Vectren 2012 Annual Report Download - page 26

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with Vectren's operations be operated, maintained, abandoned, and reclaimed to the satisfaction of applicable regulatory
authorities. The Company's current costs to comply with these laws and regulations are significant to its results of operations
and financial condition.
Climate Change and Renewable Energy Considerations
While there have been a series of legislative proposals to address global climate change that would regulate carbon dioxide
(CO2) and other greenhouse gases and other proposals that would mandate an investment in renewable energy sources, none
have been finalized to date. The US Supreme Court has determined that the EPA has the authority to regulate greenhouse
gases as a pollutant under the Clean Air Act. Any future legislative or regulatory actions taken by the EPA or other agencies to
address global climate change or mandate renewable energy sources could substantially affect both the costs and operating
characteristics of the Company's fossil fuel generating plants and natural gas distribution businesses. Further, such legislation
or regulatory action would likely impact the Company's generation resource planning decisions. The Company has gathered
preliminary estimates of the costs to control greenhouse gas emissions. A preliminary investigation demonstrated costs to
comply would be significant, first with regard to operating expenses and later for capital expenditures as technology becomes
available to control greenhouse gas emissions. However, these compliance cost estimates are based on highly uncertain
assumptions, including allowance prices if a cap and trade approach were employed, and energy efficiency targets. At this time
and in the absence of final legislation or regulatory mandates, compliance costs and other effects associated with reductions in
greenhouse gas emissions or obtaining renewable energy sources remain uncertain.
Increasing regulation and infrastructure replacement programs could affect Vectren's utility rates charged to
customers, its costs, and its profitability.
Any additional expenses or capital incurred by Vectren's utilities, as it relates to complying with increasing regulation and other
infrastructure replacement activities are expected to be borne by the customers in its service territories through increased
rates. Increased rates have an impact on the economic health of the communities served. New regulations could also
negatively impact industries in the Company's service territory, including industries in which the Company operates.
Vectren's utilities' ability to obtain rate increases and to maintain current authorized rates of return depends in part upon
regulatory discretion, and there can be no assurance that Vectren will be able to obtain rate increases or rate supplements or
earn currently authorized rates of return. Both Indiana and Ohio have passed laws allowing utilities to recover at least some of
the cost of complying with federal mandates, and in Ohio other capital investments, outside of a base rate proceeding. However,
these activities may have at least a short-term adverse impact on the Company's cash flow and financial condition.
In addition, failure to comply with new laws and regulations may result in fines, penalties, or injunctive measures and may not be
recoverable from customers and could result in a material adverse effect on the Company's financial condition and results of
operations.
Vectren's regulated energy delivery operations are subject to various risks.
A variety of hazards and operations risks, such as leaks, accidental explosions, and mechanical problems, are inherent in the
Company’s gas and electric distribution activities. If such events occur, they could cause substantial financial losses and result
in injury to or loss of human life, significant damage to property, environmental pollution, and impairment of operations. The
location of pipelines, storage facilities, and the electric grid near populated areas, including residential areas, commercial
business centers, and industrial sites, could increase the level of damages resulting from these risks. These activities may
subject the Company to litigation or administrative proceedings from time to time. Such litigation or proceedings could result in
substantial monetary judgments, fines, or penalties or be resolved on unfavorable terms. In accordance with customary industry
practices, the Company maintains insurance against a significant portion, but not all, of these risks and losses. To the extent that
the occurrence of any of these events is not fully covered by insurance, it could adversely affect the Company’s financial
condition and results of operations.