Vectren 2013 Annual Report Download

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2013 Annual Report & Form 10-K

Table of contents

  • Page 1
    2013 Annual Report & Form 10-K

  • Page 2
    ...disposition of its gas marketing assets. Reported results for 2013 were net income of $136.6 million, or $1.66 per share. Based upon reported results, the return on average shareholders' equity for 2013 was 8.9%. See page 33 of the Form 10-K incorporated herein for more information regarding the use...

  • Page 3
    ... to $68 million in 2012. Results were favorably impacted by higher wholesale margins (net of sharing with customers), increased returns on electric transmission investments and lower interest expense. Carl L. Chapman Chairman, President & CEO Vectren Corporation 2013 Annual Report & Form 10-K 1

  • Page 4
    ... of our conservation and energy efficiency programs will further aid in maintaining manageable gas bills. For our electric utility, our focus is on maintaining solid performance but doing so without significant impact to customer bills. In early 2014, we filed with the Indiana Utility Regulatory...

  • Page 5
    ... expect Energy Services to capitalize on its extensive experience in developing, constructing and operating distributed generation projects to meet the rapidly growing demand for sustainable infrastructure. I believe Vectren continues to be well-positioned for the future. We're a company founded on...

  • Page 6
    ... Vectren Corporation is an energy holding company headquartered in Evansville, Ind. Our core Utility operations of gas and electric energy delivery serve more than 1 million customers in Indiana and Ohio and are supported by our Nonutility operations that provide energy-related products and services...

  • Page 7
    ...to _____ Commission file number: 1-15467 VECTREN CORPORATION (Exact name of registrant as specified in its charter) INDIANA (State or other jurisdiction of incorporation or organization) One Vectren Square (Address of principal executive offices) Registrant's telephone number, including area code...

  • Page 8
    ... shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data...

  • Page 9
    ... the SEC, or by request, directed to Investor Relations at the mailing address, phone number, or email address that follows: Investor Relations Contact: Robert L. Goocher Treasurer and Vice President, Investor Relations [email protected] Mailing Address: One Vectren Square Evansville, Indiana 47708...

  • Page 10
    ... Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures, including Management's Assessment of Internal Controls over Financial Reporting Other Information Part III 10 11 12 13 14 Directors, Executive Officers and Corporate Governance...

  • Page 11
    ... or Vectren North), Southern Indiana Gas and Electric Company (SIGECO or Vectren South), and Vectren Energy Delivery of Ohio, Inc. (VEDO). Utility Holdings also has other assets that provide information technology and other services to the three utilities. Utility Holdings' consolidated operations...

  • Page 12
    ... operations of Indiana Gas, VEDO, and SIGECO's natural gas distribution business and provides natural gas distribution and transportation services to nearly two-thirds of Indiana and to west central Ohio. The Electric Utility Services segment includes the operations of SIGECO's electric transmission...

  • Page 13
    ... 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...

  • Page 14
    .... The Company is an active participant in the MISO energy markets, where it bids its generation into the Day Ahead and Real Time markets and procures power for its retail customers at Locational Marginal Pricing (LMP) as determined by the MISO market. MISO-related purchase and sale transactions are...

  • Page 15
    ... commodity supplier. The Company implemented a choice program for its gas customers in Ohio in January 2003. Substantially all of VEDO's customers receive gas from third-party suppliers and at December 31, 2013, approximately 131,000 customers in Vectren's Ohio service territory had selected their...

  • Page 16
    ... Company engages contract mining companies to operate the coal mines. Coal mining generated approximately $293 million in gross revenues in 2013, compared to $236 million in 2012 and $286 million in 2011. Oaktown Mine Expansion In April 2006, Vectren Fuels announced plans to open two new underground...

  • Page 17
    ...which include the Company's power supply operations and other third party utilities. The total plant and development costs to date for the Oaktown mining complex are $291 million, inclusive of advance royalty payments. The remaining unamortized plant balance as of December 31, 2013 approximates $212...

  • Page 18
    ...Vectren and Citizens. On June 18, 2013, ProLiance exited the natural gas marketing business through the disposition of certain of the net assets of its energy marketing business, ProLiance Energy. ProLiance Energy provided services to a broad range of municipalities, utilities, industrial operations...

  • Page 19
    ... by Infrastructure Services. Utility Holdings In June 2013, the Company reached a three year labor agreement with Local 702 of the International Brotherhood of Electrical Workers, ending June 30, 2016. This labor agreement relates to employees of SIGECO. In December 2012, the Company reached...

  • Page 20
    ... operations and therefore lower revenues for those products and services. The economic conditions may have some negative impact on spending for utility and pipeline construction projects, demand for natural gas, electricity, and coal, and spending on performance contracting and renewable energy...

