Vectren 2013 Annual Report Download - page 37

35
Results of Operations of the Utility Group
The Utility Group is comprised of Utility Holdings’ operations, which consists of the Company’s regulated utility operations and
other operations that provide information technology and other support services to those regulated operations. Regulated
operations consist of a natural gas distribution business that provides natural gas distribution and transportation services to
nearly two-thirds of Indiana and to west central Ohio and an electric 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 operating
results before certain intersegment eliminations follow:
Year Ended December 31,
(In millions, except per share data) 2013 2012 2011
OPERATING REVENUES
Gas utility $ 810.0 $ 738.1 $ 819.1
Electric utility 619.3 594.9 635.9
Other 0.3 0.6 2.0
Total operating revenues 1,429.6 1,333.6 1,457.0
OPERATING EXPENSES
Cost of gas sold 358.1 301.3 375.4
Cost of fuel & purchased power 202.9 192.0 240.4
Other operating 333.4 310.1 313.1
Depreciation & amortization 196.4 190.0 192.3
Taxes other than income taxes 57.2 53.4 54.0
Total operating expenses 1,148.0 1,046.8 1,175.2
OPERATING INCOME 281.6 286.8 281.8
Other income - net 10.5 8.0 4.3
Interest expense 65.0 71.5 80.3
INCOME BEFORE INCOME TAXES 227.1 223.3 205.8
Income taxes 85.3 85.3 82.9
NET INCOME $ 141.8 $ 138.0 $ 122.9
CONTRIBUTION TO VECTREN BASIC EPS $ 1.72 $ 1.68 $ 1.50
The Regulatory Environment
Gas and electric operations, with regard to retail rates and charges, terms of service, accounting matters, financing, and certain
other operational matters specific to its Indiana customers (the operations of SIGECO and Indiana Gas), are regulated by the
IURC. The retail gas operations of VEDO are subject to regulation by the PUCO.
Over the last seven years, regulatory orders establishing new base rates have been received by each utility. SIGECO’s electric
territory received an order in April 2011, effective May 2011, and its gas territory received an order in August 2007. Indiana Gas
received its most recent base rate order in February 2008 and VEDO in January 2009 with implementation in February
2009. The orders authorize a return on equity ranging from 10.15 percent to 10.40 percent. The authorized returns reflect the
impact of rate design strategies that have been authorized by these state commissions. Outside of a full base rate proceeding,
these approaches mitigate to some extent the impacts on results from increased investments in government-mandated and
other infrastructure replacement projects, operating costs that are volatile, and changing consumption patterns.
Rate Design Strategies
Sales of natural gas and electricity to residential and commercial customers are largely seasonal and are impacted by weather.
Trends in the average consumption among natural gas residential and commercial customers have tended to decline as more
efficient appliances and furnaces are installed and the Company’s utilities have implemented conservation programs. In the
Company’s two Indiana natural gas service territories, normal temperature adjustment (NTA) and decoupling mechanisms
largely mitigate the effect that would otherwise be caused by variations in volumes sold to these customers due to weather and
changing consumption patterns. The Ohio natural gas service territory has a straight fixed variable rate design for its residential