corporate Guarantees
The Company issues parent level guarantees to certain vendors and customers of its wholly owned subsidiaries and
unconsolidated affiliates. These guarantees do not represent incremental consolidated obligations; rather, they represent
parental guarantees of subsidiary and unconsolidated affiliate obligations in order to allow those subsidiaries and affiliates the
flexibility to conduct business without posting other forms of collateral. At December 31, 2012, parent level guarantees support
a maximum of $25 million of ESG’s performance contracting commitments and warranty obligations and $28 million of other
project guarantees. The broader scope of ESG’s performance contracting obligations, including those not guaranteed by the
parent company, are described below. In addition, the parent company has approximately $24 million of other guarantees
outstanding supporting other consolidated subsidiary operations, of which $18 million represent letters of credit supporting other
nonutility operations. Guarantees issued and outstanding on behalf of unconsolidated affiliates approximated $3 million at
December 31, 2012. These guarantees relate primarily to arrangements between ProLiance and various natural gas pipeline
operators. The Company has not been called upon to satisfy any obligations pursuant to these parental guarantees and has
accrued no significant liabilities related to these guarantees.
Performance Guarantees & Product Warranties
In the normal course of business, wholly owned subsidiaries, including ESG, issue performance bonds or other forms of
assurance that commit them to timely install infrastructure, operate facilities, pay vendors or subcontractors, and/or support
warranty obligations. Based on a history of meeting performance obligations and installed products operating effectively, no
significant liability or cost has been recognized for the periods presented.
Specific to ESG, in its role as a general contractor in the performance contracting industry, at December 31, 2012, there are 62
open surety bonds supporting future performance. The average face amount of these obligations is $5.2 million, and the largest
obligation has a face amount of $57.3 million. The maximum exposure from these obligations is limited by the level of work
already completed and guarantees issued to ESG by various subcontractors. At December 31, 2012, approximately 56 percent
of work was completed on projects with open surety bonds. A significant portion of these open surety bonds will be released
within one year. In instances where ESG operates facilities, project guarantees extend over a longer period. In addition to its
performance obligations, ESG also warrants the functionality of certain installed infrastructure generally for one year and the
associated energy savings over a specified number of years. The Company has no significant accruals for these warranty
obligations as of December 31, 2012. In addition, ESG has an $8 million stand-alone letter of credit facility and as of
December 31, 2012, $3.4 million was outstanding.
Legal & Regulatory Proceedings
The Company is party to various legal proceedings, audits, and reviews by taxing authorities and other government agencies
arising in the normal course of business. In the opinion of management, there are no legal proceedings or other regulatory
reviews or audits pending against the Company that are likely to have a material adverse effect on its financial position, results
of operations or cash flows.