Vectren 2008 Annual Report Download - page 98

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96
Jacobsville Superfund Site
On July 22, 2004, the USEPA listed the Jacobsville Neighborhood Soil Contamination site in Evansville, Indiana,
on the National Priorities List under the Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA). The USEPA has identified four sources of historic lead contamination. These four sources shut down
manufacturing operations years ago. When drawing up the boundaries for the listing, the USEPA included a 250
acre block of properties surrounding the Jacobsville neighborhood, including Vectren's Wagner Operations Center.
Vectren's property has not been named as a source of the lead contamination, nor does the USEPA's soil testing to
date indicate that the Vectren property contains lead contaminated soils. Vectren's own soil testing, completed
during the construction of the Operations Center, did not indicate that the Vectren property contains lead
contaminated soils. At this time, Vectren anticipates only additional soil testing could be requested by the USEPA
at some future date.
16. Rate & Regulatory Matters
Vectren Energy Delivery of Ohio, Inc. (VEDO) Gas Base Rate Order Received
On January 7, 2009, the PUCO issued an order approving the stipulation reached in the VEDO rate case. The order
provides for a rate increase of nearly $14.8 million, an overall rate of return of 8.89 percent on rate base of about
$235 million; an opportunity to recover costs of a program to accelerate replacement of cast iron and bare steel
pipes, as well as certain service risers; and base rate recovery of an additional $2.9 million in conservation program
spending.
The order also adjusts the rate design that will be used to collect the agreed-upon revenue from VEDO's residential
customers. The order authorizes the use of a straight fixed variable rate design which places all, or most, of the
fixed cost recovery in the customer service charge. Using a phased in approach, revenues based on volumes sold
will be entirely replaced with a fixed charge after one year. A straight fixed variable design mitigates some
weather risk as well as the effects of declining usage, similar to the Company’s lost margin recovery mechanism,
which expired when this new rate design went into effect in February 2009. In 2008, results include approximately
$4.3 million of revenue from the existing lost margin recovery mechanism that will not continue once this base rate
increase is in effect. The OCC has filed a request for rehearing on the rate design finding by the PUCO. The
rehearing request mirrors similar requests filed by the OCC in each case where the PUCO has approved similar rate
designs, and all such requests have been denied.
With this rate order the Company has in place for its Ohio gas territory rates that allow for the phased
implementation of a straight fixed variable rate design that mitigates both weather risk and lost margin; tracking of
bad debt and percent of income payment plan (PIPP) expenses; base rate recovery of pipeline integrity management
expense; timely recovery of costs associated with the accelerated replacement of bare steel and cast iron pipes, as
well as certain service risers; and expanded conservation programs now totaling up to $5 million in annual
expenditures.
Vectren Energy Delivery of Ohio, Inc. Begins Process to Exit the Merchant Function
On August 20, 2008, the PUCO approved an auction selecting qualified wholesale suppliers to provide the gas
commodity to the Company for resale to its customers at auction-determined standard pricing. This standard
pricing is comprised of the monthly NYMEX settlement price plus a fixed adder. This auction, which is effective
from October 1, 2008 through March 31, 2010, is the initial step in exiting the merchant function in the Company’s
Ohio service territory. The approach eliminates the need for monthly gas cost recovery (GCR) filings and
prospective PUCO GCR audits. On October 1st, VEDO’s entire natural gas inventory was transferred, receiving
proceeds of approximately $107 million. The PUCO has also provided for an Exit Transition Cost rider, which
allows the Company to recover costs associated with the transition. As the cost of gas is currently passed through
to customers through a PUCO approved recovery mechanism, the impact of exiting the merchant function should
not have a material impact on Company earnings or financial condition.
Vectren North (Indiana Gas Company, Inc.) Gas Base Rate Order Received
On February 13, 2008, the Company received an order from the IURC which approved the settlement agreement
reached in its Vectren North gas rate case. The order provided for a base rate increase of $16.3 million and a return
on equity (ROE) of 10.2 percent, with an overall rate of return of 7.8 percent on rate base of approximately $793