Vectren 2010 Annual Report Download - page 39

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37
Margin from Wholesale Electric Activities
Periodically, generation capacity is in excess of native load. The Company markets and sells this unutilized generating and
transmission capacity to optimize the return on its owned assets. Substantially all off-system sales occur into the MISO Day
Ahead and Real Time markets. Further detail of Wholesale activity follows:
(In millions) 2010 2009 2008
Transmission system margin 18.8$ 14.6$ 9.3$
Off-system margin 7.4 6.1 23.2
Total wholesale margin 26.2$ 20.7$ 32.5$
Year Ended December 31,
Beginning in June 2008, the Company began earning a return on electric transmission projects constructed by the Company in
its service territory that meet the criteria of MISO’s regional transmission expansion plans. Margin associated with these
projects, including the reconciliation of recovery mechanisms, and other transmission system operations, totaled $18.8 million
during 2010, compared to $14.6 in 2009 and $9.3 million in 2008. The increase in these transmission system sales is principally
due to the increased investment in qualifying projects.
For the year ended December 31, 2010, margin from off-system sales was $7.4 million, compared to $6.1 million in 2009 and
$23.2 million in 2008. In 2009 compared to 2008, margin from off-system sales decreased $17.1 million. The Company
experienced lower wholesale power marketing margins due primarily to lower demand and wholesale prices due to the
recession, coupled with increased coal costs. Off-system sales totaled 587.6 GWh in 2010, compared to 603.6 GWh in 2009,
and 1,512.9 GWh in 2008. The base rate increase effective August 17, 2007, requires that wholesale margin from off-system
sales earned above or below $10.5 million be shared equally with customers as measured on a fiscal year ending in August.
Results for the periods presented reflect the impact of that sharing.
Purchased Power
The Company’s mix of generated and purchased electricity has been more volatile in recent years due to changing commodity
prices and the presence of wind farm purchased power agreements. For the years ended December 31, 2010, 2009, and 2008,
respectively, the Company purchased approximately 1,287 GWh, 1,159 GWh, and 372 GWh, of power from the MISO and other
sources. The total cost associated with these volumes of purchased power is approximately $56 million, $43 million, and $26
million in 2010, 2009, and 2008, respectively, and is included in the Cost of fuel & purchased power.
Utility Group Operating Expenses
Other Operating
For the year ended December 31, 2010, other operating expenses were $ 299.2 million, which is a decrease in expenses
compared to 2009. Excluding expenses tracked directly in margin, operating costs decreased $7.9 million. The primary drivers
of the decrease are a $3.0 million reduction in Indiana uncollectible accounts expense and the $4.1 million in costs for
environmental matters related to manufactured gas plant site clean-up incurred in 2009.
For the year ended December 31, 2009, other operating expenses were $304.6 million, increasing $4.3 million compared to
2008. Approximately $10.9 million of the change results from increased costs directly recovered through utility margin.
Increases in other operating expenses in 2009, not directly recovered in margin, include an approximate $6.3 million increase
for certain compensation costs and a $4.1 million increase associated with environmental matters related to manufactured gas
plant site clean-up. All other operating expenses were approximately $17.0 million lower than the prior year driven primarily by
reductions in electric maintenance costs and lower chemical costs. Despite significantly lower gas costs due to the recession,
Indiana uncollectible accounts expense was only slightly favorable compared to 2008.
Depreciation & Amortization
For the year ended December 31, 2010, depreciation expense was $188.2 million, compared to $180.9 in 2009 and $165.5 in
2008. The increase over the periods presented is due largely to utility capital expenditures placed into service. Plant placed
into service in 2009 included the approximate $100 million SO2 scrubber.