Vectren 2010 Annual Report Download - page 17

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15
Natural Gas Purchasing Activity in Ohio
On April 30, 2008, the PUCO issued an order adopting a stipulation involving the Company, the OCC, and other interveners.
The order approved the first two phases of a three phase plan to exit the merchant function in the Company’s Ohio service
territory. The Company used a third party provider for VEDO’s gas supply and portfolio services through September 30, 2008.
The initial phase of the plan was implemented on October 1, 2008 and continued through March 31, 2010. During the initial
phase, wholesale suppliers that were winning bidders in a PUCO approved auction provided the gas commodity to VEDO for
resale to its residential and general service customers at auction-determined standard pricing. This standard pricing was
comprised of the monthly NYMEX settlement price plus a fixed adder. On October 1, 2008, the Company transferred its natural
gas inventory at book value to the winning bidders, receiving proceeds of approximately $107 million, and began purchasing
natural gas from those suppliers (one of which was Vectren Source, a wholly owned natural gas retail marketing subsidiary of
Vectren). This method of purchasing gas eliminated the need for monthly gas cost recovery (GCR) filings and prospective
PUCO GCR audits.
The second phase of the exit process began on April 1, 2010. During this phase, the Company no longer sells natural gas
directly to customers. Rather, state-certified Competitive Retail Natural Gas Suppliers, that were successful bidders in a similar
regulatory-approved auction, sell the gas commodity to specific customers for a 12-month period at auction-determined
standard pricing. The first auction was conducted on January 12, 2010, and the auction results were approved by the PUCO on
January 13, 2010. The plan approved by the PUCO required that the Company conduct at least two annual auctions during this
phase. As such, the Company conducted another auction on January 18, 2011 in advance of the second 12-month term which
commences on April 1, 2011. The results of that auction were approved by the PUCO on January 19, 2011. Consistent with
current practice, customers will continue to receive a single bill for the commodity as well as the delivery component of natural
gas service from VEDO. Vectren Source, the Company’s wholly owned nonutility retail gas marketer, was a successful bidder
in both auctions.
In the last phase, which was not approved in the April 2008 order, it is contemplated that all of the Company’s Ohio residential
and general service customers will choose their commodity supplier from state-certified Competitive Retail Natural Gas
Suppliers in a competitive market.
The PUCO provided for an Exit Transition Cost rider, which allows the Company to recover costs associated with the transition
process. Exiting the merchant function should not have a material impact on earnings or financial condition. It, however, has
and will continue to reduce Gas Utility revenues and have an equal and offsetting impact to Cost of gas sold as VEDO no longer
purchases gas for resale to these customers.
Total Natural Gas Purchased Volumes
In 2010, Utility Holdings purchased 84,008 MDth volumes of gas at an average cost of $5.99 per Dth, of which approximately 86
percent was purchased from ProLiance, 2 percent was purchased from Vectren Source, and 12 percent was purchased from
third party providers. The average cost of gas per Dth purchased for the previous four years was $5.97 in 2009, $9.61 in 2008,
$8.14 in 2007, and $8.64 in 2006.
Electric Utility Services
At December 31, 2010, the Company supplied electric service to approximately 141,600 Indiana customers, including
approximately 123,200 residential, 18,300 commercial, and 100 industrial and other customers. Average electric utility
customers served were approximately 141,300 in 2010, 140,900 in 2009, and 141,100 in 2008.
The principal industries served include polycarbonate resin (Lexan®) and plastic products, aluminum smelting and recycling,
aluminum sheet products, automotive assembly, steel finishing, pharmaceutical and nutritional products, automotive glass,
gasoline and oil products, ethanol, and coal mining.
Revenues
For the year ended December 31, 2010, retail electricity sales totaled 5,616.9 GWh, resulting in revenues of approximately
$564.3 million. Residential customers accounted for 37 percent of 2010 revenues; commercial 27 percent; industrial 35
percent, and other 1 percent. In addition, in 2010 the Company sold 587.6 GWh through wholesale activities principally to the
MISO. Wholesale revenues, including transmission-related revenue, totaled $43.7 million in 2010.