10-Q 1 vuhi10q_mar05.txt VECTREN UTILITY HOLDINGS 1ST QTR 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2005 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to __________________ Commission file number: 1-16739 VECTREN UTILITY HOLDINGS, INC. ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) INDIANA 35-2104850 --------------------------------- ---------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 20 N.W. 4th Street, Evansville, Indiana, 47708 ------------------------------------------------------------ (Address of principal executive offices) (Zip Code) 812-491-4000 ------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No __ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes __ No |X| Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock - Without Par Value 10 April 30, 2005 -------------------------------- -- -------------- Class Number of Shares Date Table of Contents Item Page Number Number PART I. FINANCIAL INFORMATION 1 Financial Statements (Unaudited) Vectren Utility Holdings, Inc. and Subsidiary Companies Consolidated Condensed Balance Sheets 1-2 Consolidated Condensed Statements of Income 3 Consolidated Condensed Statements of Cash Flows 4 Notes to Unaudited Consolidated Condensed Financial Statements 5 2 Management's Discussion and Analysis of Results of Operations and Financial Condition 15 3 Quantitative and Qualitative Disclosures About Market Risk 24 4 Controls and Procedures 24 PART II. OTHER INFORMATION 1 Legal Proceedings 24 6 Exhibits and Reports on Form 8-K 24 Signatures 25 Access to Information Vectren Corporation makes available all SEC filings and recent annual reports free of charge, including those of its wholly owned subsidiaries, through its website at www.vectren.com, or by request, directed to Investor Relations at the mailing address, phone number, or email address that follows: Mailing Address: Phone Number: Investor Relations Contact: P.O. Box 209 (812) 491-4000 Steven M. Schein Evansville, Indiana Vice President, Investor Relations 47702-0209 sschein@vectren.com Definitions AFUDC: allowance for funds used during MMBTU: millions of British thermal construction units APB: Accounting Principles Board MW: megawatts EITF: Emerging Issues Task Force MWh / GWh: megawatt hours / thousands of megawatt hours (gigawatt hours) FASB: Financial Accounting Standards NOx: nitrogen oxide Board FERC: Federal Energy Regulatory OUCC: Indiana Office of the Utility Commission Consumer Counselor IDEM: Indiana Department of PUCO: Public Utilities Commission of Environmental Management Ohio IURC: Indiana Utility Regulatory SFAS: Statement of Financial Commission Accounting Standards MCF/BCF: thousands/billions of cubic USEPA: United States Environmental feet Protection Agency MDth/MMDth: thousands/millions of Throughput: combined gas sales and gas dekatherms transportation volumes PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS VECTREN UTILITY HOLDINGS, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited - In millions) March 31, December 31, -------------------------------------------------------------------------------- 2005 2004 -------------------------------------------------------------------------------- ASSETS ------ Current Assets Cash & cash equivalents $ 15.7 $ 5.7 Accounts receivable - less reserves of $2.1 & $1.9, respectively 169.0 147.5 Receivables due from other Vectren companies 0.2 4.0 Accrued unbilled revenues 110.9 161.2 Inventories 38.0 53.0 Recoverable fuel & natural gas costs - 17.7 Prepayments & other current assets 38.0 138.2 -------------------------------------------------------------------------------- Total current assets 371.8 527.3 -------------------------------------------------------------------------------- Utility Plant Original cost 3,482.6 3,465.2 Less: accumulated depreciation & amortization 1,321.1 1,309.0 -------------------------------------------------------------------------------- Net utility plant 2,161.5 2,156.2 -------------------------------------------------------------------------------- Investments in unconsolidated affiliates 0.2 0.2 Other investments 20.3 19.6 Non-utility property - net 153.3 149.6 Goodwill - net 205.0 205.0 Regulatory assets 79.5 82.5 Other assets 7.2 7.3 -------------------------------------------------------------------------------- TOTAL ASSETS $2,998.8 $3,147.7 ================================================================================ The accompanying notes are an integral part of these consolidated condensed financial statements. VECTREN UTILITY HOLDINGS, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited - In millions) March 31, December 31, -------------------------------------------------------------------------------- 2005 2004 -------------------------------------------------------------------------------- LIABILITIES & SHAREHOLDER'S EQUITY ---------------------------------- Current Liabilities Accounts payable $ 35.1 $ 97.3 Accounts payable to affiliated companies 69.6 98.8 Payables to other Vectren companies 18.4 15.8 Refundable fuel & natural gas costs 24.0 6.3 Accrued liabilities 184.9 110.0 Short-term borrowings 117.0 308.3 Long-term debt subject to tender 10.0 10.0 -------------------------------------------------------------------------------- Total current liabilities 459.0 646.5 -------------------------------------------------------------------------------- Long-Term Debt - Net of Current Maturities & Debt Subject to Tender 941.3 941.3 Deferred Income Taxes & Other Liabilities Deferred income taxes 245.6 240.8 Regulatory liabilities 256.4 251.7 Deferred credits & other liabilities 82.9 81.9 -------------------------------------------------------------------------------- Total deferred credits & other liabilities 584.9 574.4 -------------------------------------------------------------------------------- Commitments & Contingencies (Notes 6 - 8) Cumulative, Redeemable Preferred Stock of a Subsidiary - 0.1 Common Shareholder's Equity Common stock (no par value) 592.9 592.9 Retained earnings 420.7 392.5 -------------------------------------------------------------------------------- Total common shareholder's equity 1,013.6 985.4 -------------------------------------------------------------------------------- TOTAL LIABILITIES & SHAREHOLDER'S EQUITY $2,998.8 $3,147.7 ================================================================================ The accompanying notes are an integral part of these consolidated condensed financial statements. VECTREN UTILITY HOLDINGS, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited - In millions) Three Months Ended March 31, ------------------------------------------------------------------------------- 2005 2004 ------------------------------------------------------------------------------- OPERATING REVENUES Gas utility $ 516.7 $ 505.1 Electric utility 94.7 88.8 Other 0.2 0.3 ------------------------------------------------------------------------------- Total operating revenues 611.6 594.2 ------------------------------------------------------------------------------- OPERATING EXPENSES Cost of gas sold 370.9 365.6 Fuel for electric generation 26.9 22.9 Purchased electric energy 2.3 4.4 Other operating 61.6 62.1 Depreciation & amortization 33.4 29.6 Taxes other than income taxes 21.8 22.3 ------------------------------------------------------------------------------- Total operating expenses 516.9 506.9 ------------------------------------------------------------------------------- OPERATING INCOME 94.7 87.3 OTHER INCOME (EXPENSE) Other income - net 2.2 1.9 Equity in earnings of unconsolidated affiliates - 0.2 ------------------------------------------------------------------------------- Total other income 2.2 2.1 ------------------------------------------------------------------------------- INTEREST EXPENSE 16.9 17.0 ------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 80.0 72.4 ------------------------------------------------------------------------------- INCOME TAXES 31.9 27.7 ------------------------------------------------------------------------------- NET INCOME $ 48.1 $ 44.7 =============================================================================== The accompanying notes are an integral part of these consolidated condensed financial statements. VECTREN UTILITY HOLDINGS, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited - In millions) Three Months Ended March 31, ---------------------------------------------------------------------------------- 2005 2004 ---------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 48.1 $ 44.7 Adjustments to reconcile net income to cash from operating activities: Depreciation & amortization 33.4 29.6 Deferred income taxes & investment tax credits 1.6 (0.7) Pension & postretirement periodic benefit cost 1.5 1.5 Equity in earnings of unconsolidated affiliates - (0.2) Net unrealized gain on derivative instruments (2.5) (2.8) Other non-cash charges - net 2.1 3.6 Changes in working capital accounts: Accounts receivable, including to Vectren companies & accrued unbilled revenue 30.6 (16.1) Inventories 15.0 15.9 Recoverable/refundable fuel & natural gas costs 35.4 11.4 Prepayments & other current assets 102.7 116.8 Accounts payable, including to Vectren companies & affiliated companies (88.8) (56.3) Accrued liabilities 78.6 65.5 Changes in noncurrent assets 2.7 (0.2) Changes in noncurrent liabilities (1.0) (1.8) ---------------------------------------------------------------------------------- Net cash flows from operating activities 258.1 210.9 ---------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from additional capital contribution - 1.4 Requirements for: Dividends to parent (19.9) (20.0) Redemption of preferred stock of subsidiary (0.1) (0.1) Net change in short-term borrowings (191.3) (145.2) ---------------------------------------------------------------------------------- Net cash flows from financing activities (211.3) (163.9) ---------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Requirements for capital expenditures, excluding AFUDC equity (36.8) (42.6) ---------------------------------------------------------------------------------- Net cash flows from investing activities (36.8) (42.6) ---------------------------------------------------------------------------------- Net increase in cash & cash equivalents 10.0 4.4 Cash & cash equivalents at beginning of period 5.7 8.1 ---------------------------------------------------------------------------------- Cash & cash equivalents at end of period $ 15.7 $ 12.5 ==================================================================================
