10-Q 1 d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

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 No.

  

Exact name of each Registrant as specified in

its charter, state of incorporation, address of

principal executive offices, telephone number

  

I.R.S. Employer
Identification
Number

1-8180    TECO ENERGY, INC.    59-2052286
   (a Florida corporation)   
   TECO Plaza   
   702 N. Franklin Street   
   Tampa, Florida 33602   
   (813) 228-1111   
1-5007    TAMPA ELECTRIC COMPANY    59-0475140
   (a Florida corporation)   
   TECO Plaza   
   702 N. Franklin Street   
   Tampa, Florida 33602   
   (813) 228-1111   

 

 

Indicate by check mark whether the registrants (1) have 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) have been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨

Indicate by check mark whether the registrants have submitted electronically and posted on their corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files).    YES  x    NO  ¨

Indicate by check mark whether TECO Energy, Inc. is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨    Smaller reporting company   ¨

Indicate by check mark whether Tampa Electric Company is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x    Smaller reporting company   ¨

Indicate by check mark whether TECO Energy, Inc. is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x

Indicate by check mark whether Tampa Electric Company is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x

The number of shares of TECO Energy, Inc.’s common stock outstanding as of Oct. 28, 2010 was 214,742,478. As of Oct. 28, 2010, there were 10 shares of Tampa Electric Company’s common stock issued and outstanding, all of which were held, beneficially and of record, by TECO Energy, Inc.

Tampa Electric Company meets the conditions set forth in General Instruction (H) (1) (a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format.

This combined Form 10-Q represents separate filings by TECO Energy, Inc. and Tampa Electric Company. Information contained herein relating to an individual registrant is filed by that registrant on its own behalf. Each registrant makes representations only as to information relating to itself and its subsidiaries.

 

 

 

 

Page 1 of 62

Index to Exhibits appears on page 61.


Table of Contents

 

PART I. FINANCIAL INFORMATION

 

Item 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

TECO ENERGY, INC.

In the opinion of management, the unaudited consolidated condensed financial statements include all adjustments that are of a recurring nature and necessary to state fairly the financial position of TECO Energy, Inc. and subsidiaries as of Sep. 30, 2010 and Dec. 31, 2009, and the results of their operations and cash flows for the periods ended Sep. 30, 2010 and 2009. The financial statements for the periods ended Sep. 30, 2010 include the financial position, results of operations and cash flows for two power generation projects in Guatemala, previously reflected as unconsolidated affiliates, that were reconsolidated effective Jan. 1, 2010 in accordance with new accounting guidance. The results of operations for the three month and nine month periods ended Sep. 30, 2010 are not necessarily indicative of the results that can be expected for the entire fiscal year ending Dec. 31, 2010. References should be made to the explanatory notes affecting the consolidated financial statements contained in TECO Energy, Inc.’s Annual Report on Form 10-K for the year ended Dec. 31, 2009 and to the notes on pages 9 through 30 of this report.

INDEX TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

     Page
No.
 

Consolidated Condensed Balance Sheets, Sep. 30, 2010 and Dec. 31, 2009

     3-4   

Consolidated Condensed Statements of Income for the three month and nine month periods ended Sep. 30, 2010 and 2009

     5-6   

Consolidated Condensed Statements of Comprehensive Income for the three month and nine month periods ended Sep. 30, 2010 and 2009

     7   

Consolidated Condensed Statements of Cash Flows for the nine month periods ended Sep. 30, 2010 and 2009

     8   

Notes to Consolidated Condensed Financial Statements

     9-30   

 

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TECO ENERGY, INC.

Consolidated Condensed Balance Sheets

Unaudited

 

Assets

(millions, except for share amounts)

   Sep. 30,
2010
    Dec. 31,
2009
 

Current assets

    

Cash and cash equivalents

   $ 151.6      $ 46.0   

Short-term investments

     14.7        0.8   

Receivables, less allowance for uncollectibles of $3.5 and $3.0 at Sep. 30, 2010 and Dec. 31, 2009, respectively

     371.5        277.4   

Inventories, at average cost

    

Fuel

     156.8        124.3   

Materials and supplies

     77.8        65.7   

Current derivative asset

     0.8        0.8   

Current regulatory assets

     67.6        109.2   

Prepayments and other current assets

     31.5        25.7   

Income tax receivables

     2.1        1.7   
                

Total current assets

     874.4        651.6   
                

Property, plant and equipment

    

Utility plant in service

    

Electric

     6,521.6        6,079.5   

Gas

     1,041.0        1,017.2   

Construction work in progress

     249.0        304.5   

Other property

     395.4        377.2   
                

Property, plant and equipment

     8,207.0        7,778.4   

Accumulated depreciation

     (2,411.1     (2,234.3
                

Total property, plant and equipment, net

     5,795.9        5,544.1   
                

Other assets

    

Deferred income taxes

     84.3        222.7   

Long-term regulatory assets

     327.4        335.6   

Long-term derivative assets

     0.2        0.2   

Investment in unconsolidated affiliates

     137.8        279.3   

Goodwill

     59.4        59.4   

Deferred charges and other assets

     150.6        126.6   
                

Total other assets

     759.7        1,023.8   
                

Total assets

   $ 7,430.0      $ 7,219.5   
                

The accompanying notes are an integral part of the consolidated condensed financial statements.

 

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TECO ENERGY, INC.

Consolidated Condensed Balance Sheets – continued

Unaudited

Liabilities and Capital

(millions, except for share amounts)

   Sep. 30,
2010
    Dec. 31,
2009
 

Current liabilities

    

Long-term debt due within one year

    

Recourse

   $ 67.1      $ 106.5   

Non-recourse

     10.1        1.4   

Notes payable

     27.0        55.0   

Accounts payable

     257.1        251.4   

Customer deposits

     154.9        151.2   

Current regulatory liabilities

     108.7        85.4   

Current derivative liabilities

     45.8        34.0   

Interest accrued

     72.1        45.3   

Taxes accrued

     61.7        20.5   

Other current liabilities

     17.4        20.6   
                

Total current liabilities

     821.9        771.3   
                

Other liabilities

    

Investment tax credits

     10.5        10.8   

Long-term regulatory liabilities

     614.5        602.6   

Long-term derivative liabilities

     5.8        3.6   

Deferred credits and other liabilities

     513.3        544.2   

Long-term debt, less amount due within one year

    

Recourse

     3,275.7        3,195.4   

Non-recourse

     37.1        6.2   
                

Total other liabilities

     4,456.9        4,362.8   
                

Commitments and contingencies (see Note 10)

    

Capital

    

Common equity (400.0 million shares authorized; par value $1; 214.7 million and 213.9 million shares outstanding at Sep. 30, 2010 and Dec. 31, 2009, respectively)

     214.7        213.9   

Additional paid in capital

     1,537.9        1,530.8   

Retained earnings

     417.4        365.7   

Accumulated other comprehensive loss

     (19.6     (25.0
                

TECO Energy Stockholders’ Equity

     2,150.4        2,085.4   

Noncontrolling interest

     0.8        0.0   
                

Total equity

     2,151.2        2,085.4   
                

Total liabilities and capital

   $ 7,430.0      $ 7,219.5   
                

The accompanying notes are an integral part of the consolidated condensed financial statements.

 

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TECO ENERGY, INC.

Consolidated Condensed Statements of Income

Unaudited

 

     Three months ended Sep. 30,  

(millions, except per share amounts)

   2010     2009  

Revenues

    

Regulated electric and gas (includes franchise fees and gross receipts taxes of $31.0 in 2010 and $30.5 in 2009)

   $ 707.4      $ 719.3   

Unregulated

     194.4        177.0   
                

Total revenues

     901.8        896.3   
                

Expenses

    

Regulated operations

    

Fuel

     224.5        253.5   

Purchased power

     45.2        46.3   

Cost of natural gas sold

     61.0        47.5   

Other

     96.1        87.1   

Operation other expense

    

Mining related costs

     119.9        123.2   

Guatemalan power generation

     15.6        3.0   

Other

     1.9        0.5   

Maintenance

     44.6        46.3   

Depreciation and amortization

     78.8        72.8   

Restructuring charges

     0.0        25.0   

Recoveries from previously impaired assets

     (2.9     0.0   

Taxes, other than income

     57.4        56.1   
                

Total expenses

     742.1        761.3   
                

Income from operations

     159.7        135.0   
                

Other income (expense)

    

Allowance for other funds used during construction

     0.3        2.5   

Other income

     10.4        1.2   

Income from equity investments

     3.6        11.3   
                

Total other income

     14.3        15.0   
                

Interest charges

    

Interest expense

     57.5        58.2   

Allowance for borrowed funds used during construction

     (0.1     (0.9
                

Total interest charges

     57.4        57.3   
                

Income before provision for income taxes

     116.6        92.7   

Provision for income taxes

     65.5        27.9   
                

Net income

     51.1        64.8   

Less: Net income attributable to noncontrolling interest

     (0.1     0.0   
                

Net income attributable to TECO Energy

   $ 51.0      $ 64.8   
                

Average common shares outstanding – Basic

     212.8        211.9   

                                                       – Diluted

     215.1        213.2   
                

Earnings per share attributable to TECO Energy – Basic

   $ 0.24      $ 0.30   

                                                                    – Diluted

   $ 0.24      $ 0.30   
                

Dividends paid per common share outstanding

   $ 0.205      $ 0.200   
                

The accompanying notes are an integral part of the consolidated condensed financial statements.

 

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TECO ENERGY, INC.

