Vectren 2008 Annual Report Download - page 16

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14
Natural Gas Purchasing Activity in Ohio
As a result of a June 2005 PUCO order, the Company established an annual bidding process for VEDO’s gas
supply and portfolio administration services. From November 1, 2005 through September 30, 2008, the Company
used a third party provider for these services. Prior to October 31, 2005, ProLiance also supplied natural gas to
Utility Holdings’ Ohio operations.
On April 30, 2008, the PUCO issued an Order adopting a stipulation involving the Company, the OCC and other
interveners. The order involved the first two stages of a three stage plan to exit the merchant function in the
Company’s Ohio service territory.
Stage one of the plan was implemented on October 1, 2008 and continues through March 31, 2010. As part of
stage one, wholesale suppliers that were winning bidders in a PUCO approved auction provide the gas commodity
to VEDO for resale to its customers at auction-determined standard pricing. This standard pricing is comprised of
the monthly NYMEX settlement price plus a fixed adder. On October 1, 2008, the Company transferred its natural
gas inventory at book value to the winning bidders, receiving proceeds of approximately $107 million, and now
purchases natural gas from those suppliers, which include Vectren Source, a wholly owned subsidiary of Vectren,
essentially on demand. This method of purchasing gas eliminates the need for monthly gas cost recovery (GCR)
filings and prospective PUCO GCR audits.
In the second stage of this process, the Company will no longer sell natural gas directly to customers; rather state-
certified Competitive Retail Natural Gas Suppliers, which are successful bidders in a second regulatory-approved
auction, will sell the gas commodity to specific customers at auction-determined standard pricing, and the Company
will transport that gas supply to the customers. In the third stage, which was not part of the April 2008 order, it is
contemplated that all of the Company’s Ohio customers will choose their commodity supplier from state-certified
Competitive Retail Natural Gas Suppliers in a competitive market.
The PUCO has also provided for an Exit Transition Cost rider for the first two stages of the transition, which allows
the Company to recover costs associated with the transition, and it is anticipated this rider will remain effective for
the entire transition. Since the cost of gas is currently passed through to customers through a PUCO approved
recovery mechanism, the impact of exiting the merchant function should not have a material impact on Company
earnings or financial condition.
Total Natural Gas Purchased Volumes
In 2008, Utility Holdings purchased 109,059 MDth volumes of gas at an average cost of $9.61 per Dth, of which
approximately 71 percent was purchased from ProLiance, 2 percent was purchased from Vectren Source, as
discussed above, and 27 percent was purchased from third party providers. The average cost of gas per Dth
purchased for the previous five years was $9.61 in 2008, $8.14 in 2007, $8.64 in 2006, $9.05 in 2005, and $6.92 in
2004.
Electric Utility Services
At December 31, 2008, the Company supplied electric service to approximately 141,300 Indiana customers,
including approximately 122,800 residential, 18,400 commercial, and 100 industrial and other customers. Average
electric utility customers served were approximately 141,100 in 2008; 140,800 in 2007; and 139,700 in 2006.
The principal industries served include polycarbonate resin (Lexan®) and plastic products, aluminum smelting and
recycling, aluminum sheet products, automotive assembly, steel finishing, appliance manufacturing, pharmaceutical
and nutritional products, automotive glass, gasoline and oil products, ethanol and coal mining.
Revenues
For the year ended December 31, 2008, retail electricity sales totaled 5,323.4 GWh, resulting in revenues of
approximately $457.3 million. Residential customers accounted for 37 percent of 2008 revenues; commercial 28
percent; industrial 33 percent, and municipal and other 2 percent. In addition, in 2008 the Company sold 1,512.9
GWh through wholesale activities in 2008 principally to the MISO. Wholesale revenues, including transmission
sales, totaled $66.9 million in 2008.