Vectren 2008 Annual Report Download - page 27

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25
The Company’s expectation of greater earnings from coal mining could be adversely affected by a number of
factors.
The market for Illinois Basin coal reflects limited supply and increased demand, which has resulted in substantially
higher coal prices. Contracts reflecting these higher prices are in place on 70 percent of 2009 and 2010 planned
production. As a result, coal mining operations are expected to significantly contribute to future earnings. This
expectation is predicated on the ability to access coal at two new company-owned mines which are currently under
development; to operate existing mines in accordance with Mine Safety and Health Administration guidelines and
recent interpretations of those guidelines; and to manage production costs and other risks. Other risks, which could
adversely impact these future earnings, include geologic, equipment, and operational risks; sales contract
negotiations and interpretations; supplier and contract miner performance; the availability of miners, key equipment
and commodities; availability of transportation; and the ability to access/replace coal reserves.
Vectren’s nonutility group competes with larger, full-service energy providers, which may limit its ability to
grow its business.
Competitors for Vectren’s nonutility businesses include regional, national and global companies. Many of
Vectren’s competitors are well-established and have larger and more developed networks and systems, greater
name recognition, longer operating histories and significantly greater financial, technical and marketing resources.
This competition, and the addition of any new competitors, could negatively impact the financial performance of
the nonutility group and the Company’s ability to grow its nonutility businesses.
Vectren has significant synfuel tax credits subject to IRS audit.
The Company has an 8.3 percent ownership interest in Pace Carbon Synfuels, LP (Pace Carbon). Pace Carbon
produced and sold coal-based synthetic fuel using Covol technology and, according to US tax law, its members
received a tax credit for every ton of coal-based synthetic fuel sold. Under current tax laws, synfuel related tax
credits and fees ended on December 31, 2007. The Internal Revenue Service has issued private letter rulings which
concluded that the synthetic fuel produced at the Pace Carbon facilities should qualify for tax credits. The IRS has
completed tax audits of Pace Carbon for the years 1998 through 2001 without challenging tax credit calculations.
Generally, the statute of limitations for the IRS to audit a tax return is three years from filing. Therefore, tax credits
utilized in 2005 – 2007 are still subject to IRS examination. However, avenues remain where the IRS could
challenge tax credits for the years prior to 2005. As a partner of Pace Carbon, Vectren has reflected cumulative
synfuel tax credits of approximately $101 million in its consolidated results, of which approximately $45 million
were generated since 2004. To date, Vectren has been in a position to utilize all of the credits generated.
Catastrophic events could adversely affect Vectren’s facilities and operations.
Catastrophic events such as fires, earthquakes, explosions, floods, ice storms, tornados, terrorist acts or other
similar occurrences could adversely affect Vectren’s facilities, operations, financial condition and results of
operations.
Workforce risks could affect Vectren’s financial results.
The Company is subject to various workforce risks, including but not limited to, the risk that it will be unable to
attract and retain qualified personnel; that it will be unable to effectively transfer the knowledge and expertise of an
aging workforce to new personnel as those workers retire; that it will be unable to react to a pandemic illness; and
that it will be unable to reach collective bargaining arrangements with the unions that represent certain of its
workers, which could result in work stoppages.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.