  • Page 21
    ... technologies, such as renewable energy sources and cogeneration facilities, have the potential to change the nature of the utility industry and reduce demand for Vectren's electric and gas products and services. If the Company is not able to appropriately adapt to structural changes in the utility...

  • Page 22
    ... levels of operating expenses and capital expenditures associated with the Company's natural gas distribution businesses as evidenced by recent regulatory filings in Indiana and Ohio by Vectren North, Vectren South, and Vectren Energy Delivery of Ohio. Environmental Considerations Vectren's utility...

  • Page 23
    ... economic health of the communities served. New regulations could also negatively impact industries in the Company's service territory, including industries in which the Company operates. Vectren's utilities' ability to obtain rate increases and to maintain current authorized rates of return depends...

  • Page 24
    ... natural gas, coal, and electricity could reduce earnings and working capital. The Company's regulated operations have limited exposure to commodity price risk for transactions involving purchases and sales of natural gas, coal, and purchased power for the benefit of retail customers due to current...

  • Page 25
    ... or local legal and regulatory requirements, such as changes in tax laws or rates; environmental or cybersecurity regulations, and changing market conditions. Vectren's nonutility businesses support its regulated utilities pursuant to service contracts by providing coal and infrastructure services...

  • Page 26
    ... price of competing coal and alternative fuel sources, such as natural gas, nuclear, hydroelectric power, and other renewable energy sources. The domestic electric utility industry currently accounts for approximately 90 percent of domestic coal consumption. Moreover, in 2012 the Energy Information...

  • Page 27
    ... 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...

  • Page 28
    ... 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, including certain multi-employer plans at Infrastructure Services, are dependent on a number of...

  • Page 29
    ... released it to those retail gas marketers now supplying VEDO's customers with natural gas, and those suppliers are responsible for the demand charges. VEDO's gas delivery system includes 5,500 miles of distribution and transmission mains, all of which are located in Ohio. Electric Utility Services...

  • Page 30
    ... arising in the normal course of business. In the opinion of management, there are no legal proceedings or other regulatory reviews or audits pending against the Company that are likely to have a material adverse effect on its financial position, results of operations, or cash flows. See the notes...

  • Page 31
    ..., AND ISSUER PURCHASES OF EQUITY SECURITIES Market Data, Dividends Paid, and Holders of Record The Company's common stock trades on the New York Stock Exchange under the symbol ''VVC.'' For each quarter in 2013 and 2012, the high and low sales prices for the Company's common stock as reported on the...

  • Page 32
    ... share on common stock Dividends per share on common stock Balance Sheet Data: Total assets Long-term debt, net Common shareholders' equity 2013 $ $ $ 2,491.2 $ 333.6 $ 136.6 $ 82.3 82.4 1.66 $ 1.66 $ 1.425 $ 5,102.6 $ 1,777.1 $ 1,554.3 $ Year Ended December 31, 2012 2011 2010 2,232.8 $ 352.5 $ 159...

  • Page 33
    ... competencies and business strategies, offers different energy and energy related products and services, and experiences different opportunities and risks. The Utility Group generates revenue primarily from the delivery of natural gas and electric service to its customers. The primary source of cash...

  • Page 34
    ... margins, net of sharing with customers, increased return on transmission investments, and lower interest expense. Results in 2012 and 2011 were positively impacted by new electric base rates implemented on May 3, 2011. Other utility operations In 2013, earnings from other utility operations were...

  • Page 35
    ...higher demand for pipeline construction and repair. Results also reflect losses at Coal Mining of $16.0 million in 2013 and $3.5 million in 2012, compared to earnings of $16.6 million in 2011. Finally, results were impacted by charges related to legacy investments totaling $1.2 million, $2.2 million...

  • Page 36
    ...EPS, and Nonutility Group net income to those results excluding Energy Marketing results. Twelve Months Ended December 31, 2013 (In millions, except EPS) Consolidated Net Income Basic EPS Nonutility Group Net Income (Loss) GAAP Measure $ $ $ 136.6 $ 1.66 $ (4.5) $ Add back Energy Marketing Losses 37...

  • Page 37
    ... 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...

  • Page 38
    ...rates contain a fuel adjustment clause (FAC) that allows for timely adjustment in charges for electric energy to reflect changes in the cost of fuel. The net energy cost of purchased power, subject to an approved variable benchmark based on The New York Mercantile Exchange (NYMEX) natural gas prices...

  • Page 39
    ....9 $ Gas utility margins were $451.9 million for the year ended December 31, 2013, and compared to 2012, increased $15.1 million. Customer margin increased approximately $8.7 million in 2013 from customer growth and returns from infrastructure replacement programs, particularly in Ohio. With rate...

