EX 99-1
The interim financial statements of Southern Indiana Gas and Electric Company
(SIGECO, Vectren South, or the Company) included below have been prepared
without audit. The Company believes that the information in these interim
financial statements reflects all adjustments necessary to fairly state the
results of the periods reported. These interim financial statements should be
read in conjunction with the Company's audited annual financial statements for
the year ended December 31, 2003. Additional information on the Company's
material commitments and contingencies and rate and regulatory matters are
updated in quarterly reports on Form 10-Q filed by Vectren Corporation (Vectren)
and Vectren Utility Holdings, Inc. (VUHI), the parent companies of SIGECO.
Vectren and VUHI make available their Securities and Exchange Commission filings
and recent annual reports free of charge through Vectren's website at
www.vectren.com. Because of the seasonal nature of the Company's utility
operations, the results shown on a quarterly basis are not necessarily
indicative of annual results.
FREQUENTLY USED TERMS
MCF/MMCF/BCF: thousands/millions/ MWh/GWh: megawatt hours/thousands
billions of cubic feet of megawatt hours (gigawatt hours)
MDth/MMDth: thousands/millions of NOx: nitrogen oxide
dekatherms
MMBTU: millions of British thermal USEPA: United States Environmental
units Protection Agency
MW: megawatts Throughput: combined gas sales and gas
transportation volumes
FINANCIAL INFORMATION
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
CONDENSED BALANCE SHEETS
(Unaudited - In thousands)
- -------------------------------------------------------------------------------
June 30, December 31,
2004 2003
- -------------------------------------------------------------------------------
ASSETS
Utility Plant
Original cost $1,721,296 $1,659,527
Less: accumulated depreciation &
amortization 742,483 719,787
- -------------------------------------------------------------------------------
Net utility plant 978,813 939,740
- -------------------------------------------------------------------------------
Current Assets
Cash & cash equivalents 4,338 3,675
Accounts receivable-less reserves of
$1,484 & $1,202, respectively 38,136 38,817
Receivables due from other Vectren
companies 35 76
Accrued unbilled revenues 23,266 28,162
Inventories 38,452 37,214
Recoverable fuel & natural gas costs 2,402 3,900
Prepayments & other current assets 21,105 4,875
- -------------------------------------------------------------------------------
Total current assets 127,734 116,719
- -------------------------------------------------------------------------------
Investment in unconsolidated affiliates 150 150
Other investments 10,361 10,474
Non-utility property-net 3,668 3,769
Goodwill 5,557 5,557
Regulatory assets 50,723 54,625
Other assets - 688
- -------------------------------------------------------------------------------
TOTAL ASSETS $1,177,006 $1,131,722
===============================================================================
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
CONDENSED BALANCE SHEETS
(Unaudited - In thousands)
- -------------------------------------------------------------------------------
June 30, December 31,
2004 2003
- -------------------------------------------------------------------------------
LIABILITIES & SHAREHOLDER'S EQUITY
Capitalization
Common Shareholder's Equity
Common stock (no par value) $ 128,258 $ 128,258
Retained earnings 259,657 266,911
- -------------------------------------------------------------------------------
Total common shareholder's equity 387,915 395,169
- -------------------------------------------------------------------------------
Cumulative, redeemable preferred stock 112 228
Long-term debt payable to third parties-
net of current maturities & debt
subject to tender 193,656 216,330
Long-term debt payable to VUHI 148,484 148,484
- -------------------------------------------------------------------------------
Total capitalization 730,167 760,211
- -------------------------------------------------------------------------------
Current Liabilities
Accounts payable 19,612 18,437
Accounts payable to affiliated companies 8,830 8,312
Payables to other Vectren companies 12,246 11,456
Accrued liabilities 40,042 38,619
Short-term borrowings - 830
Short-term borrowings payable to VUHI 124,243 82,929
Current maturities of long-term debt 32,775 -
Long-term debt subject to tender - 9,975
- -------------------------------------------------------------------------------
Total current liabilities 237,748 170,558
- -------------------------------------------------------------------------------
Deferred Income Taxes & Other Liabilities
Deferred income taxes 116,267 109,951
Regulatory liabilities & other removal
costs 49,873 48,153
Deferred credits & other liabilities 42,951 42,849
- -------------------------------------------------------------------------------
Total deferred credits & other
liabilities 209,091 200,953
- -------------------------------------------------------------------------------