Consolidated Condensed Statements of Income

Unaudited

     Nine months ended Sep. 30,  

(millions, except per share amounts)

   2010     2009  

Revenues

    

Regulated electric and gas (includes franchise fees and gross receipts taxes of $90.0 in 2010 and $88.8 in 2009)

   $ 2,079.1      $ 2,036.0   

Unregulated

     633.8        509.5   
                

Total revenues

     2,712.9        2,545.5   
                

Expenses

    

Regulated operations

    

Fuel

     573.9        707.7   

Purchased power

     151.5        144.6   

Cost of natural gas sold

     236.4        186.7   

Other

     280.5        245.1   

Operation other expense

    

Mining related costs

     375.1        352.6   

Guatemalan power generation

     48.5        9.2   

Other

     5.0        2.7   

Maintenance

     137.1        144.9   

Depreciation and amortization

     233.7        213.8   

Restructuring charges

     1.5        25.0   

Recoveries from previously impaired assets

     (2.9     0.0   

Taxes, other than income

     174.1        172.4   
                

Total expenses

     2,214.4        2,204.7   
                

Income from operations

     498.5        340.8   
                

Other income (expense)

    

Allowance for other funds used during construction

     1.6        8.3   

Other income

     16.0        21.3   

Loss on debt extinguishment

     (33.0     0.0   

Income from equity investments

     10.5        33.0   
                

Total other income

     (4.9     62.6   
                

Interest charges

    

Interest expense

     175.8        173.2   

Allowance for borrowed funds used during construction

     (0.9     (3.2
                

Total interest charges

     174.9        170.0   
                

Income before provision for income taxes

     318.7        233.4   

Provision for income taxes

     135.9        73.0   
                

Net income

     182.8        160.4   

Less: Net income attributable to noncontrolling interest

     (0.5     0.0   
                

Net income attributable to TECO Energy

   $ 182.3      $ 160.4   
                

Average common shares outstanding – Basic

     212.5        211.7   

                           – Diluted

     214.6        212.8   
                

Earnings per share attributable to TECO Energy – Basic

   $ 0.85      $ 0.75   

                                                – Diluted

   $ 0.85      $ 0.75   
                

Dividends paid per common share outstanding

   $ 0.610      $ 0.600   
                

The accompanying notes are an integral part of the consolidated condensed financial statements.

 

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TECO ENERGY, INC.

Consolidated Condensed Statements of Comprehensive Income

Unaudited

 

     Three months ended Sep. 30,      Nine months ended Sep. 30,  

(millions)

   2010     2009      2010     2009  

Net income

   $ 51.1      $ 64.8       $ 182.8      $ 160.4   
                                 

Other comprehensive income (loss), net of tax

         

Net unrealized gains on cash flow hedges

     1.4        2.8         1.8        13.3   

Amortization of unrecognized benefit costs and other

     0.4        0.1         2.6        0.8   

Recognized benefit costs due to settlement

     0.0        0.0         1.0        0.0   

Reclassification to earnings - loss on available-for-sale securities

     0.0        0.0         0.0        1.7   
                                 

Other comprehensive income, net of tax

     1.8        2.9         5.4        15.8   
                                 

Comprehensive income

     52.9        67.7         188.2        176.2   
                                 

Comprehensive income attributable to noncontrolling interests

     (0.1     0.0         (0.5     0.0   
                                 

Comprehensive income attributable to TECO Energy, Inc.

   $ 52.8      $ 67.7       $ 187.7      $ 176.2   
                                 

The accompanying notes are an integral part of the consolidated condensed financial statements.

 

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TECO ENERGY, INC.

Consolidated Condensed Statements of Cash Flows

Unaudited

 

     Nine months ended Sep. 30,  

(millions)

   2010     2009  

Cash flows from operating activities

    

Net income

   $ 182.8      $ 160.4   

Adjustments to reconcile net income to net cash from operating activities:

    

Depreciation and amortization

     233.7        213.8   

Deferred income taxes

     136.5        73.0   

Investment tax credits, net

     (0.3     (0.3

Allowance for funds used during construction

     (1.6     (8.3

Non-cash stock compensation

     5.4        8.6   

Gain on sale of business/assets, pretax

     (0.9     (15.5

Non-cash debt extinguishment, pretax

     0.9        0.0   

Equity in earnings of unconsolidated affiliates, net of cash distributions on earnings

     6.8        (9.2

Deferred recovery clauses

     44.6        111.4   

Receivables, less allowance for uncollectibles

     (82.0     (50.7

Inventories

     (28.4     (37.6

Prepayments and other current assets

     (4.3     (1.6

Taxes accrued

     38.6        39.2   

Interest accrued

     23.7        37.1   

Accounts payable

     36.8        (27.3

Other

     0.7        46.9   
                

Cash flows from operating activities

     593.0        539.9   
                

Cash flows from investing activities

    

Capital expenditures

     (374.9     (499.4

Allowance for funds used during construction

     1.6        8.3   

Net proceeds from sale of business/assets

     1.4        29.5   

Net cash increase from consolidation

     24.1        0.0   

Restricted cash

     0.0        0.5   

Contributions to unconsolidated affiliates

     (1.7     (0.2

Other investments

     (13.9     17.1   
                

Cash flows used in investing activities

     (363.4     (444.2
                

Cash flows from financing activities

    

Dividends

     (130.7     (128.1

Proceeds from the sale of common stock

     5.6        3.5   

Proceeds from long-term debt

     543.5        102.1   

Repayment of long-term debt/Purchase in lieu of redemption

     (513.7     (6.9

Dividend to noncontrolling interest

     (0.7     0.0   

Net decrease in short-term debt

     (28.0     (33.0
                

Cash flows used in financing activities

     (124.0     (62.4
                

Net increase in cash and cash equivalents

     105.6        33.3   

Cash and cash equivalents at beginning of period

     46.0        12.2   
                

Cash and cash equivalents at end of period

   $ 151.6      $ 45.5   
                

The accompanying notes are an integral part of the consolidated condensed financial statements.

 

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TECO ENERGY, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

UNAUDITED

1. Summary of Significant Accounting Policies

The significant accounting policies for both utility and diversified operations include:

Principles of Consolidation and Basis of Presentation

The consolidated condensed financial statements include the accounts of TECO Energy, Inc., its majority-owned and controlled subsidiaries, and the accounts of variable interest entities (VIEs) for which it is the primary beneficiary (TECO Energy or the company). TECO Energy is considered to be the primary beneficiary of VIEs if it has both 1) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and 2) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. Effective Jan. 1, 2010, amended accounting standards on consolidation resulted in the reconsolidation of two projects in Guatemala. Prior periods presented in this quarterly report were not restated. (See Note 16.)

All significant intercompany balances and intercompany transactions have been eliminated in consolidation. Generally, the equity method of accounting is used to account for investments in partnerships or other arrangements in which TECO Energy is not the primary beneficiary but is able to exert significant influence. In the opinion of management, the unaudited consolidated condensed financial statements include all adjustments that are of a recurring nature and necessary to state fairly the financial position of TECO Energy, Inc. and subsidiaries as of Sep. 30, 2010 and Dec. 31, 2009, and the results of operations and cash flows for the periods ended Sep. 30, 2010 and 2009. The results of operations for the three and nine month periods ended Sep. 30, 2010 are not necessarily indicative of the results that can be expected for the entire fiscal year ending Dec. 31, 2010.

The use of estimates is inherent in the preparation of financial statements in accordance with generally accepted accounting principles (GAAP). Actual results could differ from these estimates. The year-end condensed balance sheet data was derived from audited financial statements, however this quarterly report on Form 10-Q does not include all year-end disclosures required for an annual report on Form 10-K by GAAP in the United States of America.

Revenues

As of Sep. 30, 2010 and Dec. 31, 2009, unbilled revenues of $60.3 million and $51.6 million, respectively, are included in the “Receivables” line item on the Consolidated Condensed Balance Sheets.

Accounting for Franchise Fees and Gross Receipts

The regulated utilities (Tampa Electric and Peoples Gas System (PGS)) are allowed to recover from customers certain costs incurred through rates approved by the Florida Public Service Commission (FPSC). The amounts included in customers’ bills for franchise fees and gross receipt taxes are included as revenues on the Consolidated Condensed Statements of Income. These amounts totaled $31.0 million and $90.0 million, respectively, for the three and nine months ended Sep. 30, 2010, compared to $30.5 million and $88.8 million, respectively, for the three and nine months ended Sep. 30, 2009. Franchise fees and gross receipt taxes payable by the regulated utilities are included as an expense on the Consolidated Condensed Statements of Income in “Taxes, other than income”. These totaled $31.1 million and $89.9 million, respectively, for the three and nine months ended Sep. 30, 2010, compared to $30.5 million and $88.7 million, respectively, for the three and nine months ended Sep. 30, 2009.

Purchased Power

Tampa Electric purchases power on a regular basis to meet the needs of its customers. Tampa Electric purchased power from entities not affiliated with TECO Energy at a cost of $45.2 million and $151.5 million, respectively, for the three and nine months ended Sep. 30, 2010, compared to $46.3 million and $144.6 million, respectively, for the three and nine months ended Sep. 30, 2009. Prudently incurred purchased power costs at Tampa Electric have historically been recoverable through FPSC-approved cost recovery clauses.

Cash Flows Related to Derivatives and Hedging Activities

The company classifies cash inflows and outflows related to derivative and hedging instruments in the appropriate cash flow sections associated with the item being hedged. In the case of heating oil swaps which are used to mitigate the fluctuations in the price of diesel fuel, primarily at TECO Coal, the cash inflows and outflows are included in the operating section. For natural gas, primarily at Tampa Electric and PGS, and ongoing interest rate swaps, the cash inflows and outflows are included in the operating section. For interest rate swaps that settle coincident with the debt issuance, the cash inflows and outflows are treated as premiums or discounts and included in the financing section of the Consolidated Condensed Statements of Cash Flows.

 

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2. New Accounting Pronouncements

Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses

In July 2010, the Financial Accounting Standards Board (FASB) issued guidance requiring improved disclosures about the credit quality of a company’s financing receivables and their associated credit reserves. The guidance is effective for interim and annual periods that end after Dec. 15, 2010. This guidance will not have any effect on the company’s results of operations, statement of position or cash flows.

Subsequent Events

In February 2010, the FASB issued additional guidance related to subsequent event disclosure. The guidance was effective upon issuance and has no effect on the company’s results of operations, statement of position or cash flows.

Fair Value Measures and Disclosures

In January 2010, the FASB issued guidance that requires entities to disclose more information regarding the movements between Levels 1 and 2 of the fair value hierarchy. The guidance is effective for fiscal years that begin after Dec. 15, 2010, and for interim periods within that year. This guidance will not have any effect on the company’s results of operations, statement of position or cash flows.

3. Regulatory

Tampa Electric’s and PGS’s retail businesses are regulated by the FPSC. Tampa Electric also is subject to regulation by the Federal Energy Regulatory Commission (FERC) under the Public Utility Holding Company Act of 2005 (PUHCA 2005). However, pursuant to a waiver granted in accordance with the FERC’s regulations, TECO Energy is not subject to certain accounting, record-keeping and reporting requirements prescribed by the FERC’s regulations under PUHCA 2005. The operations of PGS are regulated by the FPSC separately from the regulation of Tampa Electric. The FPSC has jurisdiction over rates, service, issuance of securities, safety, accounting and depreciation practices and other matters. In general, the FPSC sets rates at a level that allows utilities such as Tampa Electric and PGS to collect total revenues (revenue requirements) equal to their cost of providing service, plus a reasonable return on invested capital.

