Vectren 2013 Annual Report Download - page 42

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40
However, in 2012 regulatory orders in Ohio allowing for deferral of depreciation on capital investments previously placed into
service were received that more than offset the impact of utility plant increases.
Taxes Other Than Income Taxes
Taxes other than income taxes increased $3.8 million in 2013 compared to 2012 and decreased $0.6 million in 2012 compared
to 2011. The increase in 2013 was primarily due to higher revenue taxes associated with increased consumption and higher
gas costs. The decrease in 2012 is primarily attributable to lower usage taxes associated with lower gas and fuel costs. These
taxes are primarily revenue-related taxes and are offset dollar-for-dollar through lower gas utility revenues.
Other Income-Net
Other income-net reflects income of $10.5 million in 2013, compared to $8.0 million in 2012 and $4.3 million in 2011. Results
include increased AFUDC of approximately $1.9 million in 2013 and $2.2 million in 2012. AFUDC reflects the impact of recent
regulatory orders related to infrastructure replacement investments. In addition, results in 2013 and 2012 reflect increased
returns on assets that fund benefit plans.
Interest Expense
For the year ended December 31, 2013, Interest expense was $65.0 million, compared to $71.5 million in 2012 and $80.3
million in 2011. The decreases are due to refinancing activity, yielding favorable interest rates. During 2013, the Company
issued $385.9 million in utility related long-term debt with a weighted average interest rate of 3.59 percent and retired $337.9
million of long-term debt that matured or was called for early redemption with a weighted average interest rate of 5.58 percent.
During 2012 and 2011, the Company issued $100.0 million and $150.0 million in utility related long-term debt with weighted
average interest rates of 5.0 percent and 5.12 percent, respectively. Also during 2012 and 2011, the Company retired $96.0
million and $250.0 million of long-term debt that matured or was called for early redemption with weighted average interest rates
of 5.95 percent and 6.63 percent, respectively.
Income Taxes
Utility Group federal and state income taxes were $85.3 million in both 2013 and 2012, and $82.9 million in 2011. The effective
tax rate in 2013 is slightly lower than 2012 due to tax credits associated with research and development expenditures. Changes
in income taxes between 2012 and 2011 are driven by changes in pre-tax income. In addition, the effective income tax rate in
2011 was higher primarily due to the revaluation of Utility Group deferred income taxes from the fourth quarter sale of Vectren
Source which resulted in a $2.8 million charge, and a $1.4 million unfavorable tax adjustment recognized earlier in 2011.
Rate & Regulatory Matters
Regulatory Treatment of Investments in Natural Gas Infrastructure Replacement
Vectren monitors and maintains its natural gas distribution system to ensure that natural gas is delivered in a safe and efficient
manner. Vectren's natural gas utilities are currently engaged in replacement programs in both Indiana and Ohio, the primary
purpose of which is preventive maintenance and continual renewal and operational improvement. Laws in both Indiana and
Ohio were passed that expand the ability of utilities to recover certain costs of federally mandated projects and other
infrastructure improvement projects, outside of a base rate proceeding. Utilization of these recovery mechanisms is discussed
below.
Ohio Recovery and Deferral Mechanisms
The PUCO order approving the Company's 2009 base rate case in the Ohio service territory authorized a distribution
replacement rider (DRR). The DRR's primary purpose is recovery of investments in utility plant and related operating expenses
associated with replacing bare steel and cast iron pipelines and certain other infrastructure. This rider is updated annually for
qualifying capital expenditures and allows for a return to be earned on those capital expenditures based on the rate of return
approved in the 2009 base rate case. In addition, deferral of depreciation and the ability to accrue debt-related post in service
carrying costs is also allowed until the related capital expenditures are recovered through the DRR. The order also established
a prospective bill impact evaluation on the annual deferrals, limiting the deferrals at a level which would equal a change over the
prior year rate of $1.00 per residential and small general service customer per month. To date, the Company has made capital
investments under this rider totaling $109 million. During 2013, 2012, and 2011 gas operating revenues associated with the