The accompanying notes are an integral part of these consolidated condensed financial statements. VECTREN UTILITY HOLDINGS, INC. AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. Organization and Nature of Operations Vectren Utility Holdings, Inc. (VUHI or the Company), an Indiana corporation, serves as the intermediate holding company for Vectren Corporation's (Vectren) three operating public utilities: Indiana Gas Company, Inc. (Indiana Gas or Vectren North), Southern Indiana Gas and Electric Company (SIGECO or Vectren South), and the Ohio operations. VUHI also has other assets that provide information technology and other services to the three utilities. Vectren is an energy and applied technology holding company headquartered in Evansville, Indiana. Both Vectren and VUHI are exempt from registration pursuant to Section 3(a)(1) and 3(c) of the Public Utility Holding Company Act of 1935. Indiana Gas provides energy delivery services to approximately 555,000 natural gas customers located in central and southern Indiana. SIGECO provides energy delivery services to approximately 136,000 electric customers and approximately 110,000 gas customers located near Evansville in southwestern Indiana. SIGECO also owns and operates electric generation to serve its electric customers and optimizes those assets in the wholesale power market. Indiana Gas and SIGECO generally do business as Vectren Energy Delivery of Indiana. The Ohio operations provide energy delivery services to approximately 315,000 natural gas customers located near Dayton in west central Ohio. The Ohio operations are owned as a tenancy in common by Vectren Energy Delivery of Ohio, Inc. (VEDO), a wholly owned subsidiary, (53% ownership) and Indiana Gas (47% ownership). The Ohio operations generally do business as Vectren Energy Delivery of Ohio. 2. Basis of Presentation The interim consolidated condensed financial statements included in this report have been prepared by the Company, without audit, as provided in the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted as provided in such rules and regulations. The Company believes that the information in this report reflects all adjustments necessary to fairly state the results of the interim periods reported. These consolidated condensed financial statements and related notes should be read in conjunction with the Company's audited annual consolidated financial statements for the year ended December 31, 2004, filed March 9, 2005 on Form 10-K. Certain amounts from the prior period reported in this Quarterly Report on Form 10-Q have been reclassified to conform to the 2005 financial statement presentation. Because of the seasonal nature of the Company's utility operations, the results shown on a quarterly basis are not necessarily indicative of annual results. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. 3. Subsidiary Guarantor and Consolidating Information The Company's three operating utility companies, SIGECO, Indiana Gas, and VEDO are guarantors of VUHI's $350.0 million in short-term credit facilities, of which $117.0 million is outstanding at March 31, 2005, and VUHI's $550.0 million unsecured senior notes outstanding at March 31, 2005. The guarantees are full and unconditional and joint and several, and VUHI has no subsidiaries other than the subsidiary guarantors. However, VUHI does have operations other than those of the subsidiary guarantors. Pursuant to Article 3-10 of Regulation S-X, disclosure of the results of operations and balance sheets of the subsidiary guarantors separate from the parent company's operations is required. Following are consolidating financial statements including information on the combined operations of the subsidiary guarantors separate from the other operations of the parent company. Condensed Consolidating Statement of Income for the three months ended March 31, 2005 (in millions): Subsidiary Parent Guarantors Company Eliminations Consolidated -------------------------------------- ---------- ------- ------------ ------------ OPERATING REVENUES Gas utility $ 516.7 $ - $ - $ 516.7 Electric utility 94.7 - - 94.7 Other - 9.1 (8.9) 0.2 ------------------------------------------------------------------------------------------ Total operating revenues 611.4 9.1 (8.9) 611.6 ------------------------------------------------------------------------------------------ OPERATING EXPENSES Cost of gas sold 370.9 - - 370.9 Fuel for electric generation 26.9 - - 26.9 Purchased electric energy 2.3 - - 2.3 Other operating 68.8 - (7.2) 61.6 Depreciation & amortization 29.0 4.3 0.1 33.4 Taxes other than income taxes 21.5 0.2 0.1 21.8 --------------------------------------------------------------------- ------------------- Total operating expenses 519.4 4.5 (7.0) 516.9 ------------------------------------------------------------------------------------------ OPERATING INCOME 92.0 4.6 (1.9) 94.7 OTHER INCOME (EXPENSE) Equity in earnings of consolidated companies - 46.4 (46.4) - Equity in earnings of unconsolidated affiliates - - - - Other income (expense) - net (0.1) 9.5 (7.2) 2.2 --------------------------------------------------------------------- ------------------- Total other income (expense) (0.1) 55.9 (53.6) 2.2 ------------------------------------------------------------------------------------------ Interest expense 15.9 10.2 (9.2) 16.9 --------------------------------------------------------------------- ------------------- INCOME BEFORE INCOME TAXES 76.0 50.3 (46.3) 80.0 ------------------------------------------------------------------------------------------ Income taxes 29.6 2.2 0.1 31.9 ------------------------------------------------------------------------------------------ NET INCOME $ 46.4 $ 48.1 $ (46.4) $ 48.1 ==========================================================================================
Condensed Consolidating Statement of Income for the three months ended March 31, 2004 (in millions): Subsidiary Parent Guarantors Company Eliminations Consolidated ------------------------------------ ---------- ------- ------------ ------------ OPERATING REVENUES Gas utility $ 505.1 $ - $ - $ 505.1 Electric utility 88.8 - - 88.8 Other - 9.4 (9.1) 0.3 ------------------------------------------------------------------------------------------ Total operating revenues 593.9 9.4 (9.1) 594.2 ------------------------------------------------------------------------------------------ OPERATING EXPENSES Cost of gas sold 365.6 - - 365.6 Fuel for electric generation 22.9 - - 22.9 Purchased electric energy 4.4 - - 4.4 Other operating 69.0 0.2 (7.1) 62.1 Depreciation & amortization 25.3 4.3 - 29.6 Taxes other than income taxes 22.0 0.3 - 22.3 ------------------------------------------------------------------------------------------ Total operating expenses 509.2 4.8 (7.1) 506.9 ------------------------------------------------------------------------------------------ OPERATING INCOME 84.7 4.6 (2.0) 87.3 OTHER INCOME (EXPENSE) Equity in earnings of consolidated companies - 43.1 (43.1) - Equity in losses of unconsolidated affiliates - 0.2 - 0.2 Other income (expense) - net (0.6) 8.4 (5.9) 1.9 ------------------------------------------------------------------------------------------ Total other income (expense) - net (0.6) 51.7 (49.0) 2.1 ------------------------------------------------------------------------------------------ Interest expense 15.8 9.1 (7.9) 17.0 ------------------------------------------------------------------------------------------ INCOME BEFORE INCOME TAXES 68.3 47.2 (43.1) 72.4 ------------------------------------------------------------------------------------------ Income taxes 25.2 2.5 - 27.7 ------------------------------------------------------------------------------------------ NET INCOME $ 43.1 $ 44.7 $ (43.1) $ 44.7 ==========================================================================================
Condensed Consolidating Statement of Cash Flows for the three months ended March 31, 2005 (in millions): Subsidiary Parent Guarantors Company Eliminations Consolidated ---------------------------------------- ---------- ------- ------------ ------------ NET CASH FLOWS FROM OPERATING ACTIVITIES $ 249.6 $ 8.5 $ - $ 258.1 -------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Requirements for: Dividends to parent (19.9) (19.9) 19.9 (19.9) Redemption of preferred stock of subsidiary (0.1) - - (0.1) Net change in short-term borrowings, including to other Vectren companies (162.4) (164.1) 135.2 (191.3) -------------------------------------------------------------------------------------------- Net cash flows from financing activities (182.4) (184.0) 155.1 (211.3) -------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from consolidated subsidiary distributions - 19.9 (19.9) - Requirements for: Capital expenditures, excluding AFUDC equity (28.7) (8.1) - (36.8) Net change in notes receivable to other Vectren companies (26.9) 162.1 (135.2) - -------------------------------------------------------------------------------------------- Net cash flows from investing activities (55.6) 173.9 (155.1) (36.8) --------------------------------------------------------------------------------------------- Net increase (decrease) in cash & cash equivalents 11.6 (1.6) 10.0 Cash & cash equivalents at beginning of period 4.7 1.0 5.7 -------------------------------------------------------------------------------------------- Cash & cash equivalents at end of period $ 16.3 $ (0.6) $ - $ 15.7 ============================================================================================
Condensed Consolidating Statement of Cash Flows for the three months ended March 31, 2004 (in millions): Subsidiary Parent Guarantors Company Eliminations Consolidated ---------------------------------------- ---------- ------- ------------ ------------ NET CASH FLOWS FROM OPERATING ACTIVITIES $ 201.6 $ 9.3 $ - $ 210.9 -------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from additional capital contribution - 1.4 - 1.4 Requirements for: Dividends to parent (20.0) (20.0) 20.0 (20.0) Redemption of preferred stock of subsidiary (0.1) - - (0.1) Net change in short-term borrowings, including to other Vectren companies (81.5) (87.9) 24.2 (145.2) -------------------------------------------------------------------------------------------- Net cash flows from financing activities (101.6) (106.5) 44.2 (163.9) -------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from consolidated subsidiary distributions - 20.0 (20.0) - Requirements for: Capital expenditures, excluding AFUDC equity (39.0) (3.6) - (42.6) Net change in notes receivable to other Vectren companies (56.5) 80.7 (24.2) - -------------------------------------------------------------------------------------------- Net cash flows from investing activities (95.5) 97.1 (44.2) (42.6) -------------------------------------------------------------------------------------------- Net increase (decrease) in cash & cash equivalents 4.5 (0.1) 4.4 Cash & cash equivalents at beginning of period 7.4 0.7 8.1 -------------------------------------------------------------------------------------------- Cash & cash equivalents at end of period $ 11.9 $ 0.6 $ - $ 12.5 ============================================================================================
