Vectren 2012 Annual Report Download - page 108

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through the customer service charge. As a result, some margin previously recovered during the peak delivery winter months,
such as January and the first half of February 2010, is more ratably recognized throughout the year.
VEDO Continues the Process to Exit the Merchant Function
On April 30, 2008, the PUCO issued an order which approved the first two phases of a three phase plan to exit the merchant
function in the Company's Ohio service territory. As a result, substantially all of the Company's Ohio customers now purchase
natural gas directly from retail gas marketers rather than from the Company. The PUCO provided for an Exit Transition Cost
rider, which allows the Company to recover costs associated with the first two phases of the transition process. Exiting the
merchant function has not had 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, for the most part, no longer
purchases gas for resale.
19. Environmental Matters
Indiana Senate Bill 251 is also applicable to federal environmental mandates impacting Vectren South's electric operations. The
Company is currently evaluating the impact Senate Bill 251 may have on its operations, including applicability to the stricter
regulations the EPA is currently considering involving air quality, fly ash disposal, cooling tower intake facilities, waste water
discharges, and greenhouse gases. These issues are further discussed below.
Air Quality
Clean Air Interstate Rule / Cross-State Air Pollution Rule
In July 2011, the EPA finalized the Cross-State Air Pollution Rule (CSAPR). CSAPR was the EPA’s response to the US Court of
Appeals for the District of Columbia’s (the Court) remand of the Clean Air Interstate Rule (CAIR). CAIR was originally
established in 2005 as an allowance cap and trade program that required reductions from coal-burning power plants for NOx
emissions beginning January 1, 2009 and SO2 emissions beginning January 1, 2010, with a second phase of reductions in
2015. In an effort to address the Court’s finding that CAIR did not adequately ensure attainment of pollutants in certain
downwind states due to unlimited trading of SO2 and NOx allowances, CSAPR reduced the ability of facilities to meet emission
reduction targets through allowance trading. Like CAIR, CSAPR set individual state caps for SO2 and NOx
emissions. However, unlike CAIR in which states allocated allowances to generating units through state implementation plans,
CSAPR allowances were allocated to individual units directly through the federal rule. CSAPR reductions were to be achieved
with initial step reductions beginning January 1, 2012, and final compliance to be achieved in 2014. Multiple administrative and
judicial challenges were filed. On December 30, 2011, the Court granted a stay of CSAPR and left CAIR in place pending its
review. On August 21, 2012, the Court vacated CSAPR and directed the EPA to continue to administer CAIR. In October 2012,
the EPA filed its request for a hearing before the full federal appeals court that struck down the CSAPR. EPA's request for
rehearing was denied by the Court on January 24, 2013. The Company remains in full compliance with CAIR (see additional
information below "Conclusions Regarding Air Regulations").
Mercury and Air Toxics (MATS) Rule
On December 21, 2011, the EPA finalized the Utility MATS Rule. The MATS Rule is the EPA’s response to the US Court of
Appeals for the District of Columbia vacating the Clean Air Mercury Rule (CAMR) in 2008. CAMR was originally established in
2005 as a nation-wide mercury emission allowance cap and trade system which sought to reduce utility emissions of mercury
starting in 2010.
The MATS Rule sets emission limits for hazardous air pollutants for existing and new coal-fired power plants and identifies the
following broad categories of hazardous air pollutants: mercury, non-mercury hazardous air pollutants (primarily arsenic,
chromium, cobalt, and selenium), and acid gases (hydrogen cyanide, hydrogen chloride, and hydrogen fluoride). The rule
imposes mercury emission limits for two sub-categories of coal, and proposed surrogate limits for non-mercury and acid gas
hazardous air pollutants. The EPA did not grant blanket compliance extensions, but asserted that states have broad authority to
grant one year extensions for individual units where potential reliability impacts have been demonstrated. Reductions are to be
achieved within three years of publication of the final rule in the Federal register (April 2015). Initiatives to suspend CSAPR’s
implementation by the Congress also apply to the implementation of the MATS rule. Multiple judicial challenges were filed and
briefing is proceeding. The EPA also recently announced it will reconsider MATS requirements for new construction. Such