-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mc9R4mCQ5Xhmy6zEq+sCaMn1efoO7Lp7ugwcy0d8hGTVBSWS3UAy9//wxB/4RHiP nl9WvBtngSzFpWX81m5byw== 0000092195-03-000012.txt : 20030409 0000092195-03-000012.hdr.sgml : 20030409 20030409114859 ACCESSION NUMBER: 0000092195-03-000012 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030409 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHERN INDIANA GAS & ELECTRIC CO CENTRAL INDEX KEY: 0000092195 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 350672570 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03553 FILM NUMBER: 03643561 BUSINESS ADDRESS: STREET 1: 20 NW FOURTH ST CITY: EVANSVILLE STATE: IN ZIP: 47708 BUSINESS PHONE: 8124914000 MAIL ADDRESS: STREET 1: 20 NW FOURTH ST CITY: EVANSVILLE STATE: IN ZIP: 47708 10-K 1 sig10k_complete.txt SIGECO 10K FOR YEAR ENDED 12-31-2002 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002 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: 1-3553 SOUTHERN INDIANA GAS AND ELECTRIC COMPANY ----------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) INDIANA 35-0672570 - ---------------------------- --------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 20 N.W. Fourth Street, Evansville, Indiana 47708 - --------------------------------------------- ------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 812-491-4000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered - ----------------------------- ------------------------------------------- None None Securities registered pursuant to Section 12(g) of the Act: Title of each class Name of each exchange on which registered - ----------------------------- ----------------------------------------- None None 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |X| Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ___. No |X|. The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of June 28, 2002 was zero. All shares outstanding of the Registrant's common stock were held by Vectren Corporation through its wholly owned subsidiary, Vectren Utility Holdings, Inc. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Common Stock-Without Par Value 20,785,007 March 15, 2003 ------------------------------- ---------- -------------- Class Number of Shares Date Omission of Information by Certain Wholly Owned Subsidiaries The Registrant is a wholly owned subsidiary of Vectren Utility Holdings, Inc. and meets the conditions set forth in General Instructions (I)(1)(a) and (b) of Form 10-K and is therefore filing with the reduced disclosure format contemplated thereby.
Definitions AFUDC: allowance for funds used Mva: megavolt amperes during construction APB: Accounting Principles Board MW: megawatts EITF: Emerging Issues Task Force GWh: millions of megawatt hours (gigawatt hour) FASB: Financial Accounting Standards Board NOx: nitrogen oxide IURC: Indiana Utility Regulatory Commission OUCC: Indiana Office of the Utility Consumer Counselor MCF / BCF: millions / billions of cubic feet SFAS: Statement of Financial Accounting Standards MMDth: millions of dekatherms USEPA: United States Environmental Protection Agency MMBTU: millions of British thermal units Throughput: combined gas sales and gas transportation volumes
Table of Contents Item Page Number Number Part I 1 Business (A) .................................................... 1 2 Properties ...................................................... 1 3 Legal Proceedings................................................ 2 4 Submission of Matters to Vote of Security Holders (A)............ 2 Part II 5 Market for the Company's Common Equity and Related Stockholder Matters ........................................... 2 6 Selected Financial Data (A)...................................... 3 7 Management's Discussion and Analysis of Results of Operations and Financial Condition (A)......................... 3 7A Qualitative and Quantitative Disclosures About Market Risk.............................................. 12 8 Financial Statements and Supplementary Data...................... 14 9 Change in and Disagreements with Accountants on Accounting and Financial Disclosure............................ 45 Part III 10 Directors and Executive Officers of the Company (A).............. 45 11 Executive Compensation (A)....................................... 45 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. (A)................ 45 13 Certain Relationships and Related Transactions (A)............... 45 Part IV 14 Controls and Procedures.......................................... 45 15 Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................................... 46 Signatures....................................................... 48 Certifications................................................... 49 (A) - Omitted or amended as the Registrant is a wholly-owned subsidiary of Vectren Utility Holdings, Inc. and meets the conditions set forth in General Instructions (I)(1)(a) and (b) of Form 10-K and is therefore filing with the reduced disclosure format contemplated thereby. 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 47702-0209 Vice President, Investor Relations Sschein@vectren.com PART I ITEM 1. BUSINESS Description of the Business Southern Indiana Gas and Electric Company (the Company or SIGECO), an Indiana corporation, provides electric generation, transmission, and distribution services to 8 counties in southwestern Indiana, including counties surrounding Evansville, and participates in the wholesale power market. The Company also provides natural gas distribution and transportation services to 10 counties in southwestern Indiana, including counties surrounding Evansville. SIGECO is a direct subsidiary of Vectren Utility Holdings, Inc. (VUHI). VUHI is a direct, wholly owned subsidiary of Vectren Corporation (Vectren). Vectren, an Indiana corporation, is an energy and applied technology holding company headquartered in Evansville, Indiana. Vectren was organized on June 10, 1999 solely for the purpose of effecting the merger of Indiana Energy, Inc. (Indiana Energy) and SIGCORP, Inc. (SIGCORP). On March 31, 2000, the merger of Indiana Energy with SIGCORP and into Vectren was consummated with a tax-free exchange of shares and has been accounted for as a pooling-of-interests in accordance with APB Opinion No. 16 "Business Combinations." Vectren's wholly owned subsidiary, VUHI, serves as the intermediate holding company for its three operating public utilities: Indiana Gas Company, Inc. (Indiana Gas), formerly a wholly owned subsidiary of Indiana Energy, SIGECO, formerly a wholly owned subsidiary of SIGCORP, and the Ohio operations, a utility jointly owned by Indiana Gas and Vectren Energy Delivery of Ohio, Inc. (VEDO). 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. The narrative description of the business, competition and personnel sections were intentionally omitted. See the table of contents of this Annual Report on Form 10-K for explanation. ITEM 2. PROPERTIES Electric Utility Services SIGECO's installed generating capacity as of December 31, 2002, was rated at 1,351 MW. SIGECO's coal-fired generating facilities are: the Brown Station with 500 MW of capacity, located in Posey County approximately eight miles east of Mt. Vernon, Indiana; the Culley Station with 406 MW of capacity, and Warrick Unit 4 with 150 MW of capacity. Both the Culley and Warrick Stations are located in Warrick County near Yankeetown, Indiana. SIGECO's gas-fired turbine peaking units are: the 80 MW Brown 3 Gas Turbine located at the Brown Station; two Broadway Avenue Gas Turbines located in Evansville, Indiana with a combined capacity of 115 MW (Broadway Avenue Unit 1, 50MW and Broadway Avenue Unit 2, 65MW); two Northeast Gas Turbines located northeast of Evansville in Vanderburgh County, Indiana with a combined capacity of 20 MW; and a new 80MW turbine also located at the Brown station (Brown Unit 4) placed into service in 2002. The Brown Unit 3 and Broadway Avenue Unit 2 turbines are also equipped to burn oil. Total capacity of SIGECO's six gas turbines is 295 MW, and they are generally used only for reserve, peaking, or emergency purposes due to the higher per unit cost of generation. SIGECO's transmission system consists of 829 circuit miles of 138,000 and 69,000 volt lines. The transmission system also includes 27 substations with an installed capacity of 4,221.2 megavolt amperes (Mva). The electric distribution system includes 3,212 pole miles of lower voltage overhead lines and 275 trench miles of conduit containing 1,541 miles of underground distribution cable. The distribution system also includes 95 distribution substations with an installed capacity of 1,939.5 Mva and 50,030 distribution transformers with an installed capacity of 2,352.3 Mva. SIGECO owns utility property outside of Indiana approximating eight miles of 138,000 volt electric transmission line which is located in Kentucky and which interconnects with Louisville Gas and Electric Company's transmission system at Cloverport, Kentucky. Gas Utility Services The Company owns and operates three underground gas storage fields located in Indiana covering 6,070 acres of land with an estimated ready delivery from storage capability of 8.7 BCF of gas with delivery capabilities of 124,748 MCF per day. In addition to its owned storage and daily delivery capabilities, the Company contracts for a maximum of 0.5 BCF of gas availability across various pipelines with a delivery capability of 18,753 MCF per day. The Company's gas delivery system includes 2,996 miles of distribution and transmission mains, all of which are located in Indiana. Property Serving as Collateral The Company's properties are subject to the lien of the First Mortgage Indenture dated as of April 1, 1932 between the Company and Bankers Trust Company, as Trustee, and Deutsche Bank, as successor Trustee, as supplemented by various supplemental indentures. ITEM 3. 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. See Note 10 of its financial statements included in Item 8 Financial Statements and Supplementary Data regarding the Clean Air Act and related legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS Intentionally omitted. See the table of contents of this Annual Report on Form 10-K for explanation. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Market Price All of the outstanding shares of the Company's common stock are owned by VUHI at December 31, 2002. The Company's common stock is not publicly traded. As of December 31, 2002, there are no outstanding options or warrants to purchase the Company's common stock or securities convertible into the Company's common stock. Additionally, the Company has no plans to publicly offer any of its common equity. Dividends Paid to Parent During 2002, the Company paid dividends to its parent company of $10.3 million, $11.6 million, $11.6 million, and $11.6 million in the first, second, third, and fourth quarters, respectively. During 2001, the Company paid dividends to its parent company of $8.6 million, $7.7 million, $7.7 million, and $14.9 million in the first, second, third, and fourth quarters, respectively. On January 29, 2003, the board of directors declared a dividend of $10.9 million, payable to its parent company on March 1, 2003. Dividends on shares of common stock are payable at the discretion of the board of directors out of legally available funds. Future payments of dividends, and the amounts of these dividends, will depend on the Company's financial condition, results of operations, capital requirements, and other factors. ITEM 6. SELECTED FINANCIAL DATA Intentionally omitted. See the table of contents of this Annual Report on Form 10-K for explanation. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Pursuant to General Instructions I(2)(a) of Form 10-K, the following analysis of the results of operations is presented in lieu of Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis should be read in conjunction with the financial statements and notes thereto. As discussed in Note 3 in the financial statements, subsequent to the issuance of the Company's 2001 financial statements, the Company's management determined that previously issued financial statements should be restated. As a result, the Company has restated its 2001 and 2000 financial statements and has increased reported retained earnings as of January 1, 2000 by $2.9 million. The restatement had the effect of decreasing net income for 2001 and 2000 by approximately $1.8 million and $0.7 million, respectively. Note 3 to the financial statements includes a summary of the significant effects of the restatement. The effect of the restatement on quarterly results, including previously reported 2002 quarterly information, is discussed in Note 3 and Note 17. The following discussion and analysis gives effect to the restatement. Results of Operations In 2002, net income applicable to common shareholder was $59.3 million, an increase of $18.6 million when compared to 2001, as restated. The year ended December 31, 2001 included nonrecurring merger, integration, and restructuring costs and other nonrecurring items totaling $4.0 million after tax. In addition to the nonrecurring 2001 items, the increase reflects improved margins and lower operating costs. These resulted from favorable weather and a return to lower gas prices and the related reduction in costs incurred in 2001. In 2001, net income applicable to common shareholder was $40.7 million. Net income applicable to common shareholder increased $1.3 million due primarily to lower nonrecurring items incurred in 2001 compared to 2000. Nonrecurring merger and integration costs in 2000 totaled $11.0 million after tax. Before non- recurring items, net income applicable to common shareholders decreased $5.7 million primarily due to extra- ordinarily high gas costs early in 2001 that unfavorably impacted margins and operating costs including uncollectible accounts expense and interest; heating weather that was 10% warmer than the prior year; and decreased margin from firm and non-firm wholesale customers, reflecting a weakened national economy. Restatement of Previously Reported Results The Company identified adjustments that, in the aggregate, reduced previously reported 2001 earnings by approximately $1.8 million after tax, decreased previously reported 2000 results by approximately $0.7 million after tax, and increased retained earnings as of January 1, 2000 by $2.9 million after tax. Adjustments were also made to previously reported 2002 quarterly results. In addition to adjustments affecting previously reported net income, other reclassifications were made to the previously reported 2001 and 2000 results to conform with the 2002 presentation. Previously Reported 2001 and 2000 Net Income Adjustments The Company determined that $3.3 million ($2.0 million after tax) of gas costs were improperly recorded as recoverable gas costs due from customers. The error related primarily to the accounting for natural gas inventory and resulted in an overstatement of 2001 earnings. The Company also identified an accounting error related to certain employee benefit and other related costs that are routinely accumulated on the balance sheet and systematically cleared to operating expense and capital projects. Because of inadequate loading rates, these costs were not fully cleared to operating expense and capital projects in 2001. As a result, 2001 earnings were overstated by $1.5 million ($0.9 million after tax). The accounting for certain wholesale power marketing contracts was modified to comply with SFAS 133, which became effective on January 1, 2001. The cumulative effect at adoption was decreased by $2.8 million after tax. This change was offset substantially by an increase in electric margins throughout 2001. Originally reflected in 2001, the Company also reflected a correction of the year 2000 overstatement of electric revenue totaling $2.4 million ($1.5 million after tax), now reflected in 2000 as discussed below. The Company identified other reconciliation errors and other errors related to the recording of estimates that were not significant, either individually or in the aggregate. As a result of these additional items, 2001 earnings were reduced by $0.6 million ($0.4 million after tax). The Company also determined that certain billings and collections had been improperly recorded in 2000, resulting in an overstatement of electric revenue by $2.4 million ($1.5 million after tax). Other errors were identified that increased 2000 earnings by $1.3 million ($0.8 million after tax). The impact of the restatement of results for the year ended 2000 is a reduction to pre-tax income and net income of $1.1 million and $0.7 million, respectively. Previously Reported 2002 Quarterly Net Income Adjustments As previously reported, in the second quarter of 2002 the Company recorded $5.2 million ($3.2 million after tax) of carrying costs for DSM programs pursuant to existing IURC orders and based on an improved regulatory environment. During the audit of the three years ended December 31, 2002, management determined that the accrual of such carrying costs was more appropriate in periods prior to 2000 when DSM program expenditures were made. Therefore, such carrying costs originally reflected in 2002 quarterly results were reversed and reflected in common shareholder's equity as of January 1, 2000. In addition, the Company identified other adjustments that were not significant, either individually or in the aggregate that increased previously reported 2002 quarterly pre-tax and after tax earnings by approximately $0.2 million and $0.1 million after tax, respectively. The cumulative impact from these adjustments reduced previously reported earnings for the nine months ended September 30, 2002 by approximately $3.3 million. Beginning Retained Earnings Adjustments In addition to the adjustment of DSM costs above, the Company identified other errors that were not significant, either individually or in the aggregate that relate to years prior to 2000 resulting in a cumulative net increase of $2.9 million in retained earnings as of January 1, 2000. Other Balance Sheet Adjustments Certain reclassifications were made to reflect separate Company current and deferred income taxes are included in Vectren's consolidated tax position. These reclassifications are the principal adjustments to intercompany receivables and payables as well as prepayments and other current assets and deferred income taxes. The Company also reclassified all previously recorded goodwill not included in rates to goodwill on the balance sheet. This adjustment resulted in a $5.6 million decrease in other assets and a corresponding increase in goodwill. The Company has restated its financial statements to give effect to the matters discussed above. A summary of the significant effects of the restatement on previously reported financial position and results of operations is included in Note 3 to the financial statements. The effects of the restatement on 2001 quarterly results and on 2002 previously reported quarterly information, is discussed in Note 17. The financial statements are included under Item 8 Financial Statements and Supplementary Data. Nonrecurring Items in 2001 and 2000 Merger and Integration Costs Merger and integration costs incurred for the years ended December 31, 2001 and 2000 were $0.6 million ($0.4 million after tax) and $14.1 million ($11.0 million after tax), respectively. Merger and integration activities resulting from the 2000 merger were completed in 2001. Since March 31, 2000, $14.7 million has been expensed associated with merger and integration activities. Accruals were established at March 31, 2000 totaling $7.4 million. Of this amount, $0.7 million related to employee and executive severance costs and $6.7 million related to transaction costs and regulatory filing fees incurred prior to the closing of the merger. At December 31, 2001, no accrual remains. The remaining $7.3 million was expensed ($6.7 million in 2000 and $0.6 million in 2001) for accounting fees resulting from merger related filing requirements, consulting fees related to integration activities such as organization structure, employee travel between company locations, internal labor of employees assigned to integration teams, investor relations communication activities, and certain benefit costs. The integration activities experienced by the Company included such things as information system consolidation, process review and definition, organization design and consolidation, and knowledge sharing. Restructuring Costs As part of continued cost saving efforts, in June 2001, Vectren's management and board of directors approved a plan to restructure, primarily, its regulated operations. The restructuring plan included the elimination of certain administrative and supervisory positions in its utility operations and corporate office. Charges of $4.3 million were expensed in June 2001 as a direct result of the restructuring plan. Additional charges of $1.5 million were incurred during the remainder of 2001 primarily related to consulting fees and employee relocation costs. In total, the Company has incurred restructuring charges of $5.8 million, ($3.6 million after tax). These charges were comprised of $4.4 million for employee severance, related benefits and other employee related costs and $1.4 million for consulting and other fees incurred through December 31, 2001. The restructuring program was completed during 2001, except for the departure of certain employees impacted by the restructuring which occurred during 2002. (See Note 15 for further information on restructuring costs.) Cumulative Effect of Change in Accounting Principle Resulting from the adoption of SFAS 133, certain contracts in the power marketing operations that are periodically settled net were required to be recorded at market value. Previously, the Company accounted for these contracts on settlement. The cumulative impact of the adoption of SFAS 133 resulting from marking these contracts to market on January 1, 2001 was an earnings gain of approximately $1.8 million ($1.1 million after tax) recorded as a cumulative effect of change in accounting principle in the Statements of Income. Loss on extinguishment of preferred stock In September 2001, the Company notified holders of its 4.80%, 4.75%, and 6.50% preferred stock of its intention to redeem the shares. The 4.80% preferred stock was redeemed at $110.00 per share, plus $1.35 per share in accrued and unpaid dividends. Prior to the redemption, there were 85,519 shares outstanding. The 4.75% preferred stock was redeemed at $101.00 per share, plus $0.97 per share in accrued and unpaid dividends. Prior to the redemption, there were 3,000 shares outstanding. The 6.50% preferred stock was redeemed at $104.23 per share, plus $0.73 per share in accrued and unpaid dividends. Prior to the redemption, there were 75,000 shares outstanding. The total redemption price was $17.7 million and the loss on redemption totaled $1.2 million. Significant Fluctuations Utility Margin Electric Utility Margin Electric Utility margin by customer type and non-firm wholesale margin separated between realized margin and mark-to-market gains and losses follows:
Year ended December 31, - -------------------------------------------------------------------------------- In millions 2002 2001 2000 - -------------------------------------------------------------------------------- Retail & firm wholesale $ 215.3 $ 200.0 $ 201.2 Non-firm wholesale 14.9 19.9 21.1 - -------------------------------------------------------------------------------- Total margin $ 230.2 $ 219.9 $ 222.3 ================================================================================ Non-firm wholesale margin: Realized margin $ 18.5 $ 18.4 $ 21.1 Mark-to-market gains (losses) (3.6) 1.5 -
Electric Utility margin for the year ended December 31, 2002 increased $10.3 million, or 5%, when compared to 2001. The increases result primarily from the effect on retail sales of cooling weather considerably warmer than the prior year. Weather in 2002 was 27% warmer when compared to 2001 and 23% warmer than normal. In addition to weather, 2002 was positively affected by a cash return on NOx compliance expenditures as the expenditures are made pursuant to a rate recovery rider approved by the IURC in August 2001. As a result of warmer weather, retail and firm wholesale volumes sold increased from 5.8 GWh in 2001 to 6.2 GWh in 2002. Volumes sold in 2000 were 5.9 GWh. The current year increase in margin from retail sales was partially offset by lower margins earned in the wholesale energy market. Electric Utility margin for the year ended December 31, 2001 decreased $2.4 million, or 1%, compared to 2000 primarily from decreased sales to firm wholesale customers and decreased margin on non-firm wholesale activity. The decreases were partially offset by a 3% increase in residential and commercial sales due to cooling weather 7% warmer than the prior year and a 3% increase in the number of residential and commercial customers. Periodically, generation capacity is in excess of that needed to serve retail and firm wholesale customers. The Company markets this unutilized capacity to optimize the return on its owned generation assets. The contracts entered into are primarily short-term purchase and sale transactions that expose the Company to limited market risk. While volumes both sold and purchased in the wholesale market have increased during 2002, margins softened as a result of reduced price volatility. As a result of increased activity offset by reduced price volatility, margin from power marketing activities decreased $5.0 million during 2002 and $1.2 million during 2001. In 2002, volumes sold into the wholesale market were 10.7 GWh compared to 3.4 GWh in 2001 and 1.6 GWh in 2000. Volumes purchased from the wholesale market, some of which were utilized to serve retail and firm wholesale customers, were 10.3 GWh in 2002 compared to 2.9 GWh in 2001 and 1.2 GWh in 2000. Gas Utility Margin Gas Utility margin for the year ended December 31, 2002 of $32.4 million increased $6.5 million. The increase is primarily due to weather 4% cooler for the year and 26% cooler in the fourth quarter and customer growth of almost 1%. The Company's total throughput was 32.0 MMDth in 2002, 31.9 MMDth in 2001, and 35.6 MMDth in 2000. The change in throughput between 2002 and 2001 reflects a 10% increase in retail and commercial volumes sold offset by a decrease in contract volumes that primarily represent transported volumes. Gas Utility margin for the year ended December 31, 2001 of $25.9 million decreased $4.4 million, compared to 2000. The primary factors contributing to this decrease were weather that was 10% warmer than the prior year and the unfavorable impact resulting from extraordinarily high gas costs early in 2001, coupled with the effects of a weakened economy. Cost of gas sold was $53.1 million in 2002, $72.7 million in 2001, and $78.9 million in 2000. Cost of gas sold decreased $19.6 million, or 27%, during 2002 compared to 2001, primarily due to a return to lower gas prices somewhat offset by an increase in retail volumes sold. Cost of gas sold decreased $6.2 million, or 8%, in 2001. The decrease is primarily due to lower volumes sold due to the warmer weather, a weakened economy, and lower gas prices. The total average cost per dekatherm of gas purchased was $4.20 in 2002, $5.20 in 2001, and $5.46 in 2000. The price changes are due primarily to changing commodity costs in the marketplace. Operating Expenses Other Operating Other operating expenses decreased $4.1 million for the year ended December 31, 2002 when compared to 2001. The decrease results primarily from insurance recovery in 2002 of certain maintenance costs incurred in 2001, a return to lower gas prices, and the related reduction in costs incurred in 2001. Specific expenses affected by increased gas costs in 2001 were uncollectible accounts expense and contributions to low income heating assistance programs. Depreciation and Amortization Depreciation and amortization increased $1.8 million for the year ended December 31, 2002 when compared to 2001. The increase results primarily from the depreciation of additions to plant assets including an 80 MW gas turbine placed into service in June 2002. Depreciation and amortization for 2001 was comparable to 2000. Taxes Other Than Income Taxes Taxes other than income taxes decreased $1.3 million in 2002 compared to 2001 as a result of lower revenues subject to gross receipts tax and were basically unchanged in 2001 compared to 2000. Interest Expense Interest expense increased $2.2 million in 2002 compared to 2001. The increase is attributable to higher outstanding borrowings during 2002 due to the funding of NOx expenditures with short-term borrowing. Interest expense increased $1.0 million during the 2001 compared to 2000. The increase is due primarily to increased working capital requirements resulting from higher natural gas prices. Income Tax Federal and state income taxes increased $9.0 million in 2002 compared to 2001 and decreased $2.8 million in 2001 compared to 2000. The changes in income taxes result principally from fluctuations in pre-tax earnings. The effective tax rate in 2000 was higher due to the nondeductibility of certain merger and integration costs. Critical Accounting Policies Management is required to make judgements, assumptions, and estimates that affect the amounts reported in the financial statements and the related disclosures that conform to accounting principles generally accepted in the United States. Note 2 to the financial statements describes the significant accounting policies and methods used in the preparation of the financial statements. Certain estimates used in the financial statements are subjective and use variables that require judgement. These include the estimates to perform goodwill asset impairment tests. The Company makes other estimates in the course of accounting for unbilled revenue, the effects of regulation, and intercompany allocations that are critical to the Company's financial results but that are less likely to be impacted by near term changes. Other estimates that significantly affect the Company's results, but are not necessarily critical to operations, include depreciation of utility plant, the valuation of derivative contracts and the allowance for doubtful accounts, among others. Actual results could differ from these estimates. Goodwill Pursuant to SFAS No. 142, the Company performed an initial impairment analysis of its goodwill, all of which resides in the Gas Utility Services operating segment. Also consistent with SFAS 142, goodwill is tested for impairment annually at the beginning of the year and more frequently if events or circumstances indicate that an impairment loss has been incurred. Impairment tests are performed at the reporting unit level which the Company has determined to be consistent with its Gas Utility Services operating segment as identified in Note 14 to the financial statements. An impairment test performed in accordance with SFAS 142 requires that a reporting unit's fair value be estimated. The Company used a discounted cash flow model to estimate the fair value of its Gas Utility Services operating segment, and that estimated fair value was compared to its carrying amount, including goodwill. The estimated fair value was in excess of the carrying amount and therefore resulted in no impairment. Estimating fair value using a discounted cash flow model is subjective and requires significant judgement in applying a discount rate, growth assumptions, company expense allocations, and longevity of cash flows. A 100 basis point increase in the discount rate utilized to calculate the Gas Utility Services segment's fair value also results in no impairment charge. Unbilled Revenues To more closely match revenues and expenses, the Company records revenues for all gas and electricity delivered to customers but not billed at the end of the accounting period. The Company uses actual units billed during the month to allocate unbilled units. Those allocated units are multiplied by rates in effect during the month to calculate unbilled revenue at balance sheet dates. While certain estimates are used in the calculation of unbilled revenue, these estimates are not subject to near term changes. Regulation At each reporting date, the Company reviews current regulatory trends in the markets in which it operates. This review involves judgement and is critical in assessing the recoverability of regulatory assets as well as the ability to continue to account for its activities based on the criteria set forth in SFAS No. 71 "Accounting for the Effects of Certain Types of Regulation" (SFAS 71). Based on the Company's current review, it believes its regulatory assets are probable of recovery. If all or part of the Company's operations cease to meet the criteria of SFAS 71, a write-off of related regulatory assets and liabilities could be required. In addition, the Company would be required to determine any impairment to the carrying value of its utility plant and other regulated assets. In the unlikely event of a change in the current regulatory environment, such write-offs and impairment charges could be significant. Intercompany Allocations Support Services Vectren and certain subsidiaries of Vectren provided corporate and general and administrative services to the Company including legal, finance, tax, risk management, and 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 allocators, primarily number of employees, number of customers and/or revenues. Allocations are based on cost. Management believes that the allocation methodology is reasonable and approximates the costs that would have been incurred had the Company secured those services on a stand-alone basis. In addition, Vectren negotiates service and construction contracts on behalf of its utilities to obtain those services at less cost than the utility may otherwise be able to obtain on its own. The allocation methodology is not subject to near term changes. Pension and Other Postretirement Obligations Vectren satisfies the future funding requirements of its pension and other postretirement plans and the payment of benefits from general corporate assets. An allocation of expense is determined by Vectren's actuaries, comprised of only service cost and interest on that service cost, by subsidiary based on headcount at each measurement date. These costs are directly charged to individual subsidiaries. Other components of costs (such as interest cost from prior service and asset returns) are charged to individual subsidiaries through the corporate allocation process discussed above. Plan assets nor the FAS 87/106 liability is allocated to individual subsidiaries since these assets and obligations are derived from corporate level decisions. Further, Vectren satisfies the future funding requirements of plans and the payment of benefits from general corporate assets. Management believes these direct charges when combined with benefit-related corporate charges discussed in "support services" above approximate costs that would have been incurred if the Company accounted for benefit plans on a stand-alone basis. Vectren annually measures its obligations on September 30. Vectren estimates the expected return on plan assets, discount rate, rate of compensation increase, and future health care costs, among other things, and relies on actuarial estimates to assess the future potential liability and funding requirements of pension and postretirement plans. Vectren used the following weighted average assumptions to develop 2002 annual costs and the ending benefit obligations recognized in its consolidated financial statements: a discount rate of 6.75%, an expected return on plan assets before expenses of 9.00%, a rate of compensation increase of 4.25%, and a health care cost trend rate of 10% in 2002 declining to 5% in 2006. During 2002, Vectren reduced the discount rate and rate of compensation increase by 50 basis points from those assumptions used in 2001 due to the general decline in interest rates and other market conditions that occurred in 2002. Future changes in health care costs, work force demographics, interest rates, or plan changes could significantly affect the estimated cost of these future benefits that are allocated to the Company. Impact of Recently Issued Accounting Guidance EITF 02-03 In October 2002, the EITF reached a final consensus in EITF Issue 02-03 "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities" (EITF 02-03) that gains and losses (realized and unrealized) on all derivative instruments within the scope of SFAS 133 should be shown net in the income statement, whether or not settled physically, if the derivative instruments are held for "trading purposes." The consensus rescinded EITF Issue 98-10 "Accounting for Contracts Involved in Energy Trading and Risk Management Activities" (EITF 98-10) as well as other decisions reached on energy trading contracts at the EITF's June 2002 meeting. The Company's non-firm wholesale power marketing operations enter into contracts that are derivatives as defined by SFAS 133, but these operations do not meet the definition of energy trading activities based upon the provisions in EITF 98-10. Currently, the Company uses a gross presentation to report the results of these operations as described in Note 12 of the financial statements. The Company has re-evaluated its portfolio of derivative contracts and has determined gross presentation remains appropriate. SFAS 143 In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" (SFAS 143). SFAS 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. Any costs of removal recorded in accumulated depreciation pursuant to regulatory authority will require disclosure in future periods. The Company adopted this statement on January 1, 2003. The adoption was not material to the Company's results of operations or financial condition. FASB Interpretation (FIN) 45 In November 2002, the FASB issued Interpretation 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN 45). FIN 45 clarifies the requirements for a guarantor's accounting for and disclosure of certain guarantees issued and outstanding and that a guarantor is required to recognize, at the inception of a guarantee, a liability for the obligations it has undertaken. The objective of the initial measurement of that liability is the fair value of the guarantee at its inception. The initial recognition and measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. Although management is still evaluating the impact of FIN 45 on its financial position and results of operations, the adoption is not expected to have a material effect. FIN 46 In January 2003, the FASB issued Interpretation 46, "Consolidation of Variable Interest Entities" (FIN 46). FIN 46 addresses consolidation by business enterprises of variable interest entities and significantly changes the consolidation requirements for those entities. FIN 46 is intended to achieve more consistent application of consolidation policies to variable interest entities and, thus improves comparability between enterprises engaged in similar activities when those activities are conducted through variable interest entities. FIN 46 applies to variable interest entities created after January 31, 2003 and to variable interest entities in which an enterprise obtains an interest after that date. FIN 46 applies to the Company's third quarter for variable interest entities in which the Company holds a variable interest acquired before February 1, 2003. Although management is still evaluating the impact of FIN 46 on its financial position and results of operations, the adoption is not expected to have a material effect. 