Condensed Consolidating Balance Sheet as of March 31, 2005 (in millions): ASSETS Subsidiary Parent ------ Guarantors Company Eliminations Consolidated ---------- ------- ------------ ------------ Current Assets Cash & cash equivalents $ 16.3 $ (0.6) $ - $ 15.7 Accounts receivable - less reserves 168.9 0.1 - 169.0 Receivables due from other Vectren companies 0.1 164.6 (164.5) 0.2 Accrued unbilled revenues 110.9 - - 110.9 Inventories 38.0 - - 38.0 Recoverable fuel & natural gas costs - - - - Prepayments & other current assets 39.5 (0.3) (1.2) 38.0 ------------------------------------------------------------------------------------------ Total current assets 373.7 163.8 (165.7) 371.8 ------------------------------------------------------------------------------------------ Utility Plant Original cost 3,482.6 - - 3,482.6 Less: accumulated depreciation & amortization 1,321.1 - - 1,321.1 ------------------------------------------------------------------------------------------ Net utility plant 2,161.5 - - 2,161.5 ------------------------------------------------------------------------------------------ Investments in consolidated subsidiaries - 978.0 (978.0) - Notes receivable from consolidated subsidiaries 26.9 443.1 (470.0) - Investments in unconsolidated affiliates 0.2 - - 0.2 Other investments 14.2 6.1 - 20.3 Non-utility property - net 5.3 148.0 - 153.3 Goodwill - net 205.0 - - 205.0 Regulatory assets 73.9 5.6 - 79.5 Other assets 3.9 3.3 - 7.2 ------------------------------------------------------------------------------------------ TOTAL ASSETS $2,864.6 $1,747.9 $(1,613.7) $2,998.8 ==========================================================================================
LIABILITIES & SHAREHOLDER'S EQUITY Subsidiary Parent ---------------------------------- Guarantors Company Eliminations Consolidated ---------- ------- ------------ ------------ Current Liabilities Accounts payable $ 30.8 $ 4.3 $ - $ 35.1 Accounts payable to affiliated companies 69.3 0.3 - 69.6 Payables to other Vectren companies 31.2 - (12.8) 18.4 Refundable fuel & natural gas costs 24.0 - - 24.0 Accrued liabilities 171.1 14.8 (1.0) 184.9 Short-term borrowings - 117.0 - 117.0 Short-term borrowings from other Vectren companies 151.7 26.9 (178.6) - Current maturities of long-term debt - - - - Long-term debt subject to tender 10.0 - - 10.0 ------------------------------------------------------------------------------------------ Total current liabilities 488.1 163.3 (192.4) 459.0 ------------------------------------------------------------------------------------------ Long-Term Debt Long-term debt - net of current maturities & debt subject to tender 393.4 547.9 - 941.3 Long-term debt due to VUHI 443.3 - (443.3) - ------------------------------------------------------------------------------------------ Total long-term debt - net 836.7 547.9 (443.3) 941.3 ------------------------------------------------------------------------------------------ Deferred Income Taxes & Other Liabilities Deferred income taxes 232.0 13.6 - 245.6 Regulatory liabilities 251.1 5.3 - 256.4 Deferred credits & other liabilities 78.7 4.2 - 82.9 ------------------------------------------------------------------------------------------ Total deferred credits & other liabilities 561.8 23.1 - 584.9 ------------------------------------------------------------------------------------------ Cumulative, Redeemable Preferred Stock of a Subsidiary - - - - Common Shareholder's Equity Common stock (no par value) 611.3 592.9 (611.3) 592.9 Retained earnings 366.7 420.7 (366.7) 420.7 ------------------------------------------------------------------------------------------ Total common shareholder's equity 978.0 1,013.6 (978.0) 1,013.6 ------------------------------------------------------------------------------------------ TOTAL LIABILITIES & SHAREHOLDER'S EQUITY $2,864.6 $1,747.9 $(1,613.7) $2,998.8 ==========================================================================================
Condensed Consolidating Balance Sheet as of December 31, 2004 (in millions): ASSETS Subsidiary Parent ------ Guarantors Company Eliminations Consolidated ---------- ------- ------------ ------------ Current Assets Cash & cash equivalents $ 4.7 $ 1.0 $ - $ 5.7 Accounts receivable - less reserves 147.4 0.1 - 147.5 Receivables due from other Vectren companies 1.7 327.0 (324.7) 4.0 Accrued unbilled revenues 161.2 - - 161.2 Inventories 53.0 - - 53.0 Recoverable fuel & natural gas costs 17.7 - - 17.7 Prepayments & other current assets 136.4 4.2 (2.4) 138.2 ------------------------------------------------------------------------------------------ Total current assets 522.1 332.3 (327.1) 527.3 ------------------------------------------------------------------------------------------ Utility Plant Original cost 3,465.2 - - 3,465.2 Less: accumulated depreciation & amortization 1,309.0 - - 1,309.0 ------------------------------------------------------------------------------------------ Net utility plant 2,156.2 - - 2,156.2 ------------------------------------------------------------------------------------------ Investments in consolidated subsidiaries - 951.5 (951.5) - Notes receivable from consolidated subsidiaries - 443.1 (443.1) - Investments in unconsolidated affiliates 0.2 - - 0.2 Other investments 13.5 6.1 - 19.6 Non-utility property - net 5.3 144.3 - 149.6 Goodwill - net 205.0 - - 205.0 Regulatory assets 76.8 5.7 - 82.5 Other assets 3.8 3.5 - 7.3 ------------------------------------------------------------------------------------------ TOTAL ASSETS $2,982.9 $1,886.5 $(1,721.7) $3,147.7 ==========================================================================================
LIABILITIES & SHAREHOLDER'S EQUITY Subsidiary Parent ---------------------------------- Guarantors Company Eliminations Consolidated ---------- ------- ------------ ------------ Current Liabilities Accounts payable $ 87.9 $ 9.4 $ - $ 97.3 Accounts payable to affiliated companies 98.6 0.2 - 98.8 Payables to other Vectren companies 26.0 0.6 (10.8) 15.8 Refundable fuel & natural gas costs 6.3 - - 6.3 Accrued liabilities 100.8 11.6 (2.4) 110.0 Short-term borrowings 0.3 308.0 - 308.3 Short-term borrowings from other Vectren companies 313.8 - (313.8) - Current maturities of long-term debt - - - - Long-term debt subject to tender 10.0 - - 10.0 --------------------------------------------------------------------------------------------------- Total current liabilities 643.7 329.8 (327.0) 646.5 --------------------------------------------------------------------------------------------------- Long-Term Debt Long-term debt - net of current maturities & debt subject to tender 393.4 547.9 - 941.3 Long-term debt due to VUHI 443.1 - (443.1) - --------------------------------------------------------------------------------------------------- Total long-term debt - net 836.5 547.9 (443.1) 941.3 --------------------------------------------------------------------------------------------------- Deferred Income Taxes & Other Liabilities Deferred income taxes 226.8 14.0 - 240.8 Regulatory liabilities 246.2 5.5 - 251.7 Deferred credits & other liabilities 78.0 3.9 - 81.9 --------------------------------------------------------------------------------------------------- Total deferred credits & other liabilities 551.0 23.4 - 574.4 --------------------------------------------------------------------------------------------------- Cumulative, Redeemable Preferred Stock of a Subsidiary 0.1 - - 0.1 Common Shareholder's Equity Common stock (no par value) 611.3 592.9 (611.3) 592.9 Retained earnings 340.3 392.5 (340.3) 392.5 --------------------------------------------------------------------------------------------------- Total common shareholder's equity 951.6 985.4 (951.6) 985.4 --------------------------------------------------------------------------------------------------- TOTAL LIABILITIES & SHAREHOLDER'S EQUITY $2,982.9 $1,886.5 $(1,721.7) $3,147.7 ===================================================================================================
4. Transactions with Other Vectren Companies Support Services and Purchases Vectren and certain subsidiaries of Vectren provide corporate and general and administrative services to the Company including legal, finance, tax, risk management, human resources, which includes charges for restricted stock compensation and for pension and other postretirement benefits not directly charged to subsidiaries. These costs have been allocated using various allocation techniques, primarily number of employees, number of customers and/or revenues. Allocations are based on cost. VUHI received corporate allocations totaling $21.8 million and $21.8 million for the three months ended March 31, 2005 and 2004, respectively. Vectren Fuels, Inc., a wholly owned subsidiary of Vectren, owns and operates coal mines from which SIGECO purchases fuel used for electric generation. Amounts paid for such purchases for the three months ended March 31, 2005 and 2004, totaled $23.4 million and $18.8 million, respectively. Share-Based Incentive Plans VUHI does not have share-based compensation plans separate from Vectren. An insignificant number of VUHI's employees participate in Vectren's share-based compensation plans. 5. Transactions with ProLiance Energy, LLC ProLiance Energy, LLC (ProLiance), a nonregulated energy marketing affiliate of Vectren and Citizens Gas and Coke Utility (Citizen's Gas), provides natural gas and related services to the Company's utilities, Citizen's Gas, and others. ProLiance's primary businesses is optimizing the gas portfolios and providing services to large end use customers. Transactions with ProLiance Purchases from ProLiance for resale and for injections into storage for the three months ended March 31, 2005 and 2004, totaled $217.4 million and $219.1 million, respectively. Amounts owed to ProLiance at March 31, 2005, and December 31, 2004, for those purchases were $69.1 million and $97.7 million, respectively, and are included in Accounts payable to affiliated companies. Amounts charged by ProLiance for gas supply services are established by supply agreements with each utility. 