Vectren 2012 Annual Report Download - page 43

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In June 2011, Ohio House Bill 95 was signed into law. Outside of a base rate proceeding, this legislation permits a natural gas
company to apply for recovery of much of its capital expenditure program. Once such application is approved, the legislation
authorizes a deferral of costs, such as depreciation, property taxes, and debt-related carrying costs. On December 12, 2012, the
PUCO issued an order approving the Company's initial application using this law. The order provides for the deferral of
depreciation, debt-related post in service carrying costs, and property taxes for its $23.5 million capital expenditure program
covering the fifteen month period ending December 31, 2012. Such capital expenditures include infrastructure expansion and
improvements not covered by the DRR as well as expenditures necessary to comply with PUCO rules, regulations, orders, and
system expansion to some new customers. The order also established a prospective bill impact evaluation on the cumulative
deferrals, limiting the total deferrals at a level which would equal $1.50 per residential and general service customer per month.
The order created a regulatory asset as of December 31, 2012 of $1.5 million, of which $0.9 million is Other Income related to
the accrual of post in service carrying costs, and the remaining $0.6 million is the deferral of depreciation and property tax
expense. The Company expects to make a future request for similar accounting authority on its capital expenditure program for
the calendar year 2013.
Based on the deferral of costs and continuing recognition of debt-related post in service carrying costs using the 2009 capital
structure, Regulatory assets associated with these infrastructure programs increased $5.0 million in 2012. Regulatory assets
are expected to continue to increase in future periods as post in service carrying costs are recognized in the statement of
income and operating costs are deferred. Historical relationships between rate base growth and depreciation expense and
property taxes will also be impacted.
Indiana Recovery and Deferral Mechanisms
The Company's Indiana natural gas utilities received orders in 2008 and 2007 associated with the most recent base rate cases.
These orders authorized the deferral of financial impacts associated with bare steel and cast iron replacement activities. The
orders provide for the deferral of depreciation and post in service carrying costs on qualifying projects totaling $20 million
annually at Vectren North and $3 million annually at Vectren South. For USGAAP accounting purposes only the debt-related
post in service carrying costs are recognized in the Consolidated Statements of Income currently. Such deferral is limited by
individual qualifying project to three years after being placed into service at Vectren South and four years after being placed into
service at Vectren North. The debt-related post in service rate used to calculate the deferral is based on a current cost of funds.
At December 31, 2012 and 2011, the Company has USGAAP regulatory assets totaling $8.5 million and $4.7 million,
respectively, associated with the deferral of depreciation and debt-related post in service carrying cost activities.
In April 2011, Senate Bill 251 was signed into Indiana law. The law provides a framework to recover 80 percent of federally
mandated costs through a periodic rate adjustment mechanism outside of a general rate case. Such costs include a return on
the federally mandated capital investment, along with recovery of depreciation and other operating costs associated with these
mandates. The remaining 20 percent of those costs are to be deferred for future recovery in the utility's next general rate case.
To date, the Company has not initiated a filing requesting authority to recover costs using the Senate Bill 251 approach and
continues to study its applicability to expenditures associated with its natural gas distribution operations.
Pipeline Safety Law
On January 3, 2012, the Pipeline Safety, Regulatory Certainty and Job Creation Act of 2011 (Pipeline Safety Law) was signed
into law. The Pipeline Safety Law, which reauthorizes federal pipeline safety programs through fiscal year 2015, provides for
enhanced safety, reliability, and environmental protection in the transportation of energy products by pipeline. The law increases
federal enforcement authority; grants the federal government expanded authority over pipeline safety; provides for new safety
regulations and standards; and authorizes or requires the completion of several pipeline safety-related studies. The DOT is
required to promulgate a number of new regulatory requirements over the next two years Those regulations may eventually
lead to further regulatory or statutory requirements.
The Company continues to study the impact of the Pipeline Safety Law and potential new regulations associated with its
implementation. At this time, compliance costs and other effects associated with the increased pipeline safety regulations remain
uncertain. However, the 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. Operating expenses associated with