Vectren 2012 Annual Report Download - page 86

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amounts recorded to Equity in (losses) of unconsolidated affiliates related to ProLiance’s operations totaled a pre-tax loss of
$22.7 million, $28.6 million, and $2.5 million for the years ended December 31, 2012, 2011, and 2010, respectively. Lower
natural gas prices, which have resulted in narrowed summer/winter spreads and locational margins, have negatively impacted
ProLiance’s results.
The Company continues to evaluate and assess strategic alternatives related to the investment in its energy marketing affiliate,
ProLiance Holdings. The Company believes the carrying value of its investment in ProLiance Holdings at December 31, 2012 is
appropriate, based upon projections and other valuation data received from ProLiance. If the Company, however, proceeds with
one of the strategic alternatives being evaluated, which could include a disposition of its investment in ProLiance Holdings or a
disposition by ProLiance Holdings of one or more of its operating subsidiaries or their assets, the amount realized could be
materially below the carrying value of the Company's investment.
Investment in Liberty Gas Storage
Liberty Gas Storage, LLC (Liberty), a joint venture between a subsidiary of ProLiance and a subsidiary of Sempra Energy (SE),
is a development project for salt-cavern natural gas storage facilities. ProLiance is the minority member with a 25 percent
interest, which it accounts for using the equity method. The project was expected to include 17 Bcf of capacity in its North site,
and an additional capacity of at least 17 Bcf at the South site. The South site also has the potential for further expansion. The
Liberty pipeline system is currently connected with several interstate pipelines, including the Cameron Interstate Pipeline
operated by Sempra Pipelines & Storage, and will connect area LNG regasification terminals to an interstate natural gas
transmission system and storage facilities.
In late 2008, the project at the North site was halted due to subsurface and well-completion problems, which resulted in Liberty
recording a $132 million impairment charge. The Company, through ProLiance, recorded its share of the charge in 2009. As a
result of the issues encountered at the North site, Liberty requested and the FERC approved the separation of the North site
from the South site. Approximately 12 Bcf of the storage at the South site, which comprises three of the four FERC certified
caverns, is fully tested but additional work is required to connect the caverns to the pipeline system. ProLiance's investment in
Liberty is approximately $35 million.
Liberty received a demand for Arbitration from Williams Midstream Natural Gas Liquids, Inc. (“Williams”) on February 8, 2011
related to a Sublease Agreement (“Sublease”) between Liberty and Williams at the North site. Williams alleges that Liberty was
negligent in its attempt to convert certain salt caverns to natural gas storage and thereby damaged the caverns. Williams
alleges damages of $56.7 million. Liberty believes that it has complied with all of its obligations to Williams, including properly
terminating the Sublease. Liberty intends to vigorously defend itself and has asserted counterclaims substantially in excess of
the amounts asserted by Williams. As such, as of December 31, 2012, ProLiance has no material reserve recorded related to
this matter and this litigation has not materially impacted ProLiance's results of operations or statement of financial position.
Firm Transportation and Storage Commitments
ProLiance has various firm transportation and storage agreements with only minimal support from Vectren or Citizens. (See
Note 17 regarding corporate guarantees.) Under these agreements, ProLiance must make specified minimum payments which
extend through 2031. At December 31, 2012, the estimated aggregated amounts of such required future payments were $42.3
million, $40.7 million, $33.5 million, $29.6 million, $26.2 million, and $180.1 million for 2013, 2014, 2015, 2016, 2017, and
thereafter, respectively. During 2012, 2011, and 2010, fixed payments under these agreements were $54.5 million, $73.0
million, and $76.8 million, respectively. ProLiance also made variable payments under these agreements in 2012, 2011, and
2010. Variable payments include storage injection and withdrawal charges, and commodity transportation charges.
Transactions with ProLiance
Purchases from ProLiance for resale and for injections into storage for the years ended December 31, 2012, 2011, and 2010,
totaled $274.5 million, $378.7 million, and $437.7 million, respectively. Amounts owed to ProLiance at December 31, 2012, and
2011, for those purchases were $29.7 million and $36.8 million, respectively, and are included in Accounts payable to affiliated
companies in the Consolidated Balance Sheets. Vectren received regulatory approval on March 17, 2011, from the IURC for
ProLiance to continue to provide natural gas supply services to the Company’s Indiana utilities and Citizens Energy Group's
utilities through March 2016. Amounts charged by ProLiance for gas supply services are established by supply agreements with
each utility.