6. Commitments & Contingencies The Company is party to various legal proceedings arising in the normal course of business. In the opinion of management, there are no legal proceedings, except those discussed herein, pending against the Company that are likely to have a material adverse effect on its financial position or results of operations. United States Securities and Exchange Commission Inquiry into PUHCA Exemption In July 2004, the Company received a letter from the SEC regarding its exempt status under the Public Utility Holding Company Act of 1935 (PUHCA). The letter asserts that Vectren's out of state electric power sales exceed the amount previously determined by the SEC to be acceptable in order to qualify for the exemption. There is pending a request by Vectren for an order of exemption under Section 3(a)(1) of PUHCA. Vectren also claims the benefit of the exemption pursuant to Rule 2 under Section 3(a)(1) of PUHCA by filing an annual statement on SEC Form U-3A-2. The Company has responded to the SEC inquiry and filed an amended Form U-3A-2 for the year ended December 31, 2003. The amendment changed the method of aggregating wholesale power sales and purchases outside of Indiana from that previously reported. The new method is to aggregate by delivery point. The amendment also submitted clarifications as to activity outside of Indiana related to gas utility operations. 7. Environmental Matters NOx SIP Call Matter The Company has taken steps to comply with Indiana's State Implementation Plan (SIP) of the Clean Air Act (the Act). These steps include installing Selective Catalytic Reduction (SCR) systems at Culley Generating Station Unit 3 (Culley), Warrick Generating Station Unit 4, and A.B. Brown Generating Station Units 1 and 2. SCR systems reduce flue gas NOx emissions to atmospheric nitrogen and water using ammonia in a chemical reaction. This technology is known to currently be the most effective method of reducing nitrogen oxide (NOx) emissions where high removal efficiencies are required. The IURC has issued orders that approve: o the Company's project to achieve environmental compliance by investing in clean coal technology; o a total capital cost investment for this project up to $244 million (excluding AFUDC), subject to periodic review of the actual costs incurred; o a mechanism whereby, prior to an electric base rate case, the Company may recover through a rider that is updated every six months, an 8% return on its weighted capital costs for the project; and o ongoing recovery of operating costs, including depreciation and purchased emission allowances, related to the clean coal technology once the facility is placed into service. Through March 31, 2005, approximately $238 million (excluding AFUDC) has been expended, and three of the four SCR's are operational. Once all equipment is installed and operational, related annual operating expenses, including depreciation expense, are estimated to be between $24 million and $27 million. The Company has achieved timely compliance through the reduction of the Company's overall NOx emissions to levels compliant with Indiana's NOx emissions budget allotted by the USEPA. Therefore, the Company has recorded no accrual for potential penalties that may result from noncompliance. Manufactured Gas Plants In the past, Indiana Gas, SIGECO, and others operated facilities for the manufacture of gas. Given the availability of natural gas transported by pipelines, these facilities have not been operated for many years. Under currently applicable environmental laws and regulations, Indiana Gas, SIGECO, and others may now be required to take remedial action if certain byproducts are found above the regulatory thresholds at these sites. Indiana Gas has identified the existence, location, and certain general characteristics of 26 gas manufacturing and storage sites for which it may have some remedial responsibility. Indiana Gas has completed a remedial investigation/feasibility study (RI/FS) at one of the sites under an agreed order between Indiana Gas and the IDEM, and a Record of Decision was issued by the IDEM in January 2000. Although Indiana Gas has not begun an RI/FS at additional sites, Indiana Gas has submitted several of the sites to the IDEM's Voluntary Remediation Program (VRP) and is currently conducting some level of remedial activities, including groundwater monitoring at certain sites, where deemed appropriate, and will continue remedial activities at the sites as appropriate and necessary. In conjunction with data compiled by environmental consultants, Indiana Gas has accrued the estimated costs for further investigation, remediation, groundwater monitoring, and related costs for the sites. While the total costs that may be incurred in connection with addressing these sites cannot be determined at this time, Indiana Gas has recorded costs that it reasonably expects to incur totaling approximately $20.4 million. The estimated accrued costs are limited to Indiana Gas' proportionate share of the remediation efforts. Indiana Gas has arrangements in place for 19 of the 26 sites with other potentially responsible parties (PRP), which serve to limit Indiana Gas' share of response costs at these 19 sites to between 20% and 50%. With respect to insurance coverage, Indiana Gas has received and recorded settlements from all known insurance carriers in an aggregate amount approximating $20.4 million. Environmental matters related to manufactured gas plants have had no material impact on earnings since costs recorded to date approximate PRP and insurance settlement recoveries. While Indiana Gas has recorded all costs which it presently expects to incur in connection with activities at these sites, it is possible that future events may require some level of additional remedial activities which are not presently foreseen. In October 2002, the Company received a formal information request letter from the IDEM regarding five manufactured gas plants owned and/or operated by SIGECO and not currently enrolled in the IDEM's VRP. In response, SIGECO submitted to the IDEM the results of preliminary site investigations conducted in the mid-1990's. These site investigations confirmed that based upon the conditions known at the time, the sites posed no risk to human health or the environment. Follow up reviews have been initiated by the Company to confirm that the sites continue to pose no such risk. On October 6, 2003, SIGECO filed applications to enter four of the manufactured gas plant sites in IDEM's VRP. The remaining site is currently being addressed in the VRP by another Indiana utility. SIGECO added those four sites into the renewal of the global Voluntary Remediation Agreement that Indiana Gas has in place with IDEM for its manufactured gas plant sites. That renewal was approved by the IDEM on February 24, 2004. On July 13, 2004, SIGECO filed a declaratory judgment action against its insurance carriers seeking a judgment finding its carriers liable under the policies for coverage of further investigation and any necessary remediation costs that SIGECO may accrue under the VRP program. The total investigative costs, and if necessary, costs of remediation at the four SIGECO sites, as well as the amount of any PRP or insurance recoveries, cannot be determined at this time. Jacobsville Superfund Site On July 22, 2004, the USEPA listed the Jacobsville Neighborhood Soil Contamination site in Evansville, Indiana, on the National Priorities List under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). The USEPA has identified four sources of historic lead contamination. These four sources shut down manufacturing operations years ago. When drawing up the boundaries for the listing, the USEPA included a 250 acre block of properties surrounding the Jacobsville neighborhood, including Vectren's Wagner Operations Center. Vectren's property has not been named as a source of the lead contamination, nor does the USEPA's soil testing to date indicate that the Vectren property contains lead contaminated soils. Vectren's own soil testing, completed during the construction of the Operations Center, did not indicate that the Vectren property contains lead contaminated soils. At this time, Vectren anticipates only additional soil testing, if required by the USEPA. Clean Air Interstate Rule & Clean Air Mercury Rule In March of 2005 USEPA finalized two new air emission reduction regulations. The Clean Air Interstate Rule (CAIR) is an allowance cap and trade program requiring further reductions in Nitrogen Oxides (NOx) and Sulfur Dioxide (SO2) emissions from coal-burning power plants. The Clean Air Mercury Rule (CAMR) is an allowance cap and trade program requiring further reductions in mercury emissions from coal-burning power plants. Both sets of regulations require emission reductions in two phases. The first phase deadline for both rules is 2010, and the second phase deadline for compliance with the emission reductions required under CAIR is 2015, while the second phase deadline for compliance with the emission reduction requirements of CAMR is 2018. The Company is evaluating compliance options and fully expects to be in compliance by the required deadlines. 8. Rate & Regulatory Matters SIGECO and Indiana Gas Base Rate Settlements On June 30, 2004, the IURC approved a $5.7 million base rate increase for SIGECO's gas distribution business, and on November 30, 2004, approved a $24 million base rate increase for Indiana Gas' gas distribution business. The new rate designs include a larger service charge, which is intended to address to some extent earnings volatility related to weather. The base rate change in SIGECO's service territory was implemented on July 1, 2004, resulting in additional revenues in the first quarter of 2005 of $1.6 million. The base rate change in Indiana Gas' service territory was implemented on December 1, 2004, resulting in additional revenues in the first quarter of 2005 of $6.3 million. VEDO Base Rate Increase Settlement On April 13, 2005, the PUCO approved a $15.7 million base rate increase for VEDO's gas distribution business. The new rate design includes a larger service charge, which is intended to address to some extent earnings volatility related to weather. The new rates also provide for funding of conservation programs and the recovery of on-going costs to comply with the Pipeline Safety Improvement Act of 2002. The base rate change was implemented on April 14, 2005. Accordingly, no impact of the VEDO base rate change has been reflected in the interim financial statements for the first quarter of 2005. Gas Cost Recovery (GCR) Audit Proceedings There is an Ohio requirement that Ohio gas utilities undergo a biannual audit of their gas acquisition practices in connection with the gas cost recovery (GCR) mechanism. In the case of VEDO, a two-year audit period ended in November 2002. That audit period provided the PUCO staff its initial review of the portfolio administration arrangement between VEDO and ProLiance. The external auditor retained by the PUCO staff submitted an audit report in the fall of 2003 wherein it recommended a disallowance of approximately $7 million of previously recovered gas costs. The Company believes a large portion of the third party auditor recommendations is without merit. A hearing has been held, and the PUCO staff has recommended a $6.1 million disallowance. The Ohio Consumer Counselor has recommended an $11.5 million disallowance. For this PUCO audit period, any disallowance relating to the Company's ProLiance arrangement will be shared by the Company's joint venture partner. Based on a review of the matters, the Company has recorded $1.1 million for its estimated pretax share of a potential disallowance. A PUCO decision on this matter is yet to be issued. The Company is also unable to determine the effects that a PUCO decision for the audit period ended in November 2002 may have on results in audit periods beginning after November 2002. 