Vectren 2012 Annual Report Download - page 77

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75
Allowance for Uncollectible Accounts
The Company maintains allowances for uncollectible accounts for estimated losses resulting from the inability of its customers to
make required payments. The Company estimates the allowance for uncollectible accounts based on a variety of factors
including the length of time receivables are past due, the financial health of its customers, unusual macroeconomic conditions,
and historical experience. If the financial condition of its customers deteriorates or other circumstances occur that result in an
impairment of customers’ ability to make payments, the Company records additional allowances as needed.
Inventories
In most circumstances, the Company’s inventory components are recorded using an average cost method; however, natural gas
in storage at the Company’s Indiana utilities and coal inventory at the Company’s nonutility coal mines are recorded using the
Last In – First Out (LIFO) method. Inventory related to the Company’s regulated operations is valued at historical cost
consistent with ratemaking treatment. Materials and supplies are recorded as inventory when purchased and subsequently
charged to expense or capitalized to plant when installed. Nonutility inventory is valued at the lower of cost or market.
Property, Plant & Equipment
Both the Company’s Utility Plant and Nonutility Plant is stated at historical cost, inclusive of financing costs and direct and
indirect construction costs, less accumulated depreciation and when necessary, impairment charges. The cost of renewals and
betterments that extend the useful life are capitalized. Maintenance and repairs, including the cost of removal of minor items of
property and planned major maintenance projects, are charged to expense as incurred.
Utility Plant & Related Depreciation
Both the IURC and PUCO allow the Company’s utilities to capitalize financing costs associated with Utility Plant based on a
computed interest cost and a designated cost of equity funds. These financing costs are commonly referred to as AFUDC and
are capitalized for ratemaking purposes and for financial reporting purposes instead of amounts that would otherwise be
capitalized when acquiring nonutility plant. The Company reports both the debt and equity components of AFUDC in Other – net
in the Consolidated Statements of Income.
When property that represents a retirement unit is replaced or removed, the remaining historical value of such property is
charged to Utility plant, with an offsetting charge to Accumulated depreciation, resulting in no gain or loss. Costs to dismantle
and remove retired property are recovered through the depreciation rates as determined by the IURC and PUCO.
The Company’s portion of jointly owned Utility plant, along with that plant’s related operating expenses, is presented in these
financial statements in proportion to the ownership percentage.
Nonutility Plant & Related Depreciation
The depreciation of Nonutility plant is charged against income over its estimated useful life, using the straight-line method of
depreciation or units-of-production method of amortization for certain coal mining assets. When nonutility property is retired, or
otherwise disposed of, the asset and accumulated depreciation are removed, and the resulting gain or loss is reflected in
income, typically impacting operating expenses.
Impairment Reviews
Property, plant and equipment along with other long-lived assets are reviewed as facts and circumstances indicate that the
carrying amount may be impaired. This impairment review involves the comparison of an asset’s (or group of assets’) carrying
value to the estimated future cash flows the asset (or asset group) is expected to generate over a remaining life. If this
evaluation were to conclude that the carrying value is impaired, an impairment charge would be recorded based on the
difference between the carrying amount and its fair value (less costs to sell for assets to be disposed of by sale) as a charge to
operations or discontinued operations. There were no impairments related to property, plant and equipment during the periods
presented.
Investments in Unconsolidated Affiliates
Investments in unconsolidated affiliates where the Company has significant influence are accounted for using the equity method
of accounting. The Company’s share of net income or loss from these investments is recorded in Equity in (losses) of