  • Page 40
    ... (SABIC), a large industrial utility customer of the Company, announced its plans to build a cogeneration (cogen) facility to be operational in mid-2016, in order to generate power to meet a significant portion of its ongoing power needs. Electric service is currently provided to SABIC by the...

  • Page 41
    ... volumes sold in 2012 compared to 2013 and 2011 from the Company's primarily coal-fired generation result from increased sales of power in MISO from gas-fired electric generation due to lower natural gas prices and more wind generation. Utility Group Operating Expenses Other Operating For the year...

  • Page 42
    ... and Deferral Mechanisms The PUCO order approving the Company's 2009 base rate case in the Ohio service territory authorized a distribution replacement rider (DRR). The DRR's primary purpose is recovery of investments in utility plant and related operating expenses associated with replacing bare...

  • Page 43
    ...the Company's proposal that subsequent requests for accounting authority will be filed annually in April. During 2013 and 2012, these approved capital expenditure programs under House Bill 95 generated Other income associated with the debt-related post in service carrying costs totaling $2.2 million...

  • Page 44
    ... and capital expenditures associated with the Company's natural gas distribution businesses. Requests for Recovery Under Indiana Regulatory Mechanisms The Company filed in November 2013 for authority to recover appropriate costs related to its gas infrastructure replacement and improvement programs...

  • Page 45
    .... Delivery to Vectren's power plants of lower priced contract coal from the April 2011 RFP process began during 2012. On December 5, 2011 within the quarterly FAC filing, Vectren South submitted a joint proposal with the OUCC to reduce its fuel costs billed to customers by accelerating into 2012 the...

  • Page 46
    ...case approving the settlement agreement, without modification. Vectren North & Vectren South Gas Decoupling Extension Filing On August 18, 2011, the IURC issued an order granting the extension of the current decoupling mechanism in place at both gas companies and recovery of new conservation program...

  • Page 47
    ... Air Act for historical operational information on the Warrick Power Plant. In April 2013, ALCOA filed a timely response to the information request. Water Section 316(b) of the Clean Water Act requires that generating facilities use the "best technology available" to minimize adverse environmental...

  • Page 48
    ... to mitigate the impact on customer rates in the near term. Coal Ash Waste Disposal & Ash Ponds In June 2010, the EPA issued proposed regulations affecting the management and disposal of coal combustion products, such as ash generated by the Company's coal-fired power plants. The proposed rules more...

  • Page 49
    ...from its fossil fuel electric generation that report under the Acid Rain Program were less than one half of one percent of all emissions in the United States from similar sources. Emissions from other Company operations, including those from its natural gas distribution operations and the greenhouse...

  • Page 50
    ... of the total electricity obtained by the supplier to meet the energy needs of Indiana retail customers will be provided by clean energy sources, as defined. In advance of a federal portfolio standard and Senate Bill 251, SIGECO received regulatory approval to purchase a 3 MW landfill gas generation...

  • Page 51
    ... incurred in connection with addressing these sites cannot be determined at this time, the Company has recorded cumulative costs that it has incurred or reasonably expects to incur totaling approximately $43.4 million ($23.2 million at Indiana Gas and $20.2 million at SIGECO). The estimated accrued...

  • Page 52
    ... ProLiance and in 2011, through Vectren Source. Pursuant to service contracts, Energy Marketing provided the Company's Indiana regulated utilities natural gas supply services. The Nonutility Group results were losses of $4.5 million for the year ended December 31, 2013, and earnings of $21.7 million...

  • Page 53
    ...goodwill. Energy Services Energy Services provides energy performance contracting and sustainable infrastructure projects through its wholly owned subsidiary, Energy Systems Group, LLC (ESG). Inclusive of holding company costs, Energy Services' operations contributed earnings of $1.0 million in 2013...

  • Page 54
    ... 2013, ProLiance exited the natural gas marketing business through the disposition of certain of the net assets of its energy marketing business, ProLiance Energy, LLC (ProLiance Energy). ProLiance Energy provided services to a broad range of municipalities, utilities, industrial operations, schools...

  • Page 55
    Vectren Energy Marketing and Services, Inc (EMS), a wholly owned subsidiary, holds the Company's investment in ProLiance. EMS is responsible for certain financing costs associated with ProLiance and is also responsible for income taxes and allocated corporate expenses related to the Company's ...

  • Page 56
    ... 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. Other Businesses Within the Nonutility business segment, there are legacy investments involved in energy-related...

  • Page 57
    ... sale). There were no impairments related to property, plant and equipment or other long-lived assets during the periods presented. Specific to the Company's investment in its owned coal mines, in 2013, as a result of continued operating losses at the Company's Prosperity mine, increased production...