Stipulation with Intervenors – Tampa Electric

As previously reported in the company’s Annual Report on Form 10-K for the period ended Dec. 31, 2009, the FPSC, in connection with Tampa Electric’s 2008 base rate request, approved a $25.7 million increase in base rates effective Jan. 1, 2010 (step increase), subject to refund, for certain capital additions placed in service in 2009.

In connection with the base rate request, the FPSC had rejected the intervenors’ arguments that the approved 2010 increase violated the intervenors’ due process rights, Florida Statutes or FPSC rules. The intervenors filed an appeal with the Florida Supreme Court in September 2009, which Tampa Electric opposed.

In July 2010, Tampa Electric entered into a stipulation with the intervenors to resolve all issues related to the 2008 base rate case including the 2010 step increase, as well as the intervenors’ appeal to the Florida Supreme Court. Under the terms of the stipulation, the $25.7 million step increase would remain in effect for 2010, and Tampa Electric would make a one-time reduction of $24.0 million to customers’ bills in 2010.

In August 2010, the FPSC voted to approve the July stipulation, which was contained in their Docket No. 090368-EI “Review of the continuing need and cost associated with Tampa Electric Company’s 5 Combustion Turbines and Big Bend Rail Facility”. This stipulation now resolves all issues in the above docket and all issues in the intervenors’ appeal of the FPSC’s 2009 decision in Tampa Electric’s base rate proceeding pending before the Florida Supreme Court. The docket related to the base rate proceeding is now closed. The one-time reduction of $24.0 million to customers’ bills in 2010 is reflected in the third quarter operating results as a reduction in revenue.

Effective Jan. 1, 2011, and for subsequent years, rates of $24.4 million (a $1.3 million reduction from the $25.7 million in effect for 2010) related to the step increase will be in effect.

Wholesale and Transmission Rate Cases

In July 2010, Tampa Electric filed wholesale requirements and transmission rate cases with the FERC. Tampa Electric’s last wholesale requirements rate case was in 1991 and the associated service agreements were approved by the FERC in the mid-1990s.

 

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The FERC approved Tampa Electric’s proposed transmission rates as filed with the FERC, which became effective Sep. 14, 2010, subject to refund. The FERC also approved Tampa Electric’s proposed wholesale requirements rates, as filed with the FERC, to become effective Mar. 1, 2011, subject to refund. The proposed wholesale requirements and transmission rates are not expected to have a material impact on Tampa Electric’s results.

Storm Damage Cost Recovery

Tampa Electric accrues $8.0 million annually effective May 2009 to a FERC-authorized and FPSC-approved self-insured storm damage reserve. This reserve was created after Florida’s investor owned utilities (IOUs) were unable to obtain transmission and distribution insurance coverage due to destructive acts of nature. Tampa Electric’s storm reserve was $35.4 million and $29.3 million as of Sep. 30, 2010 and Dec. 31, 2009, respectively.

Regulatory Assets and Liabilities

Tampa Electric and PGS maintain their accounts in accordance with recognized policies of the FPSC. In addition, Tampa Electric maintains its accounts in accordance with recognized policies prescribed or permitted by the FERC.

Tampa Electric and PGS apply the accounting standards for regulated operations. Areas of applicability include: deferral of revenues under approved regulatory agreements; revenue recognition resulting from cost recovery clauses that provide for monthly billing charges to reflect increases or decreases in fuel, purchased power, conservation and environmental costs; and the deferral of costs as regulatory assets to the period that the regulatory agency recognizes them when cost recovery is ordered over a period longer than a fiscal year.

Details of the regulatory assets and liabilities as of Sep. 30, 2010 and Dec. 31, 2009 are presented in the following table:

 

Regulatory Assets and Liabilities

 

(millions)

   Sep. 30,
2010
     Dec. 31,
2009
 

Regulatory assets:

     

Regulatory tax asset (1)

   $ 67.8       $ 69.0   
                 

Other:

     

Cost recovery clauses

     51.1         89.4   

Postretirement benefit asset

     219.6         229.1   

Deferred bond refinancing costs (2)

     15.2         18.0   

Environmental remediation

     21.9         21.2   

Competitive rate adjustment

     3.2         3.1   

Other

     16.2         15.0   
                 

Total other regulatory assets

     327.2         375.8   
                 

Total regulatory assets

     395.0         444.8   

Less: Current portion

     67.6         109.2   
                 

Long-term regulatory assets

   $ 327.4       $ 335.6   
                 

Regulatory liabilities:

     

Regulatory tax liability (1)

   $ 16.4       $ 19.6   
                 

Other:

     

Cost recovery clauses

     52.1         61.4   

Environmental remediation

     19.9         19.9   

Transmission and delivery storm reserve

     35.4         29.3   

Deferred gain on property sales (3)

     1.5         2.8   

Provision for stipulation and other (4)

     34.0         0.7   

Accumulated reserve-cost of removal

     563.9         554.3   
                 

Total other regulatory liabilities

     706.8         668.4   
                 

Total regulatory liabilities

     723.2         688.0   

Less: Current portion

     108.7         85.4   
                 

Long-term regulatory liabilities

   $ 614.5       $ 602.6   
                 

 

(1) Primarily related to plant life and derivative positions.
(2) Amortized over the term of the related debt instruments.
(3) Amortized over a 4 or 5-year period with various ending dates.
(4) Includes a one-time credit to be applied to Tampa Electric customers’ bills in the fourth quarter of 2010 related to the stipulation and a provision for PGS’ estimated earnings above its allowed return on equity range of 9.75% to 11.75%. The disposition of any earnings above the top of PGS’ allowed range would be determined by the FPSC.

 

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All regulatory assets are being recovered through the regulatory process. The following table further details the regulatory assets and the related recovery periods:

 

Regulatory assets

 

(millions)

   Sep. 30,
2010
     Dec. 31,
2009
 

Clause recoverable (1)

   $ 54.3       $ 92.5   

Components of rate base (2)

     229.8         238.1   

Regulatory tax assets (3)

     67.8         69.0   

Capital structure and other (3)

     43.1         45.2   
                 

Total

   $ 395.0       $ 444.8   
                 

 

(1) To be recovered through cost recovery clauses approved by the FPSC on a dollar-for-dollar basis in the next year.
(2) Primarily reflects allowed working capital, which is included in rate base and earns a rate of return as permitted by the FPSC.
(3) “Regulatory tax assets” and “Capital structure and other” regulatory assets have a recoverable period longer than a fiscal year and are recognized over the period authorized by the regulatory agency. Also included are unamortized loan costs, which are amortized over the life of the related debt instruments. See footnotes 1 and 2 in the prior table for additional information.

4. Income Taxes

The company’s U.S. subsidiaries join in the filing of a U.S. federal consolidated income tax return. The Internal Revenue Service (IRS) concluded its examination of the company’s 2008 consolidated federal income tax return during 2009. During the third quarter, the company received and agreed to a proposed settlement related to the only outstanding issue for the 2008 tax return. The settlement is expected to be finalized in the fourth quarter, without material impact on earnings or operating cash flows. The U.S. federal statute of limitations remains open for the year 2007 and onward. Years 2009 and 2010 are currently under examination by the IRS under their Compliance Assurance Program. The company does not expect the settlement of current IRS examinations to significantly change the total amount of unrecognized tax benefits by the end of 2010. Foreign and U.S. state jurisdictions have statutes of limitations generally ranging from three to five years from the filing of an income tax return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. Years still open to examination by tax authorities in major state and foreign jurisdictions include 2005 and forward. During the first and second quarters of 2010, the company reached a favorable settlement for certain state items that were under appeal and as a result recorded a $4.0 million after-tax benefit, excluding interest. No additional amounts were recorded during the third quarter of 2010. Therefore, during the nine months ending Sep. 30, 2010, the company recorded a $4.0 million after-tax benefit, excluding interest, for these state items.

The company recognizes interest and penalties associated with uncertain tax positions in the Consolidated Condensed Statements of Income in accordance with standards for accounting for uncertainty in income taxes. During the first and second quarters of 2010, the company recorded $2.0 million in pretax interest income as a result of finalizing the settlement of certain state tax items. During the nine month periods ended Sep. 30, 2010 and Sep. 30, 2009, the company recorded ($1.2) million and $0.7 million, respectively, of pretax (income) charges for interest only. No amounts have been recorded for penalties for the nine month periods ended Sep. 30, 2010 or Sep. 30, 2009.

The effective tax rate increased to 42.63% for the nine months ended Sep. 30, 2010 from 31.28% for the same period in 2009, primarily due to $24.9 million of U.S. deferred taxes recognized on undistributed earnings of certain foreign subsidiaries which are no longer considered indefinitely reinvested, and an additional $5.9 million valuation allowance related to our updated, anticipated ability to use foreign tax credits. See Note 17 for more details.

 

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5. Employee Postretirement Benefits

Included in the table below is the periodic expense for pension and other postretirement benefits offered by the company.

 

Pension Expense

 
(millions)    Pension Benefits     Other Postretirement Benefits  

Three months ended Sep. 30,

   2010     2009     2010      2009  

Components of net periodic benefit expense

         

Service cost

   $ 4.0      $ 4.0      $ 0.8       $ 0.8   

Interest cost on projected benefit obligations

     8.2        8.5        2.8         2.9   

Expected return on assets

     (9.0     (9.5     0.0         0.0   

Amortization of:

         

Transition obligation

     0.0        0.0        0.5         0.6   

Prior service (benefit) cost

     (0.1     (0.1     0.2         0.2   

Actuarial loss

     3.2        2.2        0.0         0.0   
                                 

Pension expense

     6.3        5.1        4.3         4.5   

Curtailment loss

     0.0        0.2        0.0         0.0   
                                 

Net pension expense recognized in the
TECO Energy Consolidated Condensed Statements of Income

   $ 6.3      $ 5.3      $ 4.3       $ 4.5   
                                 

Nine months ended Sep. 30,

 

Components of net periodic benefit expense

         

Service cost

   $ 12.1      $ 11.8      $ 2.4       $ 2.3   

Interest cost on projected benefit obligations

     24.9        25.3        8.2         8.5   

Expected return on assets

     (27.2     (28.4     0.0         0.0   

Amortization of:

         

Transition obligation

     0.0        0.0        1.7         1.7   

Prior service (benefit) cost

     (0.3     (0.3     0.6         0.6   

Actuarial loss

     9.4        6.5        0.0         0.0   
                                 

Pension expense

     18.9        14.9        12.9         13.1   

Curtailment loss

     0.0        0.2        0.0         0.0   

Settlement cost

     1.6        0.0        0.0         0.0   
                                 

Net pension expense recognized in the
TECO Energy Consolidated Condensed Statements of Income

   $ 20.5      $ 15.1      $ 12.9       $ 13.1   
                                 

For the fiscal 2010 plan year, TECO Energy assumed an expected long-term return on plan assets of 8.25% and a discount rate of 5.75% for pension benefits under its qualified pension plan, and a discount rate of 5.60% for its other postretirement benefits as of their Jan. 1, 2010 measurement dates. Additionally, TECO Energy assumed a discount rate of 5.75% for its Supplemental Executive Retirement Plan (SERP) benefits as of its Mar. 1 and Jan. 1, 2010 measurement dates.

