Upload
others
View
1
Download
0
Embed Size (px)
Citation preview
1
AGA Financial Forum
Investor PresentationMay 17-18, 2010
2
Forward-Looking StatementsAll statements other than statements of historical fact are forward-looking statements made in good faith by the company and are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Such statements are based on management’s beliefs, as well as assumptions made by and information currently available to management and include such words as “believe”, “anticipate”, ”endeavor”, “estimate”, “expect”, “objective”, “projection”, “forecast”, “goal”, “likely”, and similar expressions intended to identify forward-looking statements.
Vectren cautions readers that the assumptions forming the basis for forward-looking statements include many factors that are beyond Vectren’s ability to control or estimate precisely and actual results could differ materially from those contained in this document. Forward-looking statements speak only as of the date on which our statement is made, and we assume no duty to update them. More detailed information about these factors is set forth in Vectren’s filings with the Securities and Exchange Commission, including Vectren’s 2009 annual report on Form 10-K filed on February 26, 2010.
Steven M. Schein, VP – Investor Relations [email protected]
812-491-4209
3
Vectren Utility Holdings
Vectren Enterprises
Vectren North Indiana Gas
Vectren South SIGECO - Electric
Vectren South SIGECO - Gas
Vectren Ohio VEDO
Energy Marketing& Services
Coal MiningEnergy
InfrastructureServices
OtherInvestments
ProLiance Energy
(61%) *
Vectren Source Oaktown #2
Mine(under development)
Oaktown #1 Mine
Miller Pipeline
Energy Systems Group
Prosperity Mine
* Jointly owned with a subsidiary of Citizens Energy Group
Vectren at a Glance
4
Nonutility Business Operations - Offices
Vectren Energy Delivery of Indiana - North
Vectren Energy Delivery of Indiana - South
Vectren Energy Delivery of Ohio
Utility Service Territories
IndianapolisColumbus
Louisville
Cincinnati
Birmingham
Little Rock
York
Baltimore
South River
Kansas City
New SmyrnaBeach
ChicagoDayton
Evansville
St. Louis
Atlanta
Johnson City
Richmond
Raleigh
Nashville
Clearwater
Ft. Worth Mobile
Clarksdale
Lansing
Greenville
Dover
Dallas
Toledo
ProLiance
Miller Pipeline
Energy Systems Group
Vectren’s Footprint
5
Vectren Today
Solid performance in a difficult economic environment Continued progress in regulatory strategy
• Provides stability in margin and earnings
Sensible Nonutility portfolio linked to core utility• Improved long-term efficiency and cost strategy for mining 140 million tons of coal
EnergyInfra. 24%
Coal Mining 44%
EnergyMrktg &
Srvs 32%
* Excludes the charge related to an investment by ProLiance in Liberty Gas Storage
Gas 50%
Electric 50%
Utility Net IncomeConsolidated Net Income* Nonutility Net IncomePrimary Businesses *
12 Months Ended 3/31/10
Utility79%
Nonutility21%
6
Consolidated First Quarter Results
Amounts in millions except per share 2010 2009Net Income:
Utility Group 55.4$ 56.2$ Nonutility Group (1) 7.8 16.5 Corporate & Other - 0.1
Vectren Consolidated 63.2$ 72.8$
Earnings Per Share:Utility Group 0.68$ 0.70$ Nonutility Group 0.10 0.20 Corporate & Other - -
Vectren Consolidated 0.78$ 0.90$
Avg. Shares Outstanding 81.0 80.6
(1) Net Income - Nonutility Group: Energy Marketing and Services 10.2$ 15.4$ Coal Mining 3.9 2.8 Energy Infrastructure Services (3.3) (0.5) Other Businesses (3.0) (1.2) Total Nonutility Group 7.8$ 16.5$
3 Months Ended Mar 31
7
Utility Review Utility earnings for the quarter were $55.4 million, or $0.68 per share, compared to $56.2
million, or $0.70 per share in 2009
Utility margin improved $6.4 million, compared to 2009
• Gas margin was down slightly primarily due to the impact of the Ohio territory straight fixed variable rate design more ratably recovering fixed costs through the year
• Electric margin reflects improved large volume customer margin, return on additional pollution control and other investments and more favorable weather
• Large volume margins increased in the quarter, including benefit from a new ethanol plant
O & M expenses, exclusive of pass through expenses recovered in margin, were flat
Higher depreciation and interest expense is reflective of rate base growth
8
Nonutility Review ProLiance’s earnings contribution was $3.9 million in the first quarter, compared to $6.8
