Vectren 2008 Annual Report Download - page 96

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pollution control equipment, including Selective Catalytic Reduction (SCR) systems and fabric filters. SCR
technology is the most effective method of reducing NOx emissions where high removal efficiencies are required
and fabric filters control particulate matter emissions. These investments were included in rate base for purposes of
determining new base rates that went into effect on August 15, 2007. Prior to being included in base rates, return
on investments made and recovery of related operating expenses were recovered through a rider mechanism.
Further, the IURC granted SIGECO authority to invest in an SO2 scrubber at its generating facility that is jointly
owned with ALCOA (the Company’s portion is 150 MW). The order allows SIGECO to recover an approximate 8
percent return on capital investments through a rider mechanism which is periodically updated for actual costs
incurred less post in-service depreciation expense. Through December 31, 2008, the Company has invested
approximately $97.6 million in this project. The scrubber was placed into service on January 1, 2009, and the
Company expects the total project investment to approximate $100 million once all post in-service investments are
completed. Recovery through a rider mechanism of associated operating expenses including depreciation expense
associated with the scrubber also began on January 1, 2009. With the SO2 scrubber fully operational, SIGECO is
positioned for compliance with the additional SO2 reductions required by Phase I CAIR commencing on January 1,
2010.
SIGECO’s coal fired generating fleet is 100 percent scrubbed for SO2 and 90 percent controlled for NOx.
SIGECO's investments in scrubber, SCR and fabric filter technology allows for compliance with existing
regulations and should position it to comply with future reasonable pollution control legislation, if and when,
reductions in mercury and further reductions in NOx and SO2 are promulgated by USEPA.
Climate Change
There are currently several forms of legislation being circulated at the federal level addressing the climate change
issue. These proposals generally involve either: 1) a “cap and trade” approach where there is a progressive cap on
greenhouse gas emissions and an auctioning and subsequent trading of allowances among those that emit
greenhouse gases or 2) a carbon tax. Currently no legislation has passed either house of Congress.
In the absence of federal legislation, several regional initiatives throughout the United States are in the process of
establishing regional cap and trade programs. While no climate change legislation is pending in the State of
Indiana, the State is an observer of the Midwestern Regional Greenhouse Gas Reduction Accord, and its legislature
has in the recent past debated, but did not pass, renewable energy portfolio standards. It is expected that the Indiana
State legislature will address a renewable energy portfolio standard again in 2009.
In April of 2007, the US Supreme Court determined that greenhouse gases meet the definition of "air pollutant"
under the Clean Air Act and ordered the USEPA to determine whether greenhouse gas emissions from new motor
vehicles cause or contribute to air pollution that may reasonably be anticipated to endanger public health or welfare.
Should the USEPA find such endangerment, it is likely that major stationary sources will be subject to regulation
under the Act. In 2008, the USEPA published its Advanced Notice of Proposed Rulemaking in which the agency
solicited comment as to whether it is appropriate or effective to regulate greenhouse gas emissions under the Act.
The Obama administration has asserted that it will act on the endangerment finding in the absence of
comprehensive federal legislation within the next 18 months.
Impact of Legislative Actions and Other Initiatives is Unknown
If legislation requiring reductions in CO2 and other greenhouse gases or legislation mandating a renewable energy
portfolio standard is adopted, such regulation could substantially affect both the costs and operating characteristics
of the Company’s fossil fuel generating plants, nonutility coal mining operations, and possibly natural gas
distribution businesses. Further, any legislation would likely impact the Company’s generation resource planning
decisions. At this time and in the absence of final legislation, compliance costs and other effects associated with
reductions in greenhouse gas emissions or obtaining renewable energy sources remain uncertain. The Company
has gathered preliminary estimates of the costs to comply with a cap and trade approach to controlling greenhouse
gas emissions. A preliminary investigation demonstrated costs to comply would be significant, first to operating
expenses for the purchase of allowances, and later to capital expenditures as technology becomes available to
control greenhouse gas emissions. However, these compliance cost estimates are very sensitive to highly uncertain
assumptions, including allowance prices. Costs to purchase allowances that cap greenhouse gas emissions should
be considered a cost of providing electricity, and as such, the Company believes recovery should be timely reflected