Effective Dec. 31, 2006, in accordance with the accounting standard for defined benefit plans and other postretirement benefits, TECO Energy adjusted its postretirement benefit obligations and recorded other comprehensive income (loss) to reflect the unamortized transition obligation, prior service cost, and actuarial gains and losses of its postretirement benefit plans. The adjustment to other comprehensive income was net of amounts that, for purposes prescribed by accounting standards for regulated operations, were recorded as regulatory assets for Tampa Electric Company. For the three months and nine months ended Sep. 30, 2010, TECO Energy and its subsidiaries reclassed $0.6 million and $1.8 million, respectively, of unamortized transition obligation, prior service cost and actuarial gains and losses from accumulated other comprehensive income to net income as part of periodic benefit expense. In addition, during the three months and nine months ended Sep. 30, 2010, Tampa Electric Company reclassed $3.1 million and $9.5 million, respectively, of unamortized transition obligation, prior service cost and actuarial losses from regulatory assets to net income as part of periodic benefit expense.

In connection with the restructuring events that occurred in the third quarter of 2009 that changed the senior management structure, TECO Energy recognized a settlement charge of $1.6 million for the nine months ended Sep. 30, 2010 for pay-outs from its SERP.

In September 2010, TECO Energy made a contribution to its qualified pension plan of $34.5 million.

In March 2010, the Patient Protection and Affordable Care Act and a companion bill, The Health Care and Education Reconciliation Act (the Acts) were signed into law. Among other things, the Acts reduce the tax benefits available to an employer that receives the Medicare Part D subsidy, resulting in a write-off of any associated deferred tax asset. As a result, TECO Energy reduced its deferred tax asset by $6.4 million and recorded a corresponding charge of $1.1 million and a regulatory tax asset of $5.3 million. TECO Energy is reviewing certain other aspects of the Acts that could impact the cost of medical benefits provided to retirees and active employees. These impacts are not expected to be material to the company’s future results of operations, statement of position or cash flows.

 

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6. Short-Term Debt

At Sep. 30, 2010 and Dec. 31, 2009, the following credit facilities and related borrowings existed:

 

Credit Facilities

 
     Sep. 30, 2010      Dec. 31, 2009  

(millions)

   Credit
Facilities
     Borrowings
Outstanding  (1)
     Letters
of  Credit
Outstanding
     Credit
Facilities
     Borrowings
Outstanding  (1)
     Letters
of Credit
Outstanding
 

Tampa Electric Company:

                 

5-year facility

   $ 325.0       $ 0.0       $ 0.9       $ 325.0       $ 55.0       $ 0.7   

1-year accounts receivable facility

     150.0         27.0         0.0         150.0         0.0         0.0   

TECO Energy/TECO Finance:

                 

5-year facility (2)

     200.0         0.0         6.7         200.0         0.0         6.9   
                                                     

Total

   $ 675.0       $ 27.0       $ 7.6       $ 675.0       $ 55.0       $ 7.6   
                                                     

 

(1) Borrowings outstanding are reported as notes payable.
(2) TECO Finance is the borrower and TECO Energy is the guarantor of this facility.

These credit facilities require commitment fees ranging from 7.0 to 60.0 basis points. The weighted-average interest rate on outstanding amounts payable under the credit facilities at Sep. 30, 2010 and Dec. 31, 2009 was 0.85% and 0.66%, respectively.

Tampa Electric Company Accounts Receivable Facility

On Feb. 19, 2010, Tampa Electric Company and TEC Receivables Corp. (TRC), a wholly-owned subsidiary of Tampa Electric Company, amended their $150 million accounts receivable collateralized borrowing facility, entering into Amendment No. 8 to the Loan and Servicing Agreement with certain lenders named therein and Citicorp North America, Inc. as Program Agent. The amendment (i) extends the maturity date to Feb. 18, 2011, (ii) provides that TRC will pay program and liquidity fees, which, pursuant to the amendment, will total 100 basis points, (iii) provides that the interest rates on the borrowings will be based on prevailing asset-backed commercial paper rates, unless such rates are not available from conduit lenders, in which case the rates will be at an interest rate equal to, at Tampa Electric Company’s option, either Citibank’s prime rate (or the federal funds rate plus 50 basis points, if higher) or a rate based on the London interbank offer rate (if available) plus a margin and (iv) makes other technical changes.

7. Long-Term Debt

Issuance of TECO Finance, Inc. 4.00% Notes due 2016 and 5.15% Notes due 2020

On Mar. 15, 2010, TECO Finance, Inc. issued $250 million aggregate principal amount of 4.00% Notes due Mar. 15, 2016 and $300 million aggregate principal amount of 5.15% Notes due Mar. 15, 2020. The 2016 Notes were priced at 99.594% of the principal amount to yield 4.077% to maturity, and the 2020 Notes were priced at 99.552% of the principal amount to yield 5.208% to maturity. TECO Finance is a wholly-owned subsidiary of TECO Energy whose business activities consist solely of providing funds to TECO Energy for its diversified activities. The TECO Finance notes are fully and unconditionally guaranteed by TECO Energy.

The offering resulted in net proceeds to TECO Finance (after deducting underwriting discounts and commissions and estimated offering expenses) of approximately $543.5 million. TECO Finance used a portion of these net proceeds to fund the cash purchase of the TECO Energy and TECO Finance notes tendered in March 2010 (see “TECO Energy, Inc. and TECO Finance, Inc. Tender Offers” below) and to fund the redemptions of the TECO Energy Floating Rate Notes due 2010 and 7.20% Notes due 2011 in April 2010. TECO Finance may redeem some or all of the notes at its option at any time and from time to time at a redemption price equal to the greater of (i) 100% of the principal amount of notes to be redeemed or (ii) the sum of the present value of the remaining payments of principal and interest on the notes to be redeemed, discounted at an applicable treasury rate (as defined in the Indenture), plus 25 basis points; in either case, the redemption price would include accrued and unpaid interest to the redemption date.

 

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TECO Energy, Inc. and TECO Finance, Inc. Tender Offers

On Mar. 22, 2010, TECO Energy and TECO Finance completed debt tender offers which resulted in the purchase of approximately $70 million principal amount of TECO Energy notes for cash and approximately $230 million principal amount of TECO Finance notes for cash.

The tender offers resulted in the purchase and retirement of approximately:

 

   

$43.0 million principal amount of TECO Energy 7.2% Notes due 2011

 

   

$27.0 million principal amount of TECO Energy 7.0% Notes due 2012

 

   

$156.9 million principal amount of TECO Finance 7.2% Notes due 2011

 

   

$73.1 million principal amount of TECO Finance 7.0% Notes due 2012

In connection with these debt tender transactions, $25.5 million of premiums and fees were expensed, and are included in “Loss on debt extinguishment” on the Consolidated Condensed Statements of Income and as part of the “Cash flows from operating activities” in the Consolidated Condensed Statements of Cash Flows for the nine months ended Sep. 30, 2010. “Loss on debt extinguishment” also includes remaining unamortized debt issue costs of $0.9 million.

Redemption of TECO Energy, Inc. Floating Rate Notes due 2010

On Apr. 14, 2010, TECO Energy redeemed all of the outstanding $100 million aggregate principal amount of its Floating Rate Notes due 2010. The redemption price was equal to 100% of the principal amount of notes redeemed, plus accrued and unpaid interest on the redeemed notes up to the redemption date.

Redemption of TECO Energy, Inc. 7.2% Notes due 2011

On Apr. 22, 2010, TECO Energy redeemed $100 million aggregate principal amount of its 7.2% Notes due 2011. The redemption price was equal to $1,066.38 per $1,000 principal amount of notes redeemed, plus accrued and unpaid interest on the redeemed notes up to the redemption date. In connection with this transaction, $6.6 million of premiums and fees were expensed, and are included in “Loss on debt extinguishment” on the Consolidated Condensed Statements of Income and as part of the “Cash flows from operating activities” in the Consolidated Condensed Statements of Cash Flows for the nine months ended Sep. 30, 2010.

Reconsolidation of TCAE and CGESJ

Effective Jan. 1, 2010, new accounting standards for consolidations amended the determination of the primary beneficiaries for variable interest entities. As a result of adopting these standards, TECO Guatemala, Inc., a wholly-owned subsidiary of TECO Energy, was determined to be the primary beneficiary of, and therefore required to consolidate, both the Tampa Centro Americana de Electricidad (TCAE) and Central Generadora Eléctrica San José (CGESJ) projects in Guatemala. (See Note 16.) The consolidation resulted in a net $44.4 million increase of non-recourse debt.

