Vectren 2008 Annual Report Download - page 24

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structures of its subsidiaries. If the rating agencies downgrade the Company’s credit ratings, particularly below
investment grade, or initiate negative outlooks thereon, or withdraw Vectren’s ratings or, in each case, the ratings of
its subsidiaries, it may significantly limit Vectren’s access to the debt capital markets and the commercial paper
market, and the Company’s borrowing costs would increase. In addition, Vectren would likely be required to pay a
higher interest rate in future financings, and its potential pool of investors and funding sources would likely
decrease. Finally, there is no assurance that the Company will have access to the equity capital markets to obtain
financing when necessary or desirable.
Vectren operates in an increasingly competitive industry, which may affect its future earnings.
The utility industry has been undergoing structural change for several years, resulting in increasing competitive
pressure faced by electric and gas utility companies. Increased competition may create greater risks to the stability
of Vectren’s earnings generally and may in the future reduce its earnings from retail electric and gas sales.
Currently, several states, including Ohio, have passed legislation that allows customers to choose their electricity
supplier in a competitive market. Indiana has not enacted such legislation. Ohio regulation also provides for
choice of commodity providers for all gas customers. In 2003, the Company implemented this choice for its gas
customers in Ohio and is currently in the first of the three stage process to exit the merchant function in its Ohio
service territory. The state of Indiana has not adopted any regulation requiring gas choice in the Company’s
Indiana service territories; however, the Company operates under approved tariffs permitting certain industrial and
commercial large volume customers to choose their commodity supplier. Vectren cannot provide any assurance
that increased competition or other changes in legislation, regulation or policies will not have a material adverse
effect on its business, financial condition or results of operations.
A significant portion of Vectren’s gas and electric utility sales are space heating and cooling. Accordingly, its
operating results may fluctuate with variability of weather.
Vectren’s gas and electric utility sales are sensitive to variations in weather conditions. The Company forecasts
utility sales on the basis of normal weather. Since Vectren does not have a weather-normalization mechanism for
its electric operations, significant variations from normal weather could have a material impact on its earnings.
However, the impact of weather on the gas operations in the Company’s Indiana territories has been significantly
mitigated through the implementation in 2005 of a normal temperature adjustment mechanism. Additionally, the
implementation of a straight fixed variable rate design over a two year period per a January 2009 PUCO order will
significantly mitigate weather risk related to Ohio residential gas sales.
Risks related to the regulation of Vectren’s utility businesses, including environmental regulation, could
affect the rates the Company charges its customers, its costs and its profitability.
Vectren’s businesses are subject to regulation by federal, state and local regulatory authorities and are exposed to
public policy decisions that may negatively impact the Company’s earnings. In particular, Vectren is subject to
regulation by the FERC, the NERC (North American Electric Reliability Corporation), the IURC and the PUCO.
These authorities regulate many aspects of its transmission and distribution operations, including construction and
maintenance of facilities, operations, and safety, and its gas marketing operations involving title passage, reliability
standards, and future adequacy. In addition, these regulatory agencies approve its utility-related debt and equity
issuances, regulate the rates that Vectren’s utilities can charge customers, the rate of return that Vectren’s utilities
are authorized to earn, and its ability to timely recover gas and fuel costs. Further, there are consumer advocates
and other parties which may intervene in regulatory proceedings and affect regulatory outcomes. The Company’s
ability to obtain rate increases to maintain its current authorized rate of return depends upon regulatory discretion,
and there can be no assurance that Vectren will be able to obtain rate increases or rate supplements or earn its
current authorized rate of return. As gas costs remain above historical levels and are more volatile, any future
disallowance might be material to the Company’s operations or financial condition.
Vectren’s operations and properties are subject to extensive environmental regulation pursuant to a variety of
federal, state and municipal laws and regulations. These environmental regulations impose, among other things,
restrictions, liabilities and obligations in connection with storage, transportation, treatment and disposal of
hazardous substances and waste and in connection with spills, releases and emissions of various substances in the
environment. Such emissions from electric generating facilities include particulate matter, sulfur dioxide (SO2),
nitrogen oxide (NOx), and mercury, among others.