million in 2009, which reflects reduced margins associated with optimizing its transportation and storage portfolio compared to the same period in 2009
Source’s earnings contribution was $6.3 million in the first quarter, compared to $8.6 million in 2009, which reflects the expected return to more normalized margins with more stable gas prices compared to the record first quarter 2009 earnings
Coal Mining’s earnings contribution was $3.9 million for the first quarter, compared to $2.8 million in 2009, driven by lower operating costs associated with the Prosperity mine reconfiguration and a small increase in tons sold
Miller Pipeline’s earnings contribution for the first quarter was a loss of ($3.0) million, compared to a loss of ($0.6) million in 2009, due to unfavorable weather conditions in the Mid-Atlantic and Northeast throughout much of the first quarter of 2010
Energy Systems Group’s results were near breakeven and generally flat year over year,however, late first quarter contract signings drove backlog to $91 million
Other nonutility businesses, which include legacy real estate and other investments, operated at a loss of ($3.0) million, compared to a loss of ($1.2) million in 2009, due to a reduction in the value of a 2002 note receivable related to a previously exited business
9
Generation Portfolio
5 Coal-fired base units – 1,000 MW• 100% scrubbed for SO2• 90% controlled for NOx• Combination of pollution controls, including
fabric filter technology, have the co-benefit of removing substantial levels of mercury and particulate matter
6 Gas-fired peak-use turbines – 295 MW
Purchased capacity - 100 MW thru 2012
Renewable energy ~ 5%• Land-fill gas generation facility – 3.2 MW• Wind energy – 80 MW
Wholesale Power Marketing
Functions within the regulated electric utility operation
Markets surplus power from generating units primarily through MISO
50/50 sharing of off-system sales above or below $10.5 million
Vectren North - Indiana Gas567,000 Gas Customers
Vectren North - Indiana Gas567,000 Gas Customers
Vectren South - SIGECO110,000 Gas Customers
Vectren South - SIGECO110,000 Gas Customers
Vectren Ohio - VEDO315,000 Gas CustomersVectren Ohio - VEDO
315,000 Gas Customers
Vectren South - SIGECO141,000 Electric CustomersVectren South - SIGECO
141,000 Electric Customers
Vectren Utility Holdings, Inc.
Constructive Regulatory Environment
Settlement agreements reached last 4 rate cases
Vectren Ohio began process to exit merchant function
Electric rate case on file
The Utility Group
10
Constructive Utility RegulationElectric
South North Ohio SouthEnvironmental CWIP Recovery Under SB 29 Recovery of MISO Transmission Investments Gas Cost and Fuel Cost Recovery Lost Margin Recovery Mechanisms (Decoupling) Normal Temperature Adjustment (NTA) Straight Fixed Variable Rate Design Bad Debt Expense - Tracked Bad Debts Related to Gas Costs - Tracked Unaccounted for Gas - Tracked Recovery of Bare Steel/Cast Iron Replacement Costs
Gas
AnnualRevenue Rate Return Ratemaking
Base Rate Case Increase Base on Equity Equity RatioSouth Gas 8/1/2007 7.7$ 122$ 10.15% 47%South Electric 8/15/2007 60.8$ 1,044$ 10.40% 47%North Gas 2/13/2008 26.9$ 793$ 10.20% 49%Ohio Gas 1/7/2009 14.8$ 235$ N/A N/A
Order Date
11
Estimated Schedule
Staff & Intervener Testimony 6/21/10
Rebuttal 7/27/10
Hearings 8/23/10
Briefs Done 11/8/10
Order – First Quarter 2011
Vectren South Electric Rate Case Revenue Request
• 50% Capital• 40% Load loss – primarily industrial • 10% O & M
Decoupling rate design 50/50 Wholesale Power Marketing sharing
• Above and below the annual base rate level of $5.9 million
Step 2 rate increase• Dense Pack placed in service - recover
return, depreciation, and operating costs on $34 million additional rate base beginning in 2013
Existing Electric Regulation Recovery of Environmental CWIP -
Indiana SB29 Recovery of approximately $75 million of
MISO Transmission Investments at FERC approved equity rate of return of 12.38%
$ in millions
Annual Revenue Increase
Retail Rate Base
Return on Equity
$54.2
$1,294.0
10.7%
Requested
12
ProLiance Energy marketing affiliate with Vectren
(61%) and Citizens Energy Group (39%) –equity accounting
• 2009 revenues of $1.7 billion• 120 employees
Provides bundled gas services, including base load, peaking sales, risk management, and other ancillary services
• Operates throughout the Midwest and Southeast U.S.