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, including, but not limited to Vectren's realization of net merger savings, 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: |X| 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. |X| Increased competition in the energy environment including effects of industry restructuring and unbundling. |X| 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. |X| 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 natural gas transmission, gathering and processing, and similar entities with regulatory oversight. |X| Economic conditions including the effects of an economic downturn, inflation rates, and monetary fluctuations. |X| 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. |X| Availability or cost of capital, resulting from changes in the Company, including its security ratings, changes in interest rates, and/or changes in market perceptions of the utility industry and other energy-related industries. |X| Employee workforce factors including changes in key executives, collective bargaining agreements with union employees, or work stoppages. |X| Legal and regulatory delays and other obstacles associated with mergers, acquisitions, and investments in joint ventures. |X| Costs and other effects of legal and administrative proceedings, settlements, investigations, claims, and other matters. |X| 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 7A. QUALITATIVE AND QUANTITATIVE 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 to mitigate risk. The Company also executes derivative contracts in the normal course of operations while buying and selling commodities and other fungible goods to be used in operations and while optimizing generation assets. The Company does not execute derivative contracts for speculative or trading purposes. Commodity Price Risk The Company's operations have limited exposure to commodity price risk for purchases and sales of natural gas and electricity for retail customers due to current Indiana regulations, which subject to compliance with those regulations, allow for recovery of such purchases through natural gas and fuel cost adjustment mechanisms. Electric sales and purchases in the wholesale power market and other commodity-related operations are exposed to commodity price risk associated with fluctuating electric power and other commodity prices. Other commodity operations include sales of electricity to certain municipalities and large industrial customers. The Company's non-firm wholesale power marketing operations manage the utilization of its available electric generating capacity by entering into forward and option contracts that commit the Company to purchase and sell electricity in the future. Commodity price risk results from forward positions that commit the Company to deliver electricity. The Company mitigates price risk exposure with planned unutilized generation capability and offsetting forward purchase contracts. The Company's other commodity-related operations involve the purchase and sale of commodities, including electricity, to meet customer demands and operational needs. These operations also enter into forward contracts that commit the Company to purchase and sell commodities in the future. Price risk from forward positions that commit the Company to deliver commodities is mitigated using insurance contracts and offsetting forward purchase contracts. Open positions in terms of price, volume, and specified delivery points may occur and are managed using methods described above and frequent management reporting. Market risk is measured by management as the potential impact on pre-tax earnings resulting from a 10% adverse change in the forward price of commodity prices on outstanding market sensitive financial instruments (all contracts not expected to be settled by physical receipt or delivery). For the years ended December 31, 2002 and 2001, a 10% adverse change in commodity forward prices on market sensitive financial instruments would have decreased pre-tax earnings by approximately $1.5 million and $2.0 million, respectively. Interest Rate Risk The Company is exposed to interest rate risk associated with its adjustable rate borrowing arrangements. Its risk management program seeks to reduce the potentially adverse effects that market volatility may have on operations. The Company tries to limit the amount of adjustable rate borrowing arrangements exposed to short-term interest rate volatility to a maximum of 25% of total debt. However, there are times when this targeted level of interest rate exposure may be exceeded. At December 31, 2002, such obligations represented 10% of the Company's total debt portfolio. To manage this exposure, the Company may periodically use derivative financial instruments to reduce earnings fluctuations caused by interest rate volatility. Market risk is estimated as the potential impact resulting from fluctuations in interest rates on adjustable rate borrowing arrangements exposed to short-term interest rate volatility including bank notes, lines of credit, commercial paper, and certain adjustable rate long-term debt instruments. At December 31, 2002 and 2001, the combined borrowings under these facilities totaled $61.9 million and $104.0 million, respectively. Based upon average borrowing rates under these facilities during the years ended December 31, 2002 and 2001, an increase of 100 basis points (1%) in the rates would have increased interest expense by $0.9 million and $0.7 million, respectively. Other Risks By using forward purchase contracts and derivative financial instruments to manage risk, the Company exposes itself to counter-party credit risk and market risk. The Company manages exposure to counter-party credit risk by entering into contracts with companies that can be reasonably expected to fully perform under the terms of the contract. Counter-party credit risk is monitored regularly and positions are adjusted appropriately to manage risk. Further, tools such as netting arrangements and requests for collateral are also used to manage credit risk. Market risk is the adverse effect on the value of a financial instrument that results from a change in commodity prices or interest rates. The Company attempts to manage exposure to market risk associated with commodity contracts and interest rates by establishing parameters and monitoring those parameters that limit the types and degree of market risk that may be undertaken. The Company's customer receivables from gas and electric sales and gas transportation services are primarily derived from a diversified base of residential, commercial, and industrial customers located in Indiana. The Company manages credit risk associated with its receivables by continually reviewing creditworthiness and requests cash deposits or refunds cash deposits based on that review. Although the Company's operations are exposed to limited commodity price risk, volatile natural gas prices can result in higher working capital requirements; increased expenses including unrecoverable interest costs, uncollectible accounts expense, and unaccounted for gas; and some level of price sensitive reduction in volumes sold. ITEM 8. Financial Statements and Supplementary Data MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS The management of Southern Indiana Gas and Electric Company (SIGECO) is responsible for the preparation of the financial statements and the related financial data contained in this report. The financial statements are prepared in conformity with accounting principles generally accepted in the United States and follow accounting policies and principles applicable to regulated public utilities. The integrity and objectivity of the data in this report, including required estimates and judgments, is the responsibility of management. Management maintains a system of internal control and utilizes an internal auditing program to provide reasonable assurance of compliance with Company policies and procedures and the safeguard of assets. The board of directors of Vectren Corporation (Vectren), the parent company of SIGECO, pursues its responsibility for these financial statements through its audit committee, which meets periodically with management, the internal auditors and the independent auditors, to assure that each is carrying out its responsibilities. Both the internal auditors and the independent auditors meet with the audit committee of Vectren's board of directors, with and without management representatives present, to discuss the scope and results of their audits, their comments on the adequacy of internal accounting control and the quality of financial reporting. /S/ Niel C. Ellerbrook Niel C. Ellerbrook Chairman & Chief Executive Officer February 26, 2003 INDEPENDENT AUDITORS' REPORT To the Shareholder and Board of Directors of Southern Indiana Gas and Electric Company: We have audited the accompanying balance sheets of Southern Indiana Gas and Electric Company as of December 31, 2002 and 2001, and the related statements of income, common shareholder's equity and cash flows for each of the three years in the period ended December 31, 2002. Our audits also included the financial statement schedule listed in the Table of Contents at Item 15. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Southern Indiana Gas and Electric Company as of December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note 12, effective, January 1, 2001, the Company adopted SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. As discussed in Note 3, the accompanying 2001 and 2000 financial statements have been restated. /S/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Indianapolis, Indiana February 26, 2003 SOUTHERN INDIANA GAS AND ELECTRIC COMPANY BALANCE SHEETS (In thousands)
- ------------------------------------------------------------------------------------------- December 31, December 31, 2002 2001 - --------------------------------------------------- ------------- ------------- ASSETS (As Restated, See Note 3) Utility Plant Original cost $ 1,526,094 $ 1,456,805 Less: Accumulated depreciation & amortization 728,768 690,344 - ------------------------------------------------------------------------------------------- Net utility plant 797,326 766,461 - ------------------------------------------------------------------------------------------- Current Assets Cash & cash equivalents 2,145 1,556 Accounts receivable-less reserves of $3,662 & $3,188, respectively 50,454 41,811 Receivables from other Vectren companies 18,015 19,625 Accrued unbilled revenues 33,027 17,013 Inventories 39,653 37,633 Recoverable fuel & natural gas costs 9,615 22,206 Prepayments & other current assets 5,926 6,238 - ------------------------------------------------------------------------------------------- Total current assets 158,835 146,082 - ------------------------------------------------------------------------------------------- Investments in unconsolidated affiliates 150 160 Other investments 10,019 9,242 Non-utility property-net 3,568 4,386 Goodwill-net 5,557 5,557 Regulatory assets 49,859 47,465 Other assets 344 539 - ------------------------------------------------------------------------------------------- TOTAL ASSETS $ 1,025,658 $ 979,892 ===========================================================================================
The accompanying notes are an integral part of these financial statements. SOUTHERN INDIANA GAS AND ELECTRIC COMPANY BALANCE SHEETS (In thousands)
- -------------------------------------------------------------------------------------------- December 31, December 31, 2002 2001 - ---------------------------------------------------- ------------ ------------- LIABILITIES & SHAREHOLDER'S EQUITY (As Restated, See Note 3) Capitalization Common shareholder's equity Common stock (no par value) $ 103,258 $ 78,258 Retained earnings 270,181 255,942 - -------------------------------------------------------------------------------------------- Total common shareholder's equity 373,439 334,200 - -------------------------------------------------------------------------------------------- Cumulative redeemable preferred stock 344 460 Long-term debt-net of current maturities & debt subject to tender 264,238 291,702 Long-term debt due to VUHI 86,574 49,460 - -------------------------------------------------------------------------------------------- Total capitalization 724,595 675,822 - -------------------------------------------------------------------------------------------- Commitments & Contingencies (Notes 4-6) Current Liabilities Accounts payable 25,215 27,293 Accounts payable to affiliated companies 10,013 - Payables to other Vectren companies 15,211 9,924 Accrued liabilities 30,713 30,677 Short-term borrowings - 874 Short-term borrowings due to VUHI 39,419 80,664 Long-term debt subject to tender 26,640 - Current maturities of long-term debt 1,000 - - -------------------------------------------------------------------------------------------- Total current liabilities 148,211 149,432 - -------------------------------------------------------------------------------------------- Deferred Income Taxes & Other Liabilities Deferred income taxes 112,004 115,523 Deferred credits & other liabilities 40,848 39,115 - -------------------------------------------------------------------------------------------- Total deferred income taxes & other liabilities 152,852 154,638 - -------------------------------------------------------------------------------------------- TOTAL LIABILITIES & SHAREHOLDER'S EQUITY $ 1,025,658 $ 979,892 ============================================================================================
The accompanying notes are an integral part of these financial statements. SOUTHERN INDIANA GAS AND ELECTRIC COMPANY STATEMENTS OF INCOME (In thousands) Year Ended December 31, - ------------------------------------------------------------------------------- 2002 2001 2000 - ------------------------------------------------------------------------------ OPERATING REVENUES (As Restated, See Note 3) ----------------------- Electric revenues $608,116 $381,233 $334,428 Gas revenues 85,461 98,580 109,142 - ----------------------------------------------------------------------------- Total operating revenues 693,577 479,813 443,570 - ----------------------------------------------------------------------------- COST OF OPERATING REVENUES Fuel for electric generation 81,619 74,401 75,699 Purchased electric energy 296,267 86,928 36,394 Cost of gas sold 53,100 72,713 78,903 - ----------------------------------------------------------------------------- Total cost of operating revenues 430,986 234,042 190,996 - ----------------------------------------------------------------------------- TOTAL OPERATING MARGIN 262,591 245,771 252,574 OPERATING EXPENSES Other operating 97,362 104,535 102,002 Merger & integration costs - 588 14,072 Restructuring costs - 5,825 - Depreciation & amortization 45,098 43,287 43,214 Income taxes 30,637 21,648 24,425 Taxes other than income taxes 11,760 13,090 13,259 - ----------------------------------------------------------------------------- Total operating expenses 184,857 188,973 196,972 - ----------------------------------------------------------------------------- OPERATING INCOME 77,734 56,798 55,602 Other income - net 4,794 5,629 4,674 Interest expense 23,168 20,924 19,893 - ----------------------------------------------------------------------------- INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 59,360 41,503 40,383 - ----------------------------------------------------------------------------- Cumulative effect of change in accounting princIple-net of tax - 1,107 - - ----------------------------------------------------------------------------- NET INCOME 59,360 42,610 40,383 Preferred stock dividends 33 758 1,017 Loss on extinguishment of preferred stock - 1,170 - - ----------------------------------------------------------------------------- NET INCOME APPLICABLE TO COMMON SHAREHOLDER $ 59,327 $ 40,682 $ 39,366 ============================================================================= The accompanying notes are an integral part of these financial statements. SOUTHERN INDIANA GAS AND ELECTRIC COMPANY STATEMENTS OF CASH FLOWS (In thousands)
Year Ended December 31, - ---------------------------------------------------------------------------------------------- 2002 2001 2000 - ---------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES (As Restated, See Note 3) ------------------------ Net Income $ 59,360 $ 42,610 $ 40,383 Adjustments to reconcile net income to cash from operating activities: Depreciation & amortization 45,098 43,287 43,214 Deferred income taxes & investment tax credits (6,461) 467 (8,613) Net unrealized gain on derivative instruments, including cumulative effect of change in accounting principle 3,585 8,935 - Other non-cash charges- net 3,167 864 2,579 Changes in working capital accounts: Accounts receivable, including to Vectren companies & accrued unbilled revenue (24,950) 19,633 (38,752) Inventories (2,020) (6,578) 10,404 Recoverable fuel & natural gas costs 12,591 6,497 (23,118) Prepayments & other current assets (5,419) (12,054) 4,994 Accounts payable, including to Vectren companies & affiliated companies 34,332 (40,682) 43,011 Accrued liabilities (345) (18,784) 8,571 Other noncurrent assets & liabilities (3,134) 7 (16,352) - ---------------------------------------------------------------------------------------------- Net cash flows from operating activities 115,804 44,202 66,321 - ---------------------------------------------------------------------------------------------- CASH FLOWS (REQUIRED FOR) FROM FINANCING ACTIVITIES Proceeds from: Long-term debt due to VUHI 37,114 49,460 - Additional capital contribution 25,000 - - Requirements for: Dividends on common stock (45,088) (38,909) (28,639) Redemption of preferred stock (116) (17,676) (2,000) Dividends on preferred stock (33) (758) (1,017) Net change in short-term borrowings, including due to VUHI (42,119) 41,384 17,274 Proceeds from other financing activities - - 1,974 - ---------------------------------------------------------------------------------------------- Net cash flows (required for) from financing activities (25,242) 33,501 (12,408) - ---------------------------------------------------------------------------------------------- CASH FLOWS (REQUIRED FOR) INVESTING ACTIVITIES Proceeds from sale of investments and assets 1,400 - - Requirements for: Capital expenditures (89,747) (77,760) (51,119) Other investments (1,626) - (1,630) - ---------------------------------------------------------------------------------------------- Net cash flows (required for) investing activities (89,973) (77,760) (52,749) - -------------------------------------------------------------------------------------------- Net increase (decrease) in cash & cash equivalents 589 (57) 1,164 Cash & cash equivalents at beginning of period 1,556 1,613 449 - ---------------------------------------------------------------------------------------------- Cash & cash equivalents at end of period $ 2,145 $ 1,556 $ 1,613 ==============================================================================================
The accompanying notes are an integral part of these financial statements. SOUTHERN INDIANA GAS AND ELECTRIC COMPANY STATEMENTS OF COMMON SHAREHOLDER'S EQUITY (In thousands)
Common Retained Stock Earnings Total - -------------------------------------------------------------------------------------------- Balance at January 1, 2000, As Reported $ 78,258 $ 256,312 $ 334,570 Restatement adjustment - 2,923 2,923 - -------------------------------------------------------------------------------------------- Balance at January 1, 2000, As Restated 78,258 259,235 337,493 Net income & comprehensive income, As Restated 40,383 40,383 Common stock dividends (28,639) (28,639) Preferred stock dividends (1,017) (1,017) Distribution of assets to parent (9,144) (9,144) Other 317 317 - -------------------------------------------------------------------------------------------- Balance at December 31, 2000, As Restated 78,258 261,135 339,393 Net income & comprehensive income, As Restated 42,610 42,610 Common stock dividends (38,909) (38,909) Preferred stock dividends (758) (758) Distribution of assets to parent (6,966) (6,966) Loss on redemption of preferred stock (1,170) (1,170) - --------------------------------------------------------------------------------------------- Balance at December 31, 2001, As Restated 78,258 255,942 334,200 Net income & comprehensive income 59,360 59,360 Common stock: Additional capital contribution 25,000 25,000 Dividends (45,088) (45,088) Preferred stock dividends (33) (33) - --------------------------------------------------------------------------------------------- Balance at December 31, 2002 $ 103,258 $ 270,181 $ 373,439 ============================================================================================
The accompanying notes are an integral part of these financial statements. SOUTHERN INDIANA GAS AND ELECTRIC COMPANY NOTES TO THE FINANCIAL STATEMENTS 1. Organization and Nature of Operations Overview Southern Indiana Gas and Electric Company (the Company or SIGECO), an Indiana corporation, provides electric generation, transmission, and distribution services to 8 counties in southwestern Indiana, including counties surrounding Evansville, and participates in the wholesale power market. The Company also provides natural gas distribution and transportation services to 10 counties in southwestern Indiana, including counties surrounding Evansville. SIGECO is a direct subsidiary of Vectren Utility Holdings, Inc. (VUHI). VUHI is a direct, wholly owned subsidiary of Vectren Corporation (Vectren). Vectren was organized on June 10, 1999 solely for the purpose of effecting the merger of Indiana Energy, Inc. (Indiana Energy) and SIGCORP, Inc. (SIGCORP). On March 31, 2000, the merger of Indiana Energy with SIGCORP and into Vectren was consummated with a tax-free exchange of shares and has been accounted for as a pooling-of-interests in accordance with APB Opinion No. 16 "Business Combinations." Vectren's wholly owned subsidiary, VUHI, serves as the intermediate holding company for its three operating public utilities: Indiana Gas Company, Inc. (Indiana Gas), formerly a wholly owned subsidiary of Indiana Energy, SIGECO, formerly a wholly owned subsidiary of SIGCORP, and the Ohio operations, a utility jointly owned by Indiana Gas and Vectren Energy Delivery of Ohio, Inc. (VEDO). 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. 2. Summary of Significant Accounting Policies A. Cash and Cash Equivalents All highly liquid investments with an original maturity of three months or less at the date of purchase are considered cash equivalents. Cash paid during the periods reported for interest and income taxes follows: Year Ended December 31, - ------------------------------------------------------------ In thousands 2002 2001 2000 - ------------------------------------------------------------ Cash paid during the year for Interest (net of amount capitalized) $ 20,598 $18,992 $17,506 Income taxes 41,441 47,960 21,627 - ------------------------------------------------------------ B. Inventories Inventories consist of the following: At December 31, - ---------------------------------------------------------------------------- In thousands 2002 2001 - ---------------------------------------------------------------------------- Materials & supplies $ 15,836 $16,304 Gas in storage - at LIFO cost 12,880 10,542 Fuel (coal and oil) for electric generation 10,030 9,513 Emission allowances 907 1,274 - ---------------------------------------------------------------------------- Total inventories $ 39,653 $37,633 ============================================================================ Based on the average cost of gas purchased during December, the cost of replacing gas in storage carried at LIFO cost exceeded LIFO cost at December 31, 2002 and 2001 by approximately $19.0 million and $15.8 million, respectively. All other inventories are carried at average cost. C. Utility Plant and Depreciation Utility plant is stated at historical cost, including AFUDC. Depreciation of utility plant is provided using the straight-line method over the estimated service lives of the depreciable assets. The original cost of utility plant, together with depreciation rates expressed as a percentage of original cost, follows:
At & For the Year Ended December 31, - ----------------------------------------------------------------------------------------------- In thousands 2002 2001 - -------------------------------- ------------------------------ ----------------------------- Depreciation Depreciation Rates as a Rates as a Percent of Percent of Original Cost Original Cost Original Cost Original Cost - ----------------------------------------------------------------------------------------------- Electric utility plant $1,211,036 2.9% $ 1,148,887 3.3% Gas utility plant 164,510 3.3% 155,051 3.0% Common utility plant 41,621 2.6% 41,197 2.6% Construction work in progress 108,927 - 111,670 - - ----------------------------------------------------------------------------------------------- Total original cost $1,526,094 $ 1,456,805 ===============================================================================================
AFUDC represents the cost of borrowed and equity funds used for construction purposes and is charged to construction work in progress during the construction period and is included in other - net in the Statements of Income. The total AFUDC capitalized into utility plant and the portion of which was computed on borrowed and equity funds for all periods reported follows:
Year Ended December 31, - ------------------------------------------------------------------------------- In thousands 2002 2001 2000 - ------------------------------------------------------------------------------- AFUDC - equity funds $ 1,746 $ 1,653 $ 2,051 AFUDC - borrowed funds 1,933 1,371 1,817 - ------------------------------------------------------------------------------- Total AFUDC capitalized $ 3,679 $ 3,024 $ 3,868 ===============================================================================
Maintenance and repairs, including the cost of removal of minor items of property and planned major maintenance projects, are charged to expense as incurred. When property that represents a retirement unit is replaced or removed, the cost of such property is credited to utility plant, and such cost, together with the cost of removal less salvage, is charged to accumulated depreciation. D. Impairment Review of Long-Lived Assets Long-lived assets are reviewed as facts and circumstances indicate that the carrying amount may be impaired. This review is performed in accordance with SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS 144), which the Company adopted as required on January 1, 2002. SFAS 144 establishes one accounting model for all impaired long-lived assets and long-lived assets to be disposed of by sale or otherwise. SFAS 144 replaced authoritative guidance in SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121) and certain aspects of APB Opinion No. 30, "Reporting Results of Operations-Reporting the Effects of Disposal of a Segment of a Business." SFAS 144 retains the framework of SFAS 121 and requires the evaluation for impairment involve the comparison of an asset's carrying value to the estimated future cash flows the asset is expected to generate over its remaining life. If this evaluation were to conclude that the carrying value of the asset is impaired, an impairment charge would be recorded based on the difference between the asset's carrying amount and its fair value (less costs to sell for assets to be disposed of by sale) as a charge to operations or discontinued operations. E. Goodwill Goodwill arising from past business combinations is accounted for in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). The Company adopted SFAS 142, as required on January 1, 2002. SFAS 142 changed the accounting for goodwill from an amortization approach to an impairment-only approach. Thus, amortization of goodwill that was not included as an allowable cost for rate-making purposes ceased upon SFAS 142's adoption. Goodwill is to be tested for impairment at a reporting unit level at least annually. The impairment review consists of a comparison of the fair value of a reporting unit to its carrying amount. If the fair value of a reporting unit is less than its carrying amount, an impairment loss is recognized in operations. Prior to the adoption of SFAS 142, the Company amortized goodwill on a straight-line basis over 40 years. SFAS 142 required an initial impairment review of all goodwill within six months of the adoption date. Results of the initial impairment review were to be treated as a change in accounting principle in accordance with APB Opinion No. 20 "Accounting Changes." As required by SFAS 142, amortization of goodwill ceased on January 1, 2002. Amortization approximated $0.2 million ($0.1 million after tax) in both 2001 and 2000. The Company's goodwill is included in the Gas Utility Services operating segment. Initial impairment reviews to be performed within six months of adoption of SFAS 142 were completed and resulted in no impairment. The impairment test is performed at the beginning of each year. F. Regulation SFAS 71 Retail public utility operations affecting Indiana customers are subject to regulation by the IURC. The Company's accounting policies give recognition to the rate-making and accounting practices of this agency and to accounting principles generally accepted in the United States, including the provisions of SFAS No. 71 "Accounting for the Effects of Certain Types of Regulation" (SFAS 71). Regulatory assets represent probable future revenues associated with certain incurred costs, which will be recovered from customers through the rate-making process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are to be credited to customers through the rate-making process. The Company assesses the recoverability of costs recognized as regulatory assets and the ability to continue to account for its activities based on the criteria set forth in SFAS 71. Based on current regulation, the Company believes such accounting is appropriate. If all or part of the Company's operations cease to meet the criteria of SFAS 71, a write-off of related regulatory assets and liabilities could be required. In addition, the Company would be required to determine any impairment to the carrying value of its utility plant and other regulatory assets. Regulatory assets consist of the following: At December 31, - --------------------------------------------------------- In thousands 2002 2001 - --------------------------------------------------------- Demand side management programs $32,062 $31,667 Regulatory income tax asset 7,334 8,245 Unamortized debt discount & expenses 3,011 3,155 Other 7,452 4,398 - --------------------------------------------------------- Total regulatory assets $49,859 $47,465 ========================================================= As of December 31, 2002, regulatory assets totaling $17.3 million are reflected in rates charged to customers, of which $6.9 million is earning a return. The remaining $32.6 million, which is not yet included in rates, represents primarily electric demand side management (DSM) costs incurred after 1993. The Company has rate orders for all deferred costs not yet in rates and therefore believes that future recovery is probable. At December 31, 2002, the weighted average recovery period of regulatory assets, other than those arising from book-tax basis differences, included in rates is 8.3 years. Regulatory income tax assets are recovered as deferred tax assets and liabilities discussed in Note 5 become payable or receivable. Refundable or Recoverable Gas Costs, Fuel for Electric Production and Purchased Power All metered gas rates contain a gas cost adjustment clause that allows the Company to charge for changes in the cost of purchased gas. Metered electric rates typically contain a fuel adjustment clause that allows for adjustment in charges for electric energy to reflect changes in the cost of fuel and the net energy cost of purchased power. Metered electric rates also allow recovery, through a quarterly rate adjustment mechanism, for the margin on electric sales lost due to the implementation of demand side management programs. The Company records any under-or-over-recovery resulting from gas and fuel adjustment clauses each month in revenues. A corresponding asset or liability is recorded until the under-or-over-recovery is billed or refunded to utility customers. The cost of gas sold is charged to operating expense as delivered to customers, and the cost of fuel for electric generation is charged to operating expense when consumed. G. Revenues Revenues are recorded as products and services are delivered to customers. To more closely match revenues and expenses, the Company records revenues for all gas and electricity delivered to customers but not billed at the end of the accounting period. H. Excise and Gross Receipts Taxes Excise taxes and a portion of gross receipts taxes are included in rates charged to customers. Accordingly, the Company records these taxes received as a component of operating revenues. Excise and gross receipts taxes paid are recorded as a component of taxes other than income taxes. I. Earnings Per Share Earnings per share are not presented as the Company's common stock is wholly owned by Vectren Utility Holdings, Inc. J. Use of Estimates 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. 