TOTAL LIABILITIES & SHAREHOLDER'S EQUITY $1,177,006 $1,131,722
===============================================================================
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
CONDENSED STATEMENTS OF INCOME
(Unaudited - In thousands)
- --------------------------------------------------------------------------------------
Three Months Six Months
Ended June 30, Ended June 30,
2004 2003 2004 2003
- --------------------------------------------------------------------------------------
OPERATING REVENUES
Electric utility $ 89,061 $ 75,170 $177,858 $158,711
Gas utility 15,560 14,430 63,567 65,957
- --------------------------------------------------------------------------------------
Total operating revenues 104,621 89,600 241,425 224,668
- --------------------------------------------------------------------------------------
COST OF OPERATING REVENUES
Fuel for electric generation 23,777 20,560 46,637 41,311
Purchased electric energy 6,777 3,753 11,234 8,333
Cost of gas sold 9,948 8,603 47,763 50,014
- --------------------------------------------------------------------------------------
Total cost of operating revenues 40,502 32,916 105,634 99,658
- --------------------------------------------------------------------------------------
TOTAL OPERATING MARGIN 64,119 56,684 135,791 125,010
OPERATING EXPENSES
Other operating 30,206 26,756 60,197 52,712
Depreciation & amortization 13,185 11,698 29,706 23,274
Income taxes 4,955 2,778 11,301 12,400
Taxes other than income taxes 3,050 2,672 6,555 5,959
- --------------------------------------------------------------------------------------
Total operating expenses 51,396 43,904 107,759 94,345
- --------------------------------------------------------------------------------------
OPERATING INCOME 12,723 12,780 28,032 30,665
Other income-net 760 472 1,722 1,162
Interest expense 6,260 6,255 12,485 12,382
- --------------------------------------------------------------------------------------
NET INCOME 7,223 6,997 17,269 19,445
- --------------------------------------------------------------------------------------
Preferred stock dividends 2 5 9 14
- --------------------------------------------------------------------------------------
NET INCOME APPLICABLE TO COMMON
SHAREHOLDER $ 7,221 $ 6,992 $ 17,260 $ 19,431
======================================================================================
SOUTHERN INDIANA GAS AND ELECTRIC COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited-In thousands)
Six Months Ended June 30
- ----------------------------------------------------------------------------
2004 2003
- ----------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES $ 50,181 $ 50,198
- ----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Requirements for:
Dividends to parent (24,514) (10,919)
Redemption of preferred stock (116) (116)
Dividends on preferred stock (2) (9)
Net change in short-term borrowings 40,484 (6,704)
- ----------------------------------------------------------------------------
Net cash flows from financing activities 15,852 (17,748)
- ----------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Requirements for capital expenditures,
excluding AFUDC equity (65,440) (28,896)
- ----------------------------------------------------------------------------
Net cash flows from investing activities (65,440) (28,896)
- ----------------------------------------------------------------------------
Net increase in cash & cash equivalents 593 3,554
Cash & cash equivalents at beginning of period 3,675 2,145
- ----------------------------------------------------------------------------
Cash & cash equivalents at end of period $ 4,268 $ 5,699
============================================================================
SEGMENT INFORMATION
Information related to the Company's business segments is summarized below:
- -------------------------------------------------------------------------------
Three Months Six Months
Ended June 30, Ended June 30,
(In thousands) 2004 2003 2004 2003
- -------------------------------------------------------------------------------
Revenues
Electric Utility Services $ 89,061 $75,170 $177,858 $158,711
Gas Utility Services 15,560 14,430 63,567 65,957
- -------------------------------------------------------------------------------
Total Revenues $104,621 $89,600 $241,425 $224,668
===============================================================================
Profitability Measure
Operating Income
Electric Utility Services $ 13,155 $12,151 $ 26,502 $ 27,682
Gas Utility Services (432) 629 1,530 2,983
- -------------------------------------------------------------------------------
Total Operating Income $ 12,723 $12,780 $ 28,032 $ 30,665
===============================================================================
RESULTS OF OPERATIONS
EXECUTIVE SUMMARY OF RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
unaudited condensed financial statements and notes thereto and the quarterly
reports filed on Form 10-Q of both Vectren and VUHI.
