Vectren 2008 Annual Report Download - page 45

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43
The need to expend capital for improvements to the regional transmission system, both to SIGECO’s facilities as
well as to those facilities of adjacent utilities, over the next several years is expected to be significant. The
Company timely recovers its investment in certain new electric transmission projects that benefit the MISO
infrastructure at a FERC approved rate of return.
One such project is an interstate 345 kilovolt transmission line that will connect Vectren’s A B Brown Station to a
station in Indiana owned by Duke Energy to the north and to a station in Kentucky owned by Big Rivers Electric
Corporation to the south. Throughout the project, SIGECO is to recover an approximate 10 percent return,
inclusive of the FERC approved equity rate of return of 12.38 percent, on capital investments through a rider
mechanism which is periodically updated for actual costs incurred. Of the total investment, which is expected to
approximate $70 million, as of December 31, 2008, the Company has invested approximately $3.1 million. The
Company expects this project to be operational in 2011. At that time, any operating expenses including
depreciation expense are also expected to be recovered through a FERC approved rider mechanism. Further, the
approval allows for recovery of expenditures made even in the event currently unforeseen difficulties delay or
permanently halt the project.
Results of Operations of the Nonutility Group
The Nonutility Group operates in three primary business areas: Energy Marketing and Services, Coal Mining, and
Energy Infrastructure Services. Energy Marketing and Services markets and supplies natural gas and provides
energy management services. Coal Mining mines and sells coal. Energy Infrastructure Services provides
underground construction and repair and provides performance contracting and renewable energy services. There
are also other legacy businesses that have invested in energy-related opportunities and services, real estate, and
leveraged leases, among other investments. The Nonutility Group supports the Company’s regulated utilities
pursuant to service contracts by providing natural gas supply services, coal, and infrastructure services. Nonutility
Group earnings for the years ended December 31, 2008, 2007, and 2006, follow:
(In millions, except per share amounts) 2008 2007 2006
NET INCOME 18.9$ 37.0$ 18.1$
CONTRIBUTION TO VECTREN BASIC EPS 0.24$ 0.49$ 0.24$
NET INCOME ATTRIBUTED TO:
Energy Marketing & Services 18.0$ 22.3$ 14.9$
Mining Operations (4.6) 2.0 5.0
Energy Infrastructure Services 11.4 9.4 4.6
Other Businesses (5.9) 0.3 (1.1)
Synfuels-related - 3.0 (5.3)
Year Ended December 31,
Impact of the Current Recession
A prolonged recession may include a lower level of economic activity and uncertainty regarding energy prices and
other key factors that impact the Nonutility Group. Economic declines may be accompanied by a decrease in
demand for products and services offered by nonutility operations and therefore lower revenues for those products
and services. The recent economic downturn may have some negative impact on utility industry spending for
construction projects, demand for coal, and spending on performance contracting and renewable energy expansion.
It is also possible that a prolonged recession could result in further reductions in the value of certain nonutility real
estate and other legacy investments.