Vectren 2012 Annual Report Download - page 107

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costs billed to customers by accelerating into 2012 the impact of lower cost coal under these new term contracts effective after
2012. The cost difference will be deferred to a regulatory asset and recovered over a six-year period without interest beginning
in 2014. The IURC approved this proposal on January 25, 2012, with the reduction to customer’s rates effective February 1,
2012. The deferred amount includes a reduction in the value of the coal inventory at December 31, 2011 of approximately $17.7
million to reflect existing coal inventory at the new, lower price. Deferrals related to coal purchases in 2012 have totaled
approximately $24.7 million, bringing the total deferred balance as of December 31, 2012, to the expected level of $42.4 million.
Vectren South Electric Demand Side Management Program Filing
On August 16, 2010, Vectren South filed a petition with the IURC, seeking approval of its proposed electric Demand Side
Management (DSM) Programs, recovery of the costs associated with these programs, recovery of lost margins as a result of
implementing these programs for large customers, and recovery of performance incentives linked with specific measurement
criteria on all programs. The DSM Programs proposed were consistent with a December 9, 2009 order issued by the IURC,
which, among other actions, defined long-term conservation objectives and goals of DSM programs for all Indiana electric
utilities under a consistent statewide approach. In order to meet these objectives, the IURC order divided the DSM programs
into Core and Core Plus programs. Core programs are joint programs required to be offered by all Indiana electric utilities to all
customers, and include some for large industrial customers. Core Plus programs are those programs not required specifically
by the IURC, but defined by each utility to meet the overall energy savings targets defined by the IURC.
On August 31, 2011 the IURC issued an order approving an initial three year DSM plan in the Vectren South service territory that
complied with the IURC’s energy saving targets. Consistent with the Company’s proposal, the order approved, among other
items, the following: 1) recovery of costs associated with implementing the DSM Plan; 2) the recovery of a performance
incentive mechanism based on measured savings related to certain DSM programs; 3) lost margin recovery associated with the
implementation of DSM programs for large customers; and 4) deferral of lost margin up to $3 million in 2012 and $1 million in
2011 associated with small customer DSM programs for subsequent recovery under a tracking mechanism to be proposed by
the Company. On June 20, 2012, the IURC issued an order approving a small customer lost margin recovery mechanism,
inclusive of all previous deferrals. This mechanism is an alternative to the electric decoupling proposal that was denied by the
IURC in the Company's last base rate proceeding discussed earlier.
Vectren North Pipeline Safety Investigation
On April 11, 2012, the IURC's pipeline safety division filed a complaint against Vectren North alleging several violations of safety
regulations pertaining to damage that occurred at a residence in Vectren North's service territory during a pipeline replacement
project. The Company negotiated a settlement with the IURC's pipeline safety division, agreeing to a fine and several
modifications to the Company's operating policies. The amount of the fine was not material to the Company's financial results.
The IURC approved the settlement but modified certain terms of the settlement and added a requirement that Company
employees conduct inspections of pipeline excavations. The Company sought and was granted a request for rehearing on the
sole issue related to the requirement to use Company employees to inspect excavations. The Company seeks further clarity on
the scope of the requirement and the ability to also use contractors to perform certain inspections. A procedural schedule is
expected to be established in late February 2013.
Vectren North & Vectren South Gas Decoupling Extension Filing
On April 14, 2011, the Company’s Indiana based gas companies (Vectren North and Vectren South) filed with the IURC a joint
settlement agreement with the OUCC on an extension of the offering of conservation programs and the supporting gas
decoupling mechanism originally approved in December 2006. On August 18, 2011, the IURC issued an order approving the
settlement as filed, granting the extension of the current decoupling mechanism in place at both gas companies and recovery of
new conservation program costs through December 2015.
VEDO Gas Rate Design
The rate design approved by the PUCO on January 7, 2009, and initially implemented on February 22, 2009, allowed for the
phased movement toward a straight fixed variable rate design, which places substantially all of the fixed cost recovery in the
monthly customer service charge. This rate design mitigates most weather risk as well as the effects of declining usage, similar
to the company’s lost margin recovery mechanism in place in the Indiana natural gas service territories and the mechanism in
place in Ohio prior to this rate order. Since the straight fixed variable rate design was fully implemented for residential base
rates in February 2010, nearly 90 percent of the combined residential and commercial base rate gas margins were recovered