Vectren 2013 Annual Report Download - page 83

81
the MISO 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 by MISO. These purchase and
sale transactions are accounted for on a net hourly position. Net purchases in a single hour are recorded in Cost of fuel & purchased
power and net sales in a single hour are recorded in Electric utility revenues. On occasion, prior period transactions are resettled
outside the routine process due to a change in the MISO’s tariff or a material interpretation thereof. Expenses associated with
resettlements are recorded once the resettlement is probable and the resettlement amount can be estimated. Revenues associated
with resettlements are recognized when the amount is determinable and collectability is reasonably assured.
The Company also receives transmission revenue that results from other members’ use of the Company’s transmission
system. These revenues are also included in Electric utility revenues. Generally, these transmission revenues along with costs
charged by the MISO are considered components of base rates and any variance from that included in base rates is recovered
from / refunded to retail customers through tracking mechanisms.
Share-Based Compensation
The Company grants share-based awards to certain employees and board members. Liability classified share-based
compensation awards are re-measured at the end of each period based on their expected settlement date fair value. Equity
classified share-based compensation awards are measured at the grant date, based on the fair value of the award. Expense
associated with share-based awards is recognized over the requisite service period, which generally begins on the date the
award is granted through the earlier of the date the award vests or the date the employee becomes retirement eligible.
Excise & Utility Receipts Taxes
Excise taxes and a portion of utility receipts taxes are included in rates charged to customers. Accordingly, the Company
records these taxes received as a component of operating revenues, which totaled $29.6 million in 2013, $26.9 million in 2012,
and $29.3 million in 2011. Expense associated with excise and utility receipts taxes are recorded as a component of Taxes
other than income taxes.
Operating Segments
The Company’s chief operating decision maker is the Chief Executive Officer. The Company uses net income calculated in
accordance with generally accepted accounting principles as its most relevant performance measure. The Company has three
operating segments within its Utility Group, five operating segments in its Nonutility Group, and a Corporate and Other segment.
Fair Value Measurements
Certain assets and liabilities are valued and/or disclosed at fair value. Financial assets include securities held in trust by the
Company’s pension plans. Nonfinancial assets and liabilities include the initial measurement of an asset retirement obligation or
the use of fair value in goodwill, intangible assets, and long-lived assets impairment tests. FASB guidance provides the
framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
The three levels of the fair value hierarchy are described as follows:
Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in
active markets that the Company has the ability to access.
Level 2 Inputs to the valuation methodology include
· quoted prices for similar assets or liabilities in active markets;
· quoted prices for identical or similar assets or liabilities in inactive markets;
· inputs other than quoted prices that are observable for the asset or liability;
· inputs that are derived principally from or corroborated by observable market
data by correlation or other means
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for
substantially the full term of the asset or liability.
Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement.