Vectren 2008 Annual Report Download - page 38

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36
Taxes Other Than Income Taxes
Taxes other than income taxes increased $4.2 million in 2008 compared to 2007 and increased $3.9 million in 2007
compared 2006. The increases are primarily attributable to higher utility receipts, excise, and usage taxes. These
variations resulted primarily from volatility in revenues and gas volumes sold.
Other Income-Net
Other-net reflects income of $4.0 million in 2008 compared to $9.4 million in 2007 and $7.6 million in 2006. The
decrease in 2008 compared to 2007 is primarily due to lower returns associated with investments that fund deferred
compensation arrangements and lower interest income. The increase in 2007 compared to 2006 relates primarily to
increased AFUDC due to increased capital spending and higher interest income.
Utility Group Interest Expense
For the year ended December 31, 2008, interest expense was $79.9 million, a decrease of $0.7 million compared to
2007, as lower average short-term debt levels and lower average short-term interest rates were partially offset by
higher long-term balances and interest rates.
In 2007, interest expense increased $3.1 million compared to 2006. The increase is primarily driven by rising
interest rates during the period and is also impacted by higher levels of short-term borrowings. The 2007 increase
was mitigated somewhat by the full impact of financing transactions completed in October 2006. Interest costs in
2006 reflect permanent financing transactions completed in the fourth quarter of 2005 in which $150 million in
debt-related proceeds were received and used to retire short-term borrowings and other long-term debt.
Utility Group Income Taxes
Federal and state income taxes increased $0.9 million in 2008 compared to 2007 and $19.0 million in 2007
compared to 2006. The changes are impacted primarily by fluctuations in pre-tax income and a lower effective tax
rate in 2008 and 2006.
Environmental Matters
The Company is subject to federal, state, and local regulations with respect to environmental matters, principally
air, solid waste, and water quality. Pursuant to environmental regulations, the Company is required to obtain
operating permits for the electric generating plants that it owns or operates and construction permits for any new
plants it might propose to build. Regulations concerning air quality establish standards with respect to both
ambient air quality and emissions from electric generating facilities, including particulate matter, sulfur dioxide
(SO2), nitrogen oxide (NOx), and mercury. Regulations concerning water quality establish standards relating to
intake and discharge of water from electric generating facilities, including water used for cooling purposes in
electric generating facilities. Because of the scope and complexity of these regulations, the Company is unable to
predict the ultimate effect of such regulations on its future operations.
Clean Air Act Initiatives
In March of 2005, the USEPA finalized the Clean Air Interstate Rule (CAIR). CAIR is an allowance cap and trade
program requiring further reductions from coal-burning power plants in NOx emissions beginning January 1, 2009
and SO2 emissions beginning January 1, 2010, with a second phase of reductions in 2015. On July 11, 2008, the
US Court of Appeals for the District of Columbia vacated the federal CAIR regulations. Various parties filed
motions for reconsideration, and on December 23, 2008, the Court reinstated the CAIR regulations and remanded
the regulations back to the USEPA for promulgation of revisions in accordance with the Court’s July 11, 2008
Order. Thus, the original version of CAIR promulgated in March of 2005 remains effective while USEPA revises
it per the Court’s guidance. It is possible that a revised CAIR will require further reductions in NOx and SO2 from
SIGECO’s generating units. SIGECO is in compliance with the current CAIR Phase I annual NOx reduction
requirements in effect on January 1, 2009. Utilization of the Company’s inventory of NOx and SO2 allowances
may also be impacted if CAIR is further revised; however, most of the these allowances were granted to the
Company at zero cost, so a reduction in carrying value is not expected.