3. Restatement of Previously Reported Results The Company identified adjustments that, in the aggregate, reduced previously reported 2001 earnings by approximately $1.8 million after tax, decreased previously reported 2000 results by approximately $0.7 million after tax, and increased retained earnings as of January 1, 2000 by $2.9 million after tax. Adjustments were also made to previously reported 2002 quarterly results. In addition to adjustments affecting previously reported net income, other reclassifications were made to the previously reported 2001 and 2000 results to conform with the 2002 presentation. Previously Reported 2001 and 2000 Net Income Adjustments The Company determined that $3.3 million ($2.0 million after tax) of gas costs were improperly recorded as recoverable gas costs due from customers. The error related primarily to the accounting for natural gas inventory and resulted in an overstatement of 2001 earnings. The Company also identified an accounting error related to certain employee benefit and other related costs that are routinely accumulated on the balance sheet and systematically cleared to operating expense and capital projects. Because of inadequate loading rates, these costs were not fully cleared to operating expense and capital projects in 2001. As a result, 2001 earnings were overstated by $1.5 million ($0.9 million after tax). The accounting for certain wholesale power marketing contracts was modified to comply with SFAS 133, which became effective on January 1, 2001. The cumulative effect at adoption was decreased by $2.8 million after tax. This change was offset substantially by an increase in electric margins throughout 2001. Originally reflected in 2001, the Company also reflected a correction of the year 2000 overstatement of electric revenue totaling $2.4 million ($1.5 million after tax), now reflected in 2000 as discussed below. The Company identified other reconciliation errors and other errors related to the recording of estimates that were not significant, either individually or in the aggregate. As a result of these additional items, 2001 earnings were reduced by $0.6 million ($0.4 million after tax). The Company also determined that certain billings and collections had been improperly recorded in 2000, resulting in an overstatement of electric revenue by $2.4 million ($1.5 million after tax). Other errors were identified that increased 2000 earnings by $1.3 million ($0.8 million after tax). The impact of the restatement of results for the year ended 2000 is a reduction to pre-tax income and net income of $1.1 million and $0.7 million, respectively. Previously Reported 2002 Quarterly Net Income Adjustments As previously reported, in the second quarter of 2002 the Company recorded $5.2 million ($3.2 million after tax) of carrying costs for DSM programs pursuant to existing IURC orders and based on an improved regulatory environment. During the audit of the three years ended December 31, 2002, management determined that the accrual of such carrying costs was more appropriate in periods prior to 2000 when DSM program expenditures were made. Therefore, such carrying costs originally reflected in 2002 quarterly results were reversed and reflected in common shareholder's equity as of January 1, 2000. In addition, the Company identified other adjustments that were not significant, either individually or in the aggregate that increased previously reported 2002 quarterly pre-tax and after tax earnings by approximately $0.2 million and $0.1 million after tax, respectively. The cumulative impact from these adjustments reduced previously reported earnings for the nine months ended September 30, 2002 by approximately $3.3 million. Beginning Retained Earnings Adjustments In addition to the adjustment of DSM costs above, the Company identified other errors that were not significant, either individually or in the aggregate that relate to years prior to 2000 resulting in a cumulative net increase of $2.9 million in retained earnings as of January 1, 2000. Other Balance Sheet Adjustments Certain reclassifications were made to reflect separate Company current and deferred income taxes are included in Vectren's consolidated tax position. These reclassifications are the principal adjustments to intercompany receivables and payables as well as prepayments and other current assets and deferred income taxes. The Company also reclassified all previously recorded goodwill not included in rates to goodwill on the balance sheet. This adjustment resulted in a $5.6 million decrease in other assets and a corresponding increase in goodwill. The Company has restated its financial statements to give effect to the matters discussed above. Following is a summary of the significant effects of the restatement on previously reported financial position and results of operations. The effects of the restatement on 2001 quarterly results and on 2002 previously reported quarterly information, is discussed in Note 17. Note 17 is unaudited. The effects on the income statement for the year ending December 31, 2001 ( in thousands) follow:
- ------------------------------------------------------------------------------------------ As Reported Adjustments As Restated - ------------------------------------------------------------------------------------------ OPERATING REVENUES Electric revenues $ 378,867 $ 2,366 $ 381,233 Gas revenues 101,117 (2,537) 98,580 - ------------------------------------------------------------------------------------------ Total operating revenues 479,984 (171) 479,813 - ------------------------------------------------------------------------------------------ COST OF OPERATING REVENUES Fuel for electric generation 74,402 (1) 74,401 Purchased electric energy 91,666 (4,738) 86,928 Cost of gas sold 72,829 (116) 72,713 - ------------------------------------------------------------------------------------------ Total cost of operating revenues 238,897 (4,855) 234,042 - ------------------------------------------------------------------------------------------ TOTAL OPERATING MARGIN 241,087 4,684 245,771 OPERATING EXPENSES Other operating 101,868 2,667 104,535 Merger & integration costs 588 - 588 Restructuring costs 5,825 - 5,825 Depreciation & amortization 43,287 - 43,287 Income taxes 20,762 886 21,648 Taxes other than income taxes 13,090 - 13,090 - ------------------------------------------------------------------------------------------ Total operating expenses 185,420 3,553 188,973 - ------------------------------------------------------------------------------------------ OPERATING INCOME 55,667 1,131 56,798 Other income - net 5,778 (149) 5,629 Interest expense 20,993 (69) 20,924 - ------------------------------------------------------------------------------------------ INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 40,452 1,051 41,503 - ------------------------------------------------------------------------------------------ Cumulative effect of change in accounting principle-net of tax 3,938 (2,831) 1,107 - ------------------------------------------------------------------------------------------ NET INCOME 44,390 (1,780) 42,610 Preferred stock dividends 758 - 758 Loss on extinguishment of preferred stock 1,170 - 1,170 - ------------------------------------------------------------------------------------------ NET INCOME APPLICABLE TO COMMON SHAREHOLDER $ 42,462 $ (1,780) $ 40,682 ==========================================================================================
The effects on the income statement for the year ending December 31, 2000 (in thousands) follow:
- ---------------------------------------------------------------------------------------- As Reported Adjustments As Restated - ---------------------------------------------------------------------------------------- OPERATING REVENUES Electric revenues $ 336,409 $ (1,981) $ 334,428 Gas revenues 109,284 (142) 109,142 - ---------------------------------------------------------------------------------------- Total operating revenues 445,693 (2,123) 443,570 - ---------------------------------------------------------------------------------------- COST OF OPERATING REVENUES Fuel for electric generation 75,699 - 75,699 Purchased electric energy 36,394 - 36,394 Cost of gas sold 78,903 - 78,903 - ---------------------------------------------------------------------------------------- Total cost of operating revenues 190,996 - 190,996 - ---------------------------------------------------------------------------------------- TOTAL OPERATING MARGIN 254,697 (2,123) 252,574 OPERATING EXPENSES Other operating 103,053 (1,051) 102,002 Merger & integration costs 14,072 - 14,072 Depreciation & amortization 43,214 - 43,214 Income taxes 24,832 (407) 24,425 Taxes other than income taxes 13,258 1 13,259 - ---------------------------------------------------------------------------------------- Total operating expenses 198,429 (1,457) 196,972 - ---------------------------------------------------------------------------------------- OPERATING INCOME 56,268 (666) 55,602 Other income - net 4,674 - 4,674 Interest expense 19,894 (1) 19,893 - ---------------------------------------------------------------------------------------- NET INCOME 41,048 (665) 40,383 Preferred stock dividends 1,017 - 1,017 - ---------------------------------------------------------------------------------------- NET INCOME APPLICABLE TO COMMON SHAREHOLDER $ 40,031 $ (665) $ 39,366 ========================================================================================
The effects on the balance sheet as of December 31, 2001 (in thousands) follow:
- --------------------------------------------------------------------------------------------------- ASSETS As Reported Adjustments As Restated -------------------------------------- Utility Plant Original cost $ 1,455,826 $ 979 $1,456,805 Less: Accumulated depreciation & amortization 690,344 - 690,344 - --------------------------------------------------------------------------------------------------- Net utility plant 765,482 979 766,461 - --------------------------------------------------------------------------------------------------- Current Assets Cash & cash equivalents 2,451 (895) 1,556 Accounts receivable-less reserves 41,227 584 41,811 Receivables from other Vectren companies - 19,625 19,625 Accrued unbilled revenues 17,013 - 17,013 Inventories 38,322 (689) 37,633 Recoverable fuel & natural gas costs 22,132 74 22,206 Prepayments & other current assets 24,118 (17,880) 6,238 - --------------------------------------------------------------------------------------------------- Total current assets 145,263 819 146,082 - --------------------------------------------------------------------------------------------------- Investments in unconsolidated affiliates 160 - 160 Other investments 9,254 (12) 9,242 Non-utility property-net 4,386 - 4,386 Goodwill-net - 5,557 5,557 Regulatory assets 41,525 5,940 47,465 Other assets 7,152 (6,613) 539 - --------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 973,222 $ 6,670 $ 979,892 =================================================================================================== LIABILITIES & SHAREHOLDER'S EQUITY Capitalization Common shareholder's equity Common stock (no par value) $ 78,258 $ - $ 78,258 Retained earnings 255,464 478 255,942 Accumulated other comprehensive income 94 (94) - - --------------------------------------------------------------------------------------------------- Total common shareholder's equity 333,816 384 334,200 - --------------------------------------------------------------------------------------------------- Cumulative redeemable preferred stock of subsidiary 460 - 460 Long-term debt-net of current maturities 291,702 - 291,702 Long-term debt due to VUHI 49,460 - 49,460 - --------------------------------------------------------------------------------------------------- Total capitalization 675,438 384 675,822 - --------------------------------------------------------------------------------------------------- Current Liabilities Accounts payable 27,135 158 27,293 Payables to other Vectren companies 3,390 6,534 9,924 Accrued liabilities 33,545 (2,868) 30,677 Short-term borrowings 874 - 874 Short-term borrowings due to VUHI 80,664 - 80,664 - --------------------------------------------------------------------------------------------------- Total current liabilities 145,608 3,824 149,432 - --------------------------------------------------------------------------------------------------- Deferred Income Taxes & Other Liabilities Deferred income taxes 112,746 2,777 115,523 Deferred credits & other liabilities 39,430 (315) 39,115 - --------------------------------------------------------------------------------------------------- Total deferred income taxes & other liabilities 152,176 2,462 154,638 - --------------------------------------------------------------------------------------------------- TOTAL LIABILITIES & SHAREHOLDER'S EQUITY $ 973,222 $ 6,670 $ 979,892 ===================================================================================================
4. Transactions With Other Vectren Companies Support Services and Purchases Vectren and certain subsidiaries of Vectren provided corporate and general and administrative services to the Company including legal, finance, tax, risk management, and 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 allocators, primarily number of employees, number of customers and/or revenues. Allocations are based on cost. In addition, Vectren negotiates service and construction contracts on behalf of its utilities to obtain those services at less cost than the utility may otherwise be able to obtain on its own. For the year ended December 31, 2002, 2001, and 2000, amounts billed by other wholly owned subsidiaries of Vectren to the Company were $45.2 million, $43.5 million, and $30.2 million, respectively. Vectren Fuels, Inc., a wholly owned subsidiary of Vectren, owns and operates coal mines from which the Company purchases fuel used for electric generation. Amounts paid for such purchases for the year ended December 31, 2002, 2001, and 2000 were $62.1 million, $58.4 million and $25.7 million, respectively. Retirement Plans and Other Postretirement Benefits Vectren has multiple defined benefit pension plans and postretirement plans that require accounting as described in SFAS No. 87 "Employers' Accounting for Pensions and SFAS No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions," respectively. Subsequent to the merger forming Vectren, an allocation of expense is determined by Vectren's actuaries, comprised of only service cost and interest on that service cost, by subsidiary based on headcount at each measurement date. These costs are directly charged to individual subsidiaries. Other components of costs (such as interest cost from prior service and asset returns) are charged to individual subsidiaries through the corporate allocation process discussed above. Plan assets nor the FAS 87/106 liability is allocated to individual subsidiaries since these assets and obligations are derived from corporate level decisions. Further, Vectren satisfies the future funding requirements of plans and the payment of benefits from general corporate assets. This allocation methodology is consistent with "multiemployer" benefit accounting as described in SFAS 87 and 106. For the years ended December 31, 2002 and 2001 pension expense totaling $2.6 million and $2.3 million, respectively, was directly charged by Vectren to the Company. For the years ended December 31, 2002 and 2001 other benefit expenses totaling $0.6 million and $0.5 million, respectively, were directly charged by Vectren to the Company. In 2000, the Company recognized $3.5 million in charges for participation in Vectren benefit plans. As of December 31, 2002 and 2001, $24.1 million and $23.0 million is included in other non-current liabilities and represents expense directly charged to the Company that is yet to be funded to Vectren. Cash Management and Borrowing Arrangements The Company participates in a centralized cash management program with Vectren, other wholly owned subsidiaries, and banks which permits funding of checks as they are presented. See Note 7 regarding long and short-term intercompany borrowing arrangements. Guarantees of Parent Company Debt Vectren's three operating utility companies, SIGECO, VEDO, and Indiana Gas are guarantors of VUHI's $350.0 million commercial paper program, of which approximately $239.1 million is outstanding at December 31, 2002 and VUHI's $350.0 million unsecured senior notes outstanding at December 31, 2002. VUHI has no independent assets or operations, the guarantees are full and unconditional and joint and several, and VUHI has no subsidiaries other than the subsidiary guarantors. Stock Based Incentive Plans The Company does not have stock-based compensation plans separate from Vectren. An insignificant number of the Company's employees participate in Vectren's stock-based compensation plans. Contribution of Assets The Company contributed computer software and hardware with a book value of approximately $6.2 million and $9.1 million to a wholly owned subsidiary of Vectren (Vectren Resources, LLC) as a special dividend in 2001 and 2000, respectively. Additionally in 2001, the Company contributed certain assets totaling $0.8 million to VUHI. These contributions of assets are reflected as a reduction of common shareholder's equity and resulted in no gain or loss and are omitted from the Statement of Cash Flows. 5. Income Taxes Vectren and subsidiary companies file a consolidated federal income tax return. For financial reporting purposes, SIGECO's current and deferred tax expense is computed on a separate company basis. The components of income tax expense and utilization of investment tax credits follows:
Year Ended December 31, - ------------------------------------------------------------------------------------------ In thousands 2002 2001 2000 - ------------------------------------------------------------------------------------------ Current: Federal $ 30,300 $ 18,403 $29,788 State 5,766 2,999 3,274 - ------------------------------------------------------------------------------------------ Total current taxes 36,066 21,402 33,062 - ------------------------------------------------------------------------------------------ Deferred: Federal (1,199) 1,640 (7,008) State (3,916) 180 (177) - ------------------------------------------------------------------------------------------ Total deferred taxes (5,115) 1,820 (7,185) - ------------------------------------------------------------------------------------------ Amortization of investment tax credits (1,346) (1,353) (1,428) - ------------------------------------------------------------------------------------------ Total income tax expense 29,605 21,869 24,449 Less: Income tax expense included in other-net (1,032) 221 24 - ------------------------------------------------------------------------------------------ Income tax expense in operating income $ 30,637 $ 21,648 $24,425 ==========================================================================================
A reconciliation of the Federal statutory rate to the effective income tax rate follows:
Year Ended December 31, - ------------------------------------------------------------------------------------ 2002 2001 2000 - ------------------------------------------------------------------------------------ Statutory rate 35.0 % 35.0 % 35.0 % State & local taxes, net of federal benefit 2.2 2.9 3.5 Nondeductible merger costs - - 3.6 Amortization of investment tax credit (1.5) (2.2) (2.2) All other-net (2.4) (0.8) (1.6) - ------------------------------------------------------------------------------------ Effective tax rate 33.3 % 34.9 % 38.3 % ====================================================================================
The liability method of accounting is used for income taxes under which deferred income taxes are recognized to reflect the tax effect of temporary differences between the book and tax bases of assets and liabilities at currently enacted income tax rates. Significant components of the net deferred tax liability follows:
At December 31, - ------------------------------------------------------------------------------------------ In thousands 2002 2001 - ------------------------------------------------------------------------------------------ Noncurrent deferred tax liabilities (assets): Depreciation & cost recovery timing differences $ 119,739 $ 117,549 Regulatory assets recoverable through future rates 23,352 24,647 Regulatory liabilities to be settled through future rates (16,018) (16,403) Employee benefit obligations (13,585) (9,215) Other - net (1,484) (1,055) - ------------------------------------------------------------------------------------------ Net noncurrent deferred tax liability 112,004 115,523 - ------------------------------------------------------------------------------------------ Current deferred tax liabilities: Deferred fuel costs, net 4,680 7,207 - ------------------------------------------------------------------------------------------ Net current deferred tax liability 4,680 7,207 - ------------------------------------------------------------------------------------------ Net deferred tax liability $ 116,684 $ 122,730 ==========================================================================================
At December 31, 2002 and 2001, investment tax credits totaling $13.2 million and $14.6 million, respectively, are included in deferred credits and other liabilities. These investment tax credits are amortized over the lives of the related investments. 6. Transactions with Vectren Affiliates ProLiance Energy, LLC (ProLiance), a nonregulated energy marketing affiliate of Vectren and Citizens Gas and Coke Utility (Citizens Gas), provides natural gas and related services to Indiana Gas, the Ohio operations, Citizens Gas and others. ProLiance also began providing service to SIGECO and Vectren Retail, LLC (Vectren's retail gas marketer) in 2002. ProLiance's primary business is optimizing the gas portfolios of utilities and providing services to large end use customers. Vectren continues to account for its investment in ProLiance using the equity method of accounting. Purchases from ProLiance for resale and for injections into storage for the years ended December 31, 2002 totaled $25.6 million. Amounts charged by ProLiance for gas supply services are established by supply agreements. Amounts owed to ProLiance approximated $10.0 million at December 31, 2002 and are included in accounts payable to affiliated companies in the Balance Sheets. Prior to 2002, the Company paid suppliers directly for its natural gas purchases. 7. Borrowing Arrangements Long-Term Debt Senior unsecured obligations and first mortgage bonds outstanding and classified as long-term are as follows.
At December 31, - ------------------------------------------------------------------------------------------- In thousands 2002 2001 - ------------------------------------------------------------------------------------------- Fixed Rate Senior Unsecured Note Payable to VUHI: 2011, 6.625% $ 86,574 $ 49,460 - ------------------------------------------------------------------------------------------- Total long-term debt to VUHI $ 86,574 $ 49,460 =========================================================================================== First Mortgage Bonds to Third Parties: Fixed-Rate: 2003, 1978 Series B, 6.25%, tax exempt $ 1,000 $ 1,000 2016, 1986 Series, 8.875% 13,000 13,000 2023, 1993 Series, 7.60% 45,000 45,000 2023, 1993 Series B, 6.00% 22,800 22,800 2025, 1993 Series, 7.625% 20,000 20,000 2029, 1999 Senior Notes, 6.72% 80,000 80,000 Adjustable Rate: 2015, 1985 Pollution Control Series A, presently 4.30%, tax exempt, next rate adjustment: 2004. 9,975 9,975 2025, 1998 Pollution Control Series A, presently 4.75%, tax exempt, next rate adjustment: 2006. 31,500 31,500 2024, 2000 Environmental Improvement Series A, presently 2.05%, tax exempt, adjusts every 35 days, weighted average for year: 3.13%. 22,500 22,500 - ------------------------------------------------------------------------------------------- Total First Mortgage Bonds 245,775 245,775 - ------------------------------------------------------------------------------------------- Adjustable Rate Senior Unsecured Bonds to Third Parties: 2020, 1998 Pollution Control Series B, presently 4.40%, tax exempt, next rate adjustment: 2003. 4,640 4,640 2030, 1998 Pollution Control Series B, presently 4.40%, tax exempt, next rate adjustment: 2003. 22,000 22,000 2030, 1998 Pollution Control Series C, presently 5.00%, tax exempt, next rate adjustment: 2006. 22,200 22,200 - ------------------------------------------------------------------------------------------- Total Adjustable Rate Senior Unsecured Bonds 48,840 48,840 - ------------------------------------------------------------------------------------------- Total long-term debt outstanding 294,615 294,615 Less: Debt subject to tender 26,640 - Current maturies of long-term debt 1,000 - Unamortized debt premium & discount, net 2,737 2,913 - ------------------------------------------------------------------------------------------- Total long-term debt-net $ 264,238 $ 291,702 ===========================================================================================
Issuance Payable to VUHI In 2001, the Company issued a note payable to VUHI for $49.5 million, and in 2002 issued a note payable to VUHI for $37.1 million. These two notes comprise the $86.6 million of long-term debt due to VUHI at December 31, 2002. The terms of these notes are identical to the terms of notes issued by VUHI in December 2001 through a public offering (December Notes). The December Notes have an aggregate principal amount of $250.0 million and an interest rate of 6.625%, priced at 99.302% to yield 6.69% to maturity. The December Notes have no sinking fund requirements, and interest payments are due semi-annually. The December Notes are due December 2011, but may be called by VUHI, in whole or in part, at any time for an amount equal to accrued and unpaid interest, plus the greater of 100% of the principal amount of the notes to be redeemed or the sum of the present values of the remaining scheduled payments of principal and interest, discounted to the redemption date on a semi-annual basis at the Treasury Rate, as defined in VUHI's indenture, plus 25 basis points. Long-Term Debt Put and Call Provisions Certain long-term debt issues contain put and call provisions that can be exercised on various dates before maturity. These provisions allow holders to put debt back to the Company at face value or the Company to call debt at face value or at a premium. Long-term debt subject to tender during the years following 2002 (in millions) is $26.6 in 2003, $10.0 in 2004, zero in 2005, $53.7 in 2006, zero in 2007, and $80.0 thereafter. Long-Term Debt Sinking Fund Requirements and Maturities The annual sinking fund requirement of the Company's first mortgage bonds is 1% of the greatest amount of bonds outstanding under the Mortgage Indenture. This requirement may be satisfied by certification to the Trustee of unfunded property additions in the prescribed amount as provided in the Mortgage Indenture. The Company intends to meet the 2002 sinking fund requirement by this means and, accordingly, the sinking fund requirement for 2002 is excluded from current liabilities in the Balance Sheets. At December 31, 2002, $342.8 million of the Company's utility plant remained unfunded under the Company's Mortgage Indenture. Maturities and sinking fund requirements on long-term debt subject to mandatory redemption during the five years following 2002 are $1.0 million in 2003, zero in 2004, zero in 2005, zero in 2006, and zero in 2007. Short-Term Borrowings SIGECO mainly relies on the short-term borrowing arrangements of VUHI for its short-term working capital needs. Borrowings outstanding at December 31, 2002 were $39.4 million. The intercompany credit line totals $150.0 million, but is limited to VUHI's available capacity ($85.9 million of additional capacity at December 31, 2002) and is subject to the same terms and conditions as VUHI's commercial paper program. At December 31, 2002, the Company has approximately $5 million of short-term borrowing capacity with third parties to supplement its intercompany borrowing arrangements, of which all is available.
Year ended December 31, - ------------------------------------------------------------------------------------- 2002 2001 2000 - ------------------------------------------------------------------------------------- Weighted average total outstanding during the year payable to VUHI (in thousands) $ 68,034 $ 34,791 - Weighted average total outstanding during the year payable to third parties (in thousands) $ 1,875 $ 12,930 $ 20,026 Weighted average interest rates during the year: VUHI 2.03% 5.24% N/A Bank loans 2.56% 5.77% 6.24%
Covenants Both long-term and short-term borrowing arrangements contain customary default provisions, restrictions on liens, sale leaseback transactions, mergers or consolidations, and sales of assets; and restrictions on leverage and interest coverage, among other restrictions. As of December 31, 2002, the Company was in compliance with all financial covenants. 8. Cumulative Preferred Stock Redemption of Preferred Stock Nonredeemable preferred stock contains call options that were exercised during September 2001 for a total redemption price of $9.8 million. The 4.80%, $100 par value preferred stock was redeemed at its stated call price of $110 per share, plus accrued and unpaid dividends totaling $1.35 per share. The 4.75%, $100 par value preferred stock was redeemed at its stated call price of $101 per share, plus accrued and unpaid dividends totaling $0.97 per share. Prior to the redemptions and as of December 31, 2000, there were 85,519 shares of the 4.80% Series outstanding and 3,000 shares of the 4.75% Series outstanding. In September 2001, the 6.50%, $100 par value preferred stock was redeemed for a total redemption price of $7.9 million at $104.23 per share, plus $0.73 per share in accrued and unpaid dividends. Prior to the redemption and as of December 31, 2000, there were 75,000 shares outstanding. The loss on redemption of $1.2 million is reflected as a reduction to reconcile net income to net income applicable to common shareholder. The total redemption price was $17.7 million. Redeemable, Special This series of redeemable preferred stock has a dividend rate of 8.50% and in the event of involuntary liquidation the amount payable is $100 per share, plus accrued dividends. This Series may be redeemed at $100 per share, plus accrued dividends on any of its dividend payment dates and is also callable at the Company's option at a rate of 1,160 shares per year. As of December 31, 2002 and 2001, there were 3,437 shares and 4,597 shares outstanding, respectively. 9. Commitments and Contingencies Commitments Firm commitments to purchase natural gas for years following December 31, 2002 totaled (in millions) $18.4 in 2003, $6.1 in 2004, and $1.2 in 2005. 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. See Note 10 regarding the Clean Air Act. 10. Environmental Matters Clean Air Act NOx SIP Call Matter The Clean Air Act (the Act) requires each state to adopt a State Implementation Plan (SIP) to attain and maintain National Ambient Air Quality Standards (NAAQS) for a number of pollutants, including ozone. If the USEPA finds a state's SIP inadequate to achieve the NAAQS, the USEPA can call upon the state to revise its SIP (a SIP Call). In October 1998, the USEPA issued a final rule "Finding of Significant Contribution and Rulemaking for Certain States in the Ozone Transport Assessment Group Region for Purposes of Reducing Regional Transport of Ozone," (63 Fed. Reg. 57355). This ruling found that the SIP's of certain states, including Indiana, were substantially inadequate since they allowed for nitrogen oxide (NOx) emissions in amounts that contributed to non-attainment with the ozone NAAQS in downwind states. The USEPA required each state to revise its SIP to provide for further NOx emission reductions. The NOx emissions budget, as stipulated in the USEPA's final ruling, requires a 31% reduction in total NOx emissions from Indiana. In June 2001, the Indiana Air Pollution Control Board adopted final rules to achieve the NOx emission reductions required by the NOx SIP Call. Indiana's SIP requires the Company to lower its system-wide NOx emissions to .14 lbs./MMBTU by May 31, 2004 (the compliance date). This is a 65% reduction from emission levels existing in 1999 and 1998. The Company has initiated steps toward compliance with the revised regulations. 