Vectren 2013 Annual Report Download - page 27

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25
Increased derivative regulation could impact results.
The Company uses commodity derivative instruments in conjunction with procurement activities. The Company may also
periodically use interest rate derivative instruments to minimize the impact of interest rate fluctuations associated with
anticipated debt issuances.
Regulations related to the use of derivatives that became law in 2010 under the Dodd-Frank Wall Street Reform and Consumer
Protection Act continue to evolve and their ultimate application remains uncertain. Depending on the continued evolution of the
regulations adopted by the Commodity Futures Trading Commission (CFTC) and other agencies, the Company may be required
to post additional collateral with dealer counterparties for commitments and interest rates, physical or financial commodity
derivative transactions and report or otherwise disclose such activity to dealer counterparties or other agencies. The law
provides for an exception from these clearing and cash collateral requirements for commercial end-users. Requirements to post
collateral could limit cash for investment and for other corporate purposes or could increase debt levels and resulting interest
expense. In addition, a requirement for counterparties to post collateral could result in additional costs associated with executing
transactions, thereby decreasing profitability. An increased collateral requirement could also reduce the Company’s ability to
execute derivative transactions to reduce commodity price and interest rate uncertainty and to protect cash flows. The
regulations may also limit the pool of potential counterparties and/or the liquidity in the respective markets for such transactions.
Significant rule-making by numerous governmental agencies, particularly the CFTC, continues to evolve and has been subject
to a number of extensions and delays. The Company continues to evaluate the impacts as these rulemakings and
interpretations become available and whether these rulemakings and interpretations affirm that exemptions apply to the
Company’s use of derivative instruments.
Vectren’s subsidiaries have performance and warranty obligations, some of which are guaranteed by Vectren.
In the normal course 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 guarantee its subsidiaries’ commitments. These
guarantees do not represent incremental consolidated obligations; rather, they represent parental guarantees of subsidiary
obligations in order to allow those subsidiaries the flexibility to conduct business without posting other forms of collateral. The
Company has not been called upon to satisfy any obligations pursuant to these parental guarantees.
Certain of Vectren's nonutility operations face a customer concentration risk. The loss of such a customer would
result in a decline in revenue and could have an adverse effect on the results of operations and cash flows.
For the year ended December 31, 2013, revenues from one customer of Infrastructure Services individually accounted for
approximately 9 percent of the Company's consolidated operating revenues. The total outstanding receivable from this
customer at December 31, 2013 was approximately 16 percent of the Company's total receivables, including accrued unbilled
revenues. While the Company believes that the loss of any one customer would not have a material impact on its financial
position or results of operations, the loss of this customer or a significant decline in customer related revenue could have an
adverse effect on the results of operations and cash flows of Infrastructure Services.
From time to time, Vectren is subject to material litigation and regulatory proceedings.
From time to time, the Company may be subject to material litigation and regulatory proceedings, including matters involving
compliance with state and federal laws, regulations or other matters. There can be no assurance that the outcome of these
matters will not have a material adverse effect on Vectren’s business, prospects, corporate reputation, results of operations, or
financial condition.