Vectren 2013 Annual Report Download - page 44

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either improve electric and gas system reliability and safety or are economic development projects that provide rural areas with
access to gas service. Provisions of the legislation require that, among other things, requests for recovery include a seven-year
project plan. Once the plan is approved by the IURC, 80 percent of such costs are eligible for recovery using a periodic rate
adjustment mechanism. Recoverable costs include a return on and of the investment, as well as property taxes and operating
expenses. The remaining 20 percent of project costs are to be deferred for future recovery in the Company's next general rate
case. The adjustment mechanism is capped at an annual increase in retail revenues of no more than two percent.
Pipeline Safety Law
On January 3, 2012, the Pipeline Safety, Regulatory Certainty and Job Creation Act of 2011 (Pipeline Safety Law) was signed
into law. The Pipeline Safety Law, which reauthorizes federal pipeline safety programs through fiscal year 2015, provides for
enhanced safety, reliability, and environmental protection in the transportation of energy products by pipeline. The law increases
federal enforcement authority; grants the federal government expanded authority over pipeline safety; provides for new safety
regulations and standards; and authorizes or requires the completion of several pipeline safety-related studies. The DOT is
required to promulgate a number of new regulatory requirements over the next two years. Those regulations may eventually
lead to further regulatory or statutory requirements.
While the Company continues to study the impact of the Pipeline Safety Law and potential new regulations associated with its
implementation, it is expected that the law will result in further investment in pipeline inspections, and where necessary,
additional investments in pipeline infrastructure and, therefore, result in both increased levels of operating expenses and capital
expenditures associated with the Company's natural gas distribution businesses.
Requests for Recovery Under Indiana Regulatory Mechanisms
The Company filed in November 2013 for authority to recover appropriate costs related to its gas infrastructure replacement and
improvement programs in Indiana, including costs associated with existing pipeline safety regulations, using the mechanisms
allowed under Senate Bill 251 and Senate Bill 560. The combined Vectren South and Vectren North Indiana filing requests
recovery of the capital expenditures associated with the infrastructure replacement and improvement plan pursuant to the
legislation, estimated to be approximately $865 million combined over the seven year period beginning in 2014, along with
approximately $13 million combined annual operating costs associated with pipeline safety rules. A hearing in this proceeding is
scheduled for April 2014, and an order is expected later in 2014.
Vectren South Electric Environmental Compliance Filing
On January 17, 2014, Vectren South filed a request with the IURC for approval of capital investments estimated to be between
$70 million and $90 million on its coal-fired generation units to comply with new EPA mandates related to mercury and air toxin
standards effective in 2016. Roughly half of the investment will be made to control mercury in both air and water emissions.
The remaining investment will be made to address EPA concerns on alleged increases in sulfur trioxide emissions. Although the
Company believes these investments are recoverable as a federally mandated investment under Senate Bill 251, the Company
has requested deferred accounting treatment in lieu of timely recovery to avoid immediate customer impacts. The accounting
treatment request seeks deferral of depreciation and property tax expense related to these investments, accrual of post in
service carrying costs, and deferral of incremental operating expenses related to compliance with these standards. The
company will file its case-in-chief testimony on March 14, 2014 and a hearing is scheduled for July 9, 2014.
Vectren South Electric Base Rate Filing
The IURC issued an order on April 27, 2011, providing for a revenue increase to recover costs associated with approximately
$325 million in system upgrades that were completed in the three years leading up to the December 2009 filing and modest
increases in maintenance and operating expenses. The approved revenue increase is based on rate base of $1,295.6 million,
return on equity of 10.4 percent, and an overall rate of return of 7.29 percent. The new rates were effective May 3, 2011. The
IURC, in its order, provided for deferred accounting treatment related to the Company's investment in dense pack technology, of
which approximately $28.7 million was spent as of December 31, 2013. Addressing issues raised in the case concerning coal
supply contracts and related costs, the IURC found that current coal contracts remain effective and that a prospective review
process of future procurement decisions would be initiated and is discussed below.