Vectren 2013 Annual Report Download - page 45

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Coal Procurement Procedures
Vectren South submitted a request for proposal (RFP) in April 2011 regarding coal purchases for a four year period beginning in
2012. After negotiations with bidders, Vectren South reached an agreement in principle for multi-year purchases with two
suppliers, one of which is Vectren Fuels, Inc. Consistent with the IURC direction in the electric rate case, a sub docket
proceeding was established to review the Company’s prospective coal procurement procedures, and the Company submitted
evidence related to its 2011 RFP. In March 2012, the IURC issued its order in the sub docket which concluded that Vectren
South’s 2011 RFP process resulted in the lowest fuel cost reasonably possible. In late 2012, Vectren South terminated its
contract with one of the suppliers due to coal quality issues that were identified during test burns of the coal. In addition to coal
purchased under these contracts, Vectren South also contracted with Vectren Fuels, Inc. in 2012 to purchase lower priced spot
coal. This spot purchase, which was completed in 2012, was found to be reasonable in a recent fuel adjustment clause (FAC)
order issued in July 2012. The IURC will continue to regularly monitor Vectren South’s procurement process in future fuel
adjustment proceedings.
Delivery to Vectren's power plants of lower priced contract coal from the April 2011 RFP process began during 2012. On
December 5, 2011 within the quarterly FAC filing, Vectren South submitted a joint proposal with the OUCC to reduce its fuel
costs billed to customers by accelerating into 2012 the impact of lower cost coal under these new term contracts effective after
2012. The cost difference was deferred to a regulatory asset and will be recovered over a six-year period without interest
beginning in 2014. The IURC approved this proposal on January 25, 2012, with the reduction to customer’s rates effective
February 1, 2012. The total deferred balance as of December 31, 2013 was $42.4 million. Recovery of this deferred balance
began in February 2014.
Vectren South Electric Demand Side Management Program Filing
On August 16, 2010, Vectren South filed a petition with the IURC, seeking approval of its proposed electric Demand Side
Management (DSM) Programs, recovery of the costs associated with these programs, recovery of lost margins as a result of
implementing these programs for large customers, and recovery of performance incentives linked with specific measurement
criteria on all programs. The DSM Programs proposed were consistent with a December 9, 2009 order issued by the IURC,
which, among other actions, defined long-term conservation objectives and goals of DSM programs for all Indiana electric
utilities under a consistent statewide approach. In order to meet these objectives, the IURC order divided the DSM programs
into Core and Core Plus programs. Core programs are joint programs required to be offered by all Indiana electric utilities to all
customers, and include some for large industrial customers. Core Plus programs are those programs not required specifically
by the IURC, but defined by each utility to meet the overall energy savings targets defined by the IURC.
On August 31, 2011 the IURC issued an order approving an initial three year DSM plan in the Vectren South service territory that
complied with the IURC’s energy saving targets. Consistent with the Company’s proposal, the order approved, among other
items, the following: 1) recovery of costs associated with implementing the DSM Plan; 2) the recovery of a performance
incentive mechanism based on measured savings related to certain DSM programs; 3) lost margin recovery associated with the
implementation of DSM programs for large customers; and 4) deferral of lost margin up to $3 million in 2012 and $1 million in
2011 associated with small customer DSM programs for subsequent recovery under a tracking mechanism to be proposed by
the Company. On June 20, 2012, the IURC issued an order approving a small customer lost margin recovery mechanism,
inclusive of all previous deferrals. This mechanism is an alternative to the electric decoupling proposal that was denied by IURC
in the Company's last base rate proceeding discussed earlier. For the twelve months ended December 31, 2013, the Company
recognized Electric revenue of $5.0 million associated with this approved lost margin recovery mechanism.
Vectren North Pipeline Safety Investigation
On April 11, 2012, the IURC's pipeline safety division filed a complaint against Vectren North alleging several violations of safety
regulations pertaining to damage that occurred at a residence in Vectren North's service territory during a pipeline replacement
project. The Company negotiated a settlement with the IURC's pipeline safety division, agreeing to a fine and several
modifications to the Company's operating policies. The amount of the fine was not material to the Company's financial results.
The IURC approved the settlement but modified certain terms of the settlement and added a requirement that Company
employees conduct inspections of pipeline excavations. The Company sought and was granted a request for rehearing on the
sole issue related to the requirement to use Company employees to inspect excavations. A settlement in the case was reached
between the IURC's pipeline safety division and Vectren North that allowed Vectren North to continue to use its risk based
approach to inspecting excavations and to allow the Company to continue using a mix of highly trained and qualified contractors