Vectren 2012 Annual Report Download - page 57

55
approximately $13 million in 2013. Future changes in health care costs, work force demographics, interest rates, asset values
or plan changes could significantly affect the estimated cost of these future benefits.
Management estimates that a 50 basis point decrease in the discount rate used to estimate retirement costs generally increases
periodic benefit cost by approximately $1.5 million to $2.0 million. However, the impact of increases associated with a lower
discount rate are partially offset by the impact of plan contributions and a plan amendment related to the postretirement medical
plan.
Regulation
At each reporting date, the Company reviews current regulatory trends in the markets in which it operates. This review involves
judgment and is critical in assessing the recoverability of regulatory assets as well as the ability to continue to account for its
activities based on the criteria set forth in FASB guidance related to accounting for the effects of certain types of
regulation. Based on the Company’s current review, it believes its regulatory assets are probable of recovery. If all or part of the
Company's operations cease to meet the criteria, a write off of related regulatory assets and liabilities could be required. In
addition, the Company would be required to determine any impairment to the carrying value of its utility plant and other
regulated assets and liabilities. In the unlikely event of a change in the current regulatory environment, such write-offs and
impairment charges could be significant.
Financial Condition
Within Vectren’s consolidated group, Utility Holdings primarily funds the short-term and long-term financing needs of the Utility
Group operations, and Vectren Capital Corp (Vectren Capital) funds short-term and long-term financing needs of the Nonutility
Group and corporate operations. Vectren Corporation guarantees Vectren Capital’s debt, but does not guarantee Utility
Holdings’ debt. Vectren Capital’s long-term debt and short-term obligations outstanding at December 31, 2012 approximated
$450 million and $162 million, respectively. Utility Holdings’ outstanding long-term and short-term borrowing arrangements are
jointly and severally guaranteed by its wholly owned subsidiaries and regulated utilities Indiana Gas, SIGECO, and
VEDO. Utility Holdings’ long-term debt, including current maturities, and short-term obligations outstanding at December 31,
2012 approximated $821 million and $117 million, respectively. Additionally, prior to Utility Holdings’ formation, Indiana Gas and
SIGECO funded their operations separately, and therefore, have long-term debt outstanding funded solely by their
operations. SIGECO will also occasionally issue tax exempt debt to fund qualifying pollution control capital expenditures. Total
Indiana Gas and SIGECO long-term debt, including current maturities, outstanding at December 31, 2012, was $387 million.
The Company’s common stock dividends are primarily funded by utility operations. Nonutility operations have demonstrated
profitability and the ability to generate cash flows. These cash flows are primarily reinvested in other nonutility ventures, but are
also used to fund a portion of the Company’s dividends, and from time to time may be reinvested in utility operations or used for
corporate expenses.
The credit ratings of the senior unsecured debt of Utility Holdings and Indiana Gas, at December 31, 2012, are A-/A3 as rated by
Standard and Poor's Ratings Services (Standard and Poor’s) and Moody’s Investors Service (Moody’s), respectively. The credit
ratings on SIGECO's secured debt are A/A1. Utility Holdings’ commercial paper has a credit rating of A-2/P-2. The current
outlook of both Moody’s and Standard and Poor’s is stable. A security rating is not a recommendation to buy, sell, or hold
securities. The rating is subject to revision or withdrawal at any time, and each rating should be evaluated independently of any
other rating. Standard and Poor’s and Moody’s lowest level investment grade rating is BBB- and Baa3, respectively.
The Company’s consolidated equity capitalization objective is 45-55 percent of long-term capitalization. This objective may
have varied, and will vary, depending on particular business opportunities, capital spending requirements, execution of long-term
financing plans, and seasonal factors that affect the Company’s operations. The Company’s equity component was 48 percent
and 47 percent of long-term capitalization at December 31, 2012 and 2011, respectively. Long-term capitalization includes long-
term debt, including current maturities, as well as common shareholders’ equity.
Both long-term and short-term borrowing arrangements contain customary default provisions; restrictions on liens, sale-
leaseback transactions, mergers or consolidations, and sales of assets; and restrictions on leverage, among other