  • Page 58
    ... its Infrastructure Services and Energy Services segments are also performed at the operating segment level. An impairment test requires fair value to be estimated. The Company used a discounted cash flow model and other market based information to estimate the fair value of its Gas Utility Services...

  • Page 59
    ...'s Investors Services (Moody's) does not provide a rating for Vectren Corporation. The credit ratings of the senior unsecured debt of Utility Holdings and Indiana Gas, at December 31, 2013, were A-/A3 as rated by Standard and Poor's and Moody's, respectively. The credit ratings on SIGECO's secured...

  • Page 60
    ... Company may also consider disposing of certain assets, investments, or businesses to enhance or accelerate internally generated cash flow. Long-term debt transactions completed in 2013, 2012, and 2011 include issuances by Vectren Capital totaling $200 million, issuances by Vectren Utility Holdings...

  • Page 61
    ..., many environmental and pipeline safety standards are subject to change in the near term. Such changes could materially impact planned capital expenditures. Planned Nonutility Group capital expenditures for recurring infrastructure investments, including contractual purchase commitments, for the...

  • Page 62
    ...including unrecognized tax benefits totaling $6 million. Based on the nature of these items, their expected settlement dates cannot be estimated. The Company's regulated utilities have both firm and non-firm commitments to purchase natural gas, electricity, and coal as well as certain transportation...

  • Page 63
    ... which institutional investors agreed to purchase $150 million of senior guaranteed notes with a fixed interest rate of 3.72 percent per annum, due December 5, 2023. The notes were unconditionally guaranteed by Indiana Gas, SIGECO, and VEDO. On December 5, 2013, the Company received net proceeds of...

  • Page 64
    ... and severally guaranteed by Utility Holdings' regulated utility subsidiaries, SIGECO, Indiana Gas, and VEDO. The proceeds from the sale of the notes, net of issuance costs, totaled $149.0 million. These notes have no sinking fund requirements and interest payments are due semi-annually. These notes...

  • Page 65
    ... the current economic uncertainty, including increased potential for lower levels of economic activity; uncertainty regarding energy prices and the capital and commodity markets; volatile changes in the demand for natural gas, electricity, coal, and other nonutility products and services; impacts...

  • Page 66
    ... natural gas and coal prices have other effects on working capital requirements, interest costs, and some level of price-sensitivity in volumes sold or delivered. Vectren North and Vectren South hedge up to 60 percent of annual purchases for each Company via the use of physical fixed-price purchases...

  • Page 67
    ... 31, 2013 and 2012. For retail sales of electricity, the Company receives the majority of its NOx and SO2 allowances at zero cost through an allocation process. Based on arrangements with regulators, wholesale operations can purchase allowances from retail operations at current market values, the...

  • Page 68
    ..., and industrial customers located in Indiana and west central Ohio. However, some exposure from nonutility operations extends throughout the United States. The Company manages credit risk associated with its receivables by continually reviewing creditworthiness and requests cash deposits or...

  • Page 69
    ... Vectren Corporation's management is responsible for establishing and maintaining adequate internal control over financial reporting. Those control procedures underlie the preparation of the consolidated balance sheets, statements of income, comprehensive income, cash flows, and common shareholders...

  • Page 70
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Vectren Corporation: We have audited the accompanying consolidated balance sheets of Vectren Corporation and subsidiaries (the "Company") as of December 31, 2013 and 2012, and the related ...

  • Page 71
    ... REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Vectren Corporation: We have audited the internal control over financial reporting of Vectren Corporation and subsidiaries (the "Company") as of December 31, 2013, based on criteria established in Internal Control...

  • Page 72
    ... fuel & natural gas costs Prepayments & other current assets Total current assets Utility Plant Original cost Less: accumulated depreciation & amortization Net utility plant Investments in unconsolidated affiliates Other utility & corporate investments Other nonutility investments Nonutility plant...

  • Page 73
    VECTREN CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS (In millions) At December 31, 2013 2012 LIABILITIES & SHAREHOLDERS' EQUITY Current Liabilities Accounts payable Accounts payable to affiliated companies Refundable fuel & natural gas costs Accrued liabilities Short-term ...

  • Page 74
    ...CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF INCOME (In millions, except per share amounts) Year Ended December 31, 2013 2012 2011 OPERATING REVENUES Gas utility Electric utility Nonutility Total operating revenues OPERATING EXPENSES Cost of gas sold Cost of fuel & purchased power...

  • Page 75
    VECTREN CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) Year Ended December 31, 2013 2012 2011 $ 136.6 $ 159.0 $ 141.6 4.6 (1.8) 2.8 61.4 9.1 (69.1) (0.6) 0.8 - - - - $ 3.6 140.2 $ 11.3 (4.6) 6.7 (3.3) 7.1 0.2 (1.6) 2.4 - (0.1) - (0.1) 9.0 168.0 $ ...