Earnings for the second quarter of 2004 were $7.2 million compared to $6.9
million for the same quarter last year. The $0.3 million increase was primarily
due to the return on additional NOx related environmental expenditures and
weather, offset by results from wholesale power activities and increased
maintenance costs. Earnings were $17.3 million for the six months ended June 30,
2004, compared to $19.4 million in the prior year. The $2.1 million decrease was
primarily due to lower margins from wholesale power activities and increased
maintenance costs. This decrease was partially offset by the return on
additional NOx related expenditures and increased electric customer usage. The
Company estimates that weather favorably impacted second quarter earnings by
approximately $2.4 million after tax and year-to-date results by $1.5 million
after tax.
The Company generates revenue primarily from the delivery of natural gas and
electric service to its customers. The primary source of cash flow results from
the collection of customer bills and the payment for goods and services procured
for the delivery of gas and electric services. The results are impacted by
weather patterns in its service territory and general economic conditions both
in its service territory as well as nationally.
Vectren has in place a disclosure committee that consists of senior management
as well as financial management. The committee is actively involved in the
preparation and review of SIGECO's parent companies' SEC filings.
SIGNIFICANT FLUCTUATIONS
Margin
Margin generated from the sale of natural gas and electricity to small customers
(generally residential and commercial customers) is seasonal and impacted by
weather patterns in its service territory. Margin generated from sales to large
customers (generally industrial and other contract and firm wholesale customers)
is impacted by overall economic conditions. Margin is also impacted by the
collection of state mandated taxes which fluctuate with gas costs and also some
level of price sensitive fluctuation in volumes sold. Electric generating asset
optimization activities are primarily affected by market conditions, the level
of excess generating capacity, and electric transmission availability. Following
is a discussion and analysis of margin generated from regulated utility
operations.
Electric Utility Margin (Electric Utility Revenues less Fuel for Electric
Generation and Purchased Electric Energy)
Electric Utility margin by revenue type follows:
Three Months Six Months
Ended June 30, Ended June 30,
------------------ -------------------
(In thousands) 2004 2003 2004 2003
- --------------------------------------------------------------------------------
Residential & commercial $40,199 $29,440 $ 75,663 $ 62,734
Industrial 15,770 12,791 30,216 25,126
Municipalities & other 4,277 4,640 8,808 9,083
- --------------------------------------------------------------------------------
Total retail & firm wholesale 60,246 46,871 114,687 96,943
Asset optimization (1,739) 3,986 5,300 12,124
- --------------------------------------------------------------------------------
Total electric utility margin $58,507 $50,857 $119,987 $109,067
================================================================================
Retail & Firm Wholesale Margin
Electric retail and firm wholesale utility margins were $60.2 million and $114.7
million for the three and six months ended June 30, 2004. This represents an
increase over the same period last year of $13.4 million and $17.7 million,
respectively. Margins increased $3.9 million quarter over quarter and $7.6
million for the six month periods due to an increase in retail electric rates
related to the recovery of NOx related expenditures. Excluding the effects of
NOx recovery, margins from industrial customers increased $1.8 million for the
quarter and $2.8 million for the year to date over 2003, which reflects some
economic recovery. Margin from small customers (excluding the effects of NOx)
increased over $8 million for both the quarter and year to date due to weather
and increased usage. Weather for the quarter was 20% warmer than normal and 111%
warmer than last year. Weather for the six months was also 20% warmer than
normal and 114% warmer than last year. The estimated increase in margin due to
weather was $4.0 million and $3.3 million for the three and six month periods,
respectively, compared to the prior year. Due to the above factors, volumes sold
increased 9% to 3.1 GWh for the six months ended June 30, 2004, compared to 2.8
GWh in 2003.