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 be the most effective method of reducing NOx emissions where high removal efficiencies are required. On August 28, 2001, the IURC issued an order that (1) approved the Company's proposed project to achieve environmental compliance by investing in clean coal technology, (2) approved the Company's initial cost estimate of $198 million for the construction, subject to periodic review of the actual costs incurred, and (3) approved a mechanism whereby, prior to an electric base rate case, the Company may recover through a rider that is updated every six months a return on its capital costs for the project, at its overall cost of capital, including a return on equity. The first rider adjustment for ongoing cost recovery was approved by the IURC on February 6, 2002. Based on the level of system-wide emissions reductions required and the control technology utilized to achieve the reductions, the current estimated clean coal technology construction cost ranges from $240 million to $250 million and is expected to be expended during the 2001-2006 period. Through December 31, 2002, $70.0 million has been expended. On June 5, 2002, the Company filed a new proceeding to update the NOx project cost and to obtain approval of a second rider authorizing ongoing recovery of depreciation and operating costs related to the clean coal technology. After the equipment is installed and operational, related annual operating expenses, including depreciation expense, are estimated to be between $24 million and $27 million. Such expenses would commence in 2004 when the technology becomes operational. On January 3, 2003, the IURC approved a settlement that authorizes total capital cost investment for this project up to $244 million (excluding AFUDC) and recovery on those capital costs, as well as the recovery of future operating costs, including depreciation and purchased emission allowances, through a rider mechanism. The settlement establishes a fixed return of 8 percent on the capital investment, which approximates the return authorized in the Company's last electric rate case in 1995. The Company expects to achieve timely compliance as a result of the project. Construction of the first SCR at Culley is nearing completion on schedule, and installation of SCR technology as planned is expected to reduce 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. Culley Generating Station Litigation In the late 1990's, the USEPA initiated an investigation under Section 114 of the Act of SIGECO's coal-fired electric generating units in commercial operation by 1977 to determine compliance with environmental permitting requirements related to repairs, maintenance, modifications, and operations changes. The focus of the investigation was to determine whether new source review permitting requirements were triggered by such plant modifications, and whether the best available control technology was, or should have been used. Numerous electric utilities were, and are currently, being investigated by the USEPA under an industry-wide review for compliance. In July 1999, SIGECO received a letter from the Office of Enforcement and Compliance Assurance of the USEPA discussing the industry-wide investigation, vaguely referring to an investigation of SIGECO and inviting SIGECO to participate in a discussion of the issues. No specifics were noted; furthermore, the letter stated that the communication was not intended to serve as a notice of violation. Subsequent meetings were conducted in September and October 1999 with the USEPA and targeted utilities, including SIGECO, regarding potential remedies to the USEPA's general allegations. On November 3, 1999, the USEPA filed a lawsuit against seven utilities, including SIGECO. The USEPA alleges that, beginning in 1992, SIGECO violated the Act by (1) making modifications to its Culley Generating Station in Yankeetown, Indiana without obtaining required permits (2) making major modifications to the Culley Generating Station without installing the best available emission control technology and (3) failing to notify the USEPA of the modifications. In addition, the lawsuit alleges that the modifications to the Culley Generating Station required SIGECO to begin complying with federal new source performance standards at its Culley Unit 3. SIGECO believes it performed only maintenance, repair, and replacement activities at the Culley Generating Station, as allowed under the Act. Because proper maintenance does not require permits, application of the best available control technology, notice to the USEPA, or compliance with new source performance standards, SIGECO believes that the lawsuit is without merit, and intends to vigorously defend itself. Since the filing of this lawsuit, the USEPA has voluntarily dismissed a majority of the claims brought in its original complaint. In its original complaint, USEPA alleged significant emissions increases of three pollutants for each of four maintenance projects. Currently, USEPA is alleging only significant emission increases of a single pollutant at three of the four maintenance projects cited in the original complaint. The lawsuit seeks fines against SIGECO in the amount of $27,500 per day per violation. However, on July 29, 2002, the Court ruled that USEPA could not seek civil penalties for two of the three remaining projects at issue in the litigation, significantly reducing potential civil penalty exposure. The lawsuit also seeks a court order requiring SIGECO to install the best available emissions technology at the Culley Generating Station. If the USEPA were successful in obtaining an order, SIGECO estimates that in response it could incur capital costs of approximately $20 million to $40 million to comply with the order. Trial is currently set to begin July 14, 2003. The USEPA has also issued an administrative notice of violation to SIGECO making the same allegations, but alleging that violations began in 1977. While it is possible that SIGECO could be subjected to criminal penalties if the Culley Generating Station continues to operate without complying with the permitting requirements of new source review and the allegations are determined by a court to be valid, SIGECO believes such penalties are unlikely as the USEPA and the electric utility industry have a bonafide dispute over the proper interpretation of the Act. Accordingly, the Company has recorded no accrual and the plant continues to operate while the matter is being decided. Information Request On January 23, 2001, SIGECO received an information request from the USEPA under Section 114 of the Act for historical operational information on the Warrick and A.B. Brown generating stations. SIGECO has provided all information requested, and no further action has occurred. Manufactured Gas Plants 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 the IDEM's Voluntary Remediation Program. 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 recently been initiated by the Company to confirm that the sites continue to pose no such risk. 11. Rate and Regulatory Matters Gas Costs Proceedings Commodity prices for natural gas purchases were significantly higher during the 2000 - 2001 heating season, primarily due to colder temperatures, increased demand and tighter supplies. Subject to compliance with applicable state laws, Vectren's utility subsidiaries are allowed full recovery of such changes in purchased gas costs from their retail customers through commission-approved gas cost adjustment mechanisms. In March 2001, Indiana Gas and SIGECO reached agreement with the OUCC and the Citizens Action Coalition of Indiana, Inc. (CAC) regarding the matters raised by an IURC Order that disallowed $3.8 million of Indiana Gas' gas procurement costs for the 2000 - 2001 heating season which was recognized during the year ended December 31, 2000. As part of the agreement, the companies agreed to contribute an additional $1.7 million to assist qualified low income gas customers, and Indiana Gas agreed to credit $3.3 million of the $3.8 million disallowed amount to its customers' April 2001 utility bills in exchange for both the OUCC and the CAC dropping their appeals of the IURC Order. In April 2001, the IURC issued an order approving the settlement. Substantially all of the financial assistance for low income gas customers was distributed in 2001. Purchased Power Costs As a result of an appeal of a generic order issued by the IURC in August 1999 regarding guidelines for the recovery of purchased power costs, SIGECO entered into a settlement agreement with the OUCC that provides certain terms with respect to the recoverability of such costs. The settlement, originally approved by the IURC in August 2000, has been extended by agreement through March 2003, and discussions regarding further extension of the settlement term are ongoing. Under the settlement, SIGECO can recover the entire cost of purchased power up to an established benchmark, and during forced outages, SIGECO will bear a limited share of its purchased power costs regardless of the market costs at that time. Based on this agreement, SIGECO believes it has limited its exposure to unrecoverable purchased power costs. 12. Risk Management, Derivatives, and Other Financial Instruments 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 to mitigate risk. The Company also executes derivative contracts in the normal course of operations while buying and selling commodities and other fungible goods to be used in operations and while optimizing generation assets. The Company does not execute derivative contracts for speculative or trading purposes. Commodity Price Risk The Company's regulated operations have limited exposure to commodity price risk for purchases and sales of natural gas and electricity for its retail customers due to current Indiana and Ohio regulations, which subject to compliance with those regulations, allow for recovery of such purchases through natural gas and fuel cost adjustment mechanisms. Electric sales and purchases in the wholesale power market and other commodity-related operations are exposed to commodity price risk associated with fluctuating electric power and other commodity prices. Other commodity operations include sales of electricity to certain municipalities and large industrial customers. The Company's non-firm wholesale power marketing operations manage the utilization of its available electric generating capacity by entering into forward and option contracts that commit the Company to purchase and sell electricity in the future. Commodity price risk results from forward positions that commit the Company to deliver electricity. The Company mitigates price risk exposure with planned unutilized generation capability and offsetting forward purchase contracts. The Company's other commodity-related operations involve the purchase and sale of commodities, including electricity, to meet customer demands and operational needs. These operations also enter into forward contracts that commit the Company to purchase and sell commodities in the future. Price risk from forward positions that commit the Company to deliver commodities is mitigated using insurance contracts and offsetting forward purchase contracts. Open positions in terms of price, volume, and specified delivery points may occur and are managed using methods described above and frequent management reporting. Interest Rate Risk The Company is exposed to interest rate risk associated with its adjustable rate borrowing arrangements. Its risk management program seeks to reduce the potentially adverse effects that market volatility may have on operations. The Company tries to limit the amount of adjustable rate borrowing arrangements exposed to short-term interest rate volatility to a maximum of 25% of total debt. However, there are times when this targeted level of interest rate exposure may be exceeded. To manage this exposure, the Company may periodically use derivative financial instruments to reduce earnings fluctuations caused by interest rate volatility. Other Risks By using forward purchase contracts and derivative financial instruments to manage risk, the Company exposes itself to counter-party credit risk and market risk. The Company manages exposure to counter-party credit risk by entering into contracts with companies that can be reasonably expected to fully perform under the terms of the contract. Counter-party credit risk is monitored regularly and positions are adjusted appropriately to manage risk. Further, tools such as netting arrangements and requests for collateral are also used to manage credit risk. Market risk is the adverse effect on the value of a financial instrument that results from a change in commodity prices or interest rates. The Company attempts to manage exposure to market risk associated with commodity contracts and interest rates by establishing parameters and monitoring those parameters that limit the types and degree of market risk that may be undertaken. The Company's customer receivables from gas and electric sales and gas transportation services are primarily derived from a diversified base of residential, commercial, and industrial customers located in Indiana. The Company manages credit risk associated with its receivables by continually reviewing creditworthiness and requests cash deposits or refunds cash deposits based on that review. Although the Company's regulated operations are exposed to limited commodity price risk, volatile natural gas prices can result in higher working capital requirements; increased expenses including unrecoverable interest costs, uncollectible accounts expense, and unaccounted for gas; and some level of price sensitive reduction in volumes sold. Accounting for Derivatives and Other Contracts When a derivative contract that is entered into in the normal course of operations is probable of physical settlement, that contract is designated and documented as a normal purchase or normal sale and is exempted from mark-to-market accounting. Otherwise, derivative contracts are recorded at market value as current or noncurrent assets or liabilities depending on their value and on when the contracts are expected to be settled. Unless the contract is a cash flow hedge that qualifies for hedge accounting treatment or is subject to SFAS 71, that contract is marked to market through earnings. When hedge accounting is appropriate, the Company assesses and documents hedging relationships between its financial instruments, including commodity contracts and interest rate swaps, and underlying risks as well as the investment's risk management objectives and anticipated effectiveness. When the hedging relationship is highly effective, derivatives are designated as hedges. The market value of the effective portion of the hedge is marked to market in accumulated other comprehensive income for cash flow hedges. The ineffective portion of hedging arrangements is marked to market through earnings. Contracts affected by SFAS 71 are marked to market as a regulatory asset or liability. Market value is determined using quoted market prices from independent sources. Non-Firm Wholesale Power Marketing Contracts Periodically, generation capacity is in excess of that needed to serve retail and firm wholesale customers. The Company markets this unutilized capacity to optimize the return on its owned generation assets. The contracts entered into are primarily short-term purchase and sale contracts that expose the Company to limited market risk and are settled both financially and physically. These operations do not meet the definition of energy trading activities based upon the provisions in EITF Issue 98-10 "Accounting for Contracts Involved in Energy Trading and Risk Management Activities" (EITF 98-10). Asset optimization sale contracts are reflected in electric utility revenues, and purchase contracts are reflected in purchased electric energy. Contracts with counter-parties subject to master netting arrangements are presented net in the Balance Sheets. Subsequent to the adoption of SFAS 133 as described below, certain non-firm power marketing contracts that are periodically financially settled are recorded at market value. Changes in market value, which is a function of the normal decline in market value as earnings are realized and the fluctuation in market value resulting from price volatility, are recorded in purchased electric energy. Power marketing contracts recorded at market value at December 31, 2002 totaled $3.5 million of prepayments and other current assets and $4.2 million of accrued liabilities, compared to $6.1 million of prepayments and other current assets and $2.8 million of accrued liabilities at December 31, 2001. The change in the net value of these contracts includes an unrealized loss of $3.6 million in 2002 and an unrealized gain of $1.5 million in 2001, respectively. Including these unrealized changes in market value, overall margin (revenue net of purchased power) from non-firm wholesale power marketing operations for the years ended December 31, 2002 and 2001 was $14.9 million and $19.9 million, respectively. Prior to the adoption of SFAS 133 and for the year ended December 31, 2000, margin was $21.1 million. Other Commodity-Related Operations Other commodity contracts are generally settled by physical delivery or receipt and are within the normal operations of the Company. Therefore, these contracts receive accounting recognition upon settlement. Firm wholesale electric contracts are recorded in electric utility revenues. Certain contracts that purchase commodities for operational needs are recorded when settled in other operating expenses. Impact of Adoption of SFAS 133 In June 1998, the FASB issued SFAS 133, which required that every derivative instrument be recorded on the balance sheet as an asset or liability measured at its market value and that changes in the derivative's market value be recognized currently in earnings unless specific hedge or regulatory accounting criteria are met. SFAS 133, as amended, required that as of the date of initial adoption, the difference between the market value of derivative instruments recorded on the balance sheet and the previous carrying amount of those derivatives be reported in net income, other comprehensive income, or regulatory assets or liabilities, as appropriate. A change in earnings or other comprehensive income was reported as a cumulative effect of a change in accounting principle in accordance with APB Opinion No. 20, "Accounting Changes." Resulting from the adoption of SFAS 133, certain non-firm wholesale power marketing contracts that are periodically settled net were required to be recorded at market value. Previously, the Company accounted for these contracts on settlement. The cumulative impact of the adoption of SFAS 133 resulting from marking these contracts to market on January 1, 2001 was an earnings gain of approximately $1.8 million ($1.1 million net of tax) recorded as a cumulative effect of accounting change. SFAS 133 did not impact other commodity contracts because they were normal purchases and sales specifically excluded from the provisions of SFAS 133. Fair Value of Other Financial Instruments The carrying values and estimated fair values of the Company's other financial instruments follow:
At December 31, - --------------------------------------------------------------------------------------- 2002 2001 -------------------- -------------------- In thousands Carrying Est. Fair Carrying Est. Fair Amount Value Amount Value - --------------------------------------------------------------------------------------- Long term debt $ 294,615 $313,202 $294,615 $ 289,179 Long term debt due to VUHI 86,574 93,820 49,460 49,460 Short-term borrowings & notes payable - - 874 874 Short-term debt due to VUHI 39,419 39,419 80,664 80,664 - ---------------------------------------------------------------------------------------
Certain methods and assumptions must be used to estimate the fair value of financial instruments. The fair value of the Company's other financial instruments was estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for instruments with similar characteristics. Because of the maturity dates and variable interest rates of short-term borrowings, its carrying amount approximates its fair value. Under current regulatory treatment, call premiums on reacquisition of long-term debt are generally recovered in customer rates over the life of the refunding issue. Accordingly, any reacquisition would not be expected to have a material effect on the Company's financial position or results of operations. 13. Additional Operational and Balance Sheet Information Other-net in the Statements of Income consists of the following: Year ended December 31, - -------------------------------------------------------------------------- In thousands 2002 2001 2000 - -------------------------------------------------------------------------- AFUDC $3,679 $ 3,024 $ 3,868 Other income 2,394 5,923 1,415 Other expense (1,279) (3,318) (609) - -------------------------------------------------------------------------- Total other - net $4,794 $ 5,629 $ 4,674 ========================================================================== Accrued liabilities in the Balance Sheets consists of the following: At December 31, - ----------------------------------------------------------- In thousands 2002 2001 - ----------------------------------------------------------- Accrued taxes $8,707 $11,833 Deferred income taxes 4,680 7,207 Accrued interest 5,593 5,510 Refunds to customers & customer deposits 4,576 3,470 Accrued salaries & other 7,157 2,657 - ----------------------------------------------------------- Total accrued liabilities $30,713 $30,677 =========================================================== 14. Segment Reporting The Company has two operating segments: (1) Gas Utility Services and (2) Electric Utility Services. The Gas Utility Services segment includes the operations of the Company's natural gas distribution business and provides natural gas distribution and transportation services in southwest Indiana. The Electric Utility Services segment includes the operations of the Company's power generating and marketing operations, and electric transmission and distribution services, which provides electricity to primarily southwestern Indiana. The following tables provide information about business segments. The Company makes decisions on finance and dividends at the corporate level. Year ended December 31, - -------------------------------------------------------------------------- In thousands 2002 2001 2000 - -------------------------------------------------------------------------- Operating Revenues Electric Utility Services $ 608,116 $ 381,233 $ 334,428 Gas Utility Services 85,461 98,580 109,142 - -------------------------------------------------------------------------- Total operating revenues $ 693,577 $ 479,813 $ 443,570 ========================================================================== Interest Expense Electric Utility Services $ 19,723 $ 17,813 $ 18,102 Gas Utility Services 3,445 3,111 1,791 - -------------------------------------------------------------------------- Total interest expense $ 23,168 $ 20,924 $ 19,893 ========================================================================== Year ended December 31, - -------------------------------------------------------------------------- In thousands 2002 2001 2000 - -------------------------------------------------------------------------- Income Taxes Electric Utility Services $ 28,508 $ 21,203 $ 23,386 Gas Utility Services 2,129 445 1,039 - -------------------------------------------------------------------------- Total income taxes $ 30,637 $ 21,648 $ 24,425 ========================================================================== Net Income applicable to common shareholder Electric Utility Services $ 56,408 $ 43,074 $ 36,811 Gas Utility Services 2,919 (2,392) 2,555 - -------------------------------------------------------------------------- Net income $ 59,327 $ 40,682 $ 39,366 ========================================================================== Depreciation & Amortization Electric Utility Services $ 40,003 $ 38,691 $ 38,639 Gas Utility Services 5,095 4,596 4,575 - -------------------------------------------------------------------------- Total depreciation & amortization $ 45,098 $ 43,287 $ 43,214 ========================================================================== Capital Expenditures Electric Utility Services $ 87,544 $ 69,683 $ 43,520 Gas Utility Services 2,203 8,077 7,599 - -------------------------------------------------------------------------- Total capital expenditures $ 89,747 $ 77,760 $ 51,119 ========================================================================== At December 31, - ------------------------------------------------------------- In thousands 2002 2001 - ------------------------------------------------------------- Identifiable Assets Electric Utility Services $ 856,516 $ 804,867 Gas Utility Services 169,142 175,025 - ------------------------------------------------------------- Total identifiable assets $1,025,658 $ 979,892 ============================================================= 15. Special Charges for 2001 and 2000 Restructuring and Related Charges As part of continued cost saving efforts, in June 2001, Vectren's management and board of directors approved a plan to restructure, primarily, its regulated operations. The restructuring plan included the elimination of certain administrative and supervisory positions in its utility operations and corporate office. Charges of $4.3 million were expensed in June 2001 as a direct result of the restructuring plan. Additional charges of $1.5 million were incurred during the remainder of 2001 primarily for consulting fees and employee relocation costs. In total, the Company has incurred restructuring charges of $5.8 million. These charges were comprised of $4.4 million for employee severance, related benefits and other employee related costs, and $1.4 million for consulting and other fees incurred through December 31, 2001. The $4.4 million expensed for employee severance and related costs includes $0.8 million of noncash pension costs and is associated with approximately 40 employees. Employee separation benefits include severance, healthcare, and outplacement services. As of December 31, 2001, 37 employees have exited the business. Restructuring expenses were incurred by the Company's operating segments as follows: $1.0 million by the Gas Utility Services segment and $4.8 million by the Electric Utility Services segment. The restructuring program was completed during 2001, except for the departure of the remaining employees impacted by the restructuring which occurred during 2002. In June 2001, the Company established accruals totaling $2.7 million for severance. Throughout 2001 additional expenses totaling $0.6 million for severance were incurred. Cash payments in 2001 totaled $3.1 million. As of December 31, 2001, the remaining accrual related to the restructuring was $0.2 million. Of that amount, almost all relates to structured compensation arrangements payable through 2004. During 2002, the accrual for severance did not substantially change. Merger and Integration Costs Merger and integration costs incurred for the years ended December 31, 2001 and 2000 were $0.6 million and $14.1 million, respectively. Merger and integration activities resulting from the 2000 merger were completed in 2001. Merger costs are reflected in the financial statements of the operating subsidiaries in which merger savings are expected to be realized. Since March 31, 2000, $14.7 million has been expensed associated with merger and integration activities. Accruals were established at March 31, 2000 totaling $7.4 million. Of this amount, $0.7 million related to employee and executive severance costs and $6.7 million related to transaction costs and regulatory filing fees incurred prior to the closing of the merger. At December 31, 2001, no accrual remains. The remaining $7.3 million was expensed ($6.7 million in 2000 and $0.6 million in 2001) for accounting fees resulting from merger related filing requirements, consulting fees related to integration activities such as organization structure, employee travel between company locations, internal labor of employees assigned to integration teams, investor relations communication activities, and certain benefit costs. During the merger planning process, approximately 54 positions were identified for elimination. As of December 31, 2001, all such identified positions have been vacated. The integration activities experienced by the Company included such things as information system consolidation, process review and definition, organization design and consolidation, and knowledge sharing. 16. Impact of Recently Issued Accounting Guidance EITF 02-03 In October 2002, the EITF reached a final consensus in EITF Issue 02-03 "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities" (EITF 02-03) that gains and losses (realized and unrealized) on all derivative instruments within the scope of SFAS 133 should be shown net in the income statement, whether or not settled physically, if the derivative instruments are held for "trading purposes." The consensus rescinded EITF Issue 98-10 "Accounting for Contracts Involved in Energy Trading and Risk Management Activities" (EITF 98-10) as well as other decisions reached on energy trading contracts at the EITF's June 2002 meeting. The Company's non-firm wholesale power marketing operations enter into contracts that are derivatives as defined by SFAS 133, but these operations do not meet the definition of energy trading activities based upon the provisions in EITF 98-10. Currently, the Company uses a gross presentation to report the results of these operations as described in Note 12. The Company has re-evaluated its portfolio of derivative contracts and has determined gross presentation remains appropriate. SFAS 143 In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" (SFAS 143). SFAS 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. Any costs of removal recorded in accumulated depreciation pursuant to regulatory authority will require disclosure in future periods. The Company adopted this statement on January 1, 2003. The adoption was not material to the Company's results of operations or financial condition. FASB Interpretation (FIN) 45 In November 2002, the FASB issued Interpretation 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN 45). FIN 45 clarifies the requirements for a guarantor's accounting for and disclosure of certain guarantees issued and outstanding and that a guarantor is required to recognize, at the inception of a guarantee, a liability for the obligations it has undertaken. The objective of the initial measurement of that liability is the fair value of the guarantee at its inception. The initial recognition and measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. Although management is still evaluating the impact of FIN 45 on its financial position and results of operations, the adoption is not expected to have a material effect. FIN 46 In January 2003, the FASB issued Interpretation 46, "Consolidation of Variable Interest Entities" (FIN 46). FIN 46 addresses consolidation by business enterprises of variable interest entities and significantly changes the consolidation requirements for those entities. FIN 46 is intended to achieve more consistent application of consolidation policies to variable interest entities and, thus improves comparability between enterprises engaged in similar activities when those activities are conducted through variable interest entities. FIN 46 applies to variable interest entities created after January 31, 2003 and to variable interest entities in which an enterprise obtains an interest after that date. FIN 46 applies to the Company's third quarter for variable interest entities in which the Company holds a variable interest acquired before February 1, 2003. Although management is still evaluating the impact of FIN 46 on its financial position and results of operations, the adoption is not expected to have a material effect. 17. Quarterly Financial Data (Unaudited) As more fully described in Note 3, the Company has restated the results for the year ended December 31, 2001, including each quarter, as well as the first three quarters of 2002 to appropriately account for certain transactions. Provided below is a comparison of restated summarized quarterly financial data to summarized quarterly financial data previously reported. Information in any one quarterly period is not indicative of annual results due to the seasonal variations common to the Company's utility operations. Summarized quarterly financial data for 2002 follows:
In thousands Q1 Q2 (5) Q3 Q4 - ----------------------------------------------- ------------------- ------------------- -------- As As As As As As As 2002 Operating data Reported Restated Reported Restated Reported Restated Reported -------- --------- -------- -------- -------- -------- -------- Operating revenues $156,407 $156,407 $176,548 $176,548 $197,323 $197,018 $163,604 Operating margin 61,249 61,207 59,073 59,290 79,541 78,766 63,328 Operating income 15,830 15,738 11,002 13,225 27,628 27,015 21,756 Net income applicable to common shareholder 11,137 11,435 12,384 9,439 22,826 22,212 16,241
Summarized quarterly financial data for 2001 follows:
In thousands Q1 (1) Q2 (2) Q3 Q4 (4) - -------------------------------------------- ------------------- ------------------ ------------------ As As As As As As As As 2001 Operating Data (3) Reported Restated Reported Restated Reported Restated Reported Restated -------- -------- -------- -------- -------- -------- -------- -------- Operating revenues $140,159 $141,305 $106,371 $106,867 $115,367 $116,289 $118,087 $115,352 Operating margin 67,564 71,054 50,323 52,112 65,865 69,627 57,335 52,978 Operating income 19,984 21,590 5,669 6,741 18,973 21,280 11,041 7,187 Income before cumulative effect of change in accounting principle 15,587 17,120 1,480 2,447 14,692 16,961 8,693 4,975 Net income applicable to common shareholder 19,287 17,989 1,238 2,205 13,248 15,523 8,689 4,965
1. Q1 of 2001 includes charges for cumulative effect of changes in accounting principle as described in Note 12. 2. Q2 of 2001 includes restructuring charges as described in Note 15. 3. 2001 includes merger and integration charges as described in Note 15. 4. The benefit clearing adjustment and the inventory adjustment discussed in Note 3 were recorded in Q4 of 2001. 5. In Q2 of 2002, the Company recorded $3.2 million of after tax carrying costs for DSM programs pursuant to existing IURC orders. Management determined that the accrual of such carrying costs was more appropriate in periods prior to 2000 when DSM program expenditures were made. Therefore, such carrying costs originally reflected in Q2 of 2002 were reversed and reflected in common shareholder's equity as of January 1, 2000. ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Disclosure with respect to this Item, has been previously provided on Form 8-K originally filed with the SEC on March 26, 2002, as amended on Form 8-K/A filed with the SEC on May 20, 2002. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Intentionally omitted. See the table of contents of this Annual Report on Form 10-K for explanation. ITEM 11. EXECUTIVE COMPENSATION Intentionally omitted. See the table of contents of this Annual Report on Form 10-K for explanation. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Intentionally omitted. See the table of contents of this Annual Report on Form 10-K for explanation. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Intentionally omitted. See the table of contents of this Annual Report on Form 10-K for explanation. PART IV ITEM 14. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Within 90 days prior to the filing of the report, the Company carried out 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 in bringing to their attention on a timely basis 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). Disclosure controls and procedures, as defined by the Exchange Act in Rules 13a-14(c) and 15d-14(c), are controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms. "Disclosure controls and procedures" include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in its Exchange Act reports is accumulated and communicated to the Company's management, including its principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure. Changes in Internal Control Since the evaluation of disclosure controls and procedures, there have been no significant changes to the Company's internal controls and procedures or significant changes in other factors that could significantly affect the Company's internal controls and procedures. However, in Note 3 to the financial statements (included in Item 8) which discusses the restatement of 2001 and 2000 previously reported information, the Company identified certain errors, the net effect of which, related primarily to gas inventory accounting and the proper clearing of employee benefit related costs routinely accumulated on the balance sheet. These errors resulted primarily from insufficient account reconciliation procedures. The Company has taken steps to improve these internal controls. Internal control, as defined in American Institute of Certified Public Accountants Codification of Statements on Auditing Standards (AU ss.319), is a process, effected by an entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: (a) reliability of financial reporting, (b) effectiveness and efficiency of operations and (c) compliance with applicable laws and regulations. ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K List Of Documents Filed As Part Of This Report Financial Statements The financial statements and related notes, together with the report of Deloitte & Touche LLP, appear in Part II Item 8 Financial Statements and Supplementary Data of this Form 10-K. Supplemental Schedules For the years ended December 31, 2002, 2001, and 2000, the Company's Schedule II - -- Valuation and Qualifying Accounts Financial Statement Schedules is presented on page 47. The report of Deloitte & Touche LLP on the schedule may be found in Item 8. All other schedules are omitted as the required information is inapplicable or the information is presented in the Financial Statements or related notes in Item 8. List of Exhibits The Company has incorporated by reference herein certain exhibits as specified below pursuant to Rule 12b-32 under the Exchange Act. Exhibits for the Company are listed in the Index to Exhibits beginning on page 52. Exhibits for the Company attached to this filing filed electronically with the SEC are listed on page 57. Reports On Form 8-K During The Last Calendar Quarter On October 25, 2002, the Company filed a Current Report on Form 8-K with respect to the release of financial information to the investment community regarding Vectren Corporation's results of operations, financial position and cash flows for the three, nine, and twelve month periods ended September 30, 2002. The financial information was released to the public through this filing. Item 5. Other Events Item 7. Exhibits 99.1 - Press Release - Third Quarter 2002 Vectren Corporation Earnings 99.2 - Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 On November 27, 2002, the Company filed a Current Report on Form 8-K with respect to a press release issued by Moody's Investor Services that downgraded the credit ratings on various debt instruments issued by certain of Vectren Corporation's (Vectren) wholly owned subsidiaries. Item 5. Other Events Item 7. Exhibits 99.1 - Press Release - Moody's Investor's Services 99.2 - Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995
