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Vectren looks to grid modernization, portfolio diversification

Driven largely by its investments into natural gas infrastructure in Ohio and Indiana, Vectren Corp. sailed to strong second-quarter earnings, topping estimates. Its adjusted net income of 45 cents per share, beating last year's second-quarter earnings of 39 cents per share, could have been even better if not for a key customer defection. Saudi Basic Industries Corp. earlier this year brought online its 85-MW cogeneration facility to supply its plastics manufacturing plant in Mount Vernon, Ind.

But the regulated utility and energy services provider does not expect such self-procurement to become a serious trend among its customers. "We are not seeing anything beyond … the 85-MW plant," Vectren Chairman, CEO and President Carl Chapman said during the company's Aug. 4 earnings call. The utility is keeping a close eye on the distributed generation market, nevertheless. "But we don't see any significant issues from this to our margin on the electric side at this point," he added.

Unencumbered by the worries of other utilities that are seeing strong demand for solar rooftop systems and other distributed energy resources, Vectren is looking to future growth through its proposed grid modernization and generation plans, pending upcoming decisions by state regulators. Chapman expects the Indiana Utility Regulatory Commission to decide on its $446 million grid modernization proposal by the end of September, after Vectren scaled back its initial $514 million pitch in a settlement in May. Most of the reduction came from removing proposed advanced metering infrastructure from the plan.

Meanwhile, the utility is seeking additional generation from third parties through a request for proposals issued in June and is also exploring a new natural gas baseload plant, possibly self-built, to replace retiring coal units. "We expect the overall bidding process to be complete by September with the key criteria to include generation location, reliability and creditworthiness of any third-party," Chapman said.

At the same time, the CEO praised a new contract between subsidiary Southern Indiana Gas and Electric Co. Inc. and Alcoa Power Generating Inc. to continue their mutual ownership and operation of the 300-MW unit 4 of the coal-fired Warrick power plant through 2023. "The expected exit in 2023 from the joint ownership and operation arrangement is consistent with our plan to bring online a new natural gas-fired generation plant by 2024," Chapman said. "Alcoa's decision to reopen a portion of its aluminum smelting operations is not only a significant win for our community, including the creation of 275 jobs; the timing also aligns well with our previously announced long-term generation strategy."