  • Page 76
    ... net Changes in working capital accounts: Accounts receivable & accrued unbilled revenues Inventories Recoverable/refundable fuel & natural gas costs Prepayments & other current assets Accounts payable, including to affiliated companies Accrued liabilities Unconsolidated affiliate dividends Employer...

  • Page 77
    VECTREN CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY (In millions, except per share amounts) Common Stock Balance at January 1, 2011 Net income Other comprehensive income Common stock: Issuance: option exercises & dividend reinvestment plan Dividends ...

  • Page 78
    ... its electric customers and optimizes those assets in the wholesale power market. Indiana Gas and SIGECO generally do business as Vectren Energy Delivery of Indiana. VEDO provides energy delivery services to over 312,000 natural gas customers located near Dayton in west central Ohio. The Company...

  • Page 79
    .... Materials and supplies are recorded as inventory when purchased and subsequently charged to expense or capitalized to plant when installed. Nonutility inventory is valued at the lower of cost or market. Property, Plant & Equipment Both the Company's Utility Plant and Nonutility Plant is stated at...

  • Page 80
    ... clause that allows the Company to charge for changes in the cost of purchased gas. Metered electric rates contain a fuel adjustment clause that allows for adjustment in charges for electric energy to reflect changes in the cost of fuel. The net energy cost of purchased power, subject to a variable...

  • Page 81
    ... direct labor of current employees. Specific to pension plans, the Company uses the projected unit credit actuarial cost method to calculate service cost and the PBO. This method projects the present value of benefits at retirement and allocates that cost over the projected years of service. Annual...

  • Page 82
    ...to-market accounting. Most energy contracts executed by the Company are subject to the NPNS exclusion or are not considered derivatives. Such energy contracts include Real Time and Day Ahead purchase and sale contracts with the MISO, natural gas purchases, and wind farm and other electric generating...

  • Page 83
    ... energy markets, bidding its owned generation into the Day Ahead and Real Time markets and procuring power for its retail customers at Locational Marginal Pricing (LMP) as determined by the MISO market. MISO-related purchase and sale transactions are recorded using settlement information provided...

  • Page 84
    ...5,176.8 Depreciation Rates as a Percent of Original Cost 3.5% 3.3% 3.0% - Gas utility plant Electric utility plant Common utility plant Construction work in progress Total original cost Original Cost $ 2,762.2 2,519.8 53.4 54.2 $ 5,389.6 SIGECO and Alcoa Generating Corporation (AGC), a subsidiary...

  • Page 85
    ... Limited, LLC On March 31, 2011, the Company, through its wholly owned subsidiary Vectren Infrastructure Services Company, Inc., purchased Minnesota Limited, LLC, excluding certain assets. Minnesota Limited is a specialty contractor focusing on transmission pipeline construction and maintenance...

  • Page 86
    ... to sell natural gas directly to customers in VEDO's service territory, and VEDO purchases receivables and natural gas from the third party. Vectren Source was a component of the Energy Marketing operating segment. 7. Investment in ProLiance Holdings, LLC The Company has an investment in ProLiance...

  • Page 87
    ...that is used to provide service to retail customers. Under the second petition, ProLiance sought the same type of waiver in order to permanently release back to the utilities the pipeline contracts used to provide supply services to the utilities. The FERC has granted both requested waivers. ETC has...

  • Page 88
    ..., 2013 when ProLiance exited the natural gas marketing business. The amounts owed to ProLiance at December 31, 2012, for those purchases was $29.7 million and is included in Accounts payable to affiliated companies in the Consolidated Balance Sheets. 8. Nonutility Real Estate & Other Legacy Holdings...

  • Page 89
    ...the Nonutility Group. 10. Income Taxes A reconciliation of the federal statutory rate to the effective income tax rate follows: Year Ended December 31, 2013 2012 2011 Statutory rate: State & local taxes-net of federal benefit Amortization of investment tax credit Depletion Energy efficiency building...

  • Page 90
    ...the Indiana Adjusted Gross Income Tax for corporations. Pursuant to House Bill 1004, the tax rate will be lowered by 0.5 percent each year beginning on July 1, 2012, to the final rate of 6.5 percent effective July 1, 2015. Pursuant to FASB guidance, the Company accounted for the effect of the change...

  • Page 91
    ... penalties totaling approximately $0.4 million . The Company had approximately $0.5 million and $0.6 million for the payment of interest and penalties accrued as of December 31, 2013 and 2012, respectively. The net liability on the Consolidated Balance Sheet for unrecognized tax benefits inclusive...