• Retail services to nearly 1,600 Commercial and industrial customers
• Wholesale services to utilities, municipals, power generators
Storage & Transportation optimization is the primary earnings driver (includes arbitrage opportunities for price differences across time and location in physical and financial markets
• 46 Bcf of storage• Balanced book approach – VaR capped at
$2.5 million
Margins associated with optimizing the transportation and storage portfolio reduced
• General compression of natural gas prices and reduction of firm transportation spread values between the production areas and the Midwest market area
• Lower industrial demand• New shale gas supplies • New pipeline infrastructure placed in service
Long-term growth opportunities with midstream gas infrastructure investments, including storage, gathering and pipelines related to development of shale gas
• Estimated that $130 to $210 billion will be invested in this sector through 2030
13
Source Source provides natural gas and other
related products and services to retail customers in the Midwest and Northeast
• 2009 revenues of $157 million• Current staffing of nearly 50 FTE’s• Operates in 7 LDC territories in 3 states -
Ohio, Indiana and New York, with highest customer concentration in Ohio
Customer count grown to 195,000, an increase of 24,000 over 2009
Focus on customer retention with a contract renewal rate above 90%
Conservative risk management practices• Good mix of fixed and variable price
customers
Asset optimization capabilities – 7.5 Bcf of storage
Ohio is transitioning to a fully deregulated market, providing growth opportunities as energy delivery companies exit the merchant function of buying natural gas for its customers
• Successfully bid on one tranche of Vectren Ohio’s customers in the regulatory approved auction to sell the gas commodity to specific customers for a 12 month period
Developing a residential energy efficiency service with a pilot offering available in Cleveland under GreenStreet Solutions SM
• General contractor role in home energy audits and complete service to implement recommendations
• Positioned to take advantage of Home Star program if approved by Congress
14
Coal Mining Mines and sells Indiana coal to Vectren’s
utility operations and other third parties• 2009 revenues of $194 million• 750 contract mining jobs with completion of
Oaktown mines
Competitive location – 13 power plants within 50 mile radius of underground mines
2010 sales estimated at 3.6 million tons compared to 3.5 million in 2009
• 3.1 million tons priced (80%)• Estimated margin of $7 to $8 per ton
Prosperity Mine • 35 million tons of reserves • 5.0 lbs SO2 – 11,200 BTU• Est. max annual production – 3 million tons
Oaktown Mines 1 & 2• 100 million tons of reserves• 6.0 lbs SO2 – 11,200 BTU• Oaktown #1 – shipped coal in Feb 2010• Oaktown #2 – In service 2012• Est. max annual production
– Oaktown #1 – 3 million tons– Oaktown #2 – 2 million tons
Prosperity Mine reconfiguration to be completed mid 2010
• Year over year costs already reduced over 15%
Long-term coal demand expected to increase as economy improves and inventory levels reduced
• Colder than normal weather and economic recovery suggest increased demand for coal in second half of 2010 and early 2011
15
Miller Pipeline Provides underground pipeline
construction and repair services for natural gas, water and wastewater companies
• 2009 revenues of $174 million• Nearly 1,600 employees• Over 50 years in construction business• Acquired 5 small regional pipeline
construction companies over past 4 years, expanding location and scope of operation
Operates primarily in the Midwest, Mid-Atlantic and Southern regions
• Major customers include Vectren, NiSource, Duke, Peoples, LG&E, Alagasco and Citizens
Expansion into new areas related to new customers in the second half of 2009 and early 2010
• Cost of expansion will have short-term impact on profits
Bare steel/cast iron replacement programs as utilities receive regulatory support and increase capital spending
• Recessionary impacts are expected to continue for certain utility customers
Federal stimulus money will assist municipals in funding waste water and sewer rehabilitation projects
Longer-term opportunities expected from the development and construction of gathering and pipeline interconnects to support the development and transportation of shale gas
16
Energy Systems Group Performance contracting and renewable
energy project group• 2009 revenues of $121 million
• More than 200 employees
Operates primarily in the Midwest, Mid-Atlantic and Southern regions, recently expanding its territorial reach including Texas and Arkansas