Margin from Asset Optimization Activities
Periodically, generation capacity is in excess of that needed to serve native
load and firm wholesale customers. The Company markets this unutilized capacity
to optimize the return on its owned generation assets. Substantially all of
these contracts are integrated with portfolio requirements around power supply
and delivery and are short-term purchase and sale transactions that expose the
Company to limited market risk.
Following is a reconciliation of asset optimization activity:
Three Months Six Months
Ended June 30, Ended June 30,
-------------------- --------------------
(In thousands) 2004 2003 2004 2003
- ------------------------------------------------------------------------------------
Beginning of Period Net Asset
Optimization Position $ 3,388 $ (363) $ (424) $ (718)
Statement of Income Activity
Net mark-to-market (losses) gains (2,066) (54) 773 869
Net realized gains recognized 327 4,040 4,527 11,255
- ------------------------------------------------------------------------------------
Asset optimization margin (1,739) 3,986 5,300 12,124
- ------------------------------------------------------------------------------------
Net cash paid (received) & other
adjustments 532 (3,584) (2,695) (11,367)
- ------------------------------------------------------------------------------------
End of Period Net Asset
Optimization Position $ 2,181 $ 39 $ 2,181 $ 39
====================================================================================
Net wholesale margins declined $5.7 million and $6.8 million for the three and
six month periods as compared to last year. The decrease in margin both for the
quarter and year-to-date is due largely to less excess capacity. Increases in
demand by native load customers and scheduled outages of owned generation
related to the installation of environmental compliance equipment reduced the
availability of excess power, lowering wholesale margins.
Following is information regarding asset optimization activities included in
Electric utility revenues and Fuel for electric generation in the Statements of
Income:
Three Months Six Months
Ended June 30, Ended June 30,
-------------------- ---------------------
In thousands) 2004 2003 2004 2003
- ------------------------------------------------------------------------------------
Activity related to:
Sales contracts $ 30,800 $ 21,006 $ 42,710 $ 68,243
Purchase contracts (28,108) (14,982) (34,113) (51,723)
Net mark-to-market (losses) gains (2,066) (54) 773 869
- ------------------------------------------------------------------------------------
Net asset optimization revenue 626 5,970 9,370 17,389
- ------------------------------------------------------------------------------------
Fuel for electric generation 2,365 1,984 4,070 5,265
- ------------------------------------------------------------------------------------
Asset optimization margin $ (1,739) $ 3,986 $ 5,300 $ 12,124
====================================================================================
Gas Utility Margin (Gas Utility Revenues less Cost of Gas Sold)
Gas Utility margin and throughput by customer type follows:
Three Months Six Months
Ended June 30, Ended June 30,
---------------- -------------------
(In thousands) 2004 2003 2004 2003
- ---------------------------------------------------- --------------------------
Residential & commercial $4,330 $4,783 $12,769 $13,110
Contract 940 820 2,217 2,368
Other 342 224 818 465
- -------------------------------------------------------------------------------
Total gas utility margin $5,612 $5,827 $15,804 $15,943
===============================================================================
Volumes in MDth:
Sold to residential & commercial
customers 1,241 1,425 7,144 7,976
Sold & transported to contract
customers 4,415 4,185 9,682 10,109
- -------------------------------------------------------------------------------
Total throughput 5,656 5,610 16,826 18,085
===============================================================================
Gas utility margins were $5.6 million and $15.8 million for the three and six
months ended June 30, 2004 and generally unchanged from the prior year.
