Vectren 2013 Annual Report Download - page 80

78
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 costs as a result of various factors, including poor mining conditions, and an
overall decline in market prices for Illinois Basin coal, the Company performed a more detailed analysis to support the carrying
value of that mine. Specifically, several third party-prepared price curves were obtained and were used to develop revenue
forecasts for the remainder of the mine life, using estimated production volumes. Additionally, cost estimates were developed
that considered prior actual costs, annualized current costs, and projected future costs. The various revenue scenarios were
used in conjunction with estimated costs to derive estimated net operating cash flows for the remaining life of the mine. These
estimates are highly subjective and may differ materially from actual results, but the results of the various analyses indicate that
there is no impairment related to the coal mine assets, specifically the Prosperity mine assets, at December 31, 2013.
Investments in Unconsolidated Affiliates
Investments in unconsolidated affiliates where the Company has significant influence are accounted for using the equity method
of accounting. The Company’s share of net income or loss from these investments is recorded in Equity in (losses) of
unconsolidated affiliates. Dividends are recorded as a reduction of the carrying value of the investment when
received. Investments in unconsolidated affiliates where the Company does not have significant influence are accounted for
using the cost method of accounting. Dividends associated with cost method investments are recorded as Other – net when
received. Investments, when necessary, include adjustments for declines in value judged to be other than temporary.
Goodwill
Goodwill recorded on the Consolidated Balance Sheets results from business acquisitions and is based on a fair value
allocation of the businesses’ purchase price at the time of acquisition. Goodwill is charged to expense only when it is
impaired. The Company tests its goodwill for impairment at an operating segment level because the components within the
segments are similar. These tests are performed at least annually and that test is performed at the beginning of each
year. Impairment reviews consist of a comparison of fair value to the carrying amount. If the fair value is less than the carrying
amount, an impairment loss is recognized in operations. No goodwill impairments have been recorded during the periods
presented.
Regulation
Retail public utility operations affecting Indiana customers are subject to regulation by the IURC, and retail public utility
operations affecting Ohio customers are subject to regulation by the PUCO. The Company’s accounting policies give
recognition to the ratemaking and accounting practices authorized by these agencies.
Refundable or Recoverable Gas Costs & Cost of Fuel & Purchased Power
All metered gas rates contain a gas cost adjustment 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 benchmark based on
NYMEX natural gas prices, is also recovered through regulatory proceedings. The Company records any under-or-over-
recovery resulting from gas and fuel adjustment clauses each month in revenues. A corresponding asset or liability is recorded
until the under or over-recovery is billed or refunded to utility customers. The cost of gas sold is charged to operating expense
as delivered to customers, and the cost of fuel and purchased power for electric generation is charged to operating expense
when consumed.
Regulatory Assets & Liabilities
Regulatory assets represent probable future revenues associated with certain incurred costs, which will be recovered from
customers through the ratemaking process. Regulatory liabilities represent probable expenditures by the Company for removal
costs or future reductions in revenues associated with amounts that are to be credited to customers through the ratemaking
process. The Company continually assesses the recoverability of costs recognized as regulatory assets and liabilities and the
ability to recognize new regulatory assets and liabilities associated with its regulated utility operations. Given the current
regulatory environment in its jurisdictions, the Company believes such accounting is appropriate.
The Company collects an estimated cost of removal of its utility plant through depreciation rates established in regulatory
proceedings. The Company records amounts expensed in advance of payments as a Regulatory liability because the liability
does not meet the threshold of an asset retirement obligation.