9. Impact of Recently Issued Accounting Guidance SFAS 123 (revised 2004) In December 2004, the FASB issued Statement 123 (revised 2004), "Share-Based Payments" (SFAS 123R) that will require compensation costs related to all share-based payment transactions to be recognized in the financial statements. With limited exceptions, the amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. Compensation cost will be recognized over the period that an employee provides service in exchange for the award. SFAS 123R replaces SFAS 123 and supersedes APB 25. In April 2005, the SEC extended the effective date of SFAS 123R to January 1, 2006 for calendar year companies like the Company. SFAS 123R provides for multiple transition methods, and the Company is still evaluating potential methods for adoption. The adoption of this standard is not expected to have a material effect on the Company's operating results or financial condition. FIN 47 In March 2005, the FASB issued FASB Interpretation No. 47 (FIN 47), an interpretation of SFAS143. The interpretation is effective for the Company no later than December 31, 2005. FIN 47 clarifies that a legal obligation to perform an asset retirement activity that is conditional on a future event is within SFAS 143's scope. It also clarifies the meaning of the term "conditional asset retirement obligation" as a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. Accordingly, an entity is required to recognize a liability for the fair value of an asset retirement obligation that is conditional on a future event if the liability's fair value can be estimated reasonably. The interpretation provides examples of conditional asset retirement obligations that may need to be recognized under the provisions of FIN 47, including asbestos and utility pole removal and dismantling plant. The interpretation also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 requires the reassessment of whether a portion of accrued removal costs should be recharacterized as a liability under generally accepted accounting principles. FIN 47 may also require the accrual of additional liabilities and could result in increased near-term expense. The Company is currently assessing the impact this interpretation will have on its financial statements. 10. Segment Reporting The Company's operations consist of regulated operations and other operations that provide information technology and other support services to those regulated operations. The Company segregates its regulated operations into a Gas Utility Services operating segment and an Electric Utility Services operating segment. The Gas Utility Services segment provides natural gas distribution and transportation services to nearly two-thirds of Indiana and to west central Ohio. The Electric Utility Services segment provides electric distribution services primarily to southwestern Indiana, and includes the Company's power generating and marketing operations. The Company cross manages its regulated operations as separated between Energy Delivery, which includes the gas and electric transmission and distribution functions, and Power Supply, which includes the power generating and marketing operations. For these regulated operations the Company uses after tax operating income as a measure of profitability, consistent with regulatory reporting requirements. For the Utility Group's other operations, net income is used as the measure of profitability. In total, there are three operating segments as defined by SFAS 131 "Disclosure About Segments of an Enterprise and Related Information" (SFAS 131). Information related to the Company's business segments is summarized below: Three Months Ended March 31, --------------------------------------------------------------------------- (In millions) 2005 2004 --------------------------------------------------------------------------- Revenues Gas Utility Services $ 516.7 $ 505.1 Electric Utility Services 94.7 88.8 Other Operations 9.1 9.4 Eliminations (8.9) (9.1) --------------------------------------------------------------------------- Consolidated Revenues $ 611.6 $ 594.2 =========================================================================== Profitability Measure Regulated Operating Income (Operating Income Less Applicable Income Taxes) Gas Utility Services $ 45.1 $ 46.1 Electric Utility Services 17.3 13.4 --------------------------------------------------------------------------- Total Regulated Operating Income 62.4 59.5 --------------------------------------------------------------------------- Regulated other income (expense) - net (0.1) (0.6) Regulated interest expense & preferred dividends (15.9) (15.8) --------------------------------------------------------------------------- Regulated Net Income 46.4 43.1 --------------------------------------------------------------------------- Other Operations Net Income 1.7 1.6 --------------------------------------------------------------------------- Consolidated Net Income $ 48.1 $ 44.7 =========================================================================== 2004 Gas Utility Services regulated operating income was favorably impacted by a $3.2 million adjustment to utility plant depreciation expense. 2004 Electric Utility Services regulated operating income was unfavorably impacted by a $2.2 million adjustment to regulatory asset amortization. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Description of the Business Vectren Utility Holdings, Inc. (VUHI or the Company), an Indiana corporation, serves as the intermediate holding company for Vectren Corporation's (Vectren) three operating public utilities: Indiana Gas Company, Inc. (Indiana Gas or Vectren North), Southern Indiana Gas and Electric Company (SIGECO or Vectren South), and the Ohio operations. VUHI also has other assets that provide information technology and other services to the three utilities. Vectren is an energy and applied technology holding company headquartered in Evansville, Indiana. Both Vectren and VUHI are exempt from registration pursuant to Section 3(a)(1) and 3(c) of the Public Utility Holding Company Act of 1935. Indiana Gas provides energy delivery services to approximately 555,000 natural gas customers located in central and southern Indiana. SIGECO provides energy delivery services to approximately 136,000 electric customers and approximately 110,000 gas customers located near Evansville in southwestern Indiana. SIGECO also owns and operates electric generation to serve its electric customers and optimizes those assets in the wholesale power market. Indiana Gas and SIGECO generally do business as Vectren Energy Delivery of Indiana. The Ohio operations provide energy delivery services to approximately 315,000 natural gas customers located near Dayton in west central Ohio. The Ohio operations are owned as a tenancy in common by Vectren Energy Delivery of Ohio, Inc. (VEDO), a wholly owned subsidiary, (53% ownership) and Indiana Gas (47% ownership). The Ohio operations generally do business as Vectren Energy Delivery of Ohio. Executive Summary of Consolidated Results of Operations The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto. Earnings were $48.1 million for the three months ended March 31, 2005, compared to $44.7 million in the prior year. The $3.4 million increase in the Company's earnings is due to the implementation of new gas base rates in the Company's Indiana service territories, higher electric revenues associated with recovery of pollution control investments, and increased wholesale electric margins. Gas base rate increases added margin of $7.9 million, or $4.7 million after tax. These increases were partially offset by the impact of warmer weather on customer usage during this high consumption quarter and increased depreciation expense and income taxes. For the quarter ended March 31, 2005, heating weather 7 percent warmer than normal and 3 percent warmer than the prior year reduced first quarter 2005 margins by an estimated $4.8 million ($2.9 million after tax) and by an estimated $3.0 million ($1.7 million after tax) when compared to the same period last year. The Company generates revenue primarily from the delivery of natural gas and electric service to its customers. The primary source of cash flow results from the collection of customer bills and the payment for goods and services procured for the delivery of gas and electric services. The results are impacted by weather patterns in its service territory and general economic conditions both in its service territory as well as nationally. The Company has in place a disclosure committee that consists of senior management as well as financial management. The committee is actively involved in the preparation and review of the Company's SEC filings. Significant Fluctuations Throughout this discussion, the terms Gas Utility margin and Electric Utility margin are used. Gas Utility margin and Electric Utility margin could be considered non-GAAP measures of income. Gas Utility margin is calculated as Gas utility revenues less the Cost of gas sold. Electric Utility margin is calculated as Electric utility revenues less Fuel for electric generation and Purchased electric energy. These measures exclude Other operating expenses, Depreciation and amortization, and Taxes other than income taxes, which are included in the calculation of operating income. The Company believes Gas Utility and Electric Utility margins are better indicators of relative contribution than revenues since gas prices and fuel costs can be volatile and are generally collected on a dollar for dollar basis from customers. Margins should not be considered an alternative to, or a more meaningful indicator of operating performance than, operating income or net income as determined in accordance with accounting principles generally accepted in the United States. Margin Margin generated from the sale of natural gas and electricity to residential and commercial customers is seasonal and impacted by weather patterns in its service territory. Margin generated from sales to industrial and other contract customers is impacted by overall economic conditions. In general, margin is not sensitive to variations in gas or fuel costs. It is, however, impacted by the collection of state mandated taxes which fluctuate with gas costs and also some level of price sensitive fluctuation in