Vectren 2008 Annual Report Download - page 35

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2006. The Ohio lost margin recovery mechanism ended when new base rates went into effect in February 2009.
This mechanism was replaced by a rate design, commonly referred to as a straight fixed variable rate design, which
is more dependent on service charge revenues and less dependent on volumetric revenues than previous rate
designs. This new rate design, which will be phased in over a two year period, also prospectively mitigates some
weather risk in Ohio. SIGECO’s electric service territory has neither NTA nor lost margin recovery mechanisms.
Gas and electric margin generated from sales to large customers (generally industrial and other contract customers)
is primarily impacted by overall economic conditions and changes in demand for those customers’ products. The
recent recession may have some negative impact on both gas and electric large customers. This impact may include
tempered growth, significant conservation measures, and perhaps even plant closures or bankruptcies. While no
one industrial customer comprises 10 percent of consolidated revenues, the top five industrial electric customers
comprise approximately 17 percent of electric utility revenues, and therefore any significant decline in their
collective revenues could adversely impact operating results. Deteriorating economic conditions may also lead to
continued lower residential and commercial customer counts.
Margin is also impacted by the collection of state mandated taxes, which fluctuate with gas and fuel costs, as well
as other tracked expenses. Expenses subject to tracking mechanisms include Ohio bad debts and percent of income
payment plan expenses, Indiana gas pipeline integrity management costs, and costs to fund Indiana energy
efficiency programs. Certain operating costs associated with operating environmental compliance equipment were
also tracked prior to their recovery in base rates that went into effect on August 15, 2007. The latest Indiana service
territory rate cases, implemented in 2007 and 2008 also provide for the tracking of MISO revenues and costs, as
well as the gas cost component of bad debt expense based on historical experience and unaccounted for gas.
Unaccounted for gas is also tracked in the Ohio service territory.
Electric wholesale activities are primarily affected by market conditions, the level of excess generating capacity,
and electric transmission availability. Following is a discussion and analysis of margin generated from regulated
utility operations.
Gas Utility Margin (Gas utility revenues less Cost of gas)
Gas Utility margin and throughput by customer type follows:
(In millions) 2008 2007 2006
Gas utility revenues 1,432.7$ 1,269.4$ 1,232.5$
Cost of gas sold 983.1 847.2 841.5
Total gas utility margin 449.6$ 422.2$ 391.0$
Margin attributed to:
Residential & commercial customers 385.1$ 360.9$ 330.2$
Industrial customers 52.2 48.7 48.0
Other 12.3 12.6 12.8
Sold & transported volumes in MMDth attributed to:
Residential & commercial customers 114.8 108.4 97.7
Industrial customers 91.5 86.2 84.9
Total sold & transported volumes 206.3 194.6 182.6
Year Ended December 31,
For the year ended December 31, 2008, gas utility margins were $449.6 million, an increase of $27.4 million
compared to 2007. The Vectren North base rate increase, effective February 14, 2008 added $11.8 million in
margin. Also impacting year over year results was the Vectren South base rate increase, effective August 1, 2007,
increasing margin for the full 2008 year approximately $3.6 million. In 2008, Ohio weather was 8 percent colder
than the prior year and resulted in an estimated increase in margin of approximately $3.2 million compared to 2007.
Operating costs, including revenue and usage taxes, directly recovered in margin, increased gas margin $7.8
million. The average cost per dekatherm of gas purchased for the year ended December 31, 2008, was $9.61
compared to $8.14 in 2007 and $8.64 in 2006.