Vectren 2008 Annual Report Download - page 79

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77
Notes Receivable
Of the $45.9 million in Other nonutility investments identified above, notes receivable, inclusive of any accrued
interest, and net of impairment reserves totaled $16.7 million. As of December 31, 2007, comparable amounts
were $21.5 million. The impairment reserve as of December 31, 2008 totaled $6.3 million and as of December 31,
2007 totaled $1.7 million. The change in the reserve during 2008 results primarily from the aforementioned
impairment charge. In 2007 and 2006, reserve activity was not significant. As of December 31, 2008, substantially
all notes receivable are considered impaired loans. It is the Company’s policy to recognize interest on the cash
basis for impaired loans; however, such interest income has been insignificant during the past three years.
Generally, second mortgages serve as collateral for these notes.
Leveraged Leases
The Company is a lessor in leveraged lease agreements under which real estate or equipment is leased to third
parties. The total equipment and facilities cost was approximately $45.2 million at December 31, 2008. The cost
of the equipment and facilities was partially financed by non-recourse debt provided by lenders who have been
granted an assignment of rentals due under the leases and a security interest in the leased property, which they
accepted as their sole remedy in the event of default by the lessee. Such debt amounted to approximately $54.0
million at December 31, 2008. At December 31, 2008, the Company’s $17.3 million leveraged lease investment
when netted against related deferred tax liabilities, was $2.2 million.
Haddington Energy Partnerships
The Company has an approximate 40 percent ownership interest in Haddington Energy Partners, LP (Haddington I)
and Haddington Energy Partners II, LP (Haddington II). The Company has no further commitments to invest in
either Haddington I or II. As of December 31, 2008, these Haddington ventures have two remaining investments
related to compressed air storage and liquefied natural gas storage. Both Haddington ventures are investment
companies accounted for using the equity method of accounting.
The following is summarized financial information as to the assets, liabilities, and results of operations of
Haddington. For the year ended December 31, 2008, revenues, operating loss, and net loss were (in millions) zero,
$(0.4), and $(0.3), respectively. For the year ended December 31, 2007, revenues, operating loss, and net loss were
(in millions) zero, $(0.4), and $(0.3), respectively. For the year ended December 31, 2006, revenues, operating
loss, and net loss were (in millions) zero, $(0.3), and $(0.3), respectively. As of December 31, 2008, investments,
other assets, and liabilities were (in millions) $32.0, $0.5, and $0.1, respectively. As of December 31, 2007,
investments, other assets, and liabilities were (in millions) $31.3, $1.1, and zero, respectively.
Variable Interest Entities
Some of these legacy nonutility investments are partnership-like structures and are variable interest entities as
defined by FASB Interpretation 46(R), “Consolidation of Variable Interest Entities.” The Company is either a
limited partner or a subordinated lender. These entities are involved in activities surrounding multifamily housing
and office properties. The Company’s exposure to loss is limited to its investment which as of December 31, 2008,
and 2007, totaled $9.5 million and $11.4 million, respectively, recorded in Investments in unconsolidated affiliates,
and $10.1 million and $11.5 million, respectively, recorded in Other nonutility investments. The Company does
not consolidate any of these entities
5. Synfuel-Related Activity
Pace Carbon Synfuels, LP (Pace Carbon) is a Delaware limited partnership formed to develop, own, and operate
four projects to produce and sell coal-based synthetic fuel (synfuel) utilizing Covol technology. The Company has
an 8.3 percent interest in Pace Carbon which is accounted for using the equity method of accounting. The Internal
Revenue Code provided for manufacturers, such as Pace Carbon, to receive a tax credit for every ton of synthetic
fuel sold. In addition, Vectren Fuels, Inc., a wholly owned subsidiary involved in coal mining, received processing
fees from synfuel producers unrelated to Pace Carbon for a portion of its coal production. The tax law authorizing
synfuel related credits and fees expired on December 31, 2007. Partnership operations since that date have been
insignificant.
The Internal Revenue Service issued private letter rulings, which concluded 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