volumes sold. Electric generating asset optimization activities are primarily affected by market conditions, the level of excess generating capacity, and electric transmission availability. Following is a discussion and analysis of margin generated from regulated utility operations. Gas Utility Margin (Gas Utility Revenues less Cost of Gas Sold) Gas Utility margin and throughput by customer type follows: Three Months Ended March 31, ----------------------------------------------------------------------------- (In millions) 2005 2004 ----------------------------------------------------------------------------- Residential $ 94.8 $ 91.7 Commercial 32.9 31.5 Industrial 15.6 14.9 Miscellaneous 2.5 1.4 ----------------------------------------------------------------------------- Total gas utility margin $ 145.8 $ 139.5 ============================================================================= Sold & transported volumes in MMDth: To residential & commercial customers 55.0 59.1 To industrial customers 26.8 27.4 ----------------------------------------------------------------------------- Total throughput 81.8 86.5 ============================================================================= Gas Utility margins for the three months ended March 31, 2005, were $145.8 million, an increase of $6.3 million, or 4 percent, compared to the prior year period. The rate case orders implemented in the second half of 2004 added margin of $7.9 million. This increase in revenues reflects new gas rates designed to recover the majority of the authorized increase evenly through higher customer charges and non-weather sensitive usage rates. It is estimated that weather 7 percent warmer than normal and 3 percent warmer than prior year decreased margins $2.6 million and was the primary contributor to the decreased throughput. The remaining change is primarily attributable to expense recovery pursuant to Ohio regulatory trackers. The average cost per dekatherm of gas purchased for the three months ended March 31, 2005, was $7.29 compared to $6.60 in 2004. Electric Utility Margin (Electric Utility Revenues less Fuel for Electric Generation and Purchased Electric Energy) Electric Utility margin by revenue type follows: Three Months Ended March 31, ------------------------------------------------------------------------------ (In millions) 2005 2004 ------------------------------------------------------------------------------ Residential & commercial $ 37.1 $ 35.2 Industrial 15.3 14.5 Municipalities & other 4.1 4.8 ------------------------------------------------------------------------------ Total retail & firm wholesale 56.5 54.5 Asset optimization 9.0 7.0 ------------------------------------------------------------------------------ Total electric utility margin $ 65.5 $ 61.5 ============================================================================== Retail & Firm Wholesale Margin For the three months ended March 31, 2005, margin from serving native load and firm wholesale customers was $56.5 million, an increase of $2.0 million when compared to 2004. Margin increased $2.6 million due to the increase in retail electric rates related to recovery of environmental compliance expenditures and related operating expenses. The effects of weather partially offset the increase by approximately $0.4 million. Resulting primarily from weather, total retail and firm wholesale volumes sold decreased 4% to 1,439.2 GWh in 2005, compared to 1,499.7 GWh in 2004. Margin from Asset Optimization Activities Periodically, generation capacity is in excess of that needed to serve native load and firm wholesale customers. The Company markets this unutilized capacity to optimize the return on its owned generation assets. Substantially the entire margin from these activities is generated from contracts that are integrated with portfolio requirements around power supply and delivery and are short-term purchase and sale transactions that expose the Company to limited market risk. Following is a reconciliation of asset optimization activity: Three Months Ended March 31, ------------------------------------------------------------------------------- (In millions) 2005 2004 ------------------------------------------------------------------------------- Beginning of Period Net Balance Sheet Position $ (0.6) $ (0.4) Statement of Income Activity Net mark-to-market gains 2.5 2.8 Net realized gains 6.5 4.2 ------------------------------------------------------------------------------ Net activity in electric utility margin 9.0 7.0 ------------------------------------------------------------------------------- Net cash received & other adjustments (6.0) (3.2) ------------------------------------------------------------------------------- End of Period Net Balance Sheet Position $ 2.4 $ 3.4 =============================================================================== Net asset optimization margins increased $2.0 million compared to 2004 due to an increase in available capacity. The availability of excess capacity was reduced in 2004 by scheduled outages of owned generation related to the installation of environmental compliance equipment. Operating Expenses For the three months ended March 31, 2005, other operating expenses decreased $0.5 million, compared to the same period in 2004. The decrease was primarily due to $1.1 million in lower NOx operating expenses, offset somewhat by increased costs for scrubber chemicals, gasoline, and other costs. Depreciation & Amortization Depreciation expense increased $3.8 million in 2005, compared to 2004. Installation of environmental compliance equipment accounted for $1.4 million of the increase. In addition, the first quarter of 2004 was $1.8 million lower due to an adjustment of Ohio depreciation rates and amortization of Indiana regulatory assets. Income Taxes For the three months ended March 31, 2005, Federal and state income taxes increased $4.2 million primarily due to higher pre-tax income. Environmental Matters Clean Air Act NOx SIP Call Matter The Company has taken steps to comply with Indiana's State Implementation Plan (SIP) of the Clean Air Act (the Act). These steps include installing Selective Catalytic Reduction (SCR) systems at Culley Generating Station Unit 3 (Culley), Warrick Generating Station Unit 4, and A.B. Brown Generating Station Units 1 and 2. SCR systems reduce flue gas NOx emissions to atmospheric nitrogen and water using ammonia in a chemical reaction. This technology is known to currently be the most effective method of reducing nitrogen oxide (NOx) emissions where high removal efficiencies are required. The IURC has issued orders that approve: o the Company's project to achieve environmental compliance by investing in clean coal technology; o a total capital cost investment for this project up to $244 million (excluding AFUDC), subject to periodic review of the actual costs incurred; o a mechanism whereby, prior to an electric base rate case, the Company may recover through a rider that is updated every six months, an 8% return on its weighted capital costs for the project; and o ongoing recovery of operating costs, including depreciation and purchased emission allowances, related to the clean coal technology once the facility is placed into service. Through March 31, 2005, $238 million has been expended, and three of the four SCR's are operational. Once all equipment is installed and operational, related annual operating expenses, including depreciation expense, are estimated to be between $24 million and $27 million. The Company has achieved timely compliance through the reduction of the Company's overall NOx emissions to levels compliant with Indiana's NOx emissions budget allotted by the USEPA. Therefore, the Company has recorded no accrual for potential penalties that may result from noncompliance. Information Request On January 23, 2001, SIGECO received an information request from the USEPA under Section 114 of the Clean Air Act for historical operational information on the Warrick and A.B. Brown generating stations. SIGECO has provided all information requested with the most recent correspondence provided on March 26, 2001. Manufactured Gas Plants In the past, Indiana Gas, SIGECO, and others operated facilities for the manufacture of gas. Given the availability of natural gas transported by pipelines, these facilities have not been operated for many years. Under currently applicable environmental laws and regulations, Indiana Gas, SIGECO, and others may now be required to take remedial action if certain byproducts are found above the regulatory thresholds at these sites. Indiana Gas has identified the existence, location, and certain general characteristics of 26 gas manufacturing and storage sites for which it may have some remedial responsibility. Indiana Gas has completed a remedial investigation/feasibility study (RI/FS) at one of the sites under an agreed order between Indiana Gas and the IDEM, and a Record of Decision was issued by the IDEM in January 2000. Although Indiana Gas has not begun an RI/FS at additional sites, Indiana Gas has submitted several of the sites to the IDEM's Voluntary Remediation Program (VRP) and is currently conducting some level of remedial activities, including groundwater monitoring at certain sites, where deemed appropriate, and will continue remedial activities at the sites as appropriate and necessary. In conjunction with data compiled by environmental consultants, Indiana Gas has accrued the estimated costs for further investigation, remediation, groundwater monitoring, and related costs for the sites. While the total costs that may be incurred in connection with addressing these sites cannot be determined at this time, Indiana Gas has recorded costs that it reasonably expects to incur totaling approximately $20.4 million. The estimated accrued costs are limited to Indiana Gas' proportionate share of the remediation efforts. Indiana Gas has arrangements in place for 19 of the 26 sites with other potentially responsible parties (PRP), which serve to limit Indiana Gas' share of response costs at these 19 sites to between 20% and 50%. With respect to insurance coverage, Indiana Gas has received and recorded settlements from all known insurance carriers in an aggregate amount approximating $20.4 million. Environmental matters related to manufactured gas plants have had no material impact on earnings since costs recorded to date approximate PRP and insurance settlement recoveries. While Indiana Gas has recorded all costs which it presently expects to incur in connection with activities at these sites, it is possible that future events may require some level of additional remedial activities which are not presently foreseen. In October 2002, the Company received a formal information request letter from the IDEM regarding five manufactured gas plants owned and/or operated by SIGECO