Vectren 2010 Annual Report Download - page 26

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Any additional expenses or capital incurred by the Company, as it relates to complying with greenhouse gas emissions
regulation or other environmental regulations, are expected to be borne by the customers in its service territories through
increased rates. Increased rates have an impact on the economic health of the communities served. New regulations could
also negatively impact industries in the Company’s service territory, including industries in which the Company operates.
The Company is exposed to physical and financial risks related to the uncertainty of climate change.
A changing climate creates uncertainty and could result in broad changes to the Company’s service territories. These impacts
could include, but are not limited to, population shifts; changes in the level of annual rainfall; changes in the weather; and
changes to the frequency and severity of weather events such as thunderstorms, wind, tornadoes, and ice storms that can
damage infrastructure. Such changes could impact the Company in a number of ways including the number and/or type of
customers in the Company’s service territories; the demand for energy resulting in the need for additional investment in
generation assets or the need to retire current infrastructure that is no longer required; an increase to the cost of providing
service; and an increase in the likelihood of capital expenditures to replace damaged infrastructure.
To the extent climate change impacts a region’s economic health, it may also impact the Company’s revenues, costs, and
capital structure and thus the need for changes to rates charged to regulated customers. Rate changes themselves can impact
the economic health of the communities served and may in turn adversely affect the Company’s operating results.
The Company may face certain regulatory and financial risks related to pipeline safety legislation.
There are federal proposals currently pending that would increase pipeline operations oversight and would lead to an
investment in the inspection, and where necessary, the replacement of pipeline infrastructure. At this time and in the absence
of final legislation, compliance costs and other effects associated with increased pipeline safety regulations remain uncertain.
However, any future legislative or regulatory actions taken to address pipeline safety could substantially affect both operating
expenses and capital expenditures associated with the Company’s natural gas distribution businesses. The Company has been
successful in the past recovering costs resulting from government mandates. However, if the Company is unable to recover
from customers through the regulatory process all or some of these costs, including its authorized rate of return on replacement
projects, results of operations, financial condition, and cash flows could be adversely impacted.
Vectren regulated distribution operations are subject to various risks.
A variety of hazards and operations risks, such as leaks, accidental explosions, and mechanical problems are inherent in the
Company’s gas and electric distribution activities. If such events occur, they could cause substantial financial losses and result
in loss of human life, significant damage to property, environmental pollution, and impairment of operations. The location of
pipelines, storage facilities, and the electric grid near populated areas, including residential areas, commercial business centers,
and industrial sites, could increase the level of damages resulting from these risks. These activities may subject the Company
to litigation or administrative proceedings from time to time. Such litigation or proceedings could result in substantial monetary
judgments, fines, or penalties or be resolved on unfavorable terms. In accordance with customary industry practices, the
Company maintains insurance against a significant portion, but not all, of these risks and losses. To the extent that the
occurrence of any of these events is not fully covered by insurance, it could adversely affect the Company’s financial condition
and results of operations.
Vectren’s electric operations are subject to various risks.
The Company’s electric generating facilities are subject to operational risks that could result in unscheduled plant outages,
unanticipated operation and maintenance expenses and increased power purchase costs. Such operational risks can arise
from circumstances such as facility shutdowns due to equipment failure or operator error; interruption of fuel supply or increased
prices of fuel as contracts expire; disruptions in the delivery of electricity; inability to comply with regulatory or permit
requirements; labor disputes; and natural disasters.