Vectren 2012 Annual Report Download - page 25

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have passed legislation that allows customers to choose their electricity supplier in a competitive market. Indiana has not
enacted such legislation. Ohio regulation also provides for choice of commodity providers for all gas customers. The Company
implemented this choice for its gas customers in Ohio and is currently in the second of the three phase process to exit the
merchant function in its Ohio service territory. The state of Indiana has not adopted any regulation requiring gas choice in the
Company’s Indiana service territories; however, the Company operates under approved tariffs permitting certain industrial and
commercial large volume customers to choose their commodity supplier. Vectren cannot provide any assurance that increased
competition or other changes in legislation, regulation or policies will not have a material adverse effect on its business, financial
condition or results of operations.
A significant portion of Vectren’s electric utility sales are space heating and cooling. Accordingly, its operating results
may fluctuate with variability of weather.
Vectren’s electric utility sales are sensitive to variations in weather conditions. The Company forecasts utility sales on the basis
of normal weather. Since Vectren does not have a weather-normalization mechanism for its electric operations, significant
variations from normal weather could have a material impact on its earnings. However, the impact of weather on the gas
operations in the Company’s Indiana territories has been significantly mitigated through the implementation of a normal
temperature adjustment mechanism. Additionally, the implementation of a straight fixed variable rate design mitigates most
weather variations related to Ohio residential gas sales.
Vectren’s utilities are exposed to increasing regulation, including environmental and pipeline safety regulation.
Vectren's utilities are subject to regulation by federal, state, and local regulatory authorities and are exposed to public policy
decisions that may negatively impact the Company's earnings. In particular, Vectren is subject to regulation by the FERC, the
NERC, the EPA, the IURC, the PUCO, and the DOT. These authorities regulate many aspects of its generation, transmission
and distribution operations, including construction and maintenance of facilities, operations, and safety, and its gas marketing
operations involving title passage, reliability standards, and future adequacy. In addition, the IURC, PUCO, and FERC approve
its utility-related debt and equity issuances, regulate the rates that Vectren's utilities can charge customers, the rate of return
that Vectren's utilities are authorized to earn, and its ability to timely recover gas and fuel costs. Further, there are consumer
advocates and other parties that may intervene in regulatory proceedings and affect regulatory outcomes.
Trends Toward Stricter Standards
With the trend toward stricter standards, greater regulation, more extensive permit requirements and an increase in the number
and types of assets operated that are subject to regulation, the Company's investment in infrastructure, and the associated
operating costs have increased and are expected to increase in the future. As examples of the trend toward stricter regulation,
the EPA is currently considering revisions to regulations involving fly ash disposal, cooling tower intake facilities, waste water
discharges, and greenhouse gases and continues to implement increasingly more stringent air quality standards.
Pipeline Safety Considerations
Vectren monitors and maintains its natural gas distribution system to ensure that natural gas is delivered in a safe, efficient
manner. Vectren's natural gas utilities are currently engaged in replacement programs in both Indiana and Ohio, the primary
purpose of which is preventive maintenance and continual renewal and improvement. The Pipeline Safety, Regulatory Certainty
and Job Creation Act of 2011 (Pipeline Safety Law) was signed into law on January 3, 2012 and Vectren continues to study the
impact of the Pipeline Safety Law and potential new regulations associated with its implementation. While compliance costs
remain uncertain, the Pipeline Safety Law is expected to result in further investment in pipeline inspections, and where
necessary, additional investments in pipeline infrastructure; and therefore, result in both increased levels of operating expenses
and capital expenditures associated with the Company's natural gas distribution businesses.
Environmental Considerations
Vectren's utility operations and properties are subject to extensive environmental regulation pursuant to a variety of federal,
state and municipal laws and regulations. These environmental regulations impose, among other things, restrictions, liabilities,
and obligations in connection with the storage, transportation, treatment, and disposal of hazardous substances and limit
airborne emissions from electric generating facilities including particulate matter, sulfur dioxide (SO2), nitrogen oxide (NOx), and
mercury, among others. Environmental legislation/regulation also requires that facilities, sites, and other properties associated