 

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8. Other Comprehensive Income

TECO Energy reported the following other comprehensive income (OCI) for the three months and nine months ended Sep. 30, 2010 and 2009, related to changes in the fair value of cash flow hedges, amortization of unrecognized benefit costs associated with the company’s pension plans and unrecognized gains and losses on available-for-sale securities:

 

Other Comprehensive Income                                                 
     Three months ended Sep. 30,     Nine months ended Sep. 30,  

(millions)

   Gross     Tax     Net     Gross     Tax     Net  

2010

            

Unrealized gain (loss) on cash flow hedges

   $ 0.9      ($ 0.2   $ 0.7      ($ 0.5   $ 0.2      ($ 0.3

Plus: Loss reclassified to net income

     1.2        (0.5     0.7        3.4        (1.3     2.1   
                                                

Gain on cash flow hedges

     2.1        (0.7     1.4        2.9        (1.1     1.8   

Amortization of unrecognized benefit costs and other

     0.6        (0.2     0.4        1.8        0.8        2.6   

Recognized benefit costs due to settlement

     0.0        0.0        0.0        1.6        (0.6     1.0   
                                                

Total other comprehensive income

   $ 2.7      ($ 0.9   $ 1.8      $ 6.3      ($ 0.9   $ 5.4   
                                                

2009

            

Unrealized (loss) gain on cash flow hedges

   ($ 1.4   $ 0.5      ($ 0.9   $ 1.7      ($ 0.6   $ 1.1   

Plus: Loss reclassified to net income

     5.8        (2.1     3.7        19.4        (7.2     12.2   
                                                

Gain on cash flow hedges

     4.4        (1.6     2.8        21.1        (7.8     13.3   

Amortization of unrecognized benefit costs

     0.5        (0.2     0.3        1.6        (0.6     1.0   

Change in benefit obligation due to remeasurement

     (0.3     0.1        (0.2     (0.3     0.1        (0.2

Reclassification to earnings loss on available-for-sale securities

     0.0        0.0        0.0        1.7        0.0        1.7   
                                                

Total other comprehensive income

   $ 4.6      ($ 1.7   $ 2.9      $ 24.1      ($ 8.3   $ 15.8   
                                                

 

Accumulated Other Comprehensive Loss

                

(millions)

   Sep. 30, 2010     Dec. 31, 2009  

Unrecognized pension losses and prior service costs(1)

   ($ 25.8   ($ 27.8

Unrecognized other benefit gains, prior service costs and transition obligations(2)

     11.7        10.1   

Net unrealized losses from cash flow hedges(3)

     (5.5     (7.3
                

Total accumulated other comprehensive loss

   ($ 19.6   ($ 25.0
                

 

(1) Net of tax benefit of $15.9 million and $17.1 million as of Sep. 30, 2010 and Dec. 31, 2009, respectively.
(2) Net of tax expense of $4.6 million and $6.0 million as of Sep. 30, 2010 and Dec. 31, 2009, respectively.
(3) Net of tax benefit of $3.4 million and $4.5 million as of Sep. 30, 2010 and Dec. 31, 2009, respectively.

 

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9. Earnings Per Share

 

Earnings Per Share                                 
     Three months ended Sep. 30,     Nine months ended Sep. 30,  

(millions, except per share amounts)

   2010     2009     2010     2009  

Basic earnings per share

        

Net income

   $ 51.1      $ 64.8      $ 182.8      $ 160.4   

Less: Income attributable to noncontrolling interest

     (0.1     0.0        (0.5     0.0   

Less: Amount allocated to nonvested participating shareholders

     (0.4     (0.5     (1.3     (1.4
                                

Net income attributable to TECO Energy available to common shareholders - basic

   $ 50.6      $ 64.3      $ 181.0      $ 159.0   
                                

Average shares outstanding common

     212.8        211.9        212.5        211.7   
                                

Basic earnings per share attributable to TECO Energy available to common shareholders

   $ 0.24      $ 0.30      $ 0.85      $ 0.75   
                                

Diluted earnings per share

        

Net income

   $ 51.1      $ 64.8      $ 182.8      $ 160.4   

Less: Income attributable to noncontrolling interest

     (0.1     0.0        (0.5     0.0   

Less: Amount allocated to nonvested participating shareholders

     (0.4     (0.5     (1.3     (1.4
                                

Net income attributable to TECO Energy available to common shareholders - diluted

   $ 50.6      $ 64.3      $ 181.0      $ 159.0   
                                

Average shares outstanding common

     212.8        211.9        212.5        211.7   

Assumed conversions of stock options, unvested restricted stock and contingent performance shares, net

     2.3        1.3        2.1        1.1   
                                

Adjusted average shares outstanding common - diluted

     215.1        213.2        214.6        212.8   
                                

Diluted earnings per share attributable to TECO Energy available to common shareholders

   $ 0.24      $ 0.30      $ 0.85      $ 0.75   
                                

Anti-dilutive shares

     2.5        5.7        4.3        6.1   
                                

10. Commitments and Contingencies

Legal Contingencies

From time to time, TECO Energy and its subsidiaries are involved in various legal, tax and regulatory proceedings before various courts, regulatory commissions and governmental agencies in the ordinary course of its business. Where appropriate, accruals are made in accordance with accounting standards for contingencies to provide for matters that are probable of resulting in an estimable, material loss. While the outcome of such proceedings is uncertain, management does not believe that their ultimate resolution will have a material adverse effect on the company’s results of operations or financial condition.

TECO Coal Corporation and Premier Elkhorn Coal Corporation v. Orlando Utilities Commission (OUC)

TECO Coal Corporation and Premier Elkhorn Corporation (collectively TECO Coal) wholly-owned subsidiaries of TECO Energy, Inc., filed a declaratory judgment suit on Dec. 21, 2007, in the U.S. District Court for the Eastern District of Kentucky. The dispute stems from a 1995 coal supply contract that contains a mechanism to adjust the contract price every six months based on changes in government-published indexes intended to track changes in unit costs in TECO Coal’s cost of production for supplying the coal. TECO Coal maintains that it is commercially impractical to continue the contract because that mechanism has not worked as intended and has resulted in an unintended windfall for OUC. OUC has filed a counterclaim unrelated to the commercial impracticability claim that seeks damages for TECO Coal’s failure to deliver coal in 2008 when TECO Coal notified OUC of its inability to deliver coal as a result of force majeure.

 

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On Sep. 17, 2010, the Court granted OUC’s motion for summary judgment against TECO Coal’s claim and denied OUC’s motion for summary judgment on its breach of contract counterclaim against TECO Coal which is expected to proceed to trial during the first half of 2011. TECO Coal cannot appeal the dismissal of its claim until after the trial. As of Sep. 30, 2010, the ultimate resolution of this proceeding is uncertain and no potential loss has been accrued.

Superfund and Former Manufactured Gas Plant Sites

Tampa Electric Company, through Tampa Electric and PGS, is a potentially responsible party (PRP) for certain superfund sites and, through PGS, for certain former manufactured gas plant sites. While the joint and several liability associated with these sites presents the potential for significant response costs, as of Sep. 30, 2010, Tampa Electric Company has estimated its ultimate financial liability to be $19.9 million, primarily at PGS, and this amount has been accrued in the company’s financial statements. The environmental remediation costs associated with these sites, which are expected to be paid over many years, are not expected to have a significant impact on customer prices.

The estimated amounts represent only the estimated portion of the cleanup costs attributable to Tampa Electric Company. The estimates to perform the work are based on Tampa Electric Company’s experience with similar work adjusted for site specific conditions and agreements with the respective governmental agencies. The estimates are made in current dollars, are not discounted and do not assume any insurance recoveries.

Allocation of the responsibility for remediation costs among Tampa Electric Company and other PRPs is based on each party’s relative ownership interest in or usage of a site. Accordingly, Tampa Electric Company’s share of remediation costs varies with each site. In virtually all instances where other PRPs are involved, those PRPs are considered creditworthy.

Factors that could impact these estimates include the ability of other PRPs to pay their pro-rata portion of the cleanup costs, additional testing and investigation which could expand the scope of the cleanup activities, additional liability that might arise from the cleanup activities themselves or changes in laws or regulations that could require additional remediation. These costs are recoverable through customer rates established in subsequent base rate proceedings.

Potentially Responsible Party Notification

In October 2010, The U.S. Environmental Protection Agency (EPA) notified Tampa Electric Company that it is a potentially responsible party under the federal Superfund law for the proposed conduct of a contaminated soil removal action and further clean up, if necessary, at a property owned by Tampa Electric Company in Tampa, Florida. The property owned by Tampa Electric Company is undeveloped except for location of transmission lines and poles, and is adjacent to an industrial site, not owned by Tampa Electric Company, which the EPA has studied since 1992 or earlier. The EPA has asserted this potential liability due to Tampa Electric Company’s ownership of the property described above but, to the knowledge of Tampa Electric Company, is not based upon any release of hazardous substances by Tampa Electric Company. Tampa Electric Company is in the process of responding to such matter, and the scope and extent of its potential liability, if any, and the costs of any required investigation and remediation have not been determined.

 

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Guarantees and Letters of Credit

A summary of the face amount or maximum theoretical obligation under TECO Energy’s and Tampa Electric Company’s letters of credit and guarantees as of Sep. 30, 2010 is as follows:

 

Letters of Credit and Guarantees-TECO Energy

 
(millions)    2010      2011-2014      After(1)
2014
     Total      Liabilities Recognized
at Sep. 30, 2010
 

Letters of Credit and Guarantees for the Benefit of:

              

Tampa Electric

              

Guarantees:

              

Fuel purchase/energy management (2)

   $ 0.0       $ 0.0       $ 20.0       $ 20.0       $ 1.0   
                                            
     0.0         0.0         20.0         20.0         1.0   
                                            

TECO Coal

              

Letters of credit

     0.0         0.0         6.7         6.7         0.0   

Guarantees: Fuel purchase related (2)

     0.0         0.0         5.4         5.4         1.3   
                                            
     0.0         0.0         12.1         12.1         1.3   
                                            

Other subsidiaries

              

Guarantees:

              

Fuel purchase/energy management (2)

     0.0         0.0         109.7         109.7         0.0   
                                            

Total

   $ 0.0       $ 0.0       $ 141.8       $ 141.8       $ 2.3   
                                            

Letters of Credit-Tampa Electric Company

 
(millions)    2010      2011-2014      After(1)
2014
     Total      Liabilities Recognized
at Sep. 30, 2010
 

Letters of Credit for the Benefit of:

              

Tampa Electric

              

Letters of credit

   $ 0.0       $ 0.0       $ 0.9       $ 0.9       $ 0.0   
                                            

Total

   $ 0.0       $ 0.0       $ 0.9       $ 0.9       $ 0.0   
                                            

 

(1) These letters of credit and guarantees renew annually and are shown on the basis that they will continue to renew beyond 2014.
(2) The amounts shown are the maximum theoretical amounts guaranteed under current agreements. Liabilities recognized represent the associated obligation of TECO Energy under these agreements at Sep. 30, 2010. The obligations under these letters of credit and guarantees include net accounts payable and net derivative liabilities.