Year-to-date heating weather was 5% warmer than normal and 11% warmer than last
year, causing a decline in margin of $0.7 million compared to the six months
ended June 30, 2003. Gas sold and transported volumes were 7% less in the six
months ended June 30, 2004, compared to the prior year. The decreased throughput
was primarily attributable to weather and partially offset by customer growth
and a 5% increase in volumes for contract customers for the second quarter 2004
compared to 2003. The average cost per dekatherm of gas purchased for the six
months ended June 30, 2004, was $6.00 compared to $5.90 in 2003.
OPERATING EXPENSES
Other operating
For the three and six months ended June 30, 2004, other operating expenses
increased $3.5 million and $7.5 million, respectively, compared to 2003. For the
quarter and year-to-date, additional NOx related operating expenses were $1.6
million and $2.2 million, respectively. For the quarter and year-to-date,
maintenance increases were $1.7 million and $2.0 million, respectively, due
primarily to planned turbine maintenance. Both the quarterly and year-to-date
periods are also affected by higher labor and benefit costs and increased
corporate charges for use of assets. Year-to-date bad debt expense is $0.8
million higher than the prior year.
Depreciation & amortization
For the three and six months ended June 30, 2004, depreciation and amortization
expenses increased $1.5 million and $6.4 million, respectively, compared to
2003. For the quarter and year-to-date, additional NOx related depreciation was
$0.6 million and $1.9 million, respectively. The year-to-date increase also
includes $3.6 million of additional depreciation resulting from a true-up of
demand side management amortization to existing regulatory orders recorded in
the first quarter of 2004. Remaining increases are primarily due to normal
additions to utility plant.
Taxes other than income taxes
For the three and six months ended June 30, 2004, taxes other than income taxes
increased $0.4 million and $0.6 million, respectively, compared to 2003. The
quarter and year-to-date increases are primarily attributable to higher utility
receipts taxes on higher electric sales, compared to the prior year.
Income Taxes
For the three months ended June 30, 2004, income taxes increased $2.2 million
compared to 2003, and year-to-date have decreased $1.1 million, primarily due to
fluctuation in income before taxes.
Total Other Income-Net
For the three and six months ended June 30, 2004, total other income (expense)
increased $0.3 million and $0.6 million, respectively, compared to 2003. The
increase was primarily attributable to charges in the second quarter of 2003
associated with the Culley settlement with the USEPA totaling $0.6 million.
SELECTED ELECTRIC OPERATING STATISTICS
Three Months Six Months Twelve Months
Ended June 30, Ended June 30, Ended June 30,
----------------------- ----------------------- -----------------------
2004 2003 2004 2003 2004 2003
OPERATING REVENUES (In thousands):
Residential $ 29,703 $ 20,401 $ 57,197 $ 46,397 $ 116,181 $ 108,017
Commercial 24,307 18,716 44,443 37,481 89,230 80,410
Industrial 27,586 23,449 53,104 44,500 101,350 91,823
Misc. Revenue 857 1,449 2,322 2,936 6,571 5,436
---------------------------------------------------------------------------
Total System 82,453 64,015 157,066 131,314 313,332 285,686
-------------------------------------------------------------- ------------
Municipals 5,982 5,185 11,421 10,008 22,947 21,331
Other Wholesale 626 5,970 9,371 17,389 18,562 32,900
--------------------------------------------------------------- -----------
$ 89,061 $ 75,170 $ 177,858 $ 158,711 $ 354,841 $ 339,917
===========================================================================
MARGIN (In thousands):
Residential $ 23,181 $ 16,110 $ 44,236 $ 35,891 $ 90,295 $ 84,708