  • Page 92
    ... 31, 2013, the Company maintains three qualified defined benefit pension plans, a nonqualified supplemental executive retirement plan (SERP), and a postretirement benefit plan. The defined benefit pension plans and postretirement benefit plan, which cover eligible full-time regular employees, are...

  • Page 93
    ... older. Rather, the Company provides a subsidy to plan participants to purchase health coverage through a private Medicare exchange. This change in benefits provides a comparable benefit at a reduced cost made possible by current market pricing. Since this change in benefits was a significant event...

  • Page 94
    ...active markets. From time to time, less liquid equity securities are valued using Level 2 inputs, such as bid prices or a closing price, as determined in good faith by the investment manager. Fixed income securities are valued at the last available bid prices quoted by an independent pricing service...

  • Page 95
    ... beginning of year Unrealized gains related to investments still held at reporting date Purchases, sales and settlements, net Fair value, end of year Funded Status The funded status of the plans as of December 31, 2013 and 2012 follows: (In millions) Qualified Plans Benefit obligation, end of period...

  • Page 96
    ...-employer Benefit Plan The Company, through its Infrastructure Services operating segment, participates in several industry wide multi-employer pension plans for its union employees which provide for monthly benefits based on length of service. The risks of participating in multi-employer pension...

  • Page 97
    ... plan. The Company's participation in the significant plans is outlined in the following table. The Employer Identification Number (EIN) / Pension Plan Number column provides the EIN and three digit pension plan numbers. The most recent Pension Protection Act Zone Status available in 2013 and 2012...

  • Page 98
    ...6.25% 2041, 5.99% 2042, 5.00% 2043, 4.25% Total Utility Holdings Indiana Gas Fixed Rate Senior Unsecured Notes 2013, Series E, 6.69% 2015, Series E, 7.15% 2015, Series... Total Indiana Gas SIGECO First Mortgage Bonds 2015, 1985 Pollution Control Series A, current adjustable rate 0.05%, tax exempt, 2013...

  • Page 99
    ... 2015, current adjustable rate 1.17% 2016, current adjustable rate 1.17% Total Vectren Capital Corp. Other Long-Term Notes Payable Total long-term debt outstanding Current maturities of long-term debt Unamortized debt premium & discount - net Total long-term debt-net At December 31, 2013 2012 - 22...

  • Page 100
    ... which institutional investors agreed to purchase $150 million of senior guaranteed notes with a fixed interest rate of 3.72 percent per annum, due December 5, 2023. The notes were unconditionally guaranteed by Indiana Gas, SIGECO, and VEDO. On December 5, 2013, the Company received net proceeds of...

  • Page 101
    ... currently outstanding, approximately $321 million was available for the Utility Group operations and approximately $210 million was available for the wholly owned Nonutility Group and corporate operations. Both Vectren Capital's and Utility Holdings' short-term credit facilities were renewed...

  • Page 102
    ... through the Company's share-based compensation plans, benefit plans, and dividend reinvestment plan. At December 31, 2013 and 2012, there were 391.7 million and 391.3 million, respectively, of authorized shares of common stock and all authorized shares of preferred stock, available for a variety...

  • Page 103
    ...-based compensation programs to encourage Company officers, key non-officer employees, and nonemployee directors to remain with the Company and to more closely align their interests with those of the Company's shareholders. Under these programs, the Company has in the past issued stock options and...

  • Page 104
    ... the year ended December 31, 2013, 2012, and 2011 was $0.4 million, $0.1 million, $0.2 million, respectively. Stock Option Plans In the past, option awards were granted to executives and other key employees with an exercise price equal to the market price of the Company's stock at the date of grant...

  • Page 105
    ... to the investment activities in Vectren phantom stock associated with these plans during the years ended December 31, 2013, 2012, and 2011, was a cost of $2.6 million, $0.6 million and $1.7 million, respectively. The Company has certain investments currently funded primarily through corporate-owned...

  • Page 106
    ... of Investments in Natural Gas Infrastructure Replacement Vectren monitors and maintains its natural gas distribution system to ensure that natural gas is delivered in a safe and efficient manner. Vectren's natural gas utilities are currently engaged in replacement programs in both Indiana and Ohio...

  • Page 107
    ... and Deferral Mechanisms The PUCO order approving the Company's 2009 base rate case in the Ohio service territory authorized a distribution replacement rider (DRR). The DRR's primary purpose is recovery of investments in utility plant and related operating expenses associated with replacing bare...

  • Page 108
    ... rate case. In April 2013, Senate Bill 560 was signed into law. This legislation supplements Senate Bill 251 described above, which addressed federally-mandated investment, and provides for cost recovery outside of a base rate proceeding for projects that either improve electric and gas system...