SCHEDULE II Southern Indiana Gas and Electric Company VALUATION AND QUALIFYING ACCOUNTS AND RESERVES Column A Column B Column C Column D Column E - -------------------------------------------------------------------------------------------------- Additions ------------------ Balance at Charged Charged Deductions Balance at Beginning to to Other from End of Description Of Year Expenses Accounts Reserves, Net Year - -------------------------------------------------------------------------------------------------- (In thousands) VALUATION AND QUALIFYING ACCOUNTS: Year 2002 - Accumulated provision for uncollectible accounts $ 3,188 $ 2,500 $ - $ 2,026 $ 3,662 Year 2001 - Accumulated provision for uncollectible accounts $ 2,639 $ 2,387 $ - $ 1,838 $ 3,188 Year 2000 - Accumulated provision for uncollectible accounts $ 2,138 $ 1,189 $ - $ 688 $ 2,639 OTHER RESERVES: Year 2001 - Reserve for merger and integration charges $ 526 $ - $ - $ 526 $ - Year 2000 - Reserve for merger and integration charges $ - $ 7,400 $ - $ 6,874 $ 526 Year 2002 - Reserve for restructuring costs $ 180 $ - $ 670 $ - $ 850 Year 2001 - Reserve for restructuring costs $ - $ 3,321 $ - $ 3,141 $ 180
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. SOUTHERN INDIANA GAS AND ELECTRIC COMPANY Dated February 26, 2003 /S/ Niel C. Ellerbrook --------------------------- Niel C. Ellerbrook, Chairman and Chief Executive Officer Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in capacities and on the dates indicated. Signature Title Date /S/ Niel C. Ellerbrook Chairman & Chief Executive February 26, 2003 - ---------------------------- Officer, Director (Principal ------------------- Niel C. Ellerbrook Executive Officer) /S/ Jerome A. Benkert, Jr. Executive Vice President, February 26, 2003 - ---------------------------- Chief Financial Officer, & ------------------- Jerome A. Benkert, Jr. Director (Principal Financial Officer) /S/ M. Susan Hardwick Vice President & Controller, February 26, 2003 - ---------------------------- Director (Principal ------------------- M. Susan Hardwick Accounting Officer) /S/ Andrew E. Goebel Director February 26, 2003 - ---------------------------- ------------------- Andrew E. Goebel /S/ Ronald E. Christian Director February 26, 2003 - ---------------------------- ------------------- Ronald E. Christian /S/ William S. Doty Director February 26, 2003 - ---------------------------- ------------------- William S. Doty CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CHIEF EXECUTIVE OFFICER CERTIFICATION I, Niel C. Ellerbrook, certify that: 1. I have reviewed this annual report on Form 10-K of Southern Indiana Gas and Electric Company; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 26, 2003 /s/ Niel C. Ellerbrook ------------------------------------- Niel C. Ellerbrook Chairman and Chief Executive Officer CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CHIEF FINANCIAL OFFICER CERTIFICATION I, Jerome A. Benkert, Jr., certify that: 1. I have reviewed this annual report on Form 10-K of Southern Indiana Gas and Electric Company; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 26, 2003 /s/ Jerome A. Benkert, Jr. ------------------------------ Jerome A. Benkert, Jr. Executive Vice President and Chief Financial Officer CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION By signing below, each of the undersigned officers hereby certifies pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his or her knowledge, (i) this report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of Southern Indiana Gas and Electric Company. Signed this 26th day of February, 2003. /s/ Jerome A. Benkert, Jr. /s/ Niel C. Ellerbrook - ---------------------------------- ------------------------------------ (Signature of Authorized Officer) (Signature of Authorized Officer) Jerome A. Benkert, Jr. Niel C. Ellerbrook - ---------------------------------- ------------------------------------ (Typed Name) (Typed Name) Executive Vice President and Chief Financial Officer Chairman and Chief Executive Officer - ---------------------------------- ------------------------------------ (Title) (Title) INDEX TO EXHIBITS 2. Plan Of Acquisition, Reorganization, Arrangement, Liquidation Or Succession Not applicable. 3. Articles Of Incorporation And By-Laws 3.1 Amended and Restated Articles of Incorporation of Southern Indiana Gas and Electric Company effective January 24, 2003. (Filed herewith.) 3.2 Amended and Restated Code of By-Laws of Southern Indiana Gas and Electric Company as of January 16, 2003. (Filed herewith.) 4. Instruments Defining The Rights Of Security Holders, Including Indentures 4.1 Mortgage and Deed of Trust dated as of April 1, 1932 between Southern Indiana Gas and Electric Company and Bankers Trust Company, as Trustee, and Supplemental Indentures thereto dated August 31, 1936, October 1, 1937, March 22, 1939, July 1, 1948, June 1, 1949, October 1, 1949, January 1, 1951, April 1, 1954, March 1, 1957, October 1, 1965, September 1, 1966, August 1, 1968, May 1, 1970, August 1, 1971, April 1, 1972, October 1, 1973, April 1, 1975, January 15, 1977, April 1, 1978, June 4, 1981, January 20, 1983, November 1, 1983, March 1, 1984, June 1, 1984, November 1, 1984, July 1, 1985, November 1, 1985, June 1, 1986. (Filed and designated in Registration No. 2-2536 as Exhibits B-1 and B-2; in Post-effective Amendment No. 1 to Registration No. 2-62032 as Exhibit (b)(4)(ii), in Registration No. 2-88923 as Exhibit 4(b)(2), in Form 8-K, File No. 1-3553, dated June 1, 1984 as Exhibit (4), File No. 1-3553, dated March 24, 1986 as Exhibit 4-A, in Form 8-K, File No. 1-3553, dated June 3, 1986 as Exhibit (4).) July 1, 1985 and November 1, 1985 (Filed and designated in Form 10-K, for the fiscal year 1985, File No. 1-3553, as Exhibit 4-A.) November 15, 1986 and January 15, 1987. (Filed and designated in Form 10-K, for the fiscal year 1986, File No. 1-3553, as Exhibit 4-A.) December 15, 1987. (Filed and designated in Form 10-K, for the fiscal year 1987, File No. 1-3553, as Exhibit 4-A.) December 13, 1990. (Filed and designated in Form 10-K, for the fiscal year 1990, File No. 1-3553, as Exhibit 4-A.) April 1, 1993. (Filed and designated in Form 8-K, dated April 13, 1993, File No. 1-3553, as Exhibit 4.) June 1, 1993 (Filed and designated in Form 8-K, dated June 14, 1993, File No. 1-3553, as Exhibit 4.) May 1, 1993. (Filed and designated in Form 10-K, for the fiscal year 1993, File No. 1-3553, as Exhibit 4(a).) July 1, 1999. (Filed and designated in Form 10-Q, dated August 16, 1999, File No. 1-3553, as Exhibit 4(a).) March 1, 2000. (Filed and designated in Form 10-K for the year ended December 31, 2001, File No. 1-15467, as Exhibit 4.1.) 4.2 Indenture dated October 19, 2001, between Vectren Utility Holdings, Inc., Indiana Gas Company, Inc., Southern Indiana Gas and Electric Company, Vectren Energy Delivery of Ohio, Inc., and U.S. Bank Trust National Association. (Filed and designated in Form 8-K, dated October 19, 2001, File No. 1-16739, as Exhibit 4.1); First Supplemental Indenture, dated October 19, 2001, between Vectren Utility Holdings, Inc., Indiana Gas Company, Inc., Southern Indiana Gas and Electric Company, Vectren Energy Delivery of Ohio, Inc., and U.S. Bank Trust National Association. (Filed and designated in Form 8-K, dated October 19, 2001, File No. 1-16739, as Exhibit 4.2); Second Supplemental Indenture, between Vectren Utility Holdings, Inc., Indiana Gas Company, Inc., Southern Indiana Gas and Electric Company, Vectren Energy Delivery of Ohio, Inc., and U.S. Bank Trust National Association. (Filed and designated in Form 8-K, dated November 29, 2001, File No. 1-16739, as Exhibit 4.1). 4.3 Promissory Note for Long-Term Loans dated November 30, 2001, between Southern Indiana Gas and Electric Company and Vectren Utility Holdings, Inc. (Filed and designated in Form 10-K, for the year ended December 31, 2001, File No. 1-3553, as Exhibit 4.4). 4.4 Promissory Note for Long-Term Loans dated December 1, 2002, between Southern Indiana Gas and Electric Company and Vectren Utility Holdings, Inc. (Filed herewith.) 9. Voting Trust Agreement Not applicable. 10. Material Contracts 10.1 Agreement, dated, January 30, 1968, for Unit No. 4 at the Warrick Power Plant of Alcoa Generating Corporation ("Alcoa"), between Alcoa and Southern Indiana Gas and Electric Company. (Filed and designated in Registration No. 2-29653 as Exhibit 4(d)-A.) 10.2 Letter of Agreement, dated June 1, 1971, and Letter Agreement, dated June 26, 1969, between Alcoa and Southern Indiana Gas and Electric Company. (Filed and designated in Registration No. 2-41209 as Exhibit 4(e)-2.) 10.3 Letter Agreement, dated April 9, 1973, and Agreement dated April 30, 1973, between Alcoa and Southern Indiana Gas and Electric Company. (Filed and designated in Registration No. 2-53005 as Exhibit 4(e)-4.) 10.4 Electric Power Agreement (the "Power Agreement"), dated May 28, 1971, between Alcoa and Southern Indiana Gas and Electric Company. (Filed and designated in Registration No. 2-41209 as Exhibit 4(e)-1.) 10.5 Second Supplement, dated as of July 10, 1975, to the Power Agreement and Letter Agreement dated April 30, 1973 - First Supplement. (Filed and designated in Form 10-K for the fiscal year 1975, File No. 1-3553, as Exhibit 1(e).) 10.6 Third Supplement, dated as of May 26, 1978, to the Power Agreement. (Filed and designated in Form 10-K for the fiscal year 1978 as Exhibit A-1.) 10.7 Letter Agreement dated August 22, 1978 between Southern Indiana Gas and Electric Company and Alcoa, which amends Agreement for Sale in an Emergency of Electrical Power and Energy Generation by Alcoa and Southern Indiana Gas and Electric Company dated June 26, 1979. (Filed and designated in Form 10-K for the fiscal year 1978, File No. 1-3553, as Exhibit A-2.) 10.8 Fifth Supplement, dated as of December 13, 1978, to the Power Agreement. (Filed and designated in Form 10-K for the fiscal year 1979, File No. 1-3553, as Exhibit A-3.) 10.9 Sixth Supplement, dated as of July 1, 1979, to the Power Agreement. (Filed and designated in Form 10-K for the fiscal year 1979, File No. 1-3553, as Exhibit A-5.) 10.10 Seventh Supplement, dated as of October 1, 1979, to the Power Agreement. (Filed and designated in Form 10-K for the fiscal year 1979, File No. 1-3553, as Exhibit A-6.) 10.11 Eighth Supplement, dated as of June 1, 1980 to the Electric Power Agreement, dated May 28, 1971, between Alcoa and Southern Indiana Gas and Electric Company. (Filed and designated in Form 10-K for the fiscal year 1980, File No. 1-3553, as Exhibit (20)-1.) 10.12 Amendment Agreement, dated March 3, 2001, between Alcoa Power Generating Inc. and Southern Indiana Gas and Electric Company. (Filed and designated in Form 10-K for the year ended December 31, 2001, File No. 1-15467, as Exhibit 10.12.) 10.13 Summary description of Southern Indiana Gas and Electric Company's nonqualified Supplemental Retirement Plan (Filed and designated in Form 10-K for the fiscal year 1992, File No. 1-3553, as Exhibit 10-A-17.) 10.14 Southern Indiana Gas and Electric Company 1994 Stock Option Plan (Filed and designated in Southern Indiana Gas and Electric Company's Proxy Statement dated February 22, 1994, File No. 1-3553, as Exhibit A.) 10.15 Southern Indiana Gas and Electric Company's nonqualified Supplemental Retirement Plan as amended, effective April 16, 1997. (Filed and designated in Form 10-K for the fiscal year 1997, File No. 1-3553, as Exhibit 10.29.) 10.16 Gas Sales and Portfolio Administration Agreement between Southern Indiana Gas and Electric Company and ProLiance Energy, LLC, for services to begin September 1, 2002. (Filed herewith). 10.17 Vectren Corporation Retirement Savings Plan. (Filed and designated in Form 10-Q for the quarterly period ended September 30, 2000, File No. 1-15467, as Exhibit 99.1.) 10.18 Vectren Corporation Combined Non-Bargaining Retirement Plan. (Filed and designated in Form 10-Q for the quarterly period ended September 30, 2000, File No. 1-15467, as Exhibit 99.2.) 10.19 Vectren Corporation Non-Qualified Deferred Compensation Plan, as amended and restated effective January 1, 2001. (Filed and designated in Form 10-K for the year ended December 31, 2001, File No. 1-15467, as Exhibit 10.32.) 10.20 Vectren Corporation Employment Agreement between Vectren Corporation and Niel C. Ellerbrook dated as of March 31, 2000. (Filed and designated in Form 10-Q for the quarterly period ended June 30, 2000, File No. 1-15467, as Exhibit 99.1.) 10.21 Vectren Corporation Employment Agreement between Vectren Corporation and Andrew E. Goebel dated as of March 31, 2000(Filed and designated in Form 10-Q for the quarterly period ended June 30, 2000, File No. 1-15467, as Exhibit 99.2.) 10.22 Vectren Corporation Employment Agreement between Vectren Corporation and Jerome A. Benkert, Jr. dated as of March 31, 2000. (Filed and designated in Form 10-Q for the quarterly period ended June 30, 2000, File No. 1-15467, as Exhibit 99.3.) 10.23 Vectren Corporation Employment Agreement between Vectren Corporation and Ronald E. Christian dated as of March 31, 2000. (Filed and designated in Form 10-Q for the quarterly period ended June 30, 2000, File No. 1-15467, as Exhibit 99.5.) 10.24 Vectren Corporation Employment Agreement between Vectren Corporation and J. Gordon Hurst dated as of March 31, 2000. (Filed and designated in Form 10-Q for the quarterly period ended June 30, 2000, File No. 1-15467, as Exhibit 99.7.) 10.25 Vectren Corporation Retirement Agreement between Vectren Corporation and J. Gordon Hurst dated as of May 31, 2001. (Filed and designated in Form 10-K for the year ended December 31, 2001, File No. 1-15467, as Exhibit 10.41.) 10.26 Vectren Corporation Employment Agreement between Vectren Corporation and Richard G. Lynch dated as of March 31, 2000. (Filed and designated in Form 10-Q for the quarterly period ended June 30, 2000, File No. 1-15467, as Exhibit 99.8.) 10.27 Vectren Corporation Employment Agreement between Vectren Corporation and William S. Doty dated as of April 30, 2001. (Filed and designated in Form 10-K for the year ended December 31, 2001, File No. 1-15467, as Exhibit 10.43.) 11. Statement Re Computation Of Per Share Earnings Not applicable. 12. Statements Re Computation Of Ratios Not applicable. 13. Annual Report To Security Holders, Form 10-Q Or Quarterly Report To Security Holders Not applicable. 16. Letter Re Change In Certifying Accountant Not applicable. 18. Letter Re Change In Accounting Principles Not applicable. 21. Subsidiaries Of The Company Not applicable. 22. Published Report Regarding Matters Submitted To Vote Of Security Holders Not applicable. 23. Consents Of Experts And Counsel Not applicable. 24. Power Of Attorney Not applicable. 99. Additional Exhibits 99.1 Agreement and Plan of Merger dated as of June 11,1999 among Indiana Energy, Inc., SIGCORP, Inc. and Vectren Corporation (the "Merger Agreement "). (Filed and designated in Form S-4 to (No. 333-90763) filed on November 12, 1999, File No. 1-15467, as Exhibit 2.) 99.2 Amendment No.1 to the Merger Agreement dated December 14,1999 (Filed and designated in Current Report on Form 8-K filed December 16, 1999, File No. 1-09091, as Exhibit 2.) 99.3 Amended and Restated Articles of Incorporation of Vectren Corporation effective March 31,2000. (Filed and designated in Current Report on Form 8-K filed April 14, 2000, File No. 1-15467, as Exhibit 4.1.) 99.4 Amended and Restated Code of By-Laws of Vectren Corporation as of February 26, 2003. (Filed and designated in Form 10-K for the year ended December 31, 2002, File No. 1-15467, as Exhibit 3.2. 99.5 Shareholders Rights Agreement dated as of October 21, 1999 between Vectren Corporation and Equiserve Trust Company, N.A., as Rights Agent. (Filed and designated in Form S-4 (No. 333-90763), filed November 12. 1999, File No. 1-15467, as Exhibit 4.) Southern Indiana Gas and Electric Company 2002 Form 10-K Attached Exhibits The following Exhibits were filed electronically with the SEC with this filing. See Page 52 of this Annual Report on Form 10-K for a complete list of exhibits. Exhibit Number Document 3.1 Amended and Restated Articles of Incorporation of Southern Indiana Gas and Electric Company effective January 24, 2003. 3.2 Amended and Restated Code of By-Laws of Southern Indiana Gas and Electric Company as of January 16, 2003. 4.4 Promissory Note for Long-Term Loans dated December 1, 2002, between Southern Indiana Gas and Electric Company and Vectren Utility Holdings, Inc. 10.16 Gas Sales and Portfolio Administration Agreement between Southern Indiana Gas and Electric Company and ProLiance Energy, LLC, for services to begin September 1, 2002. EX-3.1 ART. OF INC. 3 amended_articles-inc.txt AMENDED & RESTATED ARTICLES OF INC. OF SIGECO EXHIBIT 3.1 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF SOUTHERN INDIANA GAS AND ELECTRIC COMPANY ARTICLE 1 IDENTIFICATION The name of the Corporation is SOUTHERN INDIANA GAS AND ELECTRIC COMPANY, INC. ARTICLE 2 PRINCIPAL OFFICE SECTION 2.01. The street address of the principal office of the Corporation is 20 N.W. Fourth Street, Evansville, Indiana 47708, and the name and business office address of its registered agent in charge of such office are: Ronald E. Christian, 20 N.W. Fourth Street, Evansville, Indiana 47708. ARTICLE 3 PURPOSE SECTION 3.01. Purpose. The Corporation is formed for the purpose of engaging in any lawful business. ARTICLE 4 GENERAL PROVISIONS REGARDING SHARES OF THE CORPORATION SECTION 4.01. Distributions Upon Shares. The Board has authority to authorize and direct in respect of the issued and outstanding shares of capital stock of the corporation (i) the payment of dividends and the making of other distributions by the Corporation at such times, in such amounts and forms, from such sources and upon such terms and conditions as it may, from time to time, determine upon, subject only to the restrictions, limitations, conditions and requirements imposed by the Act, other applicable laws and these Articles, and (ii) the making by the Corporation of share dividends and share splits, pro rata and without consideration, subject only to any restrictions, limitations, conditions and requirements imposed by the Act, other applicable laws and these Articles. SECTION 4.02. Acquisition of Shares. The Board has authority to authorize and direct the acquisition by the Corporation of the issued and outstanding shares at such times, in such amounts, from such persons, for such considerations, from such sources and upon such terms and conditions as it may, from time to time, determine upon, subject only to the restrictions, limitations, conditions and requirements imposed by the Act, other applicable laws and these Articles. SECTION 4.03. Record Ownership of Shares or Rights. The Corporation, to the extent permitted by law, shall be entitled to treat the person in whose name any Share or Right of the Corporation (a "Right") is registered on the books of the Corporation as the owner thereof, for all purposes, and shall not be bound to recognize any equitable or other claim to, or interest in, such share or right on the part of any other person, whether or not the Corporation shall have notice thereof. ARTICLE 5 TERMS OF CAPITAL STOCK SECTION 5.01. Total Authorized Capital Stock. The total authorized capital stock of the corporation consists of the following classes and amounts: Clause (a). 800,000 shares of Preferred Stock having a par value of $100 per share; Clause (b). 5,000,000 shares of Preferred Stock, No Par Value; Clause (c). 5,000,000 shares of Special Preferred Stock; Clause (d). 50,000,000 shares of Common Stock, Without Par Value. SECTION 5.02 General Provisions Applicable to Preferred Stock Except Special Preferred Stock. The following provisions shall apply to the Preferred Stock having a par value of $100 per share and Preferred Stock, No Par Value, irrespective of Series: Clause (a). The holders of the Preferred Stock of each series and the Preferred Stock, No Par Value, of each series, shall be entitled to receive dividends, payable when and as declared by the Board of Directors, on such dates and at such rates as shall be determined for the respective series, from the first day of the current dividend period within which such stock shall have been originally issued, before any dividends shall be declared or paid upon or set apart for the Common Stock or any other class of stock of the Corporation not having preference over the Preferred Stock and the Preferred Stock, No Par Value, as to payment of dividends. Such dividends shall be cumulative so that if for any dividend period or periods dividends shall not have been paid or declared and set apart for payment upon all outstanding Preferred Stock and Preferred Stock, No Par Value, at the rates determined for the respective series, the deficiency shall be fully paid, or declared and set apart for payment, before any dividends shall be declared or paid upon the Common Stock or any other class of stock of the Corporation not having preference over the Preferred Stock and the Preferred Stock, No Par Value, as to payment of dividends. Dividends shall not be declared and set apart for payment, or paid on the Preferred Stock of any one series or the Preferred Stock, No Par Value, of any one series, for any dividend period, unless dividends are contemporaneously declared and set apart for payment or paid on the Preferred Stock and the Preferred Stock, No Par Value, of all series for all dividend periods terminating on the same or an earlier date. Clause (b). When full cumulative dividends as aforesaid upon the Preferred Stock and the Preferred Stock, No Par Value, of all series then outstanding for all past dividend periods and for the current dividend periods shall have been paid or declared and set apart for payment, the Board of Directors may declare dividends on the Common Stock or any other class of stock over which the Preferred Stock and the Preferred Stock, No Par Value, have a preference as to payment of dividends, and no holders of any series of the Preferred Stock or the Preferred Stock, No Par Value, as such shall be entitled to share therein; provided, however, that no dividends (other than dividends payable in stock over which the Preferred Stock and the Preferred Stock, No Par Value, have preference as to payment of dividends and as to assets) shall be paid or any other distribution of assets made, by purchase of shares or otherwise, on Common Stock or on any other class of stock over which the Preferred Stock and the Preferred Stock, No Par Value, have preference as to payment of dividends or as to assets except out of accumulated surplus available for distribution to stock over which the Preferred Stock and the Preferred Stock, No Par Va1ue, have preference as to payment of dividends and as to assets, earned subsequent to December 31, 1935, or if, at the time of declaration thereof or the making of such distribution there shall not remain to the credit of earned surplus account (after deducting therefrom the amount of such dividends and distributions), an amount at least equa1 to two times the annual dividend requirements on all then outstanding shares of the Preferred Stock and the Preferred Stock, No Par Value, and of all other classes of stock over which the Preferred Stock and Preferred Stock, No Par Value, do not have preference as to the payment of dividends and as to assets. Clause (c). Upon any dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, the holders of Preferred Stock of each series and Preferred Stock, No Par Value, of each series, without any preference of the shares of any series of Preferred Stock or of any series of Preferred Stock, No Par Value, over the shares of any other series of Preferred Stock or Preferred Stock, No Par Value, shall be entitled to receive out of the assets of the Corporation, whether capital, surplus or other, before any distribution of the assets to be distributed shall be made to the holders of Common Stock or of any other class of stock not having preference as to assets over the Preferred Stock and the Preferred Stock, No Par Value, the amount determined to, be payable on the shares of such series in the event of voluntary or involuntary liquidation, as the case may be. After payment to the holders of the Preferred Stock and the Preferred Stock, No Par Value, of the full preferential amounts hereinbefore provided for, the holders of the Preferred Stock and the Preferred Stock, No Par Value, as such shall have no right or claim to any of the remaining assets of the Corporation, either upon any distribution of such assets or upon dissolution, liquidation, or winding up, and the remaining assets to be distributed, if any, upon a distribution of such assets or upon dissolution, liquidation or winding up, may be distributed among the holders of the Common Stock or of any other class of stock over which the Preferred Stock and the Preferred Stock, No Par Value, have preference as to assets. Without limiting the right of the Corporation to distribute its assets or to dissolve, liquidate or wind up in connection with any sale, merger or consolidation, the sale of all the property of the Corporation to, or the merger or consolidation of the Corporation into or with any other corporation shall not be deemed to be a distribution of assets or a dissolution, liquidation or winding up for the purposes of this paragraph. Clause (d). At the option of the Board of Directors of the Corporation, the Corporation may redeem any series of Preferred Stock or Preferred Stock, No Par Value, determined to be redeemable, or any part of any series, at any time at the redemption price determined for such series; provided, however, that not less than thirty nor more than sixty days previous to the date fixed for redemption a notice of the time and place thereof shall be given to the holders of record of the Preferred Stock or the Preferred Stock, No Par Value, so to be redeemed, by mail or publication, in such manner as may be prescribed by the By-laws of the Corporation or by resolution of the Board of Directors; and, provided, further, that in every case of redemption of less than all of the outstanding shares of any one series of Preferred Stock or Preferred Stock, No Par Value, the shares of such series to be redeemed shall be chosen by lot in such manner as may be prescribed by resolution of the Board of Directors. At any time after notice of redemption has been given in the manner prescribed by the By-laws of the Corporation or by resolution of the Board of Directors to the holders of stock so to be redeemed, the Corporation may deposit, or (unless precluded by the terms of any sinking fund requirements applicable to the shares so to be redeemed) may cause its nominee to deposit, the aggregate redemption price with some bank or trust company named in such notice, payable on the date fixed for redemption as aforesaid and in the amounts aforesaid to the respective orders of the holders of the shares so to be redeemed, on endorsement to the Corporation or its nominee, or otherwise, as may be required, and upon surrender of the certificates for such shares. Upon the deposit of said money as aforesaid, or, if no such deposit is made, upon said redemption date (unless the Corporation defaults in making payment of the redemption price as set forth in such notice), such holders shall cease to be shareholders with respect to said shares, and from and after the making of said deposit, or, if no such deposit is made, after the redemption date (the Corporation not having defaulted in making payment of the redemption price as set forth in such notice), the said holders shall have no interest in or claim against the Corporation, or its nominee, with respect to said shares, but shall be entitled only to receive said moneys on the date fixed for redemption as aforesaid from said bank or trust company, or if no such deposit is made from the Corporation, without interest thereon, upon endorsement, if required, and surrender of the certificates as aforesaid. If such deposit shall be made by a nominee of the Corporation as aforesaid, such nominee shall upon such deposit become the owner of the shares with respect to which such deposit was made and certificates of stock may be issued to such nominee in evidence of such ownership. In case the holder of any such Preferred Stock or Preferred Stock, No Par Value, shall not, within six-years after said deposit, claim the amount deposited as above stated for the redemption, then the depositary shall upon demand pay over to the Corporation such amounts so deposited and the depositary shall thereupon be relieved from all responsibility to the holder thereof. Nothing herein contained shall limit any legal right of the Corporation to purchase any shares of the Preferred Stock or of the Preferred Stock, No Par Value. Clause (e). So long as any shares of the Preferred Stock or the Preferred Stock, No Par Value, are outstanding, the Corporation shall not: i. adopt an amendment to these Amended Articles without the affirmative vote in favor of the adoption of such amendment of the holders of at least a majority of the total number of shares of Preferred Stock and of Preferred Stock, No Par Value, at the time outstanding voting as a class or if the holders of 33-l/3% of such shares of Preferred Stock and of Preferred Stock, No Par Value, voting as a class, vote against the adoption of such amendment, each share of Preferred Stock being counted in either such case as one and each share of Preferred Stock, No Par Value, being counted in either such case as that fraction which shall be the equivalent of the ratio of the involuntary liquidation value of such share to the par value of the Preferred Stock, if such amendment would either (i) create any class of shares preferred as to dividends or assets over the Preferred Stock and Preferred Stock, No Par Value, or (ii) change the rights and preferences of the then outstanding Preferred Stock or Preferred Stock, No Par Value; provided, however, that nothing in this paragraph contained shall authorize the adoption of any amendment of these Amended Articles by the vote of the holders of a less number of shares of Preferred Stock or of Preferred Stock, No Par Value, or of any other class of stock, or of all classes of stock, than is required for the adoption of such amendment by the laws of the State of Indiana at the time applicable thereto; and provided, further, that if any such action would change the rights and preferences of only one such class of stock, only the affirmative vote of the holders of at least a majority of the class of stock so affected shall be required; ii. issue or assume any evidences of indebtedness, maturing more than twelve months from the date of issue or assumption, in an amount at any one time outstanding exceeding 15% of the aggregate, at the time of such issue or assumption, of the capital represented by the outstanding shares of Preferred Stock and of Preferred Stock, No Par Value, and any other class of stock over which the Preferred Stock and the Preferred Stock, No Par Value, have preference as to dividends or assets and of the surplus of the corporation (paid-in, earned, and other, if any), unless (i) such evidences, of indebtedness are either (a) bonds issued under the Mortgage and Deed of Trust of the Corporation to Bankers Trust Company, New York, as Trustee, dated as of April 1, 1932, or (b) bonds or other evidences of indebtedness issued under another mortgage and deed of trust on substantially all the mortgageable property of the Corporation, or on substantially all the mortgageable property of the same general character as that subject to said Mortgage and deed of Trust dated as of April 1, 1932, under which mortgage and deed of trust bonds or other evidences of indebtedness have been issued upon the basis, directly or indirectly, of the refunding of bonds issued under said Mortgage and Deed of Trust dated as of April 1, 1932, and permitting the issuance of additional bonds or evidences of indebtedness upon the basis, directly or indirectly, of the refunding of the remainder thereof, if any, or (c) indebtedness, secured by the pledge of the bonds or evidences of indebtedness issued under said Mortgage and Deed of trust dated as of April 1, 1932, or such other mortgage and deed of trust, to an equal principal amount of such bonds or such evidences of indebtedness pledged or (ii) the issue and assumption of said evidence of indebtedness has been submitted to the vote of the shareholders of the Corporation at any annual or special meeting thereof, has been approved at such meeting by the affirmative vote of the holders of a majority of the outstanding shares of the Corporation, irrespective of class, and has not been voted against at such meeting by the holders of 33-1/3% or more of the total number of outstanding shares of Preferred Stock and of Preferred Stock, No Par Value, voting as a class, each share of Preferred Stock being counted in each such case as one and each share of Preferred Stock, No Par Value, being counted in each such case as that fraction which shall, be the equivalent of the ratio of the involuntary liquidation value of such share to the par value of the Preferred Stock; iii. issue, sell or otherwise dispose of any shares of Preferred Stock or Preferred Stock, No Par Value, or of any other class of stock over which the Preferred Stock and the Preferred Stock, No Par Value, do not have preference as to the payment of dividends and as to assets, unless the net income of the Corporation available for the payment of dividends for a period of twelve consecutive calendar months within the fifteen calendar months immediately preceding the issuance, sale or disposition of such stock is at least equal to 2-1/2 times the annual dividend requirements of all outstanding shares of Preferred Stock and of Preferred Stock, No Par Value, and of all other classes of stock over which the Preferred Stock and the Preferred Stock, No Par Value, do not have preference as to the payment of dividends and as to assets, including the shares proposed to be issued; or iv. issue, sell or otherwise dispose of any shares of Preferred Stock or of Preferred Stock, No Par Value, or of any other class of stock over which the Preferred Stock and the Preferred Stock, No Par Value, do not have preference as to the payment of dividends and as to assets, in excess of the number of shares of Preferred Stock outstanding on December 31, 1948, if the sum of the capital represented by the shares of Preferred Stock and of Preferred Stock, No Par Value, and of such other class or classes of stock, if any, thereafter outstanding and of the principal amount of bonds and indebtedness maturing more than twelve months from the date of issue thereafter outstanding is in excess of 75% of the total capitalization of the Corporation and for this purpose the capitalization of the Corporation shall mean the aggregate amount of (i) the principal amount of bonds and other indebtedness maturing more than twelve months from the date of issue thereafter outstanding, (ii) the aggregate amount of capital represented by all shares of capital stock of the Corporation thereafter issued and outstanding and (iii) the surplus of the Corporation (paid-in, earned and other, if any); provided that no portion of the surplus of the Corporation at any time required to be included in total capitalization in order to satisfy the foregoing requirement for a disposition of shares actually consummated shall be thereafter available for dividends or other distributions of assets, by purchase of shares or otherwise, on Common Stock or on any other kind of stock over which the Preferred Stock and the Preferred Stock, No Par Value, have preference as to the payment of dividends and as to assets until the principal amount of bonds or of such indebtedness or the amount of capital represented by shares of Preferred Stock and Preferred Stock, No Par Value, or of stock over which the Preferred Stock, No Par Value, do not have preference as to the payment of dividends and as to assets are reduced and then only to the extent of the appropriate proportion (i.e., one-third) of the amount of such reduction or until and then only to the extent that the par value of, or stated capital represented by, the outstanding shares of Common Stock shall have been increased. Clause (f). The term "accrued