Vectren 2012 Annual Report Download - page 80

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78
effective portion of the hedge is marked to market in Accumulated other comprehensive income for cash flow
hedges. Ineffective portions of hedging arrangements are marked to market through earnings. For fair value hedges, both the
derivative and the underlying hedged item are marked to market through earnings. The offset to contracts affected by regulatory
accounting treatment are marked to market as a regulatory asset or liability. Market value for derivative contracts is determined
using quoted market prices from independent sources. The Company rarely enters into contracts that have a significant impact
to the financial statements where internal models are used to calculate fair value. As of and for the periods presented, related
derivative activity is not material to these financial statements.
Income Taxes
Deferred income taxes are provided for temporary differences between the tax basis (adjusted for related unrecognized tax
benefits, if any) of an asset or liability and its reported amount in the financial statements. Deferred tax assets and liabilities are
computed based on the currently-enacted statutory income tax rates that are expected to be applicable when the temporary
differences are scheduled to reverse. The Company’s rate-regulated utilities recognize regulatory liabilities for deferred taxes
provided in excess of the current statutory tax rate and regulatory assets for deferred taxes provided at rates less than the
current statutory tax rate. Such tax-related regulatory assets and liabilities are reported at the revenue requirement level and
amortized to income as the related temporary differences reverse, generally over the lives of the related properties. A valuation
allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that the deferred tax
assets will be realized.
Tax benefits associated with income tax positions taken, or expected to be taken, in a tax return are recorded only when the
more-likely-than-not recognition threshold is satisfied and measured at the largest amount of benefit that is greater than 50
percent likely of being realized upon settlement. The Company reports interest and penalties associated with unrecognized tax
benefits within Income taxes in the Consolidated Statements of Income and reports tax liabilities related to unrecognized tax
benefits as part of Deferred credits & other liabilities.
Investment tax credits (ITCs) are deferred and amortized to income over the approximate lives of the related property in
accordance with the regulatory treatment. Production tax credits (PTCs) are recognized as energy is generated and sold based
on a per kilowatt hour rate prescribed in applicable federal and state statutes.
Revenues
Most revenues are recognized as products and services are delivered to customers. Some nonutility revenues are recognized
using the percentage of completion method. The Company records revenues for services and goods delivered but not billed at
the end of an accounting period in Accrued unbilled revenues. The goods and services delivered by the Company subject to
unbilled revenue accruals include gas, electricity, and infrastructure services.
MISO Transactions
With the IURC’s approval, the Company is a member of the MISO, a FERC approved regional transmission organization. The
MISO serves the electrical transmission needs of much of the Midwest and maintains operational control over the Company’s
electric transmission facilities as well as that of other Midwest utilities. The Company is an active participant in the MISO energy
markets, bidding its owned generation into the Day Ahead and Real Time markets and procuring power for its retail customers at
Locational Marginal Pricing (LMP) as determined by the MISO market.
MISO-related purchase and sale transactions are recorded using settlement information provided by MISO. These purchase and
sale transactions are accounted for on a net hourly position. Net purchases in a single hour are recorded in Cost of fuel & purchased
power and net sales in a single hour are recorded in Electric utility revenues. On occasion, prior period transactions are resettled
outside the routine process due to a change in MISO’s tariff or a material interpretation thereof. Expenses associated with
resettlements are recorded once the resettlement is probable and the resettlement amount can be estimated. Revenues associated
with resettlements are recognized when the amount is determinable and collectability is reasonably assured.
The Company also receives transmission revenue that results from other members’ use of the Company’s transmission
system. These revenues are also included in Electric utility revenues. Generally, these transmission revenues along with costs
charged by the MISO are considered components of base rates and any variance from that included in base rates is recovered
from / refunded to retail customers through tracking mechanisms.