Vectren 2012 Annual Report Download - page 30

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28
exception from these clearing and cash collateral requirements for commercial end-users. Requirements to post collateral could
limit cash for investment and for other corporate purposes or could increase debt levels. In addition, a requirement for
counterparties to post collateral could result in additional costs associated with executing transactions, thereby decreasing
profitability. An increased collateral requirement could also reduce the Company’s and ProLiance’s ability to execute derivative
transactions to reduce commodity price and interest rate uncertainty and to protect cash flows. The regulations may also limit
the pool of potential counterparties and/or the liquidity in the respective markets for such transactions.
Significant rule-making by numerous governmental agencies, particularly the CFTC, continues to evolve and has been subject
to a number of extensions and delays. The Company and ProLiance continue to evaluate the impacts as these rulemakings and
interpretations become available and whether these rulemakings and interpretations affirm that exemptions apply to the
Company’s and ProLiance’s use of derivative instruments.
Vectren’s subsidiaries have performance and warranty obligations, some of which are guaranteed by Vectren.
In the normal course of business, subsidiaries of Vectren issue performance bonds and other forms of assurance that commit
them to timely install infrastructure, operate facilities, pay vendors or subcontractors, and/or support warranty
obligations. Vectren Corporation, as the parent company, will from time to time guarantee its subsidiaries’ commitments. These
guarantees do not represent incremental consolidated obligations; rather, they represent parental guarantees of subsidiary
obligations in order to allow those subsidiaries the flexibility to conduct business without posting other forms of collateral. The
Company has not been called upon to satisfy any obligations pursuant to these parental guarantees.
From time to time, Vectren is subject to material litigation and regulatory proceedings.
From time to time, the Company, as well as its equity investees such as ProLiance, may be subject to material litigation and
regulatory proceedings, including matters involving compliance with state and federal laws, regulations or other matters. There
can be no assurance that the outcome of these matters will not have a material adverse effect on Vectren’s business, prospects,
corporate reputation, results of operations, or financial condition.
The investment performance of pension plan holdings and other factors impacting pension plan costs could impact
Vectren’s liquidity and results of operations.
The costs associated with the Company sponsored retirement plans are dependent on a number of factors, such as the rates of
return on plan assets; discount rates; the level of interest rates used to measure funding levels; changes in actuarial
assumptions; future government regulation; and Company contributions. In addition, the Company could be required to provide
for significant funding of these defined benefit pension plans. Such cash funding obligations could have a material impact on
liquidity by reducing cash flows for other purposes and could negatively affect results of operations.
Catastrophic events, such as cyber-attacks, terrorist attacks, acts of war, and acts of God, may adversely affect
Vectren’s facilities and operations and corporate reputation.
Catastrophic events such as fires, earthquakes, explosions, floods, ice storms, tornados, terrorist acts, cyber-attacks, or similar
occurrences could adversely affect Vectren’s facilities, operations, corporate reputation, financial condition and results of
operations. Either a direct act against company-owned generating facilities or transmission and distribution infrastructure or an
act against the infrastructure of neighboring utilities or interstate pipelines that are used by the Company to transport power and
natural gas could result in the Company being unable to deliver natural gas or electricity for a prolonged period. Further,
Vectren relies on information technology networks and systems to operate its generating facilities, engage in asset management
activities, and process, transmit and store electronic information. Security breaches of this information technology infrastructure,
including cyber-attacks and cyber-terrorism, could lead to system disruptions, generating facility shutdowns or unauthorized
disclosure of confidential information. In the event of a severe disruption resulting from such events, Vectren has contingency
plans and employs crisis management to respond and recover operations. Despite these measures, if such an attack or security
breach were to occur, results of operations and financial condition could be materially adversely affected.