  • Page 109
    .... Delivery to Vectren's power plants of lower priced contract coal from the April 2011 RFP process began during 2012. On December 5, 2011 within the quarterly FAC filing, Vectren South submitted a joint proposal with the OUCC to reduce its fuel costs billed to customers by accelerating into 2012 the...

  • Page 110
    ... basis point change in the incentive rate of return would equate to approximately $0.8 million of net income on an annual basis. 19. Environmental Matters Indiana Senate Bill 251 is also applicable to federal environmental mandates impacting Vectren South's electric operations. The Company continues...

  • Page 111
    ... Air Act for historical operational information on the Warrick Power Plant. In April 2013, ALCOA filed a timely response to the information request. Water Section 316(b) of the Clean Water Act requires that generating facilities use the "best technology available" to minimize adverse environmental...

  • Page 112
    ... to mitigate the impact on customer rates in the near term. Coal Ash Waste Disposal & Ash Ponds In June 2010, the EPA issued proposed regulations affecting the management and disposal of coal combustion products, such as ash generated by the Company's coal-fired power plants. The proposed rules more...

  • Page 113
    ... of the total electricity obtained by the supplier to meet the energy needs of Indiana retail customers will be provided by clean energy sources, as defined. In advance of a federal portfolio standard and Senate Bill 251, SIGECO received regulatory approval to purchase a 3 MW landfill gas generation...

  • Page 114
    ... to the IDEM's Voluntary Remediation Program (VRP). The Company has identified its involvement in five manufactured gas plant sites in SIGECO's service territory, all of which are currently enrolled in the IDEM's VRP. The Company is currently conducting some level of remedial activities, including...

  • Page 115
    ... Utility Services segment provides electric distribution services primarily to southwestern Indiana, and includes the Company's power generating and wholesale power operations. Regulated operations supply natural gas and/or electricity to over one million customers. In total, the Utility Group...

  • Page 116
    ... - Net Income Utility Group Net Income Gas Utility Services Electric Utility Services Other Operations Total Utility Group Net Income Nonutility Group Net Income (Loss) Infrastructure Services Energy Services Coal Mining Energy Marketing Other Businesses Total Nonutility Group Net Income Corporate...

  • Page 117
    ... Utility Group Gas Utility Services Electric Utility Services Other Operations Total Utility Group Nonutility Group Infrastructure Services Energy Services Coal Mining Energy Marketing Other Businesses Total Nonutility Group Corporate & Other Consolidated Income Taxes Year Ended December 31, 2013...

  • Page 118
    ... Total Utility Group Nonutility Group Infrastructure Services Energy Services Coal Mining Energy Marketing Other Businesses, net of eliminations and reclassifications Total Nonutility Group Corporate & Other Eliminations Consolidated Assets 22. Additional Balance Sheet & Operational Information...

  • Page 119
    ... bond Restricted cash & other investments Other utility & corporate investments Goodwill by operating segment follows: (In millions) Utility Group Gas Utility Services Nonutility Group Infrastructure Services Energy Services Consolidated goodwill At December 31, 2013 2012 $ 205.0 $ 55.2 2.1 262...

  • Page 120
    ...$ 43.7 2.2 2.7 1.4 (8.7) 41.3 37.7 At December 31, 2013 2012 $ 50.2 $ 53.1 36.2 34.4 20.0 23.1 7.5 6.8 - 14.9 68.2 66.5 $ 182.1 $ 198.8 As of December 31, 2013 and 2012, the Company has accruals related to utility and nonutility plant purchases totaling approximately $19.4 million and $11.1 million...

  • Page 121
    ...2013, the FASB issued new accounting guidance on presenting an unrecognized tax benefit when net operating loss carryforwards exist. The new standard was issued in an effort to eliminate diversity in practice resulting from a lack of guidance on this topic in the current US GAAP. The update provides...

  • Page 122
    ...December 31, 2013, to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is: 1) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and 2) accumulated and communicated to management, including...

  • Page 123
    The effectiveness of internal control over financial reporting as of December 31, 2013, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included in Item 8 of this annual report. ITEM 9B. OTHER INFORMATION None. 121

  • Page 124
    ... codes of ethics pertaining to the Board of Directors. A copy will be mailed upon request to Investor Relations, One Vectren Square, Evansville, Indiana 47708. The Company intends to disclose any amendments to the Corporate Code of Conduct/ Board Code of Ethics & Code of Conduct or waivers of the...

  • Page 125
    ...of this Form 10-K, from the Company's Proxy Statement for its 2014 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A, within 120 days after the end of the fiscal year. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Information...

  • Page 126
    ... information is presented in the Consolidated Financial Statements or related notes in Item 8. SCHEDULE II Vectren Corporation and Subsidiaries VALUATION AND QUALIFYING ACCOUNTS AND RESERVES Column A Column B Balance at Beginning Description (In millions) VALUATION AND QUALIFYING ACCOUNTS: Year 2013...

