Vectren Corporation (the Company or Vectren), an Indiana corporation, is an energy holding company headquartered in Evansville, Indiana. The Company's wholly owned subsidiary, Vectren Utility Holdings, Inc. (Utility Holdings), serves as the intermediate holding company for three operating public utilities: Indiana Gas Company, Inc. (Indiana Gas or Vectren North), Southern Indiana Gas and Electric Company (SIGECO or Vectren South), and the Ohio operations (VEDO or Vectren Ohio). Utility Holdings also has other assets that provide information technology and other services to the three utilities. Utility Holdings' consolidated operations are collectively referred to as the Utility Group. Both Vectren and Utility Holdings are holding companies as defined by the Energy Policy Act of 2005 (Energy Act). Vectren was incorporated under the laws of Indiana on June 10, 1999.

Indiana Gas provides energy delivery services to over 567,000 natural gas customers located in central and southern Indiana. SIGECO provides energy delivery services to over 141,000 electric customers and approximately 111,000 gas customers located near Evansville in southwestern Indiana. SIGECO also owns and operates electric generation to serve its electric customers and optimizes those assets in the wholesale power market. Indiana Gas and SIGECO generally do business as Vectren Energy Delivery of Indiana. The Ohio operations provide energy delivery services to approximately 317,000 natural gas customers located near Dayton in west central Ohio. The Ohio operations are owned as a tenancy in common by Vectren Energy Delivery of Ohio, Inc. (VEDO), a wholly owned subsidiary of Utility Holdings (53 percent ownership), and Indiana Gas (47 percent ownership). The Ohio operations generally do business as Vectren Energy Delivery of Ohio.

The Company, through Vectren Enterprises, Inc. (Enterprises), is involved in nonutility activities in three primary business areas: Energy Marketing and Services, Coal Mining and Energy Infrastructure Services. Energy Marketing and Services markets and supplies natural gas and provides energy management services. Coal Mining mines and sells coal. Energy Infrastructure Services provides underground construction and repair services and performance contracting and renewable energy services. Enterprises also has other legacy businesses that have invested in energy-related opportunities and services, real estate, and leveraged leases, among other investments. These operations are collectively referred to as the Nonutility Group. Enterprises supports the Company's regulated utilities pursuant to service contracts by providing natural gas supply services, coal, and infrastructure services.

In this discussion and analysis, the Company analyzes contributions to consolidated earnings and earnings per share from its Utility Group and Nonutility Group separately since each operates independently requiring distinct competencies and business strategies, offers different energy and energy related products and services, and experiences different opportunities and risks. Nonutility Group operations are discussed below as primary operations and other operations. Primary nonutility operations denote areas of management's forward looking focus.

Per share earnings contributions of the Utility Group, Nonutility Group, and Corporate and Other are presented. Such per share amounts are based on the earnings contribution of each group included in Vectren's consolidated results divided by Vectren's basic average shares outstanding during the period. The earnings per share of the groups do not represent a direct legal interest in the assets and liabilities allocated to the groups, but rather represent a direct equity interest in Vectren Corporation's assets and liabilities as a whole. These non-gaap measures are used by management to evaluate the performance of individual businesses. Accordingly management believes these measures are useful to investors in understanding each business' contribution to consolidated earnings per share and analyzing period to period changes.

The Utility Group generates revenue primarily from the delivery of natural gas and electric service to its customers. The primary source of cash flow for the Utility Group results from the collection of customer bills and the payment for goods and services procured for the delivery of gas and electric services. The activities of and revenues and cash flows generated by the Nonutility Group are closely linked to the utility industry, and the results of those operations are generally impacted by factors similar to those impacting the overall utility industry. In addition, there are other operations, referred to herein as Corporate and Other, that include unallocated corporate expenses such as advertising and charitable contributions, among other activities.

            Executive Summary of Consolidated Results of Operations

The following discussion and analysis should be read in conjunction with the
unaudited condensed consolidated financial statements and notes thereto as well
as the Company's 2008 annual report filed on Form 10-K.



                                             Three Months Ended March 31,
(In millions, except per share data)          2009                   2008
Net income                               $         72.8         $         64.0
Attributed to:    Utility Group                    56.2                   58.0
                  Nonutility Group                 16.5                    6.3
                  Corporate & other                 0.1                   (0.3 )
Basic earnings per share                 $         0.90         $         0.84
Attributed to:    Utility Group                    0.70                   0.76
        Nonutility Group                           0.20                   0.08
        Corporate & other                             -                      -

Results

For the three months ended March 31, 2009, net income was $72.8 million, or $0.90 per share, compared to $64.0 million, or $0.84 per share for the three months ended March 31, 2008. Year over year increases in primary nonutility operations offset lower Utility Group results. Earnings per share are $0.04 per share lower due to the increased number of common shares outstanding as a result of the issuance of common shares in June 2008.

Utility Group

In 2009, the Utility Group's earnings were $56.2 million compared to $58.0 million in 2008, a decrease of $1.8 million. The decrease resulted primarily from lower customer usage and from wholesale power sales, both of which have been impacted by the recession. Increased revenues associated with regulatory initiatives and lower interest costs partially offset these declines.

Nonutility Group

The Nonutility Group's 2009 first quarter earnings were $16.5 million compared to $6.3 million in 2008. The increase is due to earnings from the primary nonutility operations. The Company's primary nonutility operations contributed $17.7 million in the first quarter of 2009, compared to $4.9 million in the first quarter of 2008. Primary nonutility operations are Energy Marketing and Services companies, Coal Mining operations, and Energy Infrastructure Services companies.

Of the $12.8 million increase in primary nonutility group earnings, $6.4 million is attributable to Energy Marketing and Services and $3.7 million is attributable to Coal Mining. The increase in Energy Marketing and Services' earnings primarily results from increased retail gas marketing earnings. Coal Mining earnings have increased as expected as contracts reflecting the higher Illinois Basin coal market prices began on January 1st. Seasonal losses associated with Energy Infrastructure Services narrowed approximately $2.7 million quarter over quarter to $0.5 million.

Dividends

Dividends declared for the three months ended March 31, 2009, were $0.335 per share compared to $0.325 per share for the same period in 2008.

Detailed Discussion of Results of Operations

Following is a more detailed discussion of the results of operations of the Company's Utility and Nonutility operations. The detailed results of operations for these operations are presented and analyzed before the reclassification and elimination of certain intersegment transactions necessary to consolidate those results into the Company's Consolidated Statements of Income.

The Utility Group is comprised of Utility Holdings' operations. The operations of the Utility Group consist of the Company's regulated operations and other operations that provide information technology and other support services to those regulated operations. Regulated operations consist of a natural gas distribution business that provides natural gas distribution and transportation services to nearly two-thirds of Indiana and to west central Ohio and an electric transmission and distribution business, which provides electric distribution services primarily to southwestern Indiana, and the Company's power generating and wholesale power operations. In total, these regulated operations supply natural gas and/or electricity to over one million customers. Utility Group operating results before certain intersegment eliminations and reclassifications for the three months ended March 31, 2009 and 2008 follow:

                                         Three Months Ended March 31,
(In millions, except per share data)       2009                2008
OPERATING REVENUES
Gas utility                            $       527.4       $       633.6
Electric utility                               125.0               127.2
Other                                            0.4                 0.6
Total operating revenues                       652.8               761.4
OPERATING EXPENSES
Cost of gas sold                               354.6               462.0
Cost of fuel & purchased power                  47.0                46.0
Other operating                                 79.3                74.0
Depreciation & amortization                     43.9                40.7
Taxes other than income taxes                   22.8                26.2
Total operating expenses                       547.6               648.9

OPERATING INCOME                               105.2               112.5

OTHER INCOME - NET                               1.5                 2.0

INTEREST EXPENSE                                18.7                20.8

INCOME BEFORE INCOME TAXES                      88.0                93.7

INCOME TAXES                                    31.8                35.7

NET INCOME                             $        56.2       $        58.0

CONTRIBUTION TO VECTREN BASIC EPS      $        0.70       $        0.76

Significant Fluctuations

Utility Group Margin

Throughout this discussion, the terms Gas Utility margin and Electric Utility margin are used. Gas Utility margin is calculated as Gas utility revenues less the Cost of gas. Electric Utility margin is calculated as Electric utility revenues less Cost of fuel & purchased power. The Company believes Gas Utility and Electric Utility margins are better indicators of relative contribution than revenues since gas prices and fuel costs can be volatile and are generally collected on a dollar-for-dollar basis from customers.

Gas and electric margin generated from sales to large customers (generally industrial and other contract customers) is primarily impacted by overall economic conditions and changes in demand for those customers' products. The recent recession has had and may continue to have some negative impact on both gas and electric large customers. This impact has included, and may continue to include, tempered growth, significant conservation measures, and perhaps even plant closures or bankruptcies. While no one industrial customer comprises 10 percent of consolidated margin, the top five industrial electric customers comprise approximately 11 percent of electric utility margin in the three months ended March 31, 2009, and therefore any significant decline in their collective margin could adversely impact operating results. Deteriorating economic conditions may also lead to continued lower residential and commercial customer counts.

Margin is also impacted by the collection of state mandated taxes, which fluctuate with gas and fuel costs, as well as other tracked expenses. Expenses subject to tracking mechanisms include Ohio bad debts and percent of income payment plan expenses, costs associated with exiting the merchant function and to perform riser replacement in Ohio, Indiana gas pipeline integrity management costs, costs to fund Indiana energy efficiency programs, MISO transmission revenues and costs, as well as the gas cost component of bad debt expense based on historical experience and unaccounted for gas. Unaccounted for gas is also tracked in the Ohio service territory. Certain operating costs, including depreciation, associated with operating environmental compliance equipment and regional transmission investments are also tracked.

Electric wholesale activities are primarily affected by market conditions, the level of excess generating capacity, and electric transmission availability. Following is a discussion and analysis of margin generated from regulated utility operations.

Gas Utility Margin (Gas utility revenues less Cost of gas) Gas Utility margin and throughput by customer type follows:

                                                Three Months Ended March 31,
      (In millions)                               2009                2008

      Gas utility revenues                    $       527.4       $       633.6
      Cost of gas sold                                354.6               462.0
        Total gas utility margin              $       172.8       $       171.6
      Margin attributed to:
      Residential & commercial customers      $       152.6       $       150.9
      Industrial customers                             15.1                16.5
      Other                                             5.1                 4.2
      Sold & transported volumes in MMDth attributed to:
      Residential & commercial customers               52.6                57.8
      Industrial customers                             24.1                28.7
        Total sold & transported volumes               76.7                86.5

Electric Utility Margin (Electric Utility revenues less Cost of fuel and purchased power)
Electric Utility margin and volumes sold by customer type follows:

                                                 Three Months Ended March 31,
(In millions)                                      2009                 2008

Electric utility revenues                     $        125.0       $        127.2
Cost of fuel & purchased power                          47.0                 46.0
Total electric utility margin                 $         78.0       $         81.2
Margin attributed to:
Residential & commercial customers            $         52.5       $         51.3
Industrial customers                                    19.1                 20.2
Other customers                                          0.7                  1.6
Subtotal: retail & firm wholesale             $         72.3       $         73.1
Wholesale power marketing                     $          5.7       $          8.1

Electric volumes sold in GWh attributed to:
Residential & commercial customers                     671.6                715.2
Industrial customers                                   509.0                600.7
Other customers                                          5.1                 36.6
Total retail & firm wholesale volumes sold           1,185.7              1,352.5

Retail Margin
Electric retail and firm wholesale utility margins were $72.3 million for the three months ended March 31, 2009, a decrease over the prior year of $0.8 million. Increased margin associated with returns on pollution control investments totaled $0.5 million; margin associated with tracked costs such as recovery of pollution control and MISO operating expenses increased $2.6 million. Management estimates other usage declines associated with the weak economy to have decreased margin approximately $1.4 million for residential and commercial customers and $2.0 million for industrial customers.

Margin from Wholesale Activities
Periodically, generation capacity is in excess of native load. The Company
markets and sells this unutilized generating and transmission capacity to
optimize the return on its owned assets. A majority of the margin generated from
these activities is associated with wholesale off-system sales, and
substantially all off-system sales occur into the MISO Day Ahead and Real Time
markets.

Further detail of Wholesale activity follows:
                                     Three months ended March 31,
(In millions)                         2009                  2008
Off-system sales                  $         2.7         $         7.2
Transmission system sales                   3.0                   0.9
Total wholesale power marketing   $         5.7         $         8.1

For the quarter ended March 31, 2009, total wholesale margins were $5.7 million, representing a decrease of $2.4 million, compared to 2008.

During 2009, margin from off-system sales retained by the Company decreased $4.5 million compared to 2008. The Company experienced lower wholesale power marketing margins due to lower wholesale prices, coupled with increasing coal costs. Off-system sales totaled 341.6 GWh in 2009, compared to 463.4 GWh in 2008. The base rate case effective August 17, 2007, requires that wholesale margin from off-system sales earned above or below $10.5 million be shared equally with customers as measured on a fiscal year ending in August, and results reflect the impact of that sharing.

Beginning in June 2008, the Company began earning a return on electric transmission projects constructed by the Company in its service territory that benefit reliability throughout the region. Margin associated with these projects totaled $2.1 million in 2009.

Utility Group Operating Expenses

Other Operating Expenses
For the three months ended March 31, 2009, other operating expenses were $79.3 million, an increase of $5.3 million, compared to 2008. Substantially all of the increase results from increased costs directly recovered through utility margin. Examples of such tracked costs include Ohio bad debts, Indiana gas pipeline integrity management costs, costs to fund Indiana energy efficiency programs, and MISO transmission revenues and costs, among others. Other operating costs were generally flat.