Commercial 17,018 13,330 31,427 26,843 63,694 58,476
Industrial 15,770 12,791 30,216 25,126 58,623 54,121
Misc. Revenue 825 1,428 2,254 2,857 6,457 5,278
---------------------------------------------------------------------------
Total System 56,794 43,659 108,133 90,717 219,069 202,583
---------------------------------------------------------------------------
Municipals 3,452 3,212 6,554 6,226 13,443 12,682
Other Wholesale (1,739) 3,986 5,300 12,124 11,453 21,712
------------ --------------------------------------------------------------
$ 58,507 $ 50,857 $ 119,987 $ 109,067 $ 243,965 $ 236,977
===========================================================================
ELECTRIC SALES (In MWh):
Residential 362,713 261,504 740,263 656,319 1,525,650 1,543,253
Commercial 397,388 328,998 728,331 662,844 1,487,614 1,448,478
Industrial 642,456 651,770 1,277,725 1,205,681 2,488,929 2,493,342
Misc. Sales 2,791 4,235 6,452 9,349 14,313 18,998
---------------------------------------------------------------------------
Total System 1,405,348 1,246,507 2,752,771 2,534,193 5,516,506 5,504,071
---------------------------------------------------------------------------
Municipals 157,985 145,936 310,212 279,748 631,388 606,836
Other Wholesale 593,800 576,700 1,105,114 2,025,050 3,385,254 7,100,763
---------------------------------------------------------------------------
2,157,133 1,969,143 4,168,097 4,838,991 9,533,148 13,211,670
===========================================================================
AVERAGE CUSTOMERS:
Residential 117,994 116,719 118,121 116,887 117,697 116,654
Commercial 17,044 16,975 17,042 16,955 17,026 16,948
Industrial 154 177 155 177 157 175
All others 21 21 21 21 21 22
---------------------------------------------------------------------------
135,213 133,892 135,339 134,040 134,901 133,799
===========================================================================
WEATHER AS A % OF NORMAL:
Cooling Degree Days 120% 57% 120% 56% 101% 104%
Heating Degree Days 93% 105% 95% 106% 93% 107%
SELECTED GAS OPERATING STATISTICS
Three Months Six Months Twelve Months
Ended June 30, Ended June 30, Ended June 30,
-------------------- -------------------- -------------------
2004 2003 2004 2003 2004 2003
OPERATING REVENUES (In Thousands):
Residential $ 9,303 $ 9,048 $ 41,729 $ 43,601 $ 65,974 $ 68,879
Commercial 4,232 3,873 16,916 17,671 27,713 27,510
Contract 1,688 1,305 4,132 4,261 5,416 5,556
Misc. Revenue 338 205 790 424 1,243 1,634
-------------------------------------------------------------------
$ 15,561 $ 14,431 $ 63,567 $ 65,957 $100,346 $103,579
===================================================================
MARGIN (In thousands):
Residential $ 3,430 $ 3,863 $ 9,960 $ 10,311 $ 18,639 $ 19,710
Commercial 900 920 2,809 2,799 5,377 5,263
Contract 940 820 2,217 2,368 3,873 4,310
Misc. Revenue 342 224 818 465 1,283 845
-------------------------------------------------------------------
$ 5,612 $ 5,827 $ 15,804 $ 15,943 $ 29,172 $ 30,128
===================================================================
GAS SOLD & TRANSPORTED
(In MDth):
Residential 799 898 4,996 5,495 7,956 9,350
Commercial 442 527 2,148 2,481 3,707 4,300
Contract 4,415 4,185 9,682 10,109 18,625 19,692
-------------------------------------------------------------------
5,656 5,610 16,826 18,085 30,288 33,342
===================================================================
AVERAGE CUSTOMERS:
Residential 100,038 99,562 100,747 100,347 100,276 100,172
Commercial 9,944 9,984 10,027 10,072 9,999 10,052
Contract 156 213 157 214 162 210
-------------------------------------------------------------------
110,138 109,759 110,931 110,633 110,437 110,434
===================================================================
WEATHER AS A % OF NORMAL:
Heating Degree Days 93% 105% 95% 106% 93% 107%