Vectren 2008 Annual Report Download - page 48

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46
Energy Infrastructure Services
Energy Infrastructure Services provides underground construction and repair to utility infrastructure through Miller
Pipeline Corporation (Miller) and energy performance contracting and renewable energy services through Energy
Systems Group, LLC (ESG). Inclusive of holding company costs, Energy Infrastructure’s operations contributed
earnings of $11.4 million in 2008, compared to $9.4 million in 2007 and $4.6 million in 2006.
Miller Pipeline
Miller’s 2008 earnings were $6.2 million compared to $6.1 million in 2007 and $2.3 million in 2006. In 2007,
Miller benefited from more large gas construction projects and pricing increases. Vectren’s 100 percent ownership
of Miller effective July 1, 2006 also contributed to the increase in 2007 compared to 2006. As a result of the
recession, earnings in 2009 are likely to be impacted by less capital spending by Miller’s large customers for their
infrastructure programs.
Effective July 1, 2006, the Company purchased the remaining 50 percent ownership in Miller, making Miller a
wholly owned subsidiary. Prior to this transaction, Miller was a 50 percent owned joint venture accounted for
using the equity method. The results of Miller’s operations have been included in consolidated results since July 1,
2006. While the acquisition of Miller has not been material to the overall financial statements, consolidating Miller
resulted in, among other impacts, increases in Nonutility revenue totaling $105.7 million in 2007 compared to 2006
and increases in Other operating expense totaling $90.9 million in 2007 compared to 2006.
During 2006, the Company exited the meter reading and line locating businesses, which it had previously provided
through Reliant Services, LLC.
Energy Systems Group
ESG’s earnings were $6.7 million in 2008, compared to $4.0 million in 2007 and $3.1 million in 2006. The
increases are primarily due to the continued focus on energy conservation and sustainability measures by ESG’s
customers, as evidenced by approximately $50 million in new 2008 fourth quarter sales contracts. Results in 2008
were further favorably impacted by Energy Efficient Commercial Building federal income tax deductions,
commonly referred to as Internal Revenue Code Section 179D deductions, associated with the installation of energy
efficient equipment. These deductions continue through 2013. Deductions reflected in the 2008 tax provision
include $1.6 million related to contracts executed in 2007 and 2008. At December 31, 2008, ESG’s backlog was
$65 million, compared to $52 million at December 31, 2007. The national focus on a comprehensive energy
strategy as evidenced by the new Energy Independence and Security Act of 2007 and legislation supported by the
new administration is likely to continue to favorably impact ESG’s future earnings.
Other Businesses
Within the Nonutility business segment, there are legacy investments, outside of primary operations, involved in
energy-related opportunities and services, real estate, leveraged leases, and other ventures, including investments in
the Haddington Energy Partnerships (Haddington). The earnings impact of exiting the broadband business in 2006
is also included in Other Businesses.
As of December 31, 2008, remaining legacy investments included in the Other Businesses portfolio total $71.8
million, of which $45.9 million are included in Other nonutility investments and $25.9 million are included in
Investments in unconsolidated affiliates on the Consolidated Balance Sheet. Further separation of that remaining
investment by type of investment follows: commercial real estate $21.0 million; Haddington $14.3 million;
affordable housing projects $9.6 million; leveraged leases $17.3 million, and other investments, including a note
receivable from the City of Alameda, California, $9.6 million.
Other Businesses reported a loss of $5.9 million 2008, compared to earnings of $0.3 million in 2007 and a loss of
$1.1 million in 2006. Results in 2008 reflect a write-down associated with commercial real estate investments, and
results for 2006 reflect a loss on the sale of SIGECOM, LLC (SIGECOM).