dividends" shall be deemed to mean in respect of any share of the Preferred Stock of any series or of any share of Preferred Stock, No Par Value, of any series, as of any given date, the amount, if any, by which the product of the rate of dividend per annum, determined upon the shares of such series, multiplied by the number of years and any fractional part of a year which shall have elapsed from the date after which dividends on such stock became cumulative to such given date, exceeds the total dividends actually paid on such stock and the dividends declared and set apart for payment. Accumulations of dividends shall not bear interest. The term "outstanding," whenever used herein with respect to shares of Preferred Stock or of Preferred Stock, No Par Value, or of any other class of stock which are by their terms redeemable, or with respect to bonds or other evidences of indebtedness shall not include any such shares or bonds or evidences of indebtedness which have been called for redemption in accordance with the provisions applicable thereto, of which call for redemption notice shall have been given, as required by such provisions and for the redemption of which a sum of money sufficient to pay the amount payable on such redemption shall have been deposited with a bank or trust company, irrevocably in trust for such purpose, or any bonds or other evidences of indebtedness for the payment of which at maturity provision has been made in a similar manner. The term "capital represented by" whenever used herein with respect to shares of stock of the Corporation shall mean at any time the amount paid in on or contributed, transferred or otherwise then held and recorded or accounted for, as permitted by the provisions of law applicable thereto, as capital with respect to said shares. Clause (g). The shares of Preferred Stock of the Corporation may be sold at less than their par value, and such shares may be issued, or, if reacquired, may be reissued, for such consideration as may be fixed from time to time by the Board of Directors and when so issued or reissued and such consideration received, such shares will be fully paid and non-assessable. The Board of Directors of the Corporation are authorized to issue shares of Preferred Stock, No Par Value, or of Common Stock without nominal or par value for such consideration as may be fixed by the Board from time to time and, when so issued or reissued and such consideration received, such shares will be fully paid and non-assessable. Shares of the capital stock of the Corporation which have been issued and thereafter acquired by the Corporation may be cancelled pursuant to resolution of the Board of Directors or may be disposed of for such consideration as the Board of Directors may determine. Clause (h). No holder of the shares of the capital stock of any class of the Corporation shall have any pre-emptive or preferential right of subscription for or to purchase any shares of any class of the capital stock of the Corporation, whether now or hereafter authorized, or any bonds, debentures or other obligations or rights or options convertible into or exchangeable for or entitling the holder or owner to subscribe for or purchase any shares of the capital stock of the Corporation, other than such right or rights, if any, and at such price, as the Board of Directors, in its discretion, from time to time may determine, and the Board of Directors may issue such shares of stock, bonds, debentures, obligations, rights or options without offering the same in whole or in part to the shareholders of the Corporation. Should the Board of Directors as to any portion of the shares of the Corporation, whether now or hereafter authorized, or any such bonds, debentures, obligations, rights or options, offer the same to the shareholders, such offer shall not constitute a waiver or release of the right of the Board of Directors subsequently to dispose of other portions thereof without so offering the same to the shareholders. SECTION 5.03. Preferred Stock - Provision for Division into and Issue in Series of Preferred Stock Having a Par Value of $100. The shares of the Preferred Stock having a Par Value of $100 may be divided into and issued in series. Each series shall be designated so as to distinguish the shares thereof from the shares of all other series and classes and all shares of the Preferred Stock having a Par Value of $100 irrespective of series, shall be identical except as to the following relative rights and preferences in respect of any or all of which there may be variations between different series and authority is hereby expressly vested in the Board of Directors, to the extent that series are not established by these Amended Articles and that variations and the relative rights and preferences as between series fixed and determined therein, to establish series and to determine by resolution or resolutions adopted prior to the issuance of any shares of such series the following relative rights and preferences of the shares thereof in accordance with the provisions of the Indiana Business Corporation Law applicable thereto: Clause (a). The rate of dividend and the dividend payment dates; Clause (b). The price at which shares may be redeemed, such price to be not less than $100 nor more than $115 per share, plus accrued dividends to the date of redemption; Clause (c). The amount payable upon shares in event of involuntary liquidation, which amount shall not be less than $100 per share or more than $115 per share, plus accrued dividends; Clause (d). The amount payable upon shares in event of voluntary liquidation, which amount shall not be less than $100 per share or more than $115 per share, plus accrued dividends; Clause (e). The terms and conditions, if any, on which shares of such series shall be by their terms convertible into or exchangeable for shares of any other class of stock of the Corporation over which the Preferred Stock $100 par Value has preference as to payment of dividends and as to assets. SECTION 5.04. Preferred Stock, No Par Value - Provision for Division into and Issue in Series of Preferred Stock, No Par Value. The shares of the Preferred Stock, No Par Value, may be divided into and issued in series. Each series shall be designated so as to distinguish the shares thereof from the shares of all other series and classes and all shares of the Preferred Stock, No Par Value, irrespective of series shall be identical except as to the following relative rights and preferences in respect of any or all of which there may be variations between different series and authority is hereby expressly vested in the Board of Directors, to the extent that series are not established by these Amended Articles and the variations and the relative rights and preferences as between series fixed and determined therein, to establish series and to determine by resolution or resolutions adopted prior to the issuance of any shares of such series the following relative rights and preferences of the shares thereof in accordance with the provisions of the Indiana Business Corporation Law applicable thereto: Clause (a). The rate of dividend and the dividend payment dates; Clause (b). The price at which shares may be redeemed; Clause (c). The amount payable upon shares in event of involuntary liquidation; Clause (d). The amount payable upon shares in event of voluntary liquidation; Clause (e). The terms and conditions, if any, on which shares of such series shall be by their terms convertible into or exchangeable for shares of any other class of stock of the corporation over which the Preferred Stock, No Par Value, has preference as to payment of dividends ad as to assets; Clause (f). The sinking fund requirements, if any, for the purchase of redemption of shares of such series. SECTION 5.05. Special Preferred Stock. The Board of Directors shall have authority to issue the shares of Special Preferred Stock from time to time on such terms as it may determine, and to divide the Special Preferred Stock into one or more series and in connection with the issuance of shares, of Special Preferred Stock and in connection with the creation of any series thereof, to fix by resolution or resolutions providing for the issue of such shares or the creation of such series, the designations, preferences, limitations and relative rights thereof, to the full extent now or hereafter permitted by law. Clause (a). 8 1/2% Series Special Preferred Stock. By virtue of resolutions adopted by the Board of Directors of the Corporation January 19, 1988, there is hereby established a series of Special Preferred Stock not to exceed 20,000 shares, designated as "8 1/2% Series Special Preferred Stock." The preferences, limitations and relative rights of such 8 1/2% Series Special Preferred Stock shall be as follows: (1) The rate of dividend will be 8 1/2% per annum and shall be payable on the first day of January, April, July and October in each year; provided, however, that with respect to the dividend payable April 1, 1988, the first day of the dividend period with respect to which such dividend is paid shall be the day that shares of the 8 1/2% Series Special Preferred Stock are first issued; (2) The shares shall have no voting rights; (3) Holders of the shares shall have the right to tender such shares for redemption by the Corporation as of any dividend payment date upon not less than 30 days prior written notice to the Corporation at a price of $100 per share, plus accrued dividends; (4) The Corporation shall have the right at any time from and after 10 years from the day that shares of 8 1/2% Series Special Preferred Stock are first issued to redeem up to 1,160 shares per calendar year at a price of $100 per share, plus accrued dividends; (5) The amount payable with respect to the shares in the event of the voluntary or involuntary liquidation of the Corporation shall be $100 per share plus accrued dividends; and (6) Except as stated below, the further preferences, limitations and relative rights of the 8 1/2% Series Special Preferred Stock shall be the same as those contained in Section 5.02 with respect to the Preferred Stock, No Par Value, and for the purpose of determining such further preferences, limitations, and relative rights, and for that purpose only, the 8 1/2% Series Special Preferred Stock shall be deemed to be a series of Preferred Stock, No Par Value; provided, however, that the 8 1/2% Series Special Preferred Stock shall not be deemed to be nor counted as a series of Preferred Stock, No Par Value, and shall not have the same preferences, limitations and relative rights as the Preferred Stock, No Par Value, insofar as the vote of the Preferred Stock, No Par Value, or any series thereof, is required by the provisions of clause (e) of Section 5.02; provided, further, that nothing herein contained shall affect the right of the holders of the 8 1/2% Series Special Preferred Stock to vote on matters that the holders of non-voting stock are entitled to vote on pursuant to the laws of the State of Indiana. SECTION 5.06. Common Stock. There shall be a class of stock of the Corporation designated Common Stock and each share of Common Stock shall be equal to every other share of said stock in every respect. ARTICLE 6 DIRECTORS SECTION 6.01. Number. The number of Directors of the Corporation shall not be less than four (4), and shall be specified in the Code By-Laws (Code). If and whenever the Code does not contain a provision specifying the number of Directors, the number shall be four (4). Each Director shall hold office until the next Annual Meeting of Shareholders or until his successor is duly qualified and elected. Directors need not be Shareholders of the Corporation. SECTION 6.02. Vacancies. Except as may be expressly provided by law, newly created directorships resulting from any increase in the authorized number of Directors or any vacancies in the Board resulting from death, resignation, retirement, disqualification, removal from office or other cause shall be filled by a majority vote of the Directors then in office, and Directors so chosen shall hold office for a term expiring at the next Annual Meeting of Shareholders. ARTICLE 7 PROVISIONS FOR REGULATION OF BUSINESS AND CONDUCT OF AFFAIRS OF CORPORATION SECTION 7.01. Action By Shareholders. Meetings of the Shareholders shall be held at such place as may be specified in the Code of By-Laws (Code) or in the respective notices, or waivers of notice, thereof. Any action required or permitted to be taken at any meeting of the Shareholders may be taken without a meeting if a consent in writing setting forth the action so taken is signed by all the Shareholders entitled to vote with respect thereto, and such written consent is filed with the minutes of the proceedings of the Shareholders. SECTION 7.02. Action By Directors. Meetings of the Board or any committees thereof (collectively, "Committees," and individually, a "Committee") shall be held at such place as may be specified in the Code or in the respective notices, or waivers of notice, thereof and shall be conducted in such manner as may be specified in the Code or permitted by the Act. Any action required or permitted to be taken at any meeting of the Board or a Committee may be taken without a meeting if a consent in writing setting forth the action so taken is signed by all members of the Board or such Committee, and such written consent is filed with the minutes of the proceedings of the Board or such Committee. SECTION 7.03. Code of By-Laws. The Shareholders shall have power to make, alter, amend or repeal the Code by at least a majority vote of all outstanding shares at a meeting held for such purpose. SECTION 7.04. Board Committees. Unless the Code otherwise provides, the Board may, by resolution adopted by a majority of the actual number of Directors elected and qualified, from time to time, designate from among its members one or more Committees, each of which shall, to the extent provided in the resolution or Code and not prohibited by the Act and other applicable laws, have and exercise all of the authority of the Board in the management of the Corporation. SECTION 7.05. The Act. For purposes of these Articles, the Act shall mean the Indiana Business Corporation Laws, as the same may be amended from time to time. SECTION 7.06. Limitation of Liability and Indemnification of Directors, Officers and Others. Clause (a). Definitions. Terms defined in Chapter 37 of the Act (IND. CODE 23-1-37, et seq.) which are used in this Article 7 shall have the same definitions for purposes of this Article 7 they have in such chapter of the Indiana Business Corporation Law. Clause (b). Indemnification of Directors and Officers. The Company shall indemnify any individual who is or was a director or officer of the Company, or is or was serving at the request of the Company as a director, officer, partner or trustee of another foreign or domestic Company, partnership, joint venture, trust, employee benefit plan or other enterprise whether or not for profit, against liability and expenses, including attorneys fees, incurred by him in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, and whether formal or informal, in which he is made or threatened to be made a party by reason of being or having been in any such capacity, or arising out of his status as such, except (i) in the case of any action, suit, or proceeding terminated by judgment, order, or conviction, in relation to matters as to which he is adjudged to have breached or failed to perform the duties of his office and the breach or failure to perform constituted willful misconduct or recklessness; and (ii) in any other situation, in relation to matters as to which it is found by a majority of a committee composed of all directors not involved in the matter in controversy (whether or not a quorum) that the person breached or failed to perform the duties of his office and the breach or failure to perform constituted willful misconduct or recklessness. The Company may pay for or reimburse reasonable expenses incurred by a director or officer in defending any action, suit, or proceeding in advance of the final disposition thereof upon receipt of (i) a written affirmation of the director's or officer's good faith belief that such director or officer has met the standard of conduct prescribed by Indiana law; and (ii) an undertaking of the director or officer to repay the amount paid by the Company if it is ultimately determined that the director or officer is not entitled to indemnification by the Company. Clause (c). Other Employees or Agents of the Company. The Company may, in the discretion of the Board, fully or partially provide the same rights of indemnification and reimbursement as hereinabove provided for directors and officers of the Company to other individuals who are or were employees or agents of the Company or who are or were serving at the request of the Company as employees or agents of another foreign or domestic Company, partnership, joint venture, trust, employee benefit plan or other enterprise whether or not for profit. Clause (d). Nonexclusive Provision. The indemnification authorized under this Article 7 is in addition to all rights to indemnification granted by Chapter 37 of the Act (IND. CODE 23-1-37, et seq.) and in no way limits the indemnification provisions of such Chapter. EX-3.2 BY-LAWS 4 sig_code-bylaw.txt AMENDED & RESTATED CODE OF BY-LAWS FOR SIGECO EXHIBIT 3.2 CODE OF BY-LAWS OF SOUTHERN INDIANA GAS AND ELECTRIC COMPANY, INC. AS AMENDED AND RESTATED IN FULL ON JANUARY 16, 2003 ARTICLE I OFFICES SECTION 1. PRINCIPAL OFFICE. The principal office (the "Principal Office") of Southern Indiana Gas and Electric Company (the "Corporation") shall be at the registered office of the Corporation, or such other place as shall be determined by resolution of the Board of Directors of the Corporation (the "Board"). SECTION 2. OTHER OFFICES. The Corporation may have such other offices at such other places within or without the State of Indiana as the Board may from time to time designate, or as the business of the Corporation may require. ARTICLE II SHAREHOLDERS' MEETINGS SECTION 1. PLACE OF MEETING. Every meeting of the shareholders of the Corporation (the "Shareholders") shall be held at the Principal Office, unless a different place is specified in the notice or waiver of notice of such meeting or by resolution of the Board or the Shareholders, in which event such meeting may be held at the place so specified, either within or without the State of Indiana. SECTION 2. ANNUAL MEETING. The annual meeting of the Shareholders (the "Annual Meeting") shall be held each year at a date and time determined by the Board, for the purpose of electing directors of the Corporation ("Directors") and for the transaction of such other business as may legally come before the Annual Meeting. If for any reason the Annual Meeting shall not be held at the date and time specified or fixed as herein provided, the business to be transacted at such Annual Meeting may be transacted at any special meeting of the Shareholders (a "Special Meeting") called for that purpose. SECTION 3. NOTICE OF ANNUAL MEETING. Written or printed notice of the Annual Meeting, stating the date, time and place thereof, shall be delivered or mailed by the Secretary or an Assistant Secretary to each Shareholder of record entitled to notice of such Meeting, at such address as appears on the records of the Corporation, at least ten and not more than sixty days before the date of such Meeting. SECTION 4. SPECIAL MEETINGS. Special Meetings, for any purpose or purposes (unless otherwise prescribed by law), may be called by the Board or the President, and shall be called by the President or any Vice President at (a) the request in writing of a majority of the Board, or (b) at the written demand, delivered to the Secretary, of Shareholders holding of record not less than one-fourth of the voting power of all the shares of the Corporation ("Shares") issued and outstanding and entitled by the Amended and Restated Articles of Incorporation of the Corporation, as the same may, from time to time, be amended (the "Articles"), to vote on the business proposed to be transacted thereat. All requests or demands for Special Meetings shall state the purpose or purposes thereof, and the business transacted at such Meeting shall be confined to the purposes stated in the call and matters germane thereto. SECTION 5. NOTICE OF SPECIAL MEETINGS. Written or printed notice of all Special Meetings, stating the date, time, place and purpose or purposes thereof, shall be delivered or mailed by the Secretary or the President or the Vice President calling the Meeting to each Shareholder of record entitled to notice of such Meeting, at such address as appears on the records of the Corporation, at least ten and not more than sixty days before the date of such Meeting. Notice of any Special Meeting called at the written demand of Shareholders shall be delivered or mailed within sixty days of the Secretary's receipt of such demand. SECTION 6. WAIVER OF NOTICE OF MEETINGS. Notice of any Annual or Special Meeting (a "Meeting") may be waived in writing by any Shareholder, before or after the date and time of the Meeting specified in the notice thereof, by a written waiver delivered to the Corporation for inclusion in the minutes or filing with the corporate records. A Shareholder's attendance at any Meeting in person or by proxy shall constitute a waiver of (a) notice of such Meeting, unless the Shareholder at the beginning of the Meeting objects to the holding of or the transaction of business at the Meeting, and (b) consideration at such Meeting of any business that is not within the purpose or purposes described in the Meeting notice, unless the Shareholder objects to considering the matter when it is presented. SECTION 7. QUORUM. At any Meeting, the holders of a majority of the voting power of Shares issued and outstanding and entitled to vote at such Meeting, represented in person or by proxy, shall constitute a quorum for the election of Directors or for the transaction of other business, unless otherwise provided by law, the Articles or this Code of By-Laws, as the same may, from time to time, be amended (these "By-Laws"). If, however, a quorum shall not be present or represented at any Meeting, the Shareholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the Meeting from time to time, without notice other than announcement at the Meeting of the date, time and place of the adjourned Meeting, unless the date of the adjourned Meeting requires that the Board fix a new record date (the "Record Date") therefor, in which case notice of the adjourned Meeting shall be given. At such adjourned Meeting, if a quorum shall be present or represented, any business may be transacted that might have been transacted at the Meeting as originally scheduled. SECTION 8. VOTING. At each Meeting, every Shareholder entitled to vote shall have one vote for each Share standing in his name on the books of the Corporation as of the Record Date fixed by the Board for such Meeting, except as otherwise provided by law or the Articles, and except that no Share shall be voted at any Meeting upon which any installment is due and unpaid. Voting for Directors and, upon the demand of any Shareholder, voting upon any question properly before a Meeting, shall be by ballot. A plurality vote shall be necessary to elect any Director, and on all other matters, the action or a question shall be approved if the number of votes cast thereon in favor of the action or question exceeds the number of votes cast opposing the action or question, except as otherwise provided by law or the Articles. SECTION 9. SHAREHOLDER LIST. The Secretary shall prepare before each Meeting a complete list of the Shareholders entitled to notice of such Meeting, arranged in alphabetical order by class of Shares (and each series within a class), and showing the address of, and the number of Shares entitled to vote held by, each Shareholder (the "Shareholder List"). Beginning five business days before the Meeting and continuing throughout the Meeting, the Shareholder List shall be on file at the Principal Office or at a place identified in the Meeting Notice in the city where the Meeting will be held, and shall be available for inspection by any Shareholder entitled to vote at the Meeting. On written demand, made in good faith and for a proper purpose and describing with reasonable particularity the Shareholder's purpose, and if the Shareholder List is directly connected with the Shareholder's purpose, a Shareholder (or such Shareholder's agent or attorney authorized in writing) shall be entitled to inspect and to copy the Shareholder List, during regular business hours and at the Shareholder's expense, during the period the Shareholder List is available for inspection. The original stock register or transfer book (the "Stock Book"), or a duplicate thereof kept in the State of Indiana, shall be the only evidence as to who are the Shareholders entitled to examine the Shareholder List, or to notice of or to vote at any Meeting. SECTION 10. PROXIES. A Shareholder may vote either in person or by proxy executed in writing by the Shareholder or a duly authorized attorney-in-fact. No proxy shall be valid after eleven months from the date of its execution, unless a longer time is expressly provided therein. ARTICLE III BOARD OF DIRECTORS SECTION 1. NUMBER. The business and affairs of the Corporation shall be managed by a Board of not less than four (4) nor more than eight (8) Directors. Directors shall be elected at each Annual Meeting of the Shareholders by the holders of the Common Stock entitled by the Articles to elect Directors. SECTION 2. VACANCIES AND REMOVAL. Any vacancy occurring in the Board shall be filled as provided in the Articles. Shareholders shall be notified of any increase in the number of Directors and the name, principal occupation and other pertinent information about any Director elected by the Board to fill any vacancy. Any Director, or the entire Board, may be removed from office only as provided in the Articles. SECTION 3. POWERS AND DUTIES. In addition to the powers and duties expressly conferred upon it by law, the Articles or these By-Laws, the Board may exercise all such powers of the Corporation and do all such lawful acts and things as are not inconsistent with the law, the Articles or these By-Laws. SECTION 4. ANNUAL BOARD MEETING. Unless otherwise determined by the Board, the Board shall meet each year on the same day as the Annual Meeting, at the place where such Meeting has been held, for the purpose of organization, election of Officers of the Corporation (the "Officers") and consideration of any other business that may properly be brought before such annual meeting of the Board (the "Annual Board Meeting"). The time of the meeting shall be specified in the notice for the holding of the Annual Board Meeting. If the Annual Board Meeting is not held as above provided, the election of Officers may be held at any subsequent duly constituted meeting of the Board (a "Board Meeting"). SECTION 5. REGULAR BOARD MEETINGS. Regular meetings of the Board ("Regular Board Meetings") may be held at stated times or from time to time, and at such place, either within or without the State of Indiana, as the Board may determine, without call and without notice. SECTION 6. SPECIAL BOARD MEETINGS. Special meetings of the Board ("Special Board Meetings") may be called at any time or from time to time, and shall be called on the written request of at least one Director or the President, by causing the Secretary or any Assistant Secretary to give to each Director, either personally or by mail, telephone, telegraph, teletype or other form of wire or wireless communication at least two days' notice of the date, time and place of such Meeting. Special Board Meetings shall be held at the Principal Office or at such other place, within or without the State of Indiana, as shall be specified in the respective notices or waivers of notice thereof. SECTION 7. WAIVER OF NOTICE AND ASSENT. A Director may waive notice of any Board Meeting before or after the date and time of the Board Meeting stated in the notice by a written waiver signed by the Director and filed with the minutes or corporate records. A Director's attendance at or participation in a Board Meeting shall constitute a waiver of notice of such Meeting and assent to any corporate action taken at such Meeting, unless (a) the Director at the beginning of such Meeting (or promptly upon his arrival) objects to holding of or transacting business at the Meeting and does not thereafter vote for or assent to action taken at the Meeting; (b) the Director's dissent or abstention from the action taken is entered in the minutes of such Meeting; or (c) the Director delivers written notice of his dissent or abstention to the presiding Director at such Meeting before its adjournment, or to the Secretary immediately after its adjournment. The right of dissent or abstention is not available to a Director who votes in favor of the action taken. SECTION 8. QUORUM. At all Board Meetings, a majority of the number of Directors designated for the full Board (the "Full Board") shall be necessary to constitute a quorum for the transaction of any business, except (a) that for the purpose of filling of vacancies a majority of Directors then in office shall constitute a quorum, and (b) that a lesser number may adjourn the Meeting from time to time until a quorum is present. The act of a majority of the Board present at a Meeting at which a quorum is present shall be the act of the Board, unless the act of a greater number is required by law, the Articles or these By-Laws. SECTION 9. COMMITTEES OF THE BOARD. The Board may, by resolution adopted by a majority of the Full Board, designate regular or special committees of the Board ("Committees"), in each case comprised of two or more Directors and to have such powers and exercise such duties as shall be provided by resolution of the Board. SECTION 10. RESIGNATIONS. Any Director may resign at any time by giving written notice to the Board, the President or the Secretary. Any such resignation shall take effect when delivered unless the notice specifies a later effective date. Unless otherwise specified in the notice, the acceptance of such resignation shall not be necessary to make it effective. ARTICLE IV OFFICERS SECTION 1. OFFICERS. The Officers shall be the President, one or more Vice Presidents, the Secretary and the Treasurer, and may include one or more Assistant Secretaries, one or more Assistant Treasurers, a Controller and one or more Assistant Controllers. Any two or more offices may be held by the same person and not all offices must be filled. The Board may from time to time elect or appoint such other Officers as it shall deem necessary, who shall exercise such powers and perform such duties as may be prescribed from time to time by these By-Laws or, in the absence of a provision in these By-Laws in respect thereto, as may be prescribed from time to time by the Board. SECTION 2. ELECTION OF OFFICERS. The Officers shall be elected by the Board at the Annual Board Meeting and shall hold office for one year or until their respective successors shall have been duly qualified and elected; provided, however, that the Board may at any time elect one or more persons to new or different offices and/or change the title, designation and duties and responsibilities of any of the Officers consistent with the law, the Articles and these By-Laws. SECTION 3. VACANCIES; REMOVAL. Any vacancy among the Officers may be filled for the unexpired term by the Board. Any Officer may be removed at any time by the affirmative vote of a majority of the Full Board. SECTION 4. DELEGATION OF DUTIES. In the case of the absence, disability, death, resignation or removal from office of any Officer, or for any other reason that the Board shall deem sufficient, the Board may delegate, for the time being, any or all of the powers or duties of such Officer to any other Officer or to any Director. SECTION 5. CHAIRMAN OF THE BOARD. The Chairman of the Board shall be, subject to the control of the Board, in general charge of the affairs of the Corporation and perform such other duties as the Code of By-Laws or the Board may prescribe. He shall also preside at all meetings of shareholders and directors, discharge all the duties which devolve upon a presiding officer, and shall perform such other duties as the Code of By-Laws or Board may prescribe. The Chairman of the Board may designate, in writing, those employees and officers of the Corporation who are authorized to sign checks and perform wire transfers on behalf of the Corporation. SECTION 6. PRESIDENT. The President, subject to the supervision of the Board, shall have general charge of, and supervision and authority over, the operations of the Corporation, and shall have such other powers and perform such other duties as are incident to this office and as may be assigned to him by the Board. The President shall preside at all Shareholders' Meetings unless otherwise determined by the Board. SECTION 7. VICE PRESIDENTS. Each of the Vice Presidents shall have such powers and perform such duties as may be prescribed for him by the Board or delegated to him by the President. In the case of the absence, disability, death, resignation or removal from office of the President, the powers and duties of the President shall, for the time being, devolve upon and be exercised by the Executive Vice President, if there be one, and if not, then by such one of the Vice Presidents as the Board or the President may designate, or, if there be but one Vice President, then upon such Vice President; and he shall thereupon, during such period, exercise and perform all of the powers and duties of the President, except as may be otherwise provided by the Board. SECTION 8. SECRETARY. The Secretary shall have the custody and care of the records, minutes and the Stock Book of the Corporation; shall attend all Shareholders' Meetings and Board Meetings, and duly record and keep the minutes of their proceedings in a book or books to be kept for that purpose; shall give or cause to be given notice of all Shareholders' Meetings and Board Meetings when such notice shall be required; shall file and take charge of all papers and documents belonging to the Corporation; and shall have such other powers and perform such other duties as are incident to the office of secretary of a business corporation, subject at all times to the direction and control of the Board and the President. SECTION 9. ASSISTANT SECRETARIES. Each of the Assistant Secretaries shall assist the Secretary in his duties and shall have such other powers and perform such other duties as may be prescribed for him by the Board or delegated to him by the President. In case of the absence, disability, death, resignation or removal from office of the Secretary, his powers and duties shall, for the time being, devolve upon such one of the Assistant Secretaries as the Board the President or the Secretary may designate, or, if there be but one Assistant Secretary, then upon such Assistant Secretary; and he shall thereupon, during such period, exercise and perform all of the powers and duties of the Secretary, except as may be otherwise provided by the Board. SECTION 10. TREASURER. The Treasurer shall have control over all records of the Corporation pertaining to moneys and securities belonging to the Corporation; shall have charge of, and be responsible for, the collection, receipt, custody and disbursements of funds of the Corporation; shall have the custody of all securities belonging to the Corporation; shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation; and shall disburse the funds of the Corporation as may be ordered by the Board, taking proper receipts or making proper vouchers for such disbursements and preserving the same at all times during his term of office. When necessary or proper, he shall endorse on behalf of the Corporation all checks, notes or other obligations payable to the Corporation or coming into his possession for or on behalf of the Corporation, and shall deposit the funds arising therefrom, together with all other funds and valuable effects of the Corporation coming into his possession, in the name and the credit of the Corporation in such depositories as the Board from time to time shall direct, or in the absence of such