Vectren 2013 Annual Report Download - page 82

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80
When an energy contract that is a derivative is designated and documented as a normal purchase or normal sale (NPNS), it is
exempted from mark-to-market accounting. Most energy contracts executed by the Company are subject to the NPNS
exclusion or are not considered derivatives. Such energy contracts include Real Time and Day Ahead purchase and sale
contracts with the MISO, natural gas purchases, and wind farm and other electric generating contracts.
When the Company engages in energy contracts and financial contracts that are derivatives and are not subject to the NPNS or
other exclusions, such contracts are recorded at market value as current or noncurrent assets or liabilities depending on their
value and on when the contracts are expected to be settled. Contracts and any associated collateral with counter-parties
subject to master netting arrangements are presented net in the Consolidated Balance Sheets. The offset resulting from
carrying the derivative at fair value on the balance sheet is charged to earnings unless it qualifies as a hedge or is subject to
regulatory accounting treatment. When hedge accounting is appropriate, the Company assesses and documents hedging
relationships between the derivative contract and underlying risks as well as its risk management objectives and anticipated
effectiveness. When the hedging relationship is highly effective, derivatives are designated as hedges. The market value of the
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.
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 Midcontinent region and maintains operational control over the
Company’s electric transmission facilities as well as that of other utilities in the region. The Company is an active participant in