and not currently enrolled in the IDEM's VRP. In response, SIGECO submitted to the IDEM the results of preliminary site investigations conducted in the mid-1990's. These site investigations confirmed that based upon the conditions known at the time, the sites posed no risk to human health or the environment. Follow up reviews have been initiated by the Company to confirm that the sites continue to pose no such risk. On October 6, 2003, SIGECO filed applications to enter four of the manufactured gas plant sites in IDEM's VRP. The remaining site is currently being addressed in the VRP by another Indiana utility. SIGECO added those four sites into the renewal of the global Voluntary Remediation Agreement that Indiana Gas has in place with IDEM for its manufactured gas plant sites. That renewal was approved by the IDEM on February 24, 2004. On July 13, 2004, SIGECO filed a declaratory judgment action against its insurance carriers seeking a judgment finding its carriers liable under the policies for coverage of further investigation and any necessary remediation costs that SIGECO may accrue under the VRP program. The total investigative costs, and if necessary, costs of remediation at the four SIGECO sites, as well as the amount of any PRP or insurance recoveries, cannot be determined at this time. Jacobsville Superfund Site On July 22, 2004, the USEPA listed the Jacobsville Neighborhood Soil Contamination site in Evansville, Indiana, on the National Priorities List under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). The USEPA has identified four sources of historic lead contamination. These four sources shut down manufacturing operations years ago. When drawing up the boundaries for the listing, the USEPA included a 250 acre block of properties surrounding the Jacobsville neighborhood, including Vectren's Wagner Operations Center. Vectren's property has not been named as a source of the lead contamination, nor does the USEPA's soil testing to date indicate that the Vectren property contains lead contaminated soils. Vectren's own soil testing, completed during the construction of the Operations Center, did not indicate that the Vectren property contains lead contaminated soils. At this time, Vectren anticipates only additional soil testing, if required by the USEPA. Clean Air Interstate Rule & Clean Air Mercury Rule In March of 2005 USEPA finalized two new air emission reduction regulations. The Clean Air Interstate Rule (CAIR) is an allowance cap and trade program requiring further reductions in Nitrogen Oxides (NOx) and Sulfur Dioxide (SO2) emissions from coal-burning power plants. The Clean Air Mercury Rule (CAMR) is an allowance cap and trade program requiring further reductions in mercury emissions from coal-burning power plants. Both sets of regulations require emission reductions in two phases. The first phase deadline for both rules is 2010, and the second phase deadline for compliance with the emission reductions required under CAIR is 2015, while the second phase deadline for compliance with the emission reduction requirements of CAMR is 2018. The Company is evaluating compliance options and fully expects to be in compliance by the required deadlines. Rate and Regulatory Matters SIGECO and Indiana Gas Base Rate Settlements On June 30, 2004, the IURC approved a $5.7 million base rate increase for SIGECO's gas distribution business, and on November 30, 2004, approved a $24 million base rate increase for Indiana Gas' gas distribution business. The new rate designs include a larger service charge, which is intended to address to some extent earnings volatility related to weather. The base rate change in SIGECO's service territory was implemented on July 1, 2004, resulting in additional revenues in the first quarter of 2005 of $1.6 million. The base rate change in Indiana Gas' service territory was implemented on December 1, 2004, resulting in additional revenues in the first quarter of 2005 of $6.3 million. VEDO Gas Base Rate Settlement On April 13, 2005, the PUCO approved a $15.7 million base rate increase for VEDO's gas distribution business. The new rate design includes a larger service charge, which is intended to address to some extent earnings volatility related to weather. The new rates also provide for funding of conservation programs and the recovery of on-going costs to comply with the Pipeline Safety Improvement Act of 2002. The base rate change was implemented on April 14, 2005. Accordingly, no impact of the VEDO base rate change has been reflected in the interim financial statements for the first quarter of 2005. Incremental 2005 revenues resulting from the rate increase are expected to approximate $12.9 million. Gas Cost Recovery (GCR) Audit Proceedings There is an Ohio requirement that Ohio gas utilities undergo a biannual audit of their gas acquisition practices in connection with the gas cost recovery (GCR) mechanism. In the case of VEDO, a two-year audit period ended in November 2002. That audit period provided the PUCO staff its initial review of the portfolio administration arrangement between VEDO and ProLiance. The external auditor retained by the PUCO staff submitted an audit report in the fall of 2003 wherein it recommended a disallowance of approximately $7 million of previously recovered gas costs. The Company believes a large portion of the third party auditor recommendations is without merit. A hearing has been held, and the PUCO staff has recommended a $6.1 million disallowance. The Ohio Consumer Counselor has recommended an $11.5 million disallowance. For this PUCO audit period, any disallowance relating to the Company's ProLiance arrangement will be shared by the Company's joint venture partner. Based on a review of the matters, the Company has recorded $1.1 million for its estimated pretax share of a potential disallowance. A PUCO decision on this matter is yet to be issued. The Company is also unable to determine the effects that a PUCO decision for the audit period ended in November 2002 may have on results in audit periods beginning after November 2002. Other Operating Matters MISO On April 1, 2005, the MISO Day Two energy markets commenced operation. As a result of being a market participant, the Company now bids its own generation into the Day Ahead and Real Time markets and procures power for its retail customers at Locational Marginal Pricing (LMP) as determined by the MISO market. Vectren, together with three other Indiana electric utilities, has sought authority from the IURC to recover the costs associated with MISO's implementation of the "Day 2 energy market." A hearing considering this request occurred in February, 2005, and Vectren is awaiting an order at this time. Pursuant to the pending proposal, LMP costs will be passed through to customers in Vectren's existing fuel cost recovery proceedings, and other MISO related costs are to be tracked and eventually recovered. The inception of these markets has had no impact on the Company's ability to reliably serve its customers. United States Securities and Exchange Commission Inquiry into PUHCA Exemption In July 2004, the Company received a letter from the SEC regarding its exempt status under the Public Utility Holding Company Act of 1935 (PUHCA). The letter asserts that Vectren's out of state electric power sales exceed the amount previously determined by the SEC to be acceptable in order to qualify for the exemption. There is pending a request by Vectren for an order of exemption under Section 3(a)(1) of PUHCA. Vectren also claims the benefit of the exemption pursuant to Rule 2 under Section 3(a)(1) of PUHCA by filing an annual statement on SEC Form U-3A-2. The Company has responded to the SEC inquiry and filed an amended Form U-3A-2 for the year ended December 31, 2003. The amendment changed the method of aggregating wholesale power sales and purchases outside of Indiana from that previously reported. The new method is to aggregate by delivery point. The amendment also submitted clarifications as to activity outside of Indiana related to gas utility operations Impact of Recently Issued Accounting Guidance SFAS 123 (revised 2004) In December 2004, the FASB issued Statement 123 (revised 2004), "Share-Based Payments" (SFAS 123R) that will require compensation costs related to all share-based payment transactions to be recognized in the financial statements. With limited exceptions, the amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. Compensation cost will be recognized over the period that an employee provides service in exchange for the award. SFAS 123R replaces SFAS 123 and supersedes APB 25. In April 2005, the SEC extended the effective date of SFAS 123R to January 1, 2006 for calendar year companies like the Company. SFAS 123R provides for multiple transition methods, and the Company is still evaluating potential methods for adoption. The adoption of this standard is not expected to have a material effect on the Company's operating results or financial condition. FIN 47 In March 2005, the FASB issued FASB Interpretation No. 47 (FIN 47), an interpretation of SFAS 143. The interpretation is effective for the Company no later than December 31, 2005. FIN 47 clarifies that a legal obligation to perform an asset retirement activity that is conditional on a future event is within SFAS 143's scope. It also clarifies the meaning of the term "conditional asset retirement obligation" as a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. Accordingly, an entity is required to recognize a liability for the fair value of an asset retirement obligation that is conditional on a future event if the liability's fair value can be estimated reasonably. The interpretation provides examples of conditional asset retirement obligations that may need to be recognized under the provisions of FIN 47, including asbestos and utility pole removal and dismantling plant. The interpretation also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 requires the reassessment of whether a portion of accrued removal costs should be recharacterized as a liability under generally accepted accounting principles. FIN 47 may also require the accrual of additional liabilities and could result in increased near-term expense. The Company is currently assessing the impact this interpretation will have on its financial statements. Financial Condition Within Vectren's consolidated group, VUHI funds the short-term and long-term financing needs of utility operations. Vectren does not guarantee VUHI's debt. VUHI's outstanding long-term and short-term borrowing arrangements are jointly and severally guaranteed by Indiana Gas, SIGECO, and VEDO. The guarantees are full and unconditional and joint and several, and VUHI has no subsidiaries other than the subsidiary guarantors. Information about the subsidiary guarantors as a group is included in Note 3 to the