action by the Board, as may be determined by the President or any Vice President. If the Board has not elected a Controller or an Assistant Controller, or in the absence or disability of the Controller and each Assistant Controller or if, for any reason, a vacancy shall occur in such offices, then during such period the Treasurer shall have, exercise and perform all of the powers and duties of the Controller. The Treasurer shall have the authority to open bank accounts in the name of the Corporation. The Treasurer shall also have such other powers and perform such other duties as are incident to the office of treasurer of a business corporation, subject at all times to the direction and control of the Board and the President. If required by the Board, the Treasurer shall give the Corporation a bond, in such an amount and with such surety or sureties as may be ordered by the Board, for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. SECTION 11. ASSISTANT TREASURERS. Each of the Assistant Treasurers shall assist the Treasurer in his duties, and shall have such other powers and perform such other duties as may be prescribed for him by the Board or delegated to him by the President. In case of the absence, disability, death, resignation or removal from office of the Treasurer, his powers and duties shall, for the time being, devolve upon such one of the Assistant Treasurers as the Board, the President or the Treasurer may designate, or, if there be but one Assistant Treasurer, then upon such Assistant Treasurer; and he shall thereupon, during such period, exercise and perform all the powers and duties of the Treasurer except as may be otherwise provided by the Board. If required by the Board, each Assistant Treasurer shall likewise give the Corporation a bond, in such amount and with such surety or sureties as may be ordered by the Board, for the same purposes as the bond that may be required to be given by the Treasurer. SECTION 12. CONTROLLER. The Controller shall have direct control over all accounting records of the Corporation pertaining to moneys, properties, materials and supplies, including the bookkeeping and accounting departments; shall have direct supervision over the accounting records in all other departments pertaining to moneys, properties, materials and supplies; shall render to the President and the Board, at Regular Board Meetings or whenever the same shall be required, an account of all his transactions as Controller and of the financial condition of the Corporation; and shall have such other powers and perform such other duties as are incident to the office of controller of a business corporation, subject at all times to the direction and control of the Board and the President. SECTION 13. ASSISTANT CONTROLLERS. Each of the Assistant Controllers shall assist the Controller in his duties, and shall have such other powers and perform such other duties as may be prescribed for him by the Board or delegated to him by the President. In case of the absence, disability, death, resignation or removal from office of the Controller, his powers and duties shall, for the time being, devolve upon such one of the Assistant Controllers as the Board, the President or the Controller may designate, or, if there be but one Assistant Controller, then upon such Assistant Controller; and he shall thereupon, during such period, exercise and perform all the powers and duties of the Controller, except as may be otherwise provided by the Board. ARTICLE V CERTIFICATES FOR SHARES SECTION 1. CERTIFICATES. Certificates for Shares ("Certificates") shall be in such form, consistent with law and the Articles, as shall be approved by the Board. Certificates for each class, or series within a class, of Shares, shall be numbered consecutively as issued. Each Certificate shall state the name of the Corporation and that it is organized under the laws of the State of Indiana; the name of the registered holder; the number and class and the designation of the series, if any, of the Shares represented thereby; and a summary of the designations, relative rights, preferences and limitations applicable to such class and, if applicable, the variations in rights, preferences and limitations determined for each series and the authority of the Board to determine such variations for future series; provided, however, that such summary may be omitted if the Certificate states conspicuously on its front or back that the Corporation will furnish the Shareholder such information upon written request and without charge. Each Certificate shall be signed (either manually or in facsimile) by (i) the President or a Vice President and (ii) the Secretary or an Assistant Secretary, or by any two or more Officers that may be designated by the Board. SECTION 2. RECORD OF CERTIFICATES. Shares shall be entered in the Stock Book as they are issued, and shall be transferable on the Stock Book by the holder thereof in person, or by his attorney duly authorized thereto in writing, upon the surrender of the outstanding Certificate therefor properly endorsed. SECTION 3. LOST OR DESTROYED CERTIFICATES. Any person claiming a Certificate to be lost or destroyed shall make affidavit or affirmation of that fact and, if the Board or the President shall so require, shall give the Corporation and/or the transfer agents and registrars, if they shall so require, a bond of indemnity, in form and with one or more sureties satisfactory to the Board or the President and/or the transfer agents and registrars, in such amount as the Board or the President may direct and/or the transfer agents and registrars may require, whereupon a new Certificate may be issued of the same tenor and for the same number of Shares as the one alleged to be lost or destroyed. SECTION 4. SHAREHOLDER ADDRESSES. Every Shareholder shall furnish the Secretary with an address to which notices of Meetings and all other notices may be served upon him or mailed to him, and in default thereof notices may be addressed to him at his last known address or at the Principal Office. ARTICLE VI CORPORATE BOOKS AND RECORDS SECTION 1. PLACES OF KEEPING. Except as otherwise provided by law, the Articles or these By-Laws, the books and records of the Corporation (including the "Corporate Records," as defined in the Articles) may be kept at such place or places, within or without the State of Indiana, as the Board may from time to time by resolution determine or, in the absence of such determination by the Board, as shall be determined by the President. SECTION 2. STOCK BOOK. The Corporation shall keep at the Principal Office the original Stock Book or a duplicate thereof, or, in case the Corporation employs a stock registrar or transfer agent within or without the State of Indiana, another record of the Shareholders in a form that permits preparation of a list of the names and addresses of all the Shareholders, in alphabetical order by class of Shares, stating the number and class of Shares held by each Shareholder (the "Record of Shareholders"). SECTION 3. INSPECTION OF CORPORATE RECORDS. Any Shareholder (or the Shareholder's agent or attorney authorized in writing) shall be entitled to inspect and copy at his expense, after giving the Corporation at least five business days written notice of his demand to do so, the following Corporate Records: (1) the Articles; (2) these By-Laws; (3) minutes of all Shareholders' Meetings and records of all actions taken by the Shareholders without a meeting (collectively, "Shareholders Minutes") for the prior three years; (4) all written communications by the Corporation to the Shareholders including the financial statements furnished by the Corporation to the Shareholders for the prior three years; (5) a list of the names and business addresses of the current Directors and the current Officers; and (6) the most recent Biennial Report of the Corporation as filed with the Secretary of State of Indiana. Any Shareholder (or the Shareholder's agent or attorney authorized in writing) shall also be entitled to inspect and copy at his expense, after giving the Corporation at least five business days written notice of his demand to do so, the following Corporate Records, if his demand is made in good faith and for a proper purpose and describes with reasonable particularity his purpose and the records he desires to inspect, and the records are directly connected with his purpose: (1) to the extent not subject to inspection under the previous sentence, Shareholders Minutes, excerpts from minutes of Board Meetings and of Committee meetings, and records of any actions taken by the Board or any Committee without a meeting; (2) appropriate accounting records of the Corporation; and (3) the Record of Shareholders. SECTION 4. RECORD DATE. The Board may, in its discretion, fix in advance a Record Date not more than seventy days before the date (a) of any Shareholders' Meeting, (b) for the payment of any dividend or the making of any other distribution, (c) for the allotment of rights, or (d) when any change or conversion or exchange of Shares shall go into effect. ARTICLE VII CHECKS, DRAFTS, DEEDS AND SHARES OF STOCK SECTION 1. EXECUTION OF NEGOTIABLE INSTRUMENTS. All checks, drafts, notes, bonds, bills of exchange and orders for the payment of money of the Corporation in excess of $50,000.00 shall, unless otherwise directed by the Board, or otherwise required by law, be signed by the Treasurer and one other officer, or such other officers or employees as may be directed by the Chairman of the Board. SECTION 2. DEEDS, NOTES, BONDS, MORTGAGES, CONTRACTS, ETC. All deeds, notes, bonds and mortgages made by the Corporation, and all other written contracts and agreements, other than those executed in the ordinary course of corporate business, to which the Corporation shall be a party, shall be executed in its name by the President, a Vice President or any other Officer so authorized by the Board and, when necessary or required, the Secretary or an Assistant Secretary shall attest the execution thereof. All written contracts and agreements into which the Corporation enters in the ordinary course of corporate business shall be executed by any Officer or by any other Employee designated by the President or a Vice President to execute such contracts and agreements. SECTION 3. SALE OR TRANSFER OF STOCK. Subject always to the further orders and directions of the Board, any share of stock issued by any corporation and owned by the Corporation (including reacquired Shares of the Corporation) may, for sale or transfer, be endorsed in the name of the Corporation by the President or a Vice President, and said endorsement shall be duly attested by the Secretary or an Assistant Secretary. SECTION 4. VOTING OF STOCK OF OTHER CORPORATIONS. Subject always to the further orders and directions of the Board, any share of stock issued by any other corporation and owned or controlled by the Corporation (an "Investment Share") may be voted at any shareholders' meeting of such other corporation by the President or a Vice President. Whenever, in the judgment of the President, it is desirable for the Corporation to execute a proxy or give a shareholder's consent in respect of any Investment Share, such proxy or consent shall be executed in the name of the Corporation, by the President or a Vice President, and, when necessary or required, shall be attested by the Secretary or an Assistant Secretary. Any person or persons designated in the manner above stated as the proxy or proxies of the Corporation shall have full right, power and authority to vote an Investment Share the same as such Investment Share might be voted by the Corporation. ARTICLE VIII FISCAL YEAR SECTION 1. FISCAL YEAR. The Corporation's fiscal year shall begin on January 1 of each year and end on December 31 of that year. ARTICLE IX AMENDMENTS SECTION 1. AMENDMENTS. These By-Laws may be altered, amended or repealed, in whole or in part, and new By-Laws may be adopted, at any Board Meeting by the affirmative vote of a majority of the Full Board. EX-4.4 NOTE 5 exh-a_promissorynote.txt PROMISSORY NOTE FOR L-T LOANS FOR SIGECO EXHIBIT 4.4 PROMISSORY NOTE FOR LONG-TERM LOANS $37,500,000 December 1, 2002 FOR VALUE RECEIVED, Southern Indiana Gas and Electric Company, an Indiana corporation ("Borrower") hereby promises to pay to VECTREN UTILITY HOLDINGS, INC., an Indiana corporation ("Lender"), in same day funds at its principal offices in Evansville, Indiana, or at such other place Lender may from time to time designate, the principal sum of Thirty-Seven Million, Five Hundred Thousand Dollars ($37,500,000), together with interest thereon from the date hereof until paid in full, all without relief from valuation or appraisement laws. Interest shall be charged on the unpaid outstanding balance of this Note at a rate per annum equal to the rate paid and to be paid by Lender with respect to the borrowings it made in order to provide funds to Borrower hereunder. Interest on borrowings shall be due and payable in immediately available funds on the same business day on which Lender must pay interest on the borrowings it made in order to provide funds to the Borrower hereunder. The principal hereof shall be due and payable hereunder at such times and in such amounts and in such installments hereunder as Lender must pay with respect to the borrowings it made in order to provide funds to Borrower hereunder. Lender has provided Borrower with a copy of the documentation evidencing the borrowings made by Lender in order to provide funds to Borrower hereunder. Borrower's share under this Note of the Lender borrowings represents 15% of the underlying notes and net proceeds approximate $37.1 million. In the absence of manifest error, such documentation and the records maintained by Lender of the amount and term, if any, of borrowings hereunder shall be deemed conclusive. The terms and conditions of the borrowings made by Lender in order to provide funds to Borrower hereunder, such documentation of which is attached hereto, are hereby incorporated by reference and made a part hereof; provided, however, that the principal sum under this Note shall be in such amount as set forth in this Note. In the event of any conflict or inconsistency between the terms of this Note and the terms of the borrowings made by Lender in order to provide funds to Borrower hereunder, the terms of this Note shall govern. Presentment, notice of dishonor and demand, protest and diligence and collection and bringing suit are hereby severally waived by Borrower and each endorser hereby consents that the time for payment of this Note or any installment hereunder may be extended from time to time without notice by Lender. No waiver of any default or failure or delay to exercise any right or remedy by Lender shall operate as a waiver of any other default or of the same default in the future or as a waiver of any right or remedy with respect to the same or any other occurrence. No single or partial exercise by Lender of any right or remedy shall preclude other or further exercises thereof or of any other right or remedy. This Note inures to the benefit of Lender and binds Borrower and Lender's and Borrower's respective successors and assigns, and the terms "Lender" and Borrower" whenever occurring herein shall be deemed and construed to include such respective successors and assigns. This Note shall be construed according to, and governed by, the laws of the State of Indiana. This Note is one of the promissory notes referred to in the Financial Services Agreement, dated January 5th, 2001, between Lender, Borrower and certain other public utility subsidiaries of Lender to which reference is made for a statement of additional rights and obligations of the parties hereto. IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as of the date and the year first hereinabove written. SOUTHERN INDIANA GAS AND ELECTRIC COMPANY By: /S/ Jerome A. Benkert, Jr. Jerome A. Benkert, Jr. Executive Vice President and Chief Financial Officer EX-10.16 GAS SALES 6 sig10kexhibit-gas_sales.txt GAS SALES & PORT. ADMIN. AGREEMENT EXHIBIT 10.16 GAS SALES AND PORTFOLIO ADMINISTRATION AGREEMENT This Gas Sales And Portfolio Administration Agreement ("Agreement") is entered into the 1st day of September, 2002, for services to begin upon regulatory approval of this Agreement as referenced below, by and between SOUTHERN INDIANA GAS AND ELECTRIC COMPANY, INC. ("Buyer") and PROLIANCE ENERGY, LLC ("Seller") (collectively, the "Parties" or individually "Party"). Buyer and Seller agree as follows: RECITALS 1. Seller is a limited liability company created and existing under the laws of the State of Indiana, with its registered office at 111 Monument Circle, Suite 2200, Indianapolis, Indiana. 2. Buyer is a corporation created and existing under the laws of the State of Indiana with its principal place of business at Evansville, Indiana. 3. This Agreement contains the mutual promises and covenants pursuant to which Buyer as a purchaser of natural gas and portfolio administration services, and Seller as a merchant of natural gas and portfolio administration services, shall perform the transactions described herein. 4. Under this Agreement, Seller agrees to provide natural gas to Buyer consistent with the terms and conditions contained herein. 5. This Agreement contains terms that reflect the terms of a negotiated settlement agreement ("Settlement") entered into with non-parties to this Agreement. The Agreement, as part of the Settlement, will be reviewed by the Indiana Utility Regulatory Commission (the "Commission"), and will become effective on the first day of the month following issuance of a final order by the Commission in consolidated Cause Nos. 37394GCA50S1, 37399GCA50S1, and 42233 ("GCA50S1") finding that the Agreement is in the public interest. 6. This Agreement shall be subject to, and interpreted consistent with, the Settlement. DEFINITIONS The following terms shall have the following definitions for this Agreement and its Appendices: 1. The term "ANR" shall mean ANR Pipeline Company. 2. The term "Balancing Quantities" shall mean the quantity of Gas which satisfies the difference between the Gas quantities scheduled for delivery to Buyer's Delivery Points and the actual physical flow of Gas taken by Buyer at the Delivery Points. 3. The term "Btu" shall mean British thermal unit, as defined in Transporter's Tariff 4. The term "Contract Month" shall mean a calendar month during the effectiveness of this Agreement. 5. The term "Contract Rates" shall mean to the demand costs as well as the variable costs associated with delivery service as described in Appendix C. 6. The term "Day" shall be defined as it is defined in Transporter's Tariff, or as applied by Transporter. 7. The term "Delivery Points" shall mean the points of delivery of Gas from Seller to Buyer as specified in Appendix A. 8. The term "FERC" shall mean the Federal Energy Regulatory Commission. 9. The term "Gas" shall mean natural gas. 10. The term "GCIM" shall mean the gas cost incentive mechanism provided for in the Settlement. 11. The term "Maximum Daily Quantities" or "MDQ" shall mean the maximum quantity of Gas which Seller shall be obligated to supply on a firm basis to Buyer's Delivery Points on a particular day. 12. The term "Maximum Portfolio Entitlement" shall mean the maximum deliverability that Buyer is entitled to under the Services identified on Appendix C. 13. The term "Maximum Seasonal Quantities" or "MSQ" shall mean the maximum quantity of Gas which Seller shall be obligated to supply on a firm basis to Buyer's Delivery Points in a Summer or Winter. 14. The term "MGT" shall mean Midwestern Gas Transmission Company. 15. The terms "MMBtu", "Dekatherm" or "DTH" shall mean one million (1,000,000) BTUs. 16. The term "Nominated Daily Quantities" shall mean the quantity of Gas nominated on a particular day for delivery to Buyer's Delivery Points, including deliveries to storage for Buyer. 17. The term "Portfolio Services" shall mean all of the Services that may be utilized to deliver Gas to Buyer, and which are identified on Appendix C. 18. The term "Summer" shall mean the summer season months of April through October, inclusive. 19. The term "TETCO" shall mean Texas Eastern Transmission Corporation. 20. The term "Texas Gas" shall mean Texas Gas Transmission Corporation. 21. The term "Transporter" shall mean the transporting pipeline(s) interconnected with Buyer, including without limitation ANR, MGT, TETCO or Texas Gas, as applicable to the transaction involved. 22. The term "Transporter's Tariff" shall mean the tariff provisions of Transporter, as approved by the FERC, or any successor thereto, and Buyer's or Seller's contractual arrangements with Transporter, including changes to such tariff and arrangements made after this Agreement is effective. 23. The term "Winter" shall mean the winter season months of November through March, inclusive. ARTICLE 1-GAS SALES 1.1. Seller represents and warrants that Seller can and shall stand ready to provide on a firm basis for Buyer's purchase at Buyer's Delivery Points the daily and seasonal quantities of Gas set forth herein. Seller's marketing activities will not be conducted in a manner that compromises the provision of reliable and firm service to Buyer. 1.2. During the term of this Agreement, unless Seller is unable to meet Buyer's Gas requirements, Buyer agrees that Seller shall be its supplier of Gas. However, Buyer shall have and maintain the right to produce, utilize, purchase or sell any and all: (a) Gas produced in Indiana which Buyer may be required to purchase under Ind. Code ss. 8-1-2-87.6 or any successor provision thereto of the Indiana Code; or (b) Propane. 1.3. The Maximum Daily Quantities, which Seller shall be obligated to provide on a firm basis at Buyer's Delivery Points, are specified in Appendix B. 1.4. The Maximum Seasonal Quantities during Winter or Summer, which Seller shall be obligated to provide on a firm basis at the Delivery Points, are specified in Appendix B. 1.5. Under this Agreement, Seller may fulfill its obligation to provide Gas to Buyer by using contracts entered into by and between Seller and third parties, including suppliers, pipelines and other service providers. Seller shall not be obligated to enter into commitments with suppliers, pipelines, or other service providers, which extend beyond the term or scope of this Agreement. If Seller, in order to serve Buyer, makes any commitments with suppliers, pipelines, or other service providers that extend beyond the end of the term of this Agreement, to the maximum extent permitted by law Buyer shall indemnify Seller for all expenses and costs associated with the continued service or cause the replacement Portfolio Administration Service provider to indemnify Seller for such costs. 1.6. If FERC should determine that Transporter's Tariff shall cease to apply, in whole or in part, to transactions hereunder, the Parties will promptly meet to determine and negotiate mutually acceptable replacement guidelines and standards. In that event, until an agreement is reached, the most recently effective Transporter's Tariff shall continue to apply for all purposes under this Agreement. Upon acceptance of the replacement guidelines and standards, Buyer and Seller agree to apply the replacement guidelines and standards retroactively to the cessation date of Transporter's Tariff. Any resolution shall be implemented within thirty (30) days of the acceptance of the replacement guidelines and standards. 1.7 As part of an agreed upon RFP process to be used to determine the provider of gas supply services after March 31, 2007, Seller agrees that it shall designate the pipeline transportation and storage contracts consistent with the timing and process set forth in Article I of the Settlement. In the event that the RFP is not conducted or the Seller is not the bidder selected as a result of the RFP process, Seller shall assign the designated pipeline transportation and storage contracts to the Buyer or the selected bidder, as applicable. 1.8 To the maximum extent permitted by law, Buyer agrees Seller shall be indemnified and discharged for all contracts held by Seller, which as part of the process described in Section 1.7 are assigned either to Buyer or to a third party who becomes the service provider to Buyer after March 31, 2007, and shall no longer impose any obligations upon Seller once the assignment is made. As a precondition to assignment, and as part of the RFP process, any such third party or Buyer must indemnify Seller, and a discharge and release be provided from the contract counterparty. ARTICLE 2-GAS SALES CHARGES 2.1 For all Maximum Portfolio Entitlements, Buyer shall pay Seller each Contract Month demand charges consistent with Section 2.5 of the Settlement, as well as variable costs (including without limitation all volumetric charges, GRI, fuel or other variable costs) incurred and associated with the services listed in Appendix C. 2.2. Buyer shall pay Seller each Contract Month the applicable supplier reservation costs specified in Appendix D. 2.3. For all commodity quantities, Buyer shall pay Seller each Contract Month those amounts for Gas priced in accordance with Appendix E of the Settlement ("GCIM agreement"), including volumes priced under the price volatility mitigation provisions thereof. All such purchases shall be reported on a monthly basis and shall include documentation necessary for review under the GCIM agreement and in Buyer's gas cost adjustment proceedings under Indiana Code Section 8-1-2-42 (g). 2.4. Buyer will pay taxes, including Indiana gross receipts tax, which are imposed on or incurred by Seller due to this Agreement or imposed on Buyer with respect to Gas delivered hereunder; provided, however, Buyer shall have no obligation to pay any sales or use taxes for which it delivers to Seller an appropriate exemption certificate. 2.5 Seller shall auction unutilized pipeline entitlements on Buyer's behalf consistent with the process set forth in Section 2.5 of the Settlement. All revenues Seller receives on Buyer's behalf shall be reported in detail on a monthly basis to Buyer and shall be remitted to Buyer net of reported expenses incurred by Seller in implementation of the auction. After its receipt of such revenue, Buyer will disburse its 15% share of such revenue to Seller. ARTICLE 3- BALANCING 3.1. Seller shall provide Buyer with Balancing Quantities as part of its gas sales and portfolio administration services. Seller and Buyer shall be permitted reasonable balancing tolerances. Imbalances shall be made up in kind as agreed to by the Parties. ARTICLE 4- PORTFOLIO ADMINISTRATION SERVICES 4.1. Seller's provision of portfolio administration services shall include without limitation Gas acquisition, scheduling receipt and delivery quantities with Gas suppliers and pipeline transporters, scheduling pipeline storage inventory quantities, providing delivered Gas supplies, supply planning assistance, conducting the capacity auction, and periodic portfolio reporting. Buyer shall retain complete unilateral control of its physical Gas delivery, distribution, storage and transportation facilities. 4.2. The supply planning procedures set forth in Appendix F to the Settlement will be followed by the Parties in preparing and implementing supply plans. 4.3. Seller and Buyer shall review periodically Buyer's supply requirements and determine the need for potential adjustments to MDQ, MSQ and to delivery service requirements. All adjustments are subject to Seller and Buyer's prior approval. 4.4 Buyer and Seller will review and discuss FERC regulatory filings that could reasonably be expected to impact the supply services provided to Buyer. 4.5. In the event this Agreement is terminated for any reason, Buyer shall meet with Seller within five (5) days of notice of termination to reach agreement on the timely return of capacity rights to Buyer. During such a wind-up period, Seller shall continue to provide Buyer with necessary supply services and portfolio administration services to fully meet Buyer's MDQ and MSQ. During the wind up period, the terms and effectiveness of this Agreement shall remain in effect. The wind up period for purposes hereof, may extend up to eighteen (18) months. Unless terminated pursuant to Commission order under IC 8-1-2.5-7, the termination of this Agreement shall not relieve Buyer of its executing obligations under Article V of the Settlement. ARTICLE 5- TERM 5.1. Unless modified by 5.2 below, the term of this Agreement shall commence on the first day of the month following issuance of a final order in GCA50S1 and end on March 31, 2007. If for any reason a successor has not been chosen to assume provision of supply services to Buyer after March 31, 2007, Seller shall continue on a month-to-month basis until a successor is chosen as contemplated under the Settlement. 5.2. Notwithstanding 5.1 above, this Agreement may be terminated prior to March 31, 2007 by either Party in the event of the failure by either Party to perform in any material respect any covenant or obligation set forth in this Agreement, and such failure is not excused by force majeure or cured within fifteen (15) business days after written notice thereof to the Party failing to perform; provided, however, if such failure is incapable of being cured within such fifteen (15) business day period and the Party failing to perform has commenced and is diligently pursuing a cure, such period shall be extended for such time as is reasonably necessary to cure such failure up to ninety (90) days. 5.3 This Agreement is conditioned on the continued solvency of Buyer and Seller. If one Party becomes insolvent or seeks bankruptcy relief, the other Party may prospectively terminate this Agreement upon prior written notice without further obligation other than to pay for services or Gas previously provided. In such a circumstance, the Parties will implement wind-up provisions designed to continue reliable provision of service and delivery of Gas. ARTICLE 6- CHANGES TO APPENDICES 6.1. The Parties agree to make changes to Appendices attached to this Agreement as necessary to reflect updates to the Agreement. Such changes shall be consistent with the Agreement terms. ARTICLE 7- OPERATIONS 7.1. Buyer and Seller agree to accept for purposes of this Agreement the applicable quality, delivery pressure, measurement and other applicable rules, procedures, guidelines, tariff provisions, contractual arrangements and policies of suppliers or Transporters, as the same may change from time to time. ARTICLE 8- FORCE MAJEURE 8.1. All obligations of the Parties to this Agreement shall be suspended while and only for so long as compliance is prevented by a cause beyond the control of the Party claiming force majeure, such as an Act of God, war, civil disturbance, operational or performance failure or declaration of force majeure by a supplier, leased storage field operator, Transporter, or other service provider, operational flow order(s), federal or state or local law, or binding order of a court or governmental agency, provided the suspension shall be only to the extent performance was prevented by the event of force majeure. A Party claiming force majeure hereunder shall have the duty to make all reasonable efforts to remedy the force majeure condition as promptly as possible. 8.2. Notice of force majeure must be provided with reasonably full particulars to the other Party at or near the time the Party becomes aware of the force majeure. Notice shall be provided to the designated representatives for Buyer or Seller designated in Appendix F. ARTICLE 9- TRANSPORTATION PENALTIES 9.1. Seller shall be liable for all imbalance or other penalties, cash-outs, or other costs imposed on Buyer or Seller by any third party, including without limitation Seller's upstream or other transporters and Transporters, to the extent that such penalties, cash-outs or other costs are caused by Seller's actions or inaction. Buyer shall be liable for all imbalance or other penalties, cash-outs, or other costs imposed on Buyer or Seller by any third parties, including without limitation Seller's upstream or other transporters and Transporters, to the extent that such penalties, cash-outs or other costs are caused by Buyer's actions or inaction. ARTICLE 10- BILLING AND PAYMENT 10.1. Following each Contract Month, Seller shall furnish, or have furnished, an itemized statement to Buyer stating the amounts due Seller pursuant to this Agreement (the "Statement"). Following the receipt of Seller's Statement, Buyer shall make Payment by the due date. Invoice date, due date, and payment method shall be as specified in Appendix G. 10.2. Interest shall accrue on all late payments commencing on the applicable due date at the then current prime rate of Bank One of Indiana, or its successor, or the maximum lawful rate, whichever is lower. ARTICLE 11- REMEDIES 11.1. If Seller fails to deliver scheduled Gas and such failure to deliver is not excused under Article 8 of this Agreement, then Seller shall reimburse Buyer for the amount of increased cost to Buyer of acquiring replacement Gas, as well as additional fees or penalties incurred as a result of such failure to deliver. The amount owed by Seller to Buyer hereunder shall be calculated as the product of (a) the difference, if positive, between the price paid for replacement Gas including any additional penalties, transportation, fuel and other variable costs incurred to receive such replacement Gas, and the then applicable commodity charge, and (b) the difference between the scheduled Gas and the quantity of Gas actually delivered by Seller. Buyer and Seller agree to act in good faith with respect to purchases of such replacement Gas so as to minimize Seller's obligations to Buyer under this Section. 11.2. If Buyer fails to receive scheduled Gas and such failure to receive is not excused under Article 8 of this Agreement, then Buyer shall reimburse Seller in an amount calculated as the product of (a) the difference, if positive, between the then applicable commodity charge and the price received from a third party purchaser, including any additional penalties, transportation, fuel and other variable costs incurred to deliver Gas to a third party purchaser, and (b) the difference between the scheduled Gas and the quantity of Gas actually received by Buyer. Seller and Buyer agree to cooperate in good faith so as to minimize Buyer's obligations to Seller under this Section. 11.3 Should the Commission impose enforcement penalties on Buyer which were caused by Seller's intentional non-compliance with the Settlement, Seller shall indemnify and hold harmless Buyer for such penalties, and any costs, fees, or expenses associated with defending such action. ARTICLE 12- CORRESPONDENCE 12.1. Except as provided in Section 8.2, any notice, statement or bill shall be in writing and shall be duly delivered when (a) mailed, postage prepaid, by registered, certified, or first-class mail, or (b) sent by prepaid overnight delivery to the applicable address, or (c) sent by hand delivery, or (d) sent by facsimile directed to the appropriate person and facsimile number with hard copy also delivered as in (a), (b), or (c) above. Addresses, telephone numbers, and facsimile numbers are specified in Appendix F. ARTICLE 13- MISCELLANEOUS 13.1. This Agreement is subject to all applicable laws, orders, rules, and regulations of any state or federal governmental body or official having jurisdiction and both Seller and Buyer agree that the transactions agreed to hereunder shall be conditioned upon compliance with all such laws, orders, rules and regulations. 13.2. Seller and Buyer expressly agree that laws of the State of Indiana shall govern the validity, construction, interpretation, and effect of this Agreement. 13.3. Either Party may pledge, mortgage, or assign its rights hereunder as security for indebtedness. This Agreement is otherwise non-assignable except with the prior written consent of Buyer and Seller. 13.4. Notwithstanding any other provisions herein, the Parties hereto waive any and all rights, claims, or causes of action arising under this Agreement for incidental, consequential or punitive damages. Buyer shall have the right to enforce any and all terms of this Agreement against Seller. To the extent performance of this Agreement by either Party conflicts with the Settlement, the Parties will take corrective action in order to ensure that performance is in accordance with the Settlement. The Parties acknowledge that a failure to take timely and appropriate corrective action may subject Buyer to compliance measures by third parties pursuant to Article VII of the Settlement. 13.5. The Parties acknowledge that their respective business records and information are confidential in nature and may contain proprietary and trade secret information. Notwithstanding the foregoing, Seller agrees to provide Buyer access to those records required to verify Seller's statements to Buyer. To the extent access to information is necessary consistent with the Settlement, appropriate protection of proprietary and trade secret information will be afforded. 13.6. No waiver by either Party of one or more defaults or breaches by the other in performance of any of the terms or provisions of this Agreement shall operate or be construed as a waiver of any future default or breach, whether of a like or of a different character. 13.7. The terms and conditions contained in this Agreement and its Appendices herein constitute the full and complete agreement between the Parties and any change to be made must be submitted in writing and executed by both Parties. The Parties acknowledge that this Agreement is effective and must be carried out and enforced in a manner consistent with the Settlement. 13.8. Each Party represents that it has all necessary power and authority to enter into and perform its obligations under this Agreement and that this Agreement constitutes a legal, valid and binding obligation of that Party enforceable against it in accordance with its terms, except as such enforceability may be affected by any bankruptcy law or the application of principles of equity. 13.9. In the event any of the terms, covenants or conditions of this Agreement, or any amendment hereto, or the application of any such terms, covenants or conditions shall be held invalid as to any Party or circumstance by any court having jurisdiction, all other terms, covenants, or conditions of this Agreement, or any amendment hereto, and their application, shall not be affected thereby and shall remain in full force and effect. 13.10. If any provision of this Agreement is declared or rendered unlawful by a court of law or regulatory authority with jurisdiction over either of the parties or deemed unlawful because of a statutory or other change in the law, or if either Party suffers a substantial economic detriment due either to a determination relating to this Agreement by such an authority, or as a result of fundamental changes in the marketplace or other substantial changes in existing circumstances, the Parties will promptly meet to determine and negotiate a mutually acceptable agreement on such replacement provisions necessary to maintain the benefits and obligations that arise under this Agreement. IN WITNESS WHEREOF, the Parties hereto have executed this Agreement in duplicate originals. "SELLER" PROLIANCE ENERGY, LLC By:_/S/John R. Talley ----------------------------- John R. Talley, President "BUYER" SOUTHERN INDIANA GAS AND ELECTRIC COMPANY By:_/S/William S. Doty Its:_Sr. VP Gas Sales And Portfolio Administration Agreement