  • Page 127
    ... and designated in Current Report on Form 8-K filed April 14, 2000, File No. 1-15467, as Exhibit 4.1.) Code of By-Laws of Vectren Corporation as Most Recently Amended and Restated as of September 5, 2012. (Filed and designated in Current Report on Form 8-K filed October 1, 2012, File No. 1-15467, as...

  • Page 128
    ... Rights of Security Holders, Including Indentures 4.1 Mortgage and Deed of Trust dated as of April 1, 1932 between Southern Indiana Gas and Electric Company and Bankers Trust Company, as Trustee, and Supplemental Indentures thereto dated August 31, 1936, October 1, 1937, March 22, 1939, July 1, 1948...

  • Page 129
    ... Company, Inc., Southern Indiana Gas and Electric Company and Vectren Energy Delivery of Ohio, Inc. and the purchasers named therein. (Filed and designated in Form 8-K dated April 7, 2009 File No. 1-15467, as Exhibit 4.5) Note Purchase Agreement, dated September 9, 2010, among Vectren Capital, Corp...

  • Page 130
    ..., to the Vectren Corporation Unfunded Supplemental Retirement Plan for a Select Group of Management Employees. (Filed and designated in Form 10-Q for the quarter ended September 30, 2013, File No. 1-15467, as Exhibit 10.1) Vectren Corporation Nonqualified Defined Benefit Restoration Plan (As Amended...

  • Page 131
    ... severance benefits are provided in the amount of two times base salary for Mr. Chapman and one and one half times base salary for Messer's Benkert, Christian, and Doty. Coal Supply Agreement for Warrick 4 Generating Station between Southern Indiana Gas and Electric Company and Vectren Fuels, Inc...

  • Page 132
    ... dated July 17, 2013 by and between Vectren Corporation and John M. Bohls. (Filed and designated in Form 8-K, dated July 18, 2013, File No. 1-5467, as Exhibit 10.2) Term Loan Credit Agreement dated August 6, 2013 among Vectren Capital, Corp., as the Borrower, Vectren Corporation, as the Guarantor...

  • Page 133
    ...Jischke Martin C. Jischke Chairman, President, and Chief Executive Officer (Principal Executive Officer) Executive Vice President and Chief Financial Officer (Principal Financial Officer) Senior Vice President, Finance & Assistant Treasurer (Principal Accounting Officer) Director February 20, 2014...

  • Page 134
    /s/ Robert G. Jones Robert G. Jones /s/ J. Timothy McGinley J. Timothy McGinley /s/ R. Daniel Sadlier R. Daniel Sadlier /s/ Michael L. Smith Michael L. Smith /s/ Jean L. Wojtowicz Jean L. Wojtowicz Director February 20, 2014 Director February 20, 2014 Director February 20, 2014 Director ...

  • Page 135
    ... Data Operating revenues Operating income Utility net income Net income 1 Common Stock Data Average shares outstanding - basic Earnings per share - basic 1 Dividends per share Dividend payout ratio 1 Book value per share Market price (year-end, closing) Return on average shareholders' equity $ 2013...

  • Page 136
    ... the 2014 Peer Group include U.S. domiciled companies that meet certain criteria involving primary businesses as defined by SIC codes, utility assets, nonutility activities and market capitalization. Descriptions of the new and prior selection criteria are provided in Vectren's 2014 Proxy Statement...

  • Page 137
    ...the following 13 companies would have comprised the 2014 Peer Group: ALLETE, Alliant Energy, Avista, Black Hills, CMS Energy, Empire District Electric, Integrys Energy, NorthWestern, Pepco Holdings, SCANA, TECO Energy, UIL Holdings and UNS Energy. The Peer Group would not have included Vectren. 135

  • Page 138
    ... for timely and convenient delivery of funds on the payment date. To enroll in direct deposit, contact Wells Fargo. Dividend Reinvestment and Optional Cash Purchases Registered shareholders of Vectren Corporation can reinvest dividends and purchase additional Vectren stock without having to pay...

  • Page 139
    ... Indiana - South Wayne D. Games Vice President, VUHI - Power Supply K. Chase Kelley Vice President, VUHI - Corporate Communications Jon K. Luttrell Vice President, VUHI - Energy Delivery L. Douglas Petitt Chief Information Officer and Vice President, VUHI Information Technology and Customer Service...

  • Page 140
    Corporate Headquarters Vectren Corporation One Vectren Square Evansville, Indiana 47708 (812) 491-4000 www.vectren.com Get Involved The Indiana Utility Shareholders Association is a shareholder-run organization focused on state and national issues that specifically impact utility shareholder value....