Vectren 2012 Annual Report Download - page 78

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unconsolidated affiliates. Dividends are recorded as a reduction of the carrying value of the investment when
received. Investments in unconsolidated affiliates where the Company does not have significant influence are accounted for
using the cost method of accounting. Dividends associated with cost method investments are recorded as Other – net when
received. Investments, when necessary, include adjustments for declines in value judged to be other than temporary.
Goodwill
Goodwill recorded on the Consolidated Balance Sheets results from business acquisitions and is based on a fair value
allocation of the businesses’ purchase price at the time of acquisition. Goodwill is charged to expense only when it is
impaired. The Company tests its goodwill for impairment at an operating segment level because the components within the
segments are similar. These tests are performed at least annually and that test is performed at the beginning of each
year. Impairment reviews consist of a comparison of fair value to the carrying amount. If the fair value is less than the carrying
amount, an impairment loss is recognized in operations. No goodwill impairments have been recorded during the periods
presented.
Regulation
Retail public utility operations affecting Indiana customers are subject to regulation by the IURC, and retail public utility
operations affecting Ohio customers are subject to regulation by the PUCO. The Company’s accounting policies give
recognition to the ratemaking and accounting practices authorized by these agencies.
Refundable or Recoverable Gas Costs & Cost of Fuel & Purchased Power
All metered gas rates contain a gas cost adjustment clause that allows the Company to charge for changes in the cost of
purchased gas. Metered electric rates contain a fuel adjustment clause that allows for adjustment in charges for electric energy
to reflect changes in the cost of fuel. The net energy cost of purchased power, subject to a variable benchmark based on
NYMEX natural gas prices, is also recovered through regulatory proceedings. The Company records any under-or-over-
recovery resulting from gas and fuel adjustment clauses each month in revenues. A corresponding asset or liability is recorded
until the under or over-recovery is billed or refunded to utility customers. The cost of gas sold is charged to operating expense
as delivered to customers, and the cost of fuel and purchased power for electric generation is charged to operating expense
when consumed.
Regulatory Assets & Liabilities
Regulatory assets represent probable future revenues associated with certain incurred costs, which will be recovered from
customers through the ratemaking process. Regulatory liabilities represent probable expenditures by the Company for removal
costs or future reductions in revenues associated with amounts that are to be credited to customers through the ratemaking
process. The Company continually assesses the recoverability of costs recognized as regulatory assets and liabilities and the
ability to recognize new regulatory assets and liabilities associated with its regulated utility operations. Given the current
regulatory environment in its jurisdictions, the Company believes such accounting is appropriate.
The Company collects an estimated cost of removal of its utility plant through depreciation rates established in regulatory
proceedings. The Company records amounts expensed in advance of payments as a Regulatory liability because the liability
does not meet the threshold of an asset retirement obligation.
Postretirement Obligations & Costs
The Company recognizes the funded status of its pension plans and postretirement plans on its balance sheet. The funded
status of a defined benefit plan is its assets (if any) less its projected benefit obligation (PBO), which reflects service accrued to
date and includes the impact of projected salary increases (for pay-related benefits). The funded status of a postretirement plan
is its assets (if any) less its accumulated postretirement benefit obligation (APBO), which reflects accrued service to date. To
the extent this obligation exceeds amounts previously recognized in the statement of income, the Company records a
Regulatory asset for that portion related to its rate regulated utilities. To the extent that excess liability does not relate to a rate
regulated utility, the offset is recorded as a reduction to equity in Accumulated other comprehensive income.
The annual cost of all postretirement plans is recognized in operating expenses or capitalized to plant following the direct labor
of current employees. Specific to pension plans, the Company uses the projected unit credit actuarial cost method to calculate
service cost and the PBO. This method projects the present value of benefits at retirement and allocates that cost over the