Vectren 2012 Annual Report Download - page 37

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Results of Operations of the Utility Group
The Utility Group is comprised of Utility Holdings’ operations and consists of the Company’s regulated operations and other
operations that provide information technology and other support services to those regulated operations. Regulated operations
consist of a natural gas distribution business that provides natural gas distribution and transportation services to nearly two-
thirds of Indiana and to west central Ohio and an electric transmission and distribution business, which provides electric
distribution services primarily to southwestern Indiana, and its power generating and wholesale power operations. In total, these
regulated operations supply natural gas and/or electricity to over one million customers.Utility Group operating results before
certain intersegment eliminations and reclassifications for the years ended December 31, 2012, 2011, and 2010, follow:
Year Ended December 31,
(In millions, except per share data) 2012 2011 2010
OPERATING REVENUES
Gas utility $ 738.1 $ 819.1 $ 954.1
Electric utility 594.9 635.9 608.0
Other 0.6 2.0 1.6
Total operating revenues 1,333.6 1,457.0 1,563.7
OPERATING EXPENSES
Cost of gas sold 301.3 375.4 504.7
Cost of fuel & purchased power 192.0 240.4 235.0
Other operating 310.1 313.1 299.2
Depreciation & amortization 190.0 192.3 188.2
Taxes other than income taxes 53.4 54.0 59.6
Total operating expenses 1,046.8 1,175.2 1,286.7
OPERATING INCOME 286.8 281.8 277.0
Other income - net 8.0 4.3 5.4
Interest expense 71.5 80.3 81.4
INCOME BEFORE INCOME TAXES 223.3 205.8 201.0
Income taxes 85.3 82.9 77.1
NET INCOME $ 138.0 $ 122.9 $ 123.9
CONTRIBUTION TO VECTREN BASIC EPS $ 1.68 $ 1.50 $ 1.53
The Regulatory Environment
Gas and electric operations, with regard to retail rates and charges, terms of service, accounting matters, financing, and certain
other operational matters specific to its Indiana customers (the operations of SIGECO and Indiana Gas), are regulated by the
IURC. The retail gas operations of VEDO are subject to regulation by the PUCO.
Over the last six years, orders establishing new base rates have been received by each utility. SIGECO’s electric territory
received an order in April 2011, effective May 2011, and its gas territory received an order in August 2007. Indiana Gas received
its most recent base rate order in February 2008 and VEDO in January 2009 with implementation in February 2009. The orders
authorize a return on equity ranging from 10.15 percent to 10.40 percent. The authorized returns reflect the impact of innovative
rate design strategies that have been authorized by these state commissions. Outside of a full base rate proceeding, these
approaches mitigate to some extent the impacts of investments in government-mandated and other infrastructure replacement
projects, operating costs that are volatile, and changing consumption patterns. In addition to timely gas and fuel cost recovery,
approximately $36 million of the Utility Group’s approximate $310 million in Other operating expenses incurred during 2012 are
subject to recovery mechanisms outside of base rates.
Rate Design Strategies
Sales of natural gas and electricity to residential and commercial customers are largely seasonal and are impacted by weather.
Trends in average use among natural gas residential and commercial customers have tended to decline as more efficient
appliances and furnaces are installed and the Company’s utilities have implemented conservation programs. In the Company’s
two Indiana natural gas service territories, normal temperature adjustment (NTA) and decoupling mechanisms largely mitigate