Depreciation & Amortization
Depreciation expense was $43.9 million for the quarter, an increase of $3.2 million compared to 2008. Plant additions include the approximate $100 million SO2 scrubber placed into service January 1, 2009 for which depreciation totaling $1.1 million is directly recovered in electric utility margin.

Taxes Other Than Income Taxes
Taxes other than income taxes were $22.8 million for the quarter, a decrease of $3.4 million compared to the prior year quarter. The decrease is attributable to lower utility receipts, excise, and usage taxes caused principally by lower gas prices and is tracked in revenues.

Other Income-Net

Other-net reflects income of $1.5 million for the quarter, a decrease of $0.5 million compared to the prior year quarter. The decrease is primarily attributable to lower capitalization of funds used during construction as a result of lower borrowing costs.

Interest Expense

Interest expense was $18.7 million for the quarter, a decrease of $2.1 million compared to the prior year quarter. The decrease reflects lower short-term interest rates and lower average short-term debt balances.

Income Taxes

In 2009, federal and state income taxes were $31.8 million for the quarter, a decrease of $3.9 million compared to the prior year quarter. The lower taxes are primarily due to lower pretax income.

Environmental Matters

Clean Air Act

The Clean Air Interstate Rule (CAIR) is an allowance cap and trade program requiring further reductions from coal-burning power plants in NOx emissions beginning January 1, 2009 and SO2 emissions beginning January 1, 2010, with a second phase of reductions in 2015. On July 11, 2008, the US Court of Appeals for the District of Columbia vacated the federal CAIR regulations. Various parties filed motions for reconsideration, and on December 23, 2008, the Court reinstated the CAIR regulations and remanded the regulations back to the USEPA for promulgation of revisions in accordance with the Court's July 11, 2008 Order. Thus, the original version of CAIR promulgated in March of 2005 remains effective while USEPA revises it per the Court's guidance. It is possible that a revised CAIR will require further reductions in NOx and SO2 from SIGECO's generating units. SIGECO is in compliance with the current CAIR Phase I annual NOx reduction requirements in effect on January 1, 2009. Utilization of the Company's inventory of NOx and SO2 allowances may also be impacted if CAIR is further revised; however, most of the these allowances were granted to the Company at zero cost, so a reduction in carrying value is not expected.

To comply with Indiana's implementation plan of the Clean Air Act of 1990, the CAIR regulations, and to comply with potential future regulations of mercury and further NOx and SO2 reductions, SIGECO has IURC authority to invest in clean coal technology. Using this authorization, SIGECO has invested approximately $307 million in pollution control equipment, including Selective Catalytic Reduction (SCR) systems and fabric filters. SCR technology is the most effective method of reducing NOx emissions where high removal efficiencies are required and fabric filters control particulate matter emissions. These investments were included in rate base for purposes of determining new base rates that went into effect on August 15, 2007. Prior to being included in base rates, return on investments made and recovery of related operating expenses were recovered through a rider mechanism.

Further, the IURC granted SIGECO authority to invest in an SO2 scrubber at its generating facility that is jointly owned with ALCOA (the Company's portion is 150 MW). The order allows SIGECO to recover an approximate 8 percent return on capital investments through a rider mechanism which is periodically updated for actual costs incurred less post in-service depreciation expense. Through March 31, 2009, the Company has invested approximately $100 million in this project. The scrubber was placed into service on January 1, 2009. Recovery through a rider mechanism of associated operating expenses including depreciation expense associated with the scrubber also began on January 1, 2009. With the SO2 scrubber fully operational, SIGECO is positioned for compliance with the additional SO2 reductions required by Phase I CAIR commencing on January 1, 2010.

SIGECO's coal fired generating fleet is 100 percent scrubbed for SO2 and 90 percent controlled for NOx. SIGECO's investments in scrubber, SCR and fabric filter technology allows for compliance with existing regulations and should position it to comply with future reasonable pollution control legislation, if and when, reductions in mercury and further reductions in NOx and SO2 are promulgated by USEPA.

Climate Change

Vectren is committed to responsible environmental stewardship and conservation efforts as demonstrated by its proactive approach to balancing environmental and customer needs. While scientific uncertainties exist and the debate surrounding global climate change is ongoing, the growing understanding of the science of climate change would suggest a strong potential for adverse economic and social consequences should world-wide carbon dioxide (CO2) and other greenhouse gas emissions continue at present levels.

The need to reduce CO2 and other greenhouse gas emissions, yet provide . . .