• Major customers include hospitals, universities, governments and schools (HUGS)
Provides energy-saving performance contracting
• Design facility improvements that pay for themselves from energy savings and operational improvements
Designs, constructs, manages and owns renewable energy projects
• ESG energized its third landfill gas project - the Blackfoot project in Winslow, IN designed to produce 3.2 MW of renewable power
ESG is partnering with six gas/electric utilities as conservation and renewable energy contractor
• Subcontractor under the federal “area wide” contractor mechanism to develop energy efficiency conservation projects to federal installations
Energy Efficient Commercial Building federal income tax deductions (Revenue Code 179D) available through 2013
17
2010 EPS Guidance Consolidated guidance unchanged, with a range of $1.60 to $1.80 per share
Utility results now expected to be between $1.30 to $1.40, compared to previous guidance of $1.23 to $1.33
• Fourth quarter 2009 and first quarter of 2010 exceeded plan
• Improvement in large customer sales
• Favorable first quarter weather
• Lower interest expense due to more favorable assumptions regarding reduced incremental long-term debt and interest rates
Nonutility results now expected to be between $0.30 to $0.40, compared to previous guidance of $0.37 to $0.47
• Coal Mining, Miller Pipeline, Energy Systems Group and Source expected performance in line with previous guidance
• Reflects ProLiance’s expected lower performance and the charge related to the note receivable reduction
18
Moving Forward to 2010 and beyond Continue to grow through reinvestment in existing businesses
Execute on regulatory initiatives and strategies • Earn allowed returns• Control costs• Manage capital needs• Seek improved rate design and rate cases as needed
Grow Nonutility earnings• Ramp up coal mine production at Oaktown mines as demand for coal increases• Add gas infrastructure investments at ProLiance• Add customers at Source as Ohio moves to fully deregulated market• Expand to new geography and customers at Miller• Take advantage of energy efficiency initiatives and add renewable energy projects at ESG
Maintain liquidity and strong credit ratings• S&P – A-/Stable Outlook• Moody’s – Baa1/Positive Outlook
Create value for shareholders• Long-term growth through reinvestment in existing businesses• Maintain competitive dividend – current yield approximately 5.5%
19
Appendix
20
3-Year total capital spend is down as we exit major project spending cycle and focus on cash flow
Over 60% of 2010 - 2012 transmission expenditures expected to be recovered timely at FERC approved equity return of 12.38%
Favorable regulatory support in recovering capital spend on bare steel/cast iron/riser replacement programs
Level of spending may be revised over time if incentives, such as bonus depreciation become available
3-Yr TotalAmounts are in millions. 2009 2010 2011 2012 2010-2012
South Electric 155$ 122$ 116$ 88$ 326$ South Gas 23 10 12 11 33 North Gas 59 45 46 57 148 Ohio Gas 39 29 26 27 82 VUHI Shared Assets 16 22 21 20 63 Cost of Retirement 21 8 9 8 25 VUHI Consolidated 313$ 236$ 230$ 211$ 677$
Significant ExpendituresElectric Transmission 50$ 45$ 33$ 11$ 89$ Bare Steel/Cast Iron/Riser 38 28 26 38 92 Environmental 1 12 13 3 28
Forecast
Expected capital spending permits appropriate reinvestment of earnings and will continue to drive earnings growth
Utility Capital Expenditures
21
ProLiance Energy 3/31/10 3/31/09Gross Margin 22.7$ 29.3$ Margin from Asset Optimization 82% 87%EBITDA 14.9$ 21.9$ Vectren Net Income 3.9$ 6.8$
Firm Storage Capacity (Bcf) - End of Period 46 46
Vectren Source 3/31/10 3/31/09Margin 14.4$ 17.4$ EBITDA 10.0$ 13.9$ Net Income 6.3$ 8.6$
Customers 195,000 171,000
3 Months Ended
3 Months Ended
Nonutility Metrics
22
Mining Operations 3/31/10 3/31/09Revenue 52.2$ 44.3$ Cost of Sales 44.3$ 38.2$ DD&A 6.8$ 5.1$ EBITDA 12.7$ 9.6$ Net Income 3.9$ 2.8$
Tons Produced 0.8 0.8 Tons Sold 0.9 0.8 Mine Yield - Prosperity 61% 53%Mine Yield - Oaktown 1 56% NA
Avg Realized Price/Ton (w/o freight) 53.15$ 52.80$ Cost of Sales/Ton (w/o freight) 44.45$ 45.02$ $ in millions, except per ton
3 Months Ended
Nonutility Metrics
23
Nonutility Metrics
Miller Pipeline 3/31/10 3/31/09Net Revenue 29.9$ 31.9$ Gross Margin as % of Revenue -4% 6%EBITDA (2.2)$ 1.5$ Net Income (3.0)$ (0.6)$ $ in millions
Energy Systems Group 3/31/10 3/31/09Revenue 24.1$ 23.3$ Gross Margin as % of Revenue 25% 30%EBITDA (0.6)$ 0.2$ Net Income (0.3)$ -$
Backlog 91.2$ 58.2$ $ in millions
3 Months Ended
3 Months Ended