Vectren 2012 Annual Report Download - page 64

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62
served operate; the effects of weather; failure to properly estimate the cost to construct projects; the ability to attract and
retain qualified employees; cancellation and/or reductions in the scope of projects by customers; credit worthiness of
customers; ability to obtain materials and equipment required to perform services; and changing market conditions.
• Factors affecting coal mining operations and their cost structure, including MSHA guidelines and interpretations of those
guidelines, as well as additional mine regulations and more frequent and broader inspections that could result from mining
incidents at coal mines of other companies; geologic, equipment, and operational risks; the ability to execute and negotiate
new sales contracts and resolve contract interpretations; volatile coal market prices and demand;supplier and contract
miner performance; the availability of key equipment, contract miners and commodities; availability of transportation; coal
quality, including its sulfur and mercury content; and the ability to access coal reserves.
• Factors affecting the Company’s investment in ProLiance including natural gas price volatility and basis; the ability to lower
fixed contract costs; and availability of credit.
• Employee or contractor workforce factors including changes in key executives, collective bargaining agreements with
union employees, aging workforce issues, work stoppages, or pandemic illness.
• Risks associated with material business transactions such as mergers, acquisitions and divestitures, including, without
limitation, legal and regulatory delays; the related time and costs of implementing such transactions; integrating operations
as part of these transactions; and possible failures to achieve expected gains, revenue growth and/or expense savings
from such transactions.
• Costs, fines, penalties and other effects of legal and administrative proceedings, settlements, investigations, claims,
including, but not limited to, such matters involving compliance with state and federal laws and interpretations of these
laws.
• Changes in or additions to federal, state or local legislative requirements, such as changes in or additions to tax laws or
rates, pipeline safety regulations, environmental laws, including laws governing greenhouse gases, mandates of sources
of renewable energy, and other regulations.
The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of
changes in actual results, changes in assumptions, or other factors affecting such statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various business risks associated with commodity prices, interest rates, and counter-party
credit. These financial exposures are monitored and managed by the Company as an integral part of its overall risk
management program. The Company’s risk management program includes, among other things, the use of derivatives. The
Company executes derivative contracts in the normal course of operations while buying and selling commodities and
occasionally when managing interest rate risk.
The Company has in place a risk management committee that consists of senior management as well as financial and
operational management. The committee is actively involved in identifying risks as well as reviewing and authorizing risk
mitigation strategies.
Commodity Price Risk
Regulated Operations
The Company’s regulated operations have limited exposure to commodity price risk for transactions involving purchases and
sales of natural gas, coal and purchased power for the benefit of retail customers due to current state regulations, which subject
to compliance with those regulations, allow for recovery of the cost of such purchases through natural gas and fuel cost
adjustment mechanisms. Constructive regulatory orders, such as those authorizing lost margin recovery, other innovative rate
designs, and recovery of unaccounted for gas and other gas related expenses, also mitigate the effect volatile gas costs may
have on the Company’s financial condition. Although Vectren’s regulated operations are exposed to limited commodity price
risk, volatile natural gas and coal prices have other effects on working capital requirements, interest costs, and some level of
price-sensitivity in volumes sold or delivered. The Company recently began purchasing call options that are designed to cap
gas costs on approximately 70 percent of peak winter delivery periods. Such contracts are generally short term in nature and