Vectren 2012 Annual Report Download - page 54

Download and view the complete annual report

Please find page 54 of the 2012 Vectren annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 132

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132

52
In late 2008, the project at the North site was halted due to subsurface and well-completion problems, which resulted in Liberty
recording a $132 million impairment charge. The Company, through ProLiance, recorded its share of the charge in 2009. As a
result of the issues encountered at the North site, Liberty requested and the FERC approved the separation of the North site
from the South site. Approximately 12 Bcf of the storage at the South site, which comprises three of the four FERC certified
caverns, is fully tested but additional work is required to connect the caverns to the pipeline system. ProLiance's investment in
Liberty is approximately $35 million.
Liberty received a demand for Arbitration from Williams Midstream Natural Gas Liquids, Inc. (“Williams”) on February 8, 2011
related to a Sublease Agreement (“Sublease”) between Liberty and Williams at the North site. Williams alleges that Liberty was
negligent in its attempt to convert certain salt caverns to natural gas storage and thereby damaged the caverns. Williams
alleges damages of $56.7 million. Liberty believes that it has complied with all of its obligations to Williams, including properly
terminating the Sublease. Liberty intends to vigorously defend itself and has asserted counterclaims substantially in excess of
the amounts asserted by Williams. As such, as of December 31, 2012, ProLiance has no material reserve recorded related to
this matter and this litigation has not materially impacted ProLiance's results of operations or statement of financial position.
Vectren Source
Vectren Source, a former wholly owned subsidiary, provided natural gas and other related products and services to customers
opting for choice among energy providers. On December 31, 2011, the Company sold Vectren Source receiving proceeds of
approximately $84.3 million, excluding minor working capital adjustments recorded in 2012. The sale, net of transaction costs,
resulted in a pretax gain included in Other operating expenses of $25.4 million, or $12.4 million after all associated tax
impacts. VEDO continues doing business with the third party purchaser of Vectren Source. This third party continues to sell
natural gas directly to customers in VEDO’s service territory, and VEDO purchases receivables and natural gas from the third
party. Prior to the sale, Vectren Source earned $2.8 million in 2011, compared to $3.7 million in 2010.
Other Businesses
Within the Nonutility business segment, there are legacy investments involved in energy-related opportunities and services, real
estate, a leveraged lease, and other ventures. As of December 31, 2012, remaining legacy investments included in the Other
Businesses portfolio total $28.7 million, of which $24.9 million are included in Other nonutility investments and $3.8 million are
included in Investments in unconsolidated affiliates. The investment is made up of the following: commercial real estate, $8.0
million; a leveraged lease, $13.8 million ($3.0 million net of related deferred taxes); and other investments, $6.9 million. Net of
the deferred taxes, the net investment associated with these legacy investments at December 31, 2012 was $17.9 million.
Other Businesses losses were $3.4 million in 2012, compared to a loss of $10.2 million in 2011 and a loss of $7.4 million in
2010. Results in 2011 include charges totaling $9.2 million after tax associated with legacy real estate holdings. Results in
2012 and 2010 reflect after tax charges of $2.2 million and $4.0 million, respectively, related to the carrying value of an energy-
related investment originally made in 1999 by Haddington Energy Partners. In addition to the Haddington-related charges,
results in 2010 include a $2.9 million after tax charge related to the reduction in value of a receivable recorded in 2002 related to
a previously exited business.
Haddington Energy Partnerships
The Company has an approximate 40 percent ownership interest in Haddington Energy Partners, LP (Haddington I) and
Haddington Energy Partners II, LP (Haddington II), which are accounted for using the equity method. Inclusive of pre tax
charges recorded in 2012 of $3.4 million and in 2010 of $6.5 million associated with remaining investments, the Company's net
carrying value is zero at December 31, 2012. As the Haddington operations are nearing completion, the approximate $30
million invested in these partnerships since inception in the early 2000's generated a return of 16 percent, exclusive of taxes and
management fees. The Company has no further commitments to invest in either Haddington I or II.