Vectren 2013 Annual Report Download - page 107

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Ohio Recovery 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 steel and cast iron pipelines and certain other infrastructure. This rider is updated annually for
qualifying capital expenditures and allows for a return to be earned on those capital expenditures based on the rate of return
approved in the 2009 base rate case. In addition, deferral of depreciation and the ability to accrue debt-related post in service
carrying costs is also allowed until the related capital expenditures are recovered through the DRR. The order also established
a prospective bill impact evaluation on the annual deferrals, limiting the deferrals at a level which would equal a change over the
prior year rate of $1.00 per residential and small general service customer per month. To date, the Company has made capital
investments under this rider totaling $109 million. During 2013, 2012, and 2011 gas operating revenues associated with the
DRR were $9.8 million, $6.5 million, and $3.6 million, respectively. Other income associated with the debt-related post in
service carrying costs totaled $2.0 million, $1.8 million, and $2.0 million for 2013, 2012, and 2011, respectively. Regulatory
assets associated with post in service carrying costs and depreciation deferrals were $9.3 million, $6.5 million, and $3.0 million
at December 31, 2013, 2012, and 2011 respectively. Due to the expiration of the initial five year term for the DRR in early 2014,
the Company filed a request in August 2013 to extend and expand the DRR. On February 19, 2014, the PUCO approved a
Stipulation entered into by the PUCO Staff and the Company which provided for the extension of the DRR through 2017 and
expanded the types of investment covered by the DRR to include recovery of other infrastructure investments. The Order
approved the Company's five-year capital expenditure plan for calendar years 2013 through 2017 totaling $187 million related to
these infrastructure investments, along with savings credits associated with reduced operations and maintenance expenses for
each mile of aging infrastructure replaced. In addition, the Order approved the Company's commitment that the DRR can only
be further extended as part of a base rate case.
In June 2011, Ohio House Bill 95 was signed into law. Outside of a base rate proceeding, this legislation permits a natural gas
company to apply for recovery of much of its capital expenditure program. The legislation also allows for the deferral of costs,
such as depreciation, property taxes, and debt-related post in service carrying costs. On December 12, 2012, the PUCO issued
an order approving the Company's initial application using this law, reflecting its $23.5 million capital expenditure program
covering the fifteen month period ending December 31, 2012. Such capital expenditures include infrastructure expansion and
improvements not covered by the DRR as well as expenditures necessary to comply with PUCO rules, regulations, orders, and
system expansion to some new customers. The order also established a prospective bill impact evaluation on the cumulative
deferrals, limiting the total deferrals at a level which would equal $1.50 per residential and small general service customer per
month. On December 4, 2013, the Company received an order granting the accounting authority described above on its capital
expenditure program for the 2013 calendar year totaling $61.5 million. Of this total amount, $34.8 million relates to expenditures
that potentially could be recoverable under the pending DRR discussed above. If this amount is found by the PUCO to not be
recoverable through the DRR, the order granted deferral for future recovery through a House Bill 95 mechanism. In addition, the
order approved 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 and $0.9 million, respectively. Deferral of depreciation and
property tax expenses related to these programs in 2013 and 2012 totaled $1.7 million and $0.6 million, respectively.
Based on the deferral of costs and continuing recognition of debt-related post in service carrying costs using the 2009 capital
structure, regulatory assets associated with these Ohio infrastructure programs increased $6.7 million in 2013. Regulatory
assets are expected to continue to increase in future periods as post in service carrying costs are recognized in the statement of
income and operating costs are deferred. Historical relationships between rate base growth and depreciation expense and
property taxes will also be impacted.
Indiana Recovery and Deferral Mechanisms
The Company's Indiana natural gas utilities received orders in 2008 and 2007 associated with the most recent base rate cases.
These orders authorized the deferral of financial impacts associated with bare steel and cast iron replacement activities. The
orders provide for the deferral of depreciation and post in service carrying costs on qualifying projects totaling $20 million
annually at Vectren North and $3 million annually at Vectren South. The debt-related post in service carrying costs are
recognized in the Consolidated Statements of Income currently. The recording of post in service carrying costs and depreciation
deferral is limited by individual qualifying project to three years after being placed into service at Vectren South and four years
after being placed into service at Vectren North. At December 31, 2013 and 2012, the Company has regulatory assets totaling