Vectren 2012 Annual Report Download - page 45

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43
On August 31, 2011 the IURC issued an order approving an initial three year DSM plan in the Vectren South service territory that
complied with the IURC’s energy saving targets. Consistent with the Company’s proposal, the order approved, among other
items, the following: 1) recovery of costs associated with implementing the DSM Plan; 2) the recovery of a performance
incentive mechanism based on measured savings related to certain DSM programs; 3) lost margin recovery associated with the
implementation of DSM programs for large customers; and 4) deferral of lost margin up to $3 million in 2012 and $1 million in
2011 associated with small customer DSM programs for subsequent recovery under a tracking mechanism to be proposed by
the Company. On June 20, 2012, the IURC issued an order approving a small customer lost margin recovery mechanism,
inclusive of all previous deferrals. This mechanism is an alternative to the electric decoupling proposal that was denied by the
IURC in the Company's last base rate proceeding discussed earlier.
Vectren North Pipeline Safety Investigation
On April 11, 2012, the IURC's pipeline safety division filed a complaint against Vectren North alleging several violations of safety
regulations pertaining to damage that occurred at a residence in Vectren North's service territory during a pipeline replacement
project. The Company negotiated a settlement with the IURC's pipeline safety division, agreeing to a fine and several
modifications to the Company's operating policies. The amount of the fine was not material to the Company's financial results.
The IURC approved the settlement but modified certain terms of the settlement and added a requirement that Company
employees conduct inspections of pipeline excavations. The Company sought and was granted a request for rehearing on the
sole issue related to the requirement to use Company employees to inspect excavations. The Company seeks further clarity on
the scope of the requirement and the ability to also use contractors to perform certain inspections. A procedural schedule is
expected to be established in late February 2013.
Vectren North & Vectren South Gas Decoupling Extension Filing
On April 14, 2011, the Company’s Indiana based gas companies (Vectren North and Vectren South) filed with the IURC a joint
settlement agreement with the OUCC on an extension of the offering of conservation programs and the supporting gas
decoupling mechanism originally approved in December 2006. On August 18, 2011, the IURC issued an order approving the
settlement as filed, granting the extension of the current decoupling mechanism in place at both gas companies and recovery of
new conservation program costs through December 2015.
VEDO Gas Rate Design
The rate design approved by the PUCO on January 7, 2009, and initially implemented on February 22, 2009, allowed for the
phased movement toward a straight fixed variable rate design, which places substantially all of the fixed cost recovery in the
monthly customer service charge. This rate design mitigates most weather risk as well as the effects of declining usage, similar
to the company’s lost margin recovery mechanism in place in the Indiana natural gas service territories and the mechanism in
place in Ohio prior to this rate order. Since the straight fixed variable rate design was fully implemented for residential base
rates in February 2010, nearly 90 percent of the combined residential and commercial base rate gas margins were recovered
through the customer service charge. As a result, some margin previously recovered during the peak delivery winter months,
such as January and the first half of February 2010, is more ratably recognized throughout the year.
VEDO Continues the Process to Exit the Merchant Function
On April 30, 2008, the PUCO issued an order which approved the first two phases of a three phase plan to exit the merchant
function in the Company's Ohio service territory. As a result, substantially all of the Company's Ohio customers now purchase
natural gas directly from retail gas marketers rather than from the Company. The PUCO provided for an Exit Transition Cost
rider, which allows the Company to recover costs associated with the first two phases of the transition process. Exiting the
merchant function has not had a material impact on earnings or financial condition. It, however, has and will continue to reduce
Gas utility revenues and have an equal and offsetting impact to Cost of gas sold as VEDO, for the most part, no longer
purchases gas for resale. VEDO’s gas costs in 2010 were $89.5 million, and were insignificant in 2012 and 2011. The
decreases in gas costs were offset by similar decreases in revenues.