Financial Covenants

In order to utilize their respective bank facilities, TECO Energy and its subsidiaries must meet certain financial tests as defined in the applicable agreements. In addition, TECO Energy, TECO Finance, Tampa Electric Company and other operating companies have certain restrictive covenants in specific agreements and debt instruments. At Sep. 30, 2010, TECO Energy, TECO Finance, Tampa Electric Company and the other operating companies were in compliance with all applicable financial covenants.

11. Segment Information

TECO Energy is an electric and gas utility holding company with significant diversified activities. Segments are determined based on how management evaluates, measures and makes decisions with respect to the operations of the entity. The management of TECO Energy reports segments based on each subsidiary’s contribution of revenues, net income and total assets, as required by the accounting guidance for disclosures about segments of an enterprise and related information. All significant intercompany transactions are eliminated in the Consolidated Condensed Financial Statements of TECO Energy, but are included in determining reportable segments.

 

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Segment Information (1)

 

(millions)

Three months ended Sep. 30,

   Tampa(3)
Electric
     Peoples
Gas
     TECO
Coal
     TECO  (2)
Guatemala
    Other &
Eliminations
    TECO
Energy
 

2010

               

Revenues - external

   $ 593.3       $ 114.1       $ 165.3       $ 29.0      $ 0.1      $ 901.8   

Sales to affiliates

     0.3         2.5         0.0         0.0        (2.8     0.0   
                                                   

Total revenues

     593.6         116.6         165.3         29.0        (2.7     901.8   

Equity earnings of unconsolidated affiliates

     0.0         0.0         0.0         4.1        (0.5     3.6   

Depreciation

     54.4         11.5         11.0         1.8        0.1        78.8   

Total interest charges(1)

     30.7         4.6         1.6         4.0        16.5        57.4   

Internally allocated interest (1)

     0.0         0.0         1.5         3.0        (4.5     0.0   

Provision (benefit) for taxes

     36.8         2.4         2.2         29.1        (5.0     65.5   

Net income (loss) attributable to TECO Energy

   $ 61.9       $ 3.7       $ 8.3       ($ 12.6   ($ 10.3   $ 51.0   
                                                   

2009

               

Revenues - external

   $ 620.6       $ 98.7       $ 175.1       $ 1.9      $ 0.0      $ 896.3   

Sales to affiliates

     0.3         2.3         0.0         0.0        (2.6     0.0   
                                                   

Total revenues

     620.9         101.0         175.1         1.9        (2.6     896.3   

Equity earnings of unconsolidated affiliates

     0.0         0.0         0.0         11.3        0.0        11.3   

Depreciation

     50.8         11.1         10.6         0.2        0.1        72.8   

Restructuring charges

     18.1         4.5         0.0         0.0        2.4        25.0   

Total interest charges(1)

     29.8         4.6         1.8         3.3        17.8        57.3   

Internally allocated interest (1)

     0.0         0.0         1.6         3.2        (4.8     0.0   

Provision (benefit) for taxes

     31.9         2.2         3.7         1.1        (11.0     27.9   

Net income (loss) attributable to TECO Energy

   $ 54.3       $ 3.4       $ 11.6       $ 8.1      ($ 12.6   $ 64.8   
                                                   

(millions)

Nine months ended Sep. 30,

   Tampa
Electric
     Peoples
Gas
     TECO
Coal
     TECO  (2)
Guatemala
    Other &
Eliminations
    TECO
Energy
 

2010

               

Revenues - external

   $ 1,670.9       $ 408.2       $ 537.9       $ 95.7      $ 0.2      $ 2,712.9   

Sales to affiliates

     1.0         17.4         0.0         0.0        (18.4     0.0   
                                                   

Total revenues

     1,671.9         425.6         537.9         95.7        (18.2     2,712.9   

Equity earnings of unconsolidated affiliates

     0.0         0.0         0.0         12.1        (1.6     10.5   

Depreciation

     161.0         34.3         32.8         5.4        0.2        233.7   

Restructuring charges

     0.0         0.0         0.0         0.0        1.5        1.5   

Total interest charges(1)

     91.8         13.8         5.2         13.0        51.1        174.9   

Internally allocated interest (1)

     0.0         0.0         5.0         9.5        (14.5     0.0   

Provision (benefit) for taxes

     98.4         16.9         9.1         35.9        (24.4     135.9   

Net income (loss) attributable to TECO Energy

   $ 166.8       $ 26.7       $ 45.8       $ 8.4      ($ 65.4   $ 182.3   
                                                   

2009

               

Revenues - external

   $ 1,691.1       $ 344.9       $ 503.4       $ 6.0      $ 0.1      $ 2,545.5   

Sales to affiliates

     1.0         12.2         0.0         0.0        (13.2     0.0   
                                                   

Total revenues

     1,692.1         357.1         503.4         6.0        (13.1     2,545.5   

Equity earnings of unconsolidated affiliates

     0.0         0.0         0.0         33.0        0.0        33.0   

Depreciation

     148.1         32.9         32.0         0.6        0.2        213.8   

Restructuring charges

     18.1         4.5         0.0         0.0        2.4        25.0   

Total interest charges(1)

     86.6         14.1         5.5         9.6        54.2        170.0   

Internally allocated interest (1)

     0.0         0.0         4.8         9.4        (14.2     0.0   

Provision (benefit) for taxes

     69.1         12.3         6.7         10.7        (25.8     73.0   

Net income (loss) attributable to TECO Energy

   $ 121.1       $ 19.2       $ 29.7       $ 29.2      ($ 38.8   $ 160.4   
                                                   

At Sep. 30, 2010

               

Goodwill

   $ 0.0       $ 0.0       $ 0.0       $ 59.4      $ 0.0      $ 59.4   

Investment in unconsolidated affiliates

     0.0         0.0         0.0         137.6        0.2        137.8   

Total assets

   $ 5,834.1       $ 884.8       $ 331.1       $ 452.9      ($ 72.9   $ 7,430.0   
                                                   

At Dec. 31, 2009

               

Goodwill

   $ 0.0       $ 0.0       $ 0.0       $ 59.4      $ 0.0      $ 59.4   

Investment in unconsolidated affiliates

     0.0         0.0         0.0         279.2        0.1        279.3   

Total assets

   $ 5,697.9       $ 870.1       $ 326.6       $ 380.7      ($ 55.8   $ 7,219.5   
                                                   

 

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(1) Segment net income is reported on a basis that includes internally allocated financing costs. Total interest charges include internally allocated interest costs that for July through September 2010 were at a pretax rate of 6.50% and for January through June 2010 and 2009 were at a pretax rate of 7.15% based on an average of each subsidiary’s equity and indebtedness to TECO Energy assuming a 50/50 debt/equity capital structure.
(2) Revenues for 2009 are exclusive of entities deconsolidated as a result of the accounting guidance for variable interest entities. Total revenues for unconsolidated affiliates, attributable to TECO Guatemala based on ownership percentages, were $30.8 million and $62.2 million for the three and nine months ended Sep. 30, 2009. Net income attributable to TECO Energy for the nine months ended Sep. 30, 2009 includes the gain on the sale of a 16.5% interest in the Central American fiber optic telecommunication provider Navega. Entities were consolidated as of Jan. 1, 2010 as a result of accounting guidance effective on that date. See Note 16 for more information. The Provision for taxes for the three months ended Sep. 30, 2010 includes $24.9 million of U.S. deferred taxes recognized on undistributed earnings. See Note 4 for more information.
(3) Revenues for the three months and nine months ended Sep. 30, 2010 reflect the reduction resulting from the FPSC stipulation of $24.0 million. See Note 3 for more information.

 

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12. Accounting for Derivative Instruments and Hedging Activities

From time to time, TECO Energy and its affiliates enter into futures, forwards, swaps and option contracts for the following purposes:

 

   

To limit the exposure to price fluctuations for physical purchases and sales of natural gas in the course of normal operations at Tampa Electric and PGS;

 

   

To limit the exposure to interest rate fluctuations on debt securities at TECO Energy and its affiliates; and

 

   

To limit the exposure to price fluctuations for physical purchases of fuel at TECO Coal.

TECO Energy and its affiliates use derivatives only to reduce normal operating and market risks, not for speculative purposes. The company’s primary objective in using derivative instruments for regulated operations is to reduce the impact of market price volatility on ratepayers.

The risk management policies adopted by TECO Energy provide a framework through which management monitors various risk exposures. Daily and periodic reporting of positions and other relevant metrics are performed by a centralized risk management group which is independent of all operating companies.

The company applies the accounting standards for derivative instruments and hedging activities. These standards require companies to recognize derivatives as either assets or liabilities in the financial statements, to measure those instruments at fair value, and to reflect the changes in the fair value of those instruments as either components of OCI or in net income, depending on the designation of those instruments. The changes in fair value that are recorded in OCI are not immediately recognized in current net income. As the underlying hedged transaction matures or the physical commodity is delivered, the deferred gain or loss on the related hedging instrument must be reclassified from OCI to earnings based on its value at the time of the instrument’s settlement. For effective hedge transactions, the amount reclassified from OCI to earnings is offset in net income by the market change of the amount paid or received on the underlying physical transaction.

New accounting standards for disclosures became effective for financial statements issued for fiscal years and interim periods beginning after Nov. 15, 2008. This new standard requires enhanced disclosures about a company’s derivative activities and how the related hedged items affect a company’s financial position, financial performance and cash flows. The new requirements include quantitative disclosures about the company’s fair value amounts of gains and losses associated with derivative instruments, as well as disclosures about credit-risk-related contingent features in derivative agreements. The company adopted this new standard effective Jan. 1, 2009.

The company applies the accounting standards for regulated operations to financial instruments used to hedge the purchase of natural gas for its regulated companies. These standards, in accordance with the FPSC, permit the changes in fair value of natural gas derivatives to be recorded as regulatory assets or liabilities to reflect the impact of hedging activities on the fuel recovery clause. As a result, these changes are not recorded in OCI (see Note 3).

A company’s physical contracts qualify for the normal purchase/normal sale (NPNS) exception to derivative accounting rules, provided they meet certain criteria. Generally, NPNS applies if the company deems the counterparty creditworthy, if the counterparty owns or controls resources within the proximity to allow for physical delivery of the commodity, if the company intends to receive physical delivery and if the transaction is reasonable in relation to the company’s business needs. As of Sep. 30, 2010, all of the company’s physical contracts qualify for the NPNS exception.

