Vectren 2012 Annual Report Download - page 28

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26
Nonutility Operating Risks
The performance of Vectren’s nonutility businesses is subject to certain risks.
Execution of the Company’s nonutility business strategies and the success of efforts to invest in and develop new opportunities
in the nonutility business area are subject to a number of risks. These risks include, but are not limited to, the effects of
weather; failure of installed performance contracting products to operate as planned; failure to properly estimate the cost to
construct projects; failure to develop or obtain gas storage field and mining property; potential legislation or regulations that may
limit CO2 and other greenhouse gases emissions; creditworthiness of customers and joint venture partners; changes in federal,
state or local legal requirements, such as changes in tax laws or rates; and changing market conditions.
Vectren’s nonutility businesses support its regulated utilities pursuant to service contracts by providing natural gas supply
services, coal, and infrastructure services. In most instances, Vectren’s ability to maintain these service contracts depends upon
regulatory discretion and negotiation with interveners, and there can be no assurance that it will be able to obtain future service
contracts, or that existing arrangements will not be revisited.
Nonutility infrastructure services operations could be adversely affected by a number of factors.
Infrastructure Services results are dependent on a number of factors. The industry is competitive and many of the contracts are
subject to a bidding process. Should Infrastructure Services be unsuccessful in bidding contracts, results of operations could be
impacted. Infrastructure services enters into a variety of contracts, some of which are fixed price. Through competitive bidding,
the volume of contracted work could vary significantly from year to year. Further, to the extent there are unanticipated cost
increases in completion of the contracted work, the profit margin realized on any single project could be reduced. Additionally,
Infrastructure Services contributes to several multi-employer pension plans under collective bargaining agreements with unions
representing employees covered by those agreements. A significant increase to the funding requirements could adversely
impact financial condition, results of operations, and/or cash flows. Changes in legislation and regulations impacting the
industries in which the customers served by Infrastructure Services operate could impact operating results. Other risks include,
but are not limited to: the effects of weather; failure to properly estimate the cost to construct projects; the ability to attract and
retain qualified employees; cancellation of projects by customers and/or reductions in the scope of the projects; credit
worthiness of customers; ability to obtain materials and equipment required to perform services from suppliers and
manufacturers; and changing market conditions.
Nonutility coal mining operations could be adversely affected by a number of factors.
The success of coal mining operations is predicated on the ability to fully access coal at company-owned mines; for the contract
operator to operate owned mines in accordance with MSHA guidelines and regulations, recent interpretations of those
guidelines and regulations, and any new guidelines or regulations that could be implemented and to respond to more frequent
and broader inspections; to negotiate and execute new sales contracts; to adapt to any new laws or rules, such as climate
change or air quality legislation, that impact users of coal; and to manage production and production costs and other risks in
response to changes in demand. Other risks, which could adversely impact operating results, include but are not limited
to: market demand for the Company's coal including impacts of fuel switching to alternative sources and coal specifications in
terms of sulfur and mercury, among others; geologic, equipment, and operational risks; supplier and contract miner
performance; the availability of miners, key equipment and commodities; availability of transportation; and the ability to access/
replace coal reserves. Coal sales and production could be impacted by significant variations in weather and have a material
impact on the Company’s earnings.
In addition, coal mining operations have exposure to coal commodity prices. If coal commodity prices change in a direction or
manner that is not anticipated, or if the forecasted sales transactions do not occur, losses may result. Although forecasted sales
are hedged with owned coal inventory and known reserves, all exposure to both short and long-term coal price volatility is not
hedged. Therefore, fluctuating coal prices are likely to cause the Company’s net income to be volatile.