APPENDICES INDEX Appendices will be submitted to the Commission as a compliance filing following entry of an Order in Consolidated Cause Nos. 37394GCA50S1, 37399GCA50S1, and 42233. Title Appendix Description - ------------------------------------------------------------------------------------- Buyer's Primary Delivery Points A List Primary Delivery Points on appropriate pipelines - ------------------------------------------------------------------------------------- Buyer's Maximum Quantities B Sets forth in Dth, by month and season, Buyer's Maximum Daily Quantities - ------------------------------------------------------------------------------------- Delivery Rights Information C Lists current Transportation Contracts and applicable demand costs - ------------------------------------------------------------------------------------- Supplier Reservation Costs D Lists Monthly and Seasonal Supplier Reservation Costs - ------------------------------------------------------------------------------------- Commodity Purchases-Gas Cost E Incorporates the GCIM that is part of Incentive Mechanism the Settlement Agreement - ------------------------------------------------------------------------------------- Notices F Addresses for purposes of notice to Seller and Buyer - ------------------------------------------------------------------------------------- Invoice/Payment Data G Sets invoice date and payment terms - ------------------------------------------------------------------------------------- "Reserved" H Reserved for future - ------------------------------------------------------------------------------------- "Reserved" I Reserved for future - ------------------------------------------------------------------------------------- Portfolio Services J Specifics on portfolio services - -------------------------------------------------------------------------------------
Gas Sales And Portfolio Administration Agreement APPENDICES INDEX Buyer's Primary Delivery Points A Buyer's Maximum Quantities B Delivery Rights Information C Supplier Reservation Costs D Commodity Purchases-Gas Cost Incentive Mechanism E Notices F Invoice/Payment Data G "Reserved" H Diversion of Entitlements I Portfolio Services J - K SIGECO-Appendix A Gas Sales And Portfolio Administration Agreement Original Page No. 1 September 1, 2002 APPENDIX A - Buyer's Primary Delivery Points Texas Gas Transmission Corporation: Meter No: Meter Station Name: - -------- ------------------- 1810 SIGECO Shipper Deduct (includes all of the following) 1811 Elberfeld 1812 Boonville Road 1813 Long Road 1814 Levee (Evansville) 1815 Haubstadt 1816 Rural-SIGECO 1820 Snake Run 1735 Wagner 1401 Bicknel 1402 Edwardsport 1403 Francisco 1404 Freelandville 1405 Monroe City 1407 Oaktown 1408 Petersburg 1410 Washington Road 1414 Rural-Hoosier Gas Midwestern Gas Transmission: Meter No: Meter Station Name: 02-7071 Chrisney 02-7100 Ohio Valley Hub ANR Gas Pipeline: Meter No: Meter Station Name: 032410100 South Chrisney (SIGECO) SIGECO-Appendix A Gas Sales And Portfolio Administration Agreement Original Page No. 2 September 1, 2002 Texas Eastern Gas Transmission: - ------------------------------- Meter No: Meter Station Name: 70539 Ft. Branch, IN 72648 Southern Indiana Posey Co., IN Ohio Valley Hub, LLC Meter Station Name: Monroe City Storage Field 9401 Texas Gas-Ohio Valley Hub Interconnect Amendment Seller and Buyer agree that this Appendix A may be amended as provided in this Agreement, which amendment ultimately will be memorialized in a revised Appendix A. PROLIANCE ENERGY, LLC. SOUTHERN INDIANA GAS AND ELECTRIC COMPANY By: /S/ T. F. Peak By: /S/ William S. Doty ------------------------------ ------------------------- Terrence F. Peak William S. Doty ------------------------------ ------------------------ Its: Executive Vice President & COO Its: Sr. VP ------------------------------ ------------------------ SIGECO-Appendix B Gas Sales And Portfolio Administration Agreement Original Page No. 1 September 1, 2002 APPENDIX B - Buyer's Maximum Quantities Maximum Daily SIGECO (in Dth) Month Daily - ----- ------ November 66,800 December 106,800 January 106,800 February 106,800 March 66,800 April 62,416 May 49,982 June 49,982 July 49,982 August 49,982 September 49,982 October 66,248 Maximum Seasonal Quantities (in Mcf) Month SIGECO - ----- ------ Summer 4,663,352 Winter 13,978,115 SIGECO-Appendix B Gas Sales And Portfolio Administration Agreement Original Page No. 2 September 1, 2002 APPENDIX B - Buyer's Maximum Quantities Amendment Seller and Buyer agree that this Appendix B may be amended as provided in this Agreement, which amendment ultimately will be memorialized in a revised Appendix B. PROLIANCE ENERGY, LLC. SOUTHERN INDIANA GAS AND ELECTRIC COMPANY By: /S/ T F Peak By: /S/William S. Doty -------------------------- ----------------------- Terrence F. Peak William S. Doty -------------------------- ----------------------- Its: Executive Vice President Its: Sr. VP -------------------------- ----------------------- SIGECO-Appendix C Gas Sales And Portfolio Administration Agreement Original Page No. 1 September 1, 2002 Appendix C - Portfolio Information I. Current Contracts and Contract Rates The applicable demand costs shall be determined based upon the rates and charges specified in each Transporter's Tariff, including any applicable direct bills, surcharges, or as other costs specified by the sheets identified below, or other applicable sheets, as all of those sheets may be in effect from time to time, and costs arising under applicable agreements, for the applicable term of these agreements, including the agreements identified below, as well as this Agreement. While Seller and Buyer agree that the identified tariff sheets and agreements are intended to be a complete listing of the applicable tariff sheets and applicable agreements, they further agree that the omission of the reference of one or more sheets or agreements from that list will not affect Buyer's obligation to Seller for rates, charges and costs incurred thereunder. Seller shall provide to Buyer all Transporter refunds for the applicable terms which are received by Seller relative to the pipeline tariff sheets listed below. Attachment C shall be revised consistent with Section 2.5 of the Settlement at the appropriate time to reflect the adjusted demand rates. Contract No. Contract Rate ----------- ------------- 800065 Sheet No. 35 99714 Sheet No. 6 WDS 1 Appendix J.1 ADS 1 Appendix K.1 ADS 2 Appendix K.2 ADS 3 Appendix K.3 ADS 4 Appendix K.4 ADS 5 Appendix K.5 ADS 6 Appendix K.6 Amendment Seller and Buyer agree that this Appendix C may be amended from time to time by mutual agreement of the Parties, which ultimately will be memorialized in a revised Appendix C. PROLIANCE ENERGY, LLC. SOUTHERN INDIANA GAS AND ELECTRIC COMPANY By: /S/ T F Peak By: /S/ William S. Doty ------------------------- ------------------------- Terrence F. Peak William S. Doty ------------------------- ------------------------- Its: Executive Vice President Its: Sr. VP ------------------------- ------------------------- SIGECO-Appendix D Gas Sales And Portfolio Administration Agreement Original Page No. 1 September 1, 2002 APPENDIX D - Supplier Reservation Costs Supplier Reservation Costs November 1, 2001 through October 31, 2002 I. Reserved Commodity Quantities a. Monthly Baseload Reserved Quantity (Dth/Day) Month Into TGT Into Into MGT to MG/OVH/TGT SIGECO Gulf Coast Backhaul -------- ---------- ---------- November, 2001 9,231 16,202 10,000 December, 2001 9,231 16,202 10,000 January, 2002 9,231 16,202 10,000 February, 2002 9,231 16,014 10,000 March, 2002 9,231 10,588 10,000 April, 2002 5,128 5,063 10,000 May, 2002 11,917 5,063 10,000 June, 2002 12,144 5,063 10,000 July, 2002 5,128 17,476 10,000 August, 2002 5,128 5,063 10,000 September, 2002 5,128 5,063 10,000 October, 2002 8,523 5,063 10,000 Buyer and Seller agree that some portion of the quantities identified as Monthly Baseload Reserved Quantities may be provided at fixed, collared, or hedged prices mutually agreed upon pursuant to the GCIM. SIGECO-Appendix D Gas Sales And Portfolio Administration Agreement Original Page No. 2 September 1, 2002 APPENDIX D - Supplier Reservation Costs b. Daily Swing Reserved Quantity (Dth/Day) System Month Into TGT Into Into MGT - ----- MGT/OVH/TGT to SIGECO Gulf Coast Backhaul --------- ---------- ---------- November, 2001 1,026 9,433 0 December, 2001 0 12,317 0 January, 2002 723 9,089 0 February, 2002 0 0 0 March, 2002 0 0 0 April, 2002 1,709 2,302 0 May, 2002 1,654 9,953 0 June, 2002 1,709 9,228 0 July, 2002 3,309 17,692 0 August, 2002 1,654 11,629 0 September, 2002 1,709 13,557 0 October, 2002 3,309 13,347 0 Buyer and Seller agree that some portion of the quantities identified as Daily Swing Reserved Quantities may be provided at fixed, collared, or hedged prices mutually agreed upon pursuant to the GCIM. II. Applicable Reservation Rates ($/Dth/Day) System Winter Months (Nov.-Mar.) Summer Months (Apr.-Oct.) - ------ ------------------------ ------------------------- Monthly Daily Monthly Daily Index Index Index Index Reserved Reserved Reserved Reserved Quantity Quantity Quantity Quantity SIGECO-Appendix D Gas Sales And Portfolio Administration Agreement Original Page No. 3 September 1, 2002 APPENDIX D - Supplier Reservation Costs Amendment Seller and Buyer agree that this Appendix D may be amended from time to time by mutual agreement of the Parties, which ultimately will be memorialized in a revised Appendix D. PROLIANCE ENERGY, LLC. SOUTHERN INDIANA GAS AND ELECTRIC COMPANY By: /S/ T F Peak By: /S/William S. Doty -------------------------- ----------------------------------- Terrence F. Peak William S. Doty -------------------------- ----------------------------------- Its: Executive Vice President Its: Sr. VP -------------------------- ----------- SIGECO-Appendix E Gas Sales And Portfolio Administration Agreement Original Page No. 1 September 1, 2002 APPENDIX E -Commodity Purchases - Gas Cost Incentive Mechanism The commodity purchased by Buyer shall be provided in accordance with the Commission approved Gas Cost Incentive Mechanism described in Appendix E of the Settlement. All record keeping and reporting shall be performed in a manner consistent with the terms of the GCIM. Seller agrees and acknowledges the reasonableness of the Gas purchases made shall be subject to review to ensure such purchases were made in a manner consistent with the terms of the GCIM. For Summer Storage Refill: For summer refill of leased storage, Buyer shall pay to Seller an amount based on averaging the seven summer monthly indices for the applicable supply area, and based upon presuming storage refill quantities to be equally split between the summer months. For summer refill of company storage, the parties will agree on the extent to which an index average method will be used, after consideration of the operational scheduling needs of company storage. In addition, all other applicable variable costs as identified below shall apply. For Storage Withdrawals: For quantities of storage withdrawals for which Buyer has previously paid for commodity, applicable storage withdrawal variable costs as identified below shall apply. For Applicable Indices: Contract No. Contract Rate Index - ------------ ------------- ------ 800065 Sheet No. 35 TETCO - (ELA, WLA, ETX, STX) 99714 Sheet No. 6 ANR - Louisiana ADS 1 Appendix K.1 Texas Gas - Zone SL ADS 2 Appendix K.2 Texas Gas - Zone SL ADS 3 Appendix K.3 Chicago-LDCs, large e-us SIGECO-Appendix E Gas Sales and Portfolio Administration Agreement Original Page No.2 September 1, 2002 APPENDIX E-Commodity Purchase-Other Variable Costs (Continued) The other variable costs applicable to Nominated Daily Quantities and Balancing Quantities shall be determined based upon the rates and charges applicable under each transporter's tariff, including the sheets identified below, as well as other applicable sheets, as all of those sheets may be in effect from time to time, and costs arising under applicable agreements, including the agreements identified below, as well as this Agreement. SIGECO ANR Texas Eastern Contract No. Contract Rate Contract No. Contract Rate - ------------ ------------- ------------ ------------- 99714 Sheet No. 6 800065 Sheet No. 36 Sheet No. 126 Sheet No. 127 Sheet No. 128 Sheet No. 129 Texas Gas Z-3 Midwestern Contract No. Contract Rate Contract No. Contract Rate - ------------ ------------- ------------ ------------- WDS 1 Appendix J.1 ADS 3 Appendix K.3 ADS 1 Appendix K.1 ADS 2 Appendix K.2 Ohio Valley Hub ADS 5 Appendix K.5 Contract No. Contract Rate ------------ ------------- ADS 6 Appendix K.6 ADS 4 Appendix K.4 SIGECO-Appendix E Gas Sales And Portfolio Administration Agreement Original Page No. 3 September 1, 2002 APPENDIX E - Commodity Purchases - Other Variable Costs While Seller and Buyer agree that the identified tariff sheets and agreements are intended to be a complete listing of the applicable tariff sheets and applicable agreements, they further agree that the omission of the reference of one or more sheets or agreements from that list will not affect Buyer's obligation to Seller for rates, charges and costs incurred thereunder. Amendment Seller and Buyer agree that this Appendix E may be amended from time to time by mutual agreement of the Parties, which ultimately will be memorialized in a revised Appendix E. PROLIANCE ENERGY, LLC SOUTHERN INDIANA GAS AND ELECTRIC COMPANY By: /S/ T F Peak By: /S/ William S. Doty -------------------------- --------------------------------- Terrence F. Peak William S. Doty -------------------------- --------------------------------- Its: Executive Vice President Its: Sr. VP -------------------------- --------------------------------- SIGECO-Appendix F Gas Sales And Portfolio Administration Agreement Original Page No. 1 September 1, 2002 Appendix F- Notices Invoice Information: Buyer: Seller: - ----- ------ Southern Indiana Gas and Electric Company D. Short Gas Control Department ProLiance Energy, LLC Attn.: Stephanie Willis 111 Monument Circle 20 NW Fourth Street Suite 2200 Evansville, In. 47708 Indianapolis, IN 46204-5178 (812) 491-4732 (317) 231-6808 Payments: Buyer: Seller: - ----- ------ National City Bank LaSalle Bank N.A. For the Account of: For the Account of: Southern Indiana Gas and Electric Company ProLiance Energy, LLC ABA #071000505 ACCT #5800281411 Supply Plans/Operational/Force Majeure: Buyer: Seller: - ----- ------ Supply Plans Supply Plans - ------------ ------------ Stephanie Willis Chris Kershner (812) 491-4732 (317) 231-6952 Operational Operational - ----------- ----------- Randy Gary Stephen Miner (812) 491-4730 (317) 231-6828 Force Majeure Force Majeure - ------------- ------------- Randy Gary (812) 491-4730 Chris Kershner - (317) 231-6952 Frank Lindsey (812) 491-4670 Stephen Miner - (317) 231-6828 Gas Controller on Duty (812) 491-4530 Terry Peak - (317) 231-6804 Southern Indiana Gas and Electric Company ProLiance Energy, LLC 20 NW Fourth Street 111 Monument Circle Evansville, In. 47708 Suite 2200 (812) 491-4687 (Telecopy) Indianapolis, Indiana 46204-5178 (317) 231-6901 (Telecopy) All Other Notices: Buyer: Seller: - ----- ------ Gas Control Department ProLiance Energy , LLC Attn.: Randy Gary Attn: John R. Talley 20 NW Fourth Street 111 Monument Circle Evansville, In. 47708 Suite 2200 Indianapolis, Indiana 46204-5178 SIGECO-Appendix F Gas Sales And Portfolio Administration Agreement Original Page No. 2 September 1, 2002 APPENDIX F- Notices (Continued) Amendment Seller and Buyer agree that this Appendix G may be amended from time to time as provided in this Agreement, which amendment ultimately will be memorialized in a revised Appendix G. PROLIANCE ENERGY, LLC. SOUTHERN INDIANA GAS AND ELECTRIC COMPANY By: /S/ T F Peak By: /S/ William S. Doty --------------------------- ----------------------------------- Terrence F. Peak William S. Doty --------------------------- ----------------------------------- Its: Executive Vice President Its: Sr. VP --------------------------- ------------- SIGECO-Appendix G Gas Sales And Portfolio Administration Agreement Original Page No. 1 September 1, 2002 APPENDIX G - Invoice/Payment Data Invoice Date - On or before the tenth (10th) day after the Contract Month. Due Date - Ten (10) days after receipt of invoice. Payment Method - By wire transfer to account specified on invoice. Amendment Seller and Buyer agree that this Appendix G may be amended from time to time by mutual agreement of the Parties, which amendment ultimately will be memorialized in a revised Appendix G. PROLIANCE ENERGY, LLC. SOUTHERN INDIANA GAS AND ELECTRIC COMPANY By: /S/ T F Peak By: /S/ William S. Doty ---------------------------- ------------------------------- Terrence F. Peak William S. Doty ---------------------------- ------------------------------- Its: Executive Vice President Its: Sr. VP ---------------------------- ------------------------------ SIGECO-Appendix J.1 Gas Sales And Portfolio Administration Agreement Original Page No. 1 September 1, 2002 APPENDIX J.1 - Winter Delivery Service 1 Winter Delivery Service 1 TGT ("WDS 1") 1. Starting September 1, 2002, consistent with Buyer's supply plans, Seller shall provide Buyer with WDS 1 with the following delivered service entitlements: Contract Months Maximum Daily Monthly - --------------- ------------- ------- Daily Qty Demand $ --------- -------- November 0 Dth/day December 40,000 Dth/day $136,400.00 January 40,000 Dth/day $136,400.00 February 40,000 Dth/day $123,200.00 Leap Year $127,600.00 March 0 Dth/day April-October 0 Dth/day of NNS 2. Unless otherwise agreed upon, Seller shall provide entitlements from the TGT/Ohio Valley Hub Meter to Buyer's Texas Gas city gate. 3. Buyer shall pay Seller as follows: a. For Nominated Commodity as follows: Purchase quantities will be determined jointly by the parties and priced pursuant to Appendix B. b. For WDS 1 Variable Costs: Applicable pipeline costs if any as agreed to by both parties c. For WDS 1 Demand Costs: As shown in paragraph 1 and other applicable costs, if any billed. d. For WDS 1 Fuel: Fuels under the effective Texas Gas SFT rate schedule. 4. WDS 1 service expires March 31, 2003. 5. Sellers provisions of WDS 1 shall be subject to the provisions of service reflected in Texas Gas FT tariffs, as well as other Texas Gas tariffs as may be applicable to the provision of those services. SIGECO-Appendix J.1 Gas Sales And Portfolio Administration Agreement Original Page No. 2 September 1, 2002 Amendment Seller and Buyer agree that this Appendix J.1 may be amended from time to time by mutual agreement of the Parties which amendment ultimately will be memorialized in a revised Appendix J.1. PROLIANCE ENERGY, LLC. SOUTHERN INDIANA GAS AND ELECTRIC COMPANY By: /S/ T F Peak By: /S/William S. Doty --------------------------- ----------------------------------- Terrence F. Peak William S. Doty --------------------------- ----------------------------------- Its: Executive Vice President Its: Sr. VP --------------------------- ------------- SIGECO-Appendix K.1 Gas Sales And Portfolio Administration Agreement Original Page No. 1 September 1, 2002 APPENDIX K.1 - Annual Delivery Service 1 Annual Delivery Service ("ADS 1") 1. Starting September 1, 2002, consistent with Buyer's supply plans, Seller shall provide Buyer with ADS 1 with the following delivered service entitlements: Contract Months Max Nominated Max Unnominated Total MDQ Monthly - --------------- Daily Qty Daily Qty --------- Demand $ ------------- --------------- ----------- November 9,334 Dth/day 19,166 Dth/day 28,500 Dth/day $324,387.00 December 9,334 Dth/day 19,166 Dth/day 28,500 Dth/day $335,199.90 January 9,334 Dth/day 19,166 Dth/day 28,500 Dth/day $335,199.90 February 9,334 Dth/day 19,166 Dth/day 28,500 Dth/day $302,781.20 Leap Year $313,574.10 March 9,334 Dth/day 19,166 Dth/day 28,500 Dth/day $335,199.90 April 11,682 Dth/day 12,433 Dth/day 24,115 Dth/day $274,932.21 May 11,682 Dth/day 11,682 Dth/day $137,396.67 June 11,682 Dth/day 11,682 Dth/day $132,964.52 July 11,682 Dth/day 11,682 Dth/day $137,396.67 August 11,682 Dth/day 11,682 Dth/day $137,396.67 September 11,682 Dth/day 11,682 Dth/day $132,964.52 October 11,682 Dth/day 16,266 Dth/day 27,948 Dth/day $328,707.61
Nov.-Mar. Apr.-Oct. Maximum Seasonal Qty 1,909,405 2,000,044 Unnominated Winter Seasonal Qty 499,971 SIGECO-Appendix K.1 Gas Sales And Portfolio Administration Agreement Original Page No. 2 September 1, 2002 2. Unless otherwise agreed upon, Seller shall provide entitlements to Buyer's TGT City gate. 3. Buyer shall pay Seller as follows: a. For Unnominated Quantities: Summer purchase quantities will be determined jointly by the parties prior to April 1 of each year to replace quantities delivered during the prior winter season. During each summer month, Buyer shall pay Seller one seventh of the summer purchase quantity times the Texas Gas Monthly Index price. b. For Nominated Commodity as follows: Purchase quantities will be determined jointly by the parties and priced pursuant to Appendix E. c. For ADS 1 Variable Costs: Variable cost rates under the effective Texas Gas NNS rate schedule and other applicable costs, if any as billed. d. For ADS1 Demand Costs: As shown in Paragraph 1 and other applicable costs, if any, as billed. e. For ADS 1 Fuel: Fuels under the effective Texas Gas NNS rate schedule. 4. This ADS 1 service expires October 31, 2003. 5. Seller provisions of ADS 1 shall be subject to the provisions of service reflected in Texas Gas NNS tariffs, as well as other Texas Gas FERC tariffs as may be applicable to the provision of those services. Amendment Seller and Buyer agree that this Appendix K.1 may be amended from time to time by mutual agreement of the Parties which amendment ultimately will be memorialized in a revised Appendix K.1. PROLIANCE ENERGY, LLC. SOUTHERN INDIANA GAS AND ELECTRIC COMPANY By: /S/ T F Peak By: /S/William S. Doty ------------------------- ------------------ Terrence F. Peak William S. Doty ------------------------- --------------- Its: Executive Vice President Its: Sr. VP ------------------------- ------ SIGECO-Appendix K.2 Gas Sales And Portfolio Administration Agreement Original Page No. 1 September 1, 2002 APPENDIX K.2 - Annual Delivery Service 2 Annual Delivery Service 2 TGT ("ADS 2") 1. Starting September 1, 2002, consistent with Buyer's supply plans, Seller shall provide Buyer with ADS 2 with the following delivered service entitlements: Contract Months Max Nominated Monthly --------------- Daily Qty Demand $ ------------- ----------- November 28,300 Dth/day $227,447.10 December 28,300 Dth/day $291,076.67 January 28,300 Dth/day $291,076.67 February 28,300 Dth/day $269,097.96 Leap Year $729,297.53 March 28,300 Dth/day $235,028.67 April 28,300 Dth/day $227,447.10 May 28,300 Dth/day $235,028.67 June 28,300 Dth/day $227,447.10 July 28,300 Dth/day $235,028.67 August 28,300 Dth/day $235,028.67 September 28,300 Dth/day $227,447.10 October 28,300 Dth/day $235,028.67 Maximum Seasonal Qty Nov.-Mar. Apr,-Oct. 4,301,600 6,056,200 SIGECO-Appendix K.2 Gas Sales And Portfolio Administration Agreement Original Page No. 2 September 1, 2002 2. Unless other wise agreed upon, Seller shall provide entitlements to buyer's TGT City Gate. 3. Buyer shall pay Seller as follows: a. For Nominated Commodity as follows: Purchase quantities will be determined jointly by the parties and priced pursuant to Appendix E. b. For ADS 2 Variable Costs: The variable costs per the effective rates under Texas Gas FT rate schedule and other applicable costs, if any as billed. c. For ADS 2 Demand Costs: As shown in paragraph 1 and other applicable costs, if any as billed. d. For ADS 2 Fuel: Fuel under the effective Texas Gas FT rate schedule. 4. The ADS 2 service expires October 31, 2003. 5. Seller provisions of ADS 2 shall be subject to the provisions of service reflected in Texas Gas FT tariffs, as well as other Texas Gas FERC tariffs as may be applicable to the provisions of those services. Amendment Seller and Buyer agree that this Appendix K2 may be amended from time to time by mutual agreement of the Parties which amendment ultimately will be memorialized in a revised Appendix K2. PROLIANCE ENERGY, LLC. SOUTHERN INDIANA GAS AND ELECTRIC COMPANY By: /S/ T F Peak By: /S/ William S. Doty --------------------------- --------------------------- Terrence F. Peak William S. Doty --------------------------- --------------------------- Its: Executive Vice President Its: Sr. VP --------------------------- ----------- SIGECO-Appendix K.3 Gas Sales And Portfolio Administration Agreement Original Page No. 1 September 1, 2002 APPENDIX K.3 - Annual Delivery Service 3 Annual Delivery Service 3 MGT ("ADS 3") 1. Starting September 1, 2002, consistent with Buyer's supply plans, Seller shall provide Buyer with ADS 2 with the following delivered service entitlements: Contract Months Maximum Nominated Monthly - --------------- Daily Qty Demand $ ------------------ ---------- November 50,000 Dth/day $106,047.00 December 50,000 Dth/day $106,047.00 January 50,000 Dth/day $106,047.00 February 50,000 Dth/day $106,047.00 March 50,000 Dth/day $106,047.00 April 50,000 Dth/day $106,047.00 May 50,000 Dth/day $106,047.00 June 50,000 Dth/day $106,047.00 July 50,000 Dth/day $106,047.00 August 50,000 Dth/day $106,047.00 September 50,000 Dth/day $106,047.00 October 50,000 Dth/day $106,047.00 2. Unless otherwise agreed upon, Seller shall provide entitlements to Buyer's system. 3. Buyer shall pay Seller as follows: a. For Nominated Commodity as follows: Purchase quantities will be determined jointly by the parties and priced pursuant to Appendix E. SIGECO-Appendix K.3 Gas Sales And Portfolio Administration Agreement Original Page No. 2 September 1, 2002 b. For ADS 3 Variable Costs: Variable Cost Rates under the effective Midwestern FT rate schedule and other applicable costs, if any as billed. c. For ADS 3 Demand Costs: As shown in paragraph 1 and other applicable costs, if any as billed. d. For ADS 3 Fuel: Fuels under the effective Midwestern FT rate schedule. 4. Term: 10,000 Dth/day of Nominated Daily Quantity expires October 31, 2003. 40,000 Dth/day of Nominated Daily Quantity expires October 31, 2006. 5. Seller provisions of ADS 3 shall be subject to the provisions of service reflected in the Midwestern FT tariff, as well as other Midwestern FERC tariffs as may be applicable to the provision of those services. Amendment Seller and Buyer agree that this Appendix K.3 may be amended from time to time by mutual agreement of the Parties which amendment ultimately will be memorialized in a revised Appendix K.3. PROLIANCE ENERGY, LLC. SOUTHERN INDIANA GAS AND ELECTRIC COMPANY By: /S/ T F Peak By: /S/ William S. Doty ---------------------------- ------------------------------ Terrence F. Peak William S. Doty ---------------------------- ------------------------------ Its: Executive Vice President Its: Sr. VP ---------------------------- ----------- SIGECO-Appendix K.4 Gas Sales And Portfolio Administration Agreement Original Page No. 1 September 1, 2002 APPENDIX K.4 - Annual Delivery Service 4 Annual Delivery Service 4 TGT ("ADS 4") 1. Starting September 1, 2002, consistent with Buyer's supply plans, Seller shall provide Buyer with ADS 4 with the following delivered service entitlements: Contract Months Maximum Nominated Monthly - --------------- Daily Qty Demand $ ----------------- --------- November 40,000 Dth/day $96,000.00 December 40,000 Dth/day $99,200.00 January 40,000 Dth/day $99,200.00 February 40,000 Dth/day $89,600.00 Leap Year $92,800.00 March 40,000 Dth/day $99,200.00 April 40,000 Dth/day $96,000.00 May 40,000 Dth/day $99,200.00 June 40,000 Dth/day $96,000.00 July 40,000 Dth/day $99,200.00 August 40,000 Dth/day $99,200.00 September 40,000 Dth/day $96,000.00 October 40,000 Dth/day $99,200.00 3. Unless otherwise agreed, Seller shall provide entitlements to Buyer's City gate. 3. Buyer shall pay Seller as follows: a. For Nominated Commodity as follows: Purchase quantities will be determined jointly by the parties and priced pursuant to Appendix E. b. For ADS 4 Variable Costs: Variable Cost Rate of $0.31/Dth and other applicable costs, if any as billed. c. For ADS 4 Demand Costs: As shown in paragraph 1 and other applicable costs, if any as billed. SIGECO-Appendix K.4 Gas Sales And Portfolio Administration Agreement Original Page No. 2 September 1, 2002 4. This ADS 4 service expires October 31, 2009. 5. Sellers provisions of ADS 4 shall be subject to the provisions of service reflected in Ohio Valley Hub FT tariffs, as well as other Ohio Valley Hub tariffs as my be applicable to the provision of those services. Amendment Seller and Buyer agree that this Appendix K.4 may be amended from time to time by mutual agreement of the Parties which amendment ultimately will be memorialized in a revised Appendix K.4. PROLIANCE ENERGY, LLC. SOUTHERN INDIANA GAS AND ELECTRIC COMPANY By: /S/ T F Peak By: /S/ William S. Doty --------------------------- ------------------------------- Terrence F. Peak William S. Doty --------------------------- ------------------------------- Its: Executive Vice President Its: Sr. VP _ --------------------------- ------------------- SIGECO-Appendix K.5 Gas Sales And Portfolio Administration Agreement Original Page No. 1 September 1, 2002 APPENDIX K.5 - Annual Delivery Service 5 Annual Delivery Service 5 TGT ("ADS 5") 1. Starting September 1, 2002, consistent with the Buyer's supply plans, Seller shall provide Buyer with ADS 5 with the following delivered service entitlements: Contract Months Max Nominated Daily Qty November 40,000 Dth/day December 0 Dth/day January 0 Dth/day February 0 Dth/day March 40,000 Dth/day April 20,000 Dth/day May 20,000 Dth/day June 20,000 Dth/day July 20,000 Dth/day August 20,000 Dth/day September 20,000 Dth/day October 20,000 Dth/day . 2. Unless otherwise agreed upon. Seller shall provide entitlements from the TGT/Ohio Valley Hub Meter to Buyer's Texas Gas city gate. 3. Buyer shall pay Seller as follows: a. For Nominated Commodity as follows: Purchase quantities will be determined jointly by the parties and priced pursuant to Appendix E. b. For ADS 5 Variable Costs: Variable Rate of $.2941/Dth and other applicable costs, if any as billed. c. For ADS 5 Fuel: Fuels under the effective Texas Gas IT rate schedule. SIGECO-Appendix K.5 Gas Sales And Portfolio Administration Agreement Original Page No. 2 September 1, 2002 4. This ADS 5 service expires October 31, 2003. 5. Seller provisions of ADS 5 shall be subject to the provisions of service reflected in Texas Gas IT tariffs, as well as other Texas Gas tariffs as may be applicable to the provision of those services. Amendment Seller and Buyer agree that this Appendix K.5 may be amended from time to time by mutual agreement of the Parties which amendment ultimately will be memorialized in a revised Appendix K.5. PROLIANCE ENERGY, LLC. SOUTHERN INDIANA GAS AND ELECTRIC COMPANY By: /S/ T F Peak By: /S/William S. Doty --------------------------- --------------------------- Terrence F. Peak William S. Doty --------------------------- --------------------------- Its: Executive Vice President Its: Sr. VP --------------------------- ------------- SIGECO-Appendix K.6 Gas Sales And Portfolio Administration Agreement Original Page No. 1 September 1, 2002 APPENDIX K.6 - Annual Delivery Service 6 Winter Delivery Service 6 TGT ("ADS 6") 1. ADS 6 shall incorporate the Interruptible features, cyclability, annual storage deliverability, and other services provisions ("Service Provisions") reflected in Texas Gas FERC Tariff for ISS. 2. Seller shall provide Buyer with ADS 6 with the following delivered service entitlements: Contract Maximum Daily Maximum Annual ADS 6 -------- ------------- -------------------- Months In/With ADS 6 ------ ------------- November 50,000 Dth/day 1,000,000 Dth during any winter period. December 50,000 Dth/day January 50,000 Dth/day February 50,000 Dth/day March 50,000 Dth/day April-October* 50,000 Dth/day 2. Unless otherwise agreed upon, Seller shall provide entitlements to Buyer's City gate. 3. Buyer shall pay Seller as follows: a. For Nominated Commodity as follows: Purchase quantities will be determined jointly by the parties and priced pursuant to Appendix E. c. For ADS 6 Variable Costs: Variable Cost Rates under the effective Texas Gas ISS rate schedule. d. For ADS 6 Demand Costs: Demand Cost Rates under the effective Texas Gas ISS rate schedule. e. For ADS 6 Fuel: Fuels under the effective Texas Gas ISS rate schedule. SIGECO-Appendix K.6 Gas Sales And Portfolio Administration Agreement Original Page No. 2 September 1, 2002 4. This ADS 6 service expires October 31, 2009. 5. Sellers provisions of ADS 6 shall be subject to the provisions of service reflected in Texas Gas ISS tariffs, as well as other Texas Gas ISS tariffs as may be applicable to the provision of those services Amendment Seller and Buyer agree that this Appendix K.6 may be amended from time to time by mutual agreement of the Parties which amendment ultimately will be memorialized in a revised Appendix K.6 PROLIANCE ENERGY, LLC. SOUTHERN INDIANA GAS AND ELECTRIC COMPANY By: /S/ T F Peak By: /S/ William S. Doty --------------------------- ----------------------------- Terrence F. Peak William S. Doty --------------------------- ----------------------------- Its: Executive Vice President Its: Sr. VP --------------------------- ----------------- -----END PRIVACY-ENHANCED MESSAGE-----