condensed consolidated financial statements. VUHI's long-term and short-term obligations outstanding at March 31, 2005, totaled $550.0 million and $117.0 million, respectively. Additionally, prior to VUHI's formation, Indiana Gas and SIGECO funded their operations separately, and therefore, have long-term debt outstanding funded solely by their operations. VUHI's operations have historically funded almost all of Vectren's common stock dividends. VUHI's and Indiana Gas' credit ratings on outstanding senior unsecured debt at March 31, 2005, are A-/Baa1 as rated by Standard and Poor's Ratings Services (Standard and Poor's) and Moody's Investors Service (Moody's), respectively. SIGECO's credit ratings on outstanding senior unsecured debt are A-/Baa1. SIGECO's credit ratings on outstanding secured debt are A/A3. VUHI's commercial paper has a credit rating of A-2/P-2. Moody's current outlook is stable. During January 2005, Standard and Poor's changed its current outlook to stable from negative. In March 2005, Standard and Poor's also revised the SIGECO credit rating on secured debt to A from A- and on unsecured debt to A- from BBB+. All other ratings are unchanged from December 31, 2004. A security rating is not a recommendation to buy, sell, or hold securities. The rating is subject to revision or withdrawal at any time, and each rating should be evaluated independently of any other rating. Standard and Poor's and Moody's lowest level investment grade rating is BBB- and Baa3, respectively. The Company's consolidated equity capitalization objective is 45-55% of permanent capitalization. This objective may have varied, and will vary, depending on particular business opportunities, capital spending requirements, and seasonal factors that affect the Company's operation. The Company's equity component was 52% and 51% of total capitalization, including current maturities of long-term debt and long-term debt subject to tender, at both March 31, 2005, and December 31, 2004, respectively. Permanent capitalization includes long-term debt, including current maturities and debt subject to tender, as well as common shareholders' equity and any outstanding preferred stock. Sources & Uses of Liquidity Operating Cash Flow The Company's primary and historical source of liquidity to fund working capital requirements has been cash generated from operations, which for the three months ended March 31, 2005 and 2004, was $258.1 million and $210.9 million, respectively. The increase of $47.2 million is primarily the result of favorable changes in working capital accounts. Financing Cash Flow Although working capital requirements are generally funded by cash flow from operations, the Company uses short-term borrowings to supplement working capital needs when accounts receivable balances are at their highest and gas storage is refilled. Additionally, short-term borrowings are required for capital projects and investments until they are permanently financed. Cash flow required for financing activities was $211.3 million for the three months ended March 31, 2005. Greater amount of operating cash flow were available to reduce short-term borrowings by approximately $46.1 million, as compared to 2004. Investing Cash Flow Cash flow required for investing activities was $36.8 million and $42.6 million for the three months ended March 31, 2005 and 2004, respectively. Capital expenditures in 2004 were higher as a result of greater environmental compliance expenditures in that period. Available Sources of Liquidity At March 31, 2005, the Company has $355 million of short-term borrowing capacity, of which approximately $238 million is available. January 14, 2005, the Company added $24 million of additional short-term borrowing capacity for the Utility Group to provide incremental seasonal borrowing capacity, raising total capacity to $379 million. This seasonal credit line expired March 31, 2005. Potential Uses of Liquidity Planned Capital Expenditures Capital expenditures for the remainder of 2005 are estimated to be approximately $165 million. Forward-Looking Information A "safe harbor" for forward-looking statements is provided by the Private Securities Litigation Reform Act of 1995 (Reform Act of 1995). The Reform Act of 1995 was adopted to encourage such forward-looking statements without the threat of litigation, provided those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause the actual results to differ materially from those projected in the statement. Certain matters described in Management's Discussion and Analysis of Results of Operations and Financial Condition are forward-looking statements. Such statements are based on management's beliefs, as well as assumptions made by and information currently available to management. When used in this filing, the words "believe," "anticipate," "endeavor," "estimate," "expect," "objective," "projection," "forecast," "goal," and similar expressions are intended to identify forward-looking statements. In addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements, factors that could cause the Company's actual results to differ materially from those contemplated in any forward-looking statements include, among others, the following: o Factors affecting utility operations such as unusual weather conditions; catastrophic weather-related damage; unusual maintenance or repairs; unanticipated changes to fossil fuel costs; unanticipated changes to gas supply costs, or availability due to higher demand, shortages, transportation problems or other developments; environmental or pipeline incidents; transmission or distribution incidents; unanticipated changes to electric energy supply costs, or availability due to demand, shortages, transmission problems or other developments; or electric transmission or gas pipeline system constraints. o Increased competition in the energy environment including effects of industry restructuring and unbundling. o Regulatory factors such as unanticipated changes in rate-setting policies or procedures, recovery of investments and costs made under traditional regulation, and the frequency and timing of rate increases. o Financial or regulatory accounting principles or policies imposed by the Financial Accounting Standards Board; the Securities and Exchange Commission; the Federal Energy Regulatory Commission; state public utility commissions; state entities which regulate electric and natural gas transmission and distribution, natural gas gathering and processing, electric power supply; and similar entities with regulatory oversight. o Economic conditions including the effects of an economic downturn, inflation rates, commodity prices, and monetary fluctuations. o Changing market conditions and a variety of other factors associated with physical energy and financial trading activities including, but not limited to, price, basis, credit, liquidity, volatility, capacity, interest rate, and warranty risks. o Direct or indirect effects on our business, financial condition or liquidity resulting from a change in credit ratings, changes in interest rates, and/or changes in market perceptions of the utility industry and other energy-related industries. o Employee or contractor workforce factors including changes in key executives, collective bargaining agreements with union employees, or work stoppages. o Legal and regulatory delays and other obstacles associated with mergers, acquisitions, and investments in joint ventures. o Costs and other effects of legal and administrative proceedings, settlements, investigations, claims, and other matters, including, but not limited to, those described in Management's Discussion and Analysis of Results of Operations and Financial Condition. o Changes in Federal, state or local legislature requirements, such as changes in tax laws or rates, environmental laws and regulations. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of changes in actual results, changes in assumptions, or other factors affecting such statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to various business risks associated with commodity prices, interest rates, and counter-party credit. These financial exposures are monitored and managed by the Company as an integral part of its overall risk management program. The Company's risk management program includes, among other things, the use of derivatives. The Company also executes derivative contracts in the normal course of operations while buying and selling commodities to be used in operations and optimizing its generation assets. The Company has in place a risk management committee that consists of senior management as well as financial and operational management. The committee is actively involved in identifying risks as well as reviewing and authorizing risk mitigation strategies. These risks are not significantly different from the information set forth in Item 7A Quantitative and Qualitative Disclosures About Market Risk included in the VUHI 2004 Form 10-K and are therefore not presented herein. ITEM 4. CONTROLS AND PROCEDURES Changes in Internal Controls over Financial Reporting During the quarter ended March 31, 2005, there have been no changes to the Company's internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting. Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures As of March 31, 2005, the Company conducted an evaluation under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer of the effectiveness and the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company's disclosure controls and procedures are effective at providing reasonable assurance that material information relating to the Company required to be disclosed by the Company in its filings under the Securities Exchange Act of 1934 (Exchange Act) is brought to their attention on a timely basis. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is party to various legal proceedings arising in the normal course of business. In the opinion of management, there are no legal proceedings pending against the Company that are likely to have a material adverse effect on its financial position or results of operations. ITEM 6. EXHIBITS Exhibits and Certifications 31.1 Certification Pursuant To Section 302 of The Sarbanes-Oxley Act Of 2002- Chief Executive Officer 31.2 Certification Pursuant To Section 302 of The Sarbanes-Oxley Act Of 2002- Chief Financial Officer 32 Certification Pursuant To Section 906 of The Sarbanes-Oxley Act Of 2002 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. VECTREN UTILITY HOLDINGS, INC. ------------------------------ Registrant May 3, 2005 /s/Jerome A. Benkert, Jr. ------------------------- Jerome A. Benkert, Jr. Executive Vice President & Chief Financial Officer (Principal Financial Officer) /s/M. Susan Hardwick ------------------------- M. Susan Hardwick Vice President & Controller (Principal Accounting Officer)