The following table presents the derivatives that are designated as cash flow hedges at Sep. 30, 2010 and Dec. 31, 2009:

 

Total Derivatives(1)

 

(millions)

   Sep. 30,
2010
     Dec. 31,
2009
 

Current assets

   $ 0.8       $ 0.8   

Long-term assets

     0.2         0.2   
                 

Total assets

   $ 1.0       $ 1.0   
                 

Current liabilities

   $ 45.8       $ 34.0   

Long-term liabilities

     5.8         3.6   
                 

Total liabilities

   $ 51.6       $ 37.6   
                 

 

(1) Amounts presented above are on a gross basis, with asset and liability positions netted by counterparty in accordance with accounting standards for derivatives and hedging.

 

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The following table presents the derivative hedges of heating oil contracts at Sep. 30, 2010 and Dec. 31, 2009 to limit the exposure to changes in the market price for diesel fuel used in the production of coal:

 

Heating Oil Derivatives

 

(millions)

   Sep. 30,
2010
     Dec. 31,
2009
 

Current assets

   $ 0.1       $ 0.0   

Long-term assets

     0.2         0.2   
                 

Total assets

   $ 0.3       $ 0.2   
                 

Current liabilities

   $ 0.0       $ 0.9   

Long-term liabilities

     0.0         0.0   
                 

Total liabilities

   $ 0.0       $ 0.9   
                 

The following table presents the derivative hedges of natural gas contracts at Sep. 30, 2010 and Dec. 31, 2009 to limit the exposure to changes in market price for natural gas used to produce energy and natural gas purchased for resale to customers:

 

Natural Gas Derivatives

 

(millions)

   Sep. 30,
2010
     Dec. 31,
2009
 

Current assets

   $ 0.7       $ 0.8   

Long-term assets

     0.0         0.0   
                 

Total assets

   $ 0.7       $ 0.8   
                 

Current liabilities

   $ 45.5       $ 33.1   

Long-term liabilities

     5.8         3.6   
                 

Total liabilities

   $ 51.3       $ 36.7   
                 

The ending balance in accumulated other comprehensive income (AOCI) related to the cash flow hedges and previously settled interest rate swaps at Sep. 30, 2010 is a net loss of $5.5 million after tax and accumulated amortization. This compares to a net loss of $7.3 million in AOCI after tax and accumulated amortization at Dec. 31, 2009.

The following table presents the derivative hedges of interest rate swaps at Sep. 30, 2010 and Dec. 31, 2009 to limit the exposure to market changes in interest rates on outstanding debt:

 

Interest Rate Swaps

 

(millions)

   Sep. 30,
2010
     Dec. 31,
2009  (1)
 

Current assets

   $ 0.0       $ 0.0   

Long-term assets

     0.0         0.0   
                 

Total assets

   $ 0.0       $ 0.0   
                 

Current liabilities

   $ 0.3       $ 0.0   

Long-term liabilities

     0.0         0.0   
                 

Total liabilities

   $ 0.3       $ 0.0   
                 

 

(1) Interest rate swaps residing on the balance sheet of TECO Guatemala, Inc. were deconsolidated at Dec. 31, 2009. See Note 16.

 

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The following table presents the fair values and locations of derivative instruments recorded on the balance sheet at Sep. 30, 2010:

 

Derivatives Designated As Hedging Instruments

 
    

Asset Derivatives

    

Liability Derivatives

 

(millions)

at Sep. 30, 2010

  

Balance Sheet

Location

   Fair
Value
    

Balance Sheet

Location

   Fair
Value
 

Commodity Contracts:

           
Heating oil derivatives:            

Current

   Derivative assets    $ 0.1       Derivative liabilities    $ 0.0   

Long-term

   Derivative assets      0.2       Derivative liabilities      0.0   
Natural gas derivatives:            

Current

   Derivative assets      0.7       Derivative liabilities      45.5   

Long-term

   Derivative assets      0.0       Derivative liabilities      5.8   
Interest rate swaps:            

Current

   Derivative assets      0.0       Derivative liabilities      0.3   

Long-term

   Derivative assets      0.0       Derivative liabilities      0.0   
                       

Total derivatives designated as hedging instruments

   $ 1.0          $ 51.6   
                       

The following table presents the effect of energy related derivatives on the fuel recovery clause mechanism in the Consolidated Condensed Balance Sheet as of Sep. 30, 2010:

 

Energy Related Derivatives

 
    

Asset Derivatives

    

Liability Derivatives

 

(millions)

at Sep. 30, 2010

  

Balance Sheet

Location(1)

   Fair
Value
    

Balance Sheet

Location(1)

   Fair
Value
 

Commodity Contracts:

           
Natural gas derivatives:            

Current

   Regulatory liabilities    $ 0.7       Regulatory assets    $ 45.5   

Long-term

   Regulatory liabilities      0.0       Regulatory assets      5.8   
                       

Total

      $ 0.7          $ 51.3   
                       

 

(1) Natural gas derivatives are deferred, in accordance with accounting standards for regulated operations and all increases and decreases in the cost of natural gas supply are passed on to customers with the fuel recovery clause mechanism. As gains and losses are realized in future periods, they will be recorded as fuel costs in the Consolidated Condensed Statements of Income.

Based on the fair value of the instruments at Sep. 30, 2010, net pretax losses of $44.8 million are expected to be reclassified from regulatory assets or liabilities to the Consolidated Condensed Statements of Income within the next twelve months.

 

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The following tables present the effect of hedging instruments on OCI and income for the three months and nine months ended Sep. 30, 2010:

 

For the three months ended Sep. 30:

(millions)

   Amount of
Gain/(Loss) on
Derivatives
Recognized in
OCI
   

Location of Gain/(Loss)

Reclassified From AOCI

Into Income

   Amount of
Gain/(Loss)
Reclassified
From AOCI
Into Income
 

      Derivatives in Cash Flow Hedging

                   Relationships

   Effective
Portion(1)
         Effective
Portion(1)
 

2010

       

Interest rate contracts:

   $ 0.0      Interest expense    ($ 0.4

Commodity contracts:

       

Heating oil derivatives

     0.7      Mining related costs      (0.3
                   

Total

   $ 0.7         ($ 0.7
                   

2009

       

Interest rate contracts:

   ($ 0.1   Interest expense    ($ 0.5

Commodity contracts:

       

Heating oil derivatives

     (0.7   Mining related costs      (2.9

Natural gas derivatives

     (0.1   Mining related costs      (0.3
                   

Total

   ($ 0.9      ($ 3.7
                   

 

(1) Changes in OCI and AOCI are reported in after-tax dollars.

 

For the nine months ended Sep. 30:

(millions)

   Amount of
Gain/(Loss) on
Derivatives
Recognized in
OCI
   

Location of Gain/(Loss)

Reclassified From AOCI

Into Income

   Amount of
Gain/(Loss)
Reclassified
From AOCI
Into Income
 

      Derivatives in Cash Flow Hedging

                   Relationships

   Effective
Portion(1)
         Effective
Portion(1)
 

2010

       

Interest rate contracts:

   ($ 0.1   Interest expense    ($ 1.2

Commodity contracts:

       

Heating oil derivatives

     (0.2   Mining related costs      (0.9
                   

Total

   ($ 0.3      ($ 2.1
                   

2009

       

Interest rate contracts:

   ($ 0.1   Interest expense    ($ 1.6

Commodity contracts:

       

Heating oil derivatives

     1.8      Mining related costs      (9.9

Natural gas derivatives

     (0.6   Mining related costs      (0.7
                   

Total

   $ 1.1         ($ 12.2
                   

 

(1) Changes in OCI and AOCI are reported in after-tax dollars.

For derivative instruments that meet cash flow hedge criteria, the effective portion of the gain or loss on the derivative is reported as a component of OCI and reclassified into earnings in the same period or period during which the hedged transaction affects earnings. Gains and losses on the derivatives representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. For the three months and nine months ended Sep. 30, 2010 and 2009, all hedges were effective.

 

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The following table presents the derivative activity for instruments classified as qualifying cash flow hedges for the nine months ended Sep. 30, 2010 and 2009:

 

For the nine months ended Sep. 30:

(millions)

   Fair Value
Asset/(Liability)
    Amount of
Gain/(Loss)
Recognized
in OCI(1)
    Amount of
Gain/(Loss)
Reclassified From
AOCI Into Income
 

2010

      

Interest rate swaps

   ($ 0.3   ($ 0.1   ($ 1.2

Heating oil derivatives

     0.3        (0.2     (0.9
                        

Total

   $ 0.0      ($ 0.3   ($ 2.1
                        

2009

      

Interest rate swaps

   $ 0.0      ($ 0.1   ($ 1.6

Heating oil derivatives

     (7.1     1.8        (9.9

Natural gas derivatives

     (0.1     (0.6     (0.7
                        

Total

   ($ 7.2   $ 1.1      ($ 12.2
                        

 

(1) Changes in OCI and AOCI are reported in after-tax dollars.

The maximum length of time over which the company is hedging its exposure to the variability in future cash flows extends to Dec. 31, 2012 for both financial natural gas and financial heating oil fuel contracts. The following table presents by commodity type the company’s derivative volumes that, as of Sep. 30, 2010, are expected to settle during the 2010, 2011 and 2012 fiscal years:

 

     Heating Oil Contracts      Natural Gas Contracts  

(millions)

   (Gallons)      (MMBTUs)  

Year

   Physical      Financial      Physical      Financial  

2010

     0.0         2.3         0.0         9.5   

2011

     0.0         4.8         0.0         20.6   

2012

     0.0         0.5         0.0         4.5   
                                   

Total

     0.0         7.6         0.0         34.6   
                                   

The company is exposed to credit risk primarily through entering into derivative instruments with counterparties to limit its exposure to the commodity price fluctuations associated with diesel fuel and natural gas. Credit risk is the potential loss resulting from a counterparty’s nonperformance under an agreement. The company manages credit risk with policies and procedures for, among other things, counterparty analysis, exposure measurement, and exposure monitoring and mitigation.

It is possible that volatility in commodity prices could cause the company to have material credit risk exposures with one or more counterparties. If such counterparties fail to perform their obligations under one or more agreements, the company could suffer a material financial loss. However, as of Sep. 30, 2010, substantially all of the counterparties with transaction amounts outstanding in the company’s energy portfolio are rated investment grade by the major rating agencies. The company assesses credit risk internally for counterparties that are not rated.

The company has entered into commodity master arrangements with its counterparties to mitigate credit exposure to those counterparties. The company generally enters into the following master arrangements: (1) Edison Electric Institute agreements (EEI) - standardized power sales contracts in the electric industry; (2) International Swaps and Derivatives Association agreements (ISDA) - standardized financial gas and electric contracts; and (3) North American Energy Standards Board agreements (NAESB) - standardized physical gas contracts. The company believes that entering into such agreements reduces the risk from default by creating contractual rights relating to creditworthiness, collateral and termination.

The company has implemented procedures to monitor the creditworthiness of our counterparties and to consider nonperformance in valuing counterparty positions. The company monitors counterparties’ credit standing, including those that are experiencing financial problems, have significant swings in credit default swap rates, have credit rating changes by external rating agencies or have changes in ownership. Net liability positions are generally not adjusted as the company uses derivative transactions as hedges and has the ability and intent to perform under each of these contracts. In the instance of net asset positions, the company considers general market conditions and the observable financial health and outlook of specific counterparties, forward looking data such as credit default swaps, when available, and historical default probabilities from credit rating agencies in evaluating the potential impact of nonperformance risk to derivative positions. As of Sep. 30, 2010, substantially all positions with counterparties are net liabilities.

Certain TECO Energy derivative instruments contain provisions that require the company’s debt, or in the case of derivative instruments where Tampa Electric Company is the counterparty, Tampa Electric Company’s debt, to maintain an investment grade credit rating from any or all of the major credit rating agencies. If debt ratings, including Tampa Electric Company’s, were to fall below investment grade, it could trigger these provisions, and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full overnight collateralization on derivative instruments in net liability positions. The company has no other contingent risk features associated with any derivative instruments.

 

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The table below presents the fair value of the overall contractual contingent liability positions for the company’s derivative activity at Sep. 30, 2010:

 

Contingent Features

 

(millions)

At Sep. 30, 2010

   Fair Value
Asset/
(Liability)
    Derivative
Exposure
Asset/
(Liability)
    Posted
Collateral
 

Credit Rating

   ($ 50.6   ($ 50.6   $ 0.0   

13. Fair Value Measurements

Items Measured at Fair Value on a Recurring Basis

The following tables set forth by level within the fair value hierarchy the company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of Sep. 30, 2010 and Dec. 31, 2009. As required by accounting standards for fair value measurements, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. For natural gas, interest rate and heating oil swaps, the market approach was used in determining fair value.

 

Recurring Fair Value Measures

 
     At fair value as of Sep. 30, 2010  

(millions)

   Level 1      Level 2      Level 3      Total  

Assets

           

Natural gas swaps

   $ 0.0       $ 0.7       $ 0.0       $ 0.7   

Heating oil swaps

     0.0         0.3         0.0         0.3   
                                   

Total

   $ 0.0       $ 1.0       $ 0.0       $ 1.0   
                                   

Liabilities

           

Natural gas swaps

   $ 0.0       $ 51.3       $ 0.0       $ 51.3   

Interest rate swaps

     0.0         0.3         0.0         0.3   
                                   

Total

   $ 0.0       $ 51.6       $ 0.0       $ 51.6   
                                   
     At fair value as of Dec. 31, 2009  

(millions)

   Level 1      Level 2      Level 3      Total  

Assets

           

Natural gas swaps

   $ 0.0       $ 0.8       $ 0.0       $ 0.8   

Heating oil swaps

     0.0         0.2         0.0         0.2   
                                   

Total

   $ 0.0       $ 1.0       $ 0.0       $ 1.0   
                                   

Liabilities

           

Natural gas swaps

   $ 0.0       $ 36.7       $ 0.0       $ 36.7   

Heating oil swaps

     0.0         0.9         0.0         0.9   
                                   

Total

   $ 0.0       $ 37.6       $ 0.0       $ 37.6   
                                   

Natural gas and heating oil swaps are over-the-counter swap instruments. The primary pricing inputs in determining the fair value of these swaps are the New York Mercantile Exchange (NYMEX) quoted closing prices of exchange-traded instruments. These prices are applied to the notional amounts of active positions to determine the reported fair value.

The primary pricing inputs in determining the fair value of interest rate swaps are LIBOR swap rates as reported by Bloomberg. For each instrument, the projected forward swap rate is used to determine the stream of cash flows over the life of the contract. The cash flows are then discounted using a spot discount rate to determine the fair value.

 

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Fair Value of Debt Outstanding

At Sep. 30, 2010, total long-term debt had a carrying amount of $3,390.0 million and an estimated fair market value of $3,756.9 million. At Dec. 31, 2009, total long-term debt had a carrying amount of $3,309.7 million and an estimated fair market value of $3,500.3 million.

14. Asset Dispositions

Sale of DECA II

On Oct. 21, 2010, a TECO Energy subsidiary, TPS de Ultramar, Ltd. (TPSU), sold its interest in Distribución Eléctrica Centro Americana II, S.A. (DECA II) to Empresas Públicas de Medellín E.S.P. (EPM), a multi-utility company based in Medellín Colombia, under a Stock Purchase Agreement (SPA) for a sales price of $181.5 million. See Note 17 for further information.

Sale of Navega

On Mar. 13, 2009, a TECO Guatemala subsidiary sold its 16.5% interest in the Central American fiber optic telecommunications provider, Navega. The sale resulted in a pretax gain of $18.3 million and total proceeds of $29.0 million.

15. Restructuring Charges

On Jul. 30, 2009, TECO Energy, Inc. announced organizational changes and a new senior management structure as part of its response to industry changes, economic uncertainties and its commitment to maintain a lean and efficient organization. As a second step in response to these factors, on Aug. 31, 2009, the company decided on a total reduction in force of 229 jobs. The reduction in force was substantially completed by Dec. 31, 2009. In connection with this reduction in force, the company incurred total costs of $26.6 million related to severance and other benefits. For the three months ended Mar. 31, 2010, the remaining $1.5 million of these costs were recognized on the Consolidated Condensed Statements of Income under “Restructuring Charges”. The company’s wholly-owned subsidiary, Tampa Electric Company, incurred $23.1 million of such costs, all of which were recognized in the year ended Dec. 31, 2009. The total cash payments related to these actions were $28.4 million; including $4.9 million for the settlement of pension obligations. As of Mar. 31, 2010, all restructuring charges were paid or settled.

 

Restructuring Charges Incurred

 

(millions)

          Termination
of  Benefits
    Other Costs     Total  

Total costs expected to be incurred

      $ 26.6      $ 0.6      $ 27.2   

Costs incurred in 2009

        (25.1     (0.6     (25.7

Costs incurred in 2010

        (1.5     0.0        (1.5
                           

Total costs remaining

      $ 0.0      $ 0.0      $ 0.0   
                           

Accrued Liability for Restructuring Charges

 

(millions)

          Termination
of Benefits
    Other Costs     Total  

Beginning balance, Jul. 1, 2009

      $ 0.0      $ 0.0      $ 0.0   

Costs incurred and charged to expense

        26.6        0.6        27.2   

Costs paid/settled

        (22.9     (0.6     (23.5

Non-cash expense

        (3.7     0.0        (3.7
                           

Ending balance, Sep. 30, 2010

      $ 0.0      $ 0.0      $ 0.0   
                           

 

Restructuring Charges by Segment

 

(millions)

   Tampa
Electric
    PGS     Other(1)     Total  

Total costs expected to be incurred

   $ 18.4      $ 4.7      $ 4.1      $ 27.2   

Costs incurred in 2009

     (18.4     (4.7     (2.6     (25.7

Costs incurred in 2010

     0.0        0.0        (1.5     (1.5
                                

Total costs remaining

   $ 0.0      $ 0.0      $ 0.0      $ 0.0   
                                

 

(1) Restructuring costs incurred at the parent company.

 

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16. Variable Interest Entities

The company formed TCAE to own and construct the Alborada Power Station and the company formed CGESJ to own and construct the San José Power Station. Both power stations are located in Guatemala and both projects obtained long-term power purchase agreements (PPAs) with Empresa Eléctrica de Guatemala, S.A. (EEGSA), a distribution utility in Guatemala. The terms of the two separate PPAs include EEGSA’s right to the full capacity of the plants for 15 years, U.S. dollar based capacity payments, certain terms for providing fuel, and certain other terms including the right to extend the Alborada and San José contracts. Under prior accounting standards for consolidation, management believed that EEGSA was the primary beneficiary of the variable interests in TCAE and CGESJ due to the terms of the PPAs. Accordingly, both entities were deconsolidated as of Jan. 1, 2004. The TCAE deconsolidation resulted in the initial removal of $25.0 million of debt and $15.1 million of net assets from TECO Energy’s Consolidated Balance Sheet. The CGESJ deconsolidation resulted in the initial removal of $65.5 million of debt and $106.6 million of net assets from TECO Energy’s Consolidated Balance Sheet. The results of operations for the two projects were classified as “Income from equity investments” on TECO Energy’s Consolidated Statements of Income since the date of deconsolidation through Dec. 31, 2009.

Effective Jan. 1, 2010, the accounting standards for consolidation of VIEs were amended. The most significant amendment was the determination of a VIE’s primary beneficiary. Under the amended standard, the primary beneficiary is the enterprise that has both 1) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and 2) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. As a result of adopting this amendment, the company reconsolidated both TCAE and CGESJ.

The following table summarizes combined income statement information for the TCAE and CGESJ projects for the three months and nine months ended Sep. 30, 2010, which were consolidated, and Sep. 30, 2009, which were not consolidated:

 

Summary Results for TCAE and CGESJ

 
     For the three months ended Sep. 30,      For the nine months ended Sep. 30,  

(millions)

   2010      2009      2010      2009  

Revenues

   $ 28.5       $ 30.8       $ 94.1       $ 62.1   

Operating expenses

     16.4         20.5         52.1         35.2   

Project level income(1)

     15.8         8.0         40.1         20.0   

 

(1) Excludes taxes, allocated interest expense and administrative and general expenses. Includes project level interest.

The following table summarizes combined balance sheet information for the TCAE and CGESJ projects for the periods ended Sep. 30, 2010, which is now consolidated, and Dec. 31, 2009, which were not consolidated:

 

Summary Results for TCAE and CGESJ

 

(millions)

   Sep. 30, 2010      Dec. 31, 2009  

Current assets

   $ 64.8       $ 58