Vectren 2008 Annual Report Download - page 25

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Environmental legislation also requires that facilities, sites and other properties associated with Vectren’s
operations be operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory
authorities. The Company’s current costs to comply with these laws and regulations are significant to its results of
operations and financial condition. In addition, claims against the Company under environmental laws and
regulations could result in material costs and liabilities. With the trend toward stricter standards, greater regulation,
more extensive permit requirements and an increase in the number and types of assets operated by Vectren subject
to environmental regulation, its investment in environmentally compliant equipment, and the costs associated with
operating that equipment, have increased and are expected to increase in the future.
Climate Change
Further, there are proposals to address global climate change that would regulate carbon dioxide (CO2) and other
greenhouse gases and other proposals that would mandate an investment in renewable energy sources. Any future
legislative or regulatory actions taken to address global climate change or mandate renewable energy sources could
substantially affect both the costs and operating characteristics of the Company’s fossil fuel generating plants and
possibly natural gas distribution businesses. Further, any legislation would likely impact the Company’s generation
resource planning decisions. At this time and in the absence of final legislation, compliance costs and other effects
associated with reductions in greenhouse gas emissions or obtaining renewable energy sources remain uncertain.
The Company has gathered preliminary estimates of the costs to comply with a cap and trade approach to
controlling greenhouse gas emissions. A preliminary investigation demonstrated costs to comply would be
significant, first to operating expenses for the purchase of allowances, and later to capital expenditures as
technology becomes available to control greenhouse gas emissions. However, these compliance cost estimates are
very sensitive to highly uncertain assumptions, including allowance prices. Costs to purchase allowances that cap
greenhouse gas emissions should be considered a cost of providing electricity, and as such, the Company believes
recovery should be timely reflected in rates charged to customers. Approximately 22 percent of electric volumes
sold in 2008 were delivered to municipal and other wholesale customers. As such, the Company has some
flexibility to modify the level of these transactions to reduce overall emissions and reduce costs associated with
complying with new environmental regulations.
From time to time, Vectren is subject to material litigation and regulatory proceedings.
From time to time, the Company, as well as its equity investees such as ProLiance, may be subject to material
litigation and regulatory proceedings including matters involving compliance with state and federal laws,
regulations or other matters. There can be no assurance that the outcome of these matters will not have a material
adverse effect on Vectren’s business, prospects, results of operations, or financial condition.
Vectren’s electric operations are subject to various risks.
The Company’s electric generating facilities are subject to operational risks that could result in unscheduled plant
outages, unanticipated operation and maintenance expenses and increased power purchase costs. Such operational
risks can arise from circumstances such as facility shutdowns due to equipment failure or operator error;
interruption of fuel supply or increased prices of fuel as contracts expire; disruptions in the delivery of electricity;
inability to comply with regulatory or permit requirements; labor disputes; and natural disasters.
The impact of MISO participation is uncertain.
Since February 2002 and with the IURC’s approval, the Company has been a member of the MISO. The MISO
serves the electrical transmission needs of much of the Midwest and maintains operational control over SIGECO’s
electric transmission facilities as well as that of other Midwest utilities.
As a result of MISO’s operational control over much of the Midwestern electric transmission grid, including
SIGECO’s transmission facilities, SIGECO’s continued ability to import power, when necessary, and export power
to the wholesale market has been, and may continue to be, impacted. Given the nature of MISO’s policies
regarding use of transmission facilities, as well as ongoing FERC initiatives, and a Day 3 ancillary services market
(ASM), where MISO provides bid-based regulation and contingency operating reserve markets which began on
January 6, 2009, it is difficult to predict near term operational impacts. The IURC has approved the Company’s
participation in the ASM and has granted authority to defer costs associated with ASM.