Vectren 2012 Annual Report Download - page 18

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Generating Capability
Installed generating capacity as of December 31, 2012, was rated at 1,298 MW. Coal-fired generating units provide 1,000 MW
of capacity, natural gas or oil-fired turbines used for peaking or emergency conditions provide 295 MW, and in 2009 SIGECO
purchased a landfill gas electric generation project which provides 3 MW. Electric generation for 2012 was fueled by coal (97
percent), natural gas (3 percent), and landfill gas (less than 1 percent). Oil was used only for testing of gas/oil-fired peaking
units. The Company generated approximately 4,998 GWh in 2012. Further information about the Company’s owned generation
is included in “Item 2 Properties.”
There are substantial coal reserves in the southern Indiana area, and coal for coal-fired generating stations has been supplied
from operators of nearby coal mines, including coal mines in Indiana owned by Vectren Fuels, Inc. (Vectren Fuels), a wholly
owned subsidiary of the Company. Approximately 2.1 million tons were purchased for generating electricity during 2012, of
which approximately 80 percent was supplied by Vectren Fuels from its mines. This compares to 2.3 million tons and 2.2 million
tons purchased in 2011 and 2010, respectively. The utility’s coal inventory was approximately 1 million tons at December 31,
2012 and 2011.
Coal Purchases
The average cost of coal per ton purchased for the last five years was $68.65 in 2012, $75.04 in 2011, $70.47 in 2010, $64.28 in
2009, and $42.76 in 2008. Effective January 1, 2009, SIGECO began purchasing coal from Vectren Fuels under new coal
purchase agreements. The term of these coal purchase agreements continues to December 31, 2015, with prices specified
originally ranging from two to four years. The prices in these contracts were at or below market prices for Illinois Basin coal at
the time of execution and were subject to a bidding process with third parties. The IURC has found that costs incurred under
these contracts are reasonable. For contracts with price reopeners, amendments were finalized in 2011 for coal deliveries that
began in 2012 at lower prices.
The Company received an order on January 25, 2012 to allow for the lower prices that began late in 2012 and beyond to be
reflected in customer bills beginning in early 2012. Because the cost of coal expensed in 2012 was lower than amounts paid
under existing contracts and included in the carrying amount of inventory at December 31, 2011, the IURC authorized deferral of
the difference between costs paid under these contracts and that charged to customers for future recovery over a six year
period beginning in 2014. See Rate and Regulatory Matters in Item 7 regarding coal procurement procedures and electric fuel
cost reductions.
Firm Purchase Supply
The Company has a 1.5 percent interest in the Ohio Valley Electric Corporation (OVEC). OVEC is owned by several electric
utility companies, including SIGECO, and supplies power requirements to the United States Department of Energy’s (DOE)
uranium enrichment plant near Portsmouth, Ohio. The participating companies can receive from OVEC, and are obligated to
pay for, any available power in excess of the DOE contract demand. At the present time, the DOE contract demand is
essentially zero. The Company’s 1.5 percent interest in OVEC makes available approximately 30 MW of capacity. The
Company purchased approximately 179 GWh from OVEC in 2012.
The Company executed a capacity contract with Benton County Wind Farm, LLC in April 2008 to purchase as much as 30 MW
from a wind farm located in Benton County, Indiana, with the approval of the IURC. The contract expires in 2029. In 2012, the
Company purchased approximately 78 GWh under this contract.
In December 2009, the Company executed a 20 year power purchase agreement with Fowler Ridge II Wind Farm, LLC to
purchase as much as 50 MW of energy from a wind farm located in Benton and Tippecanoe Counties in Indiana, with the
approval of the IURC. The Company purchased 129 GWh under this contract in 2012.
MISO Related Activity
The Company is a member of the MISO, a FERC approved regional transmission organization. The MISO serves the electric
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. The Company is an active participant in the MISO energy markets, where it bids its
generation into the Day Ahead and Real Time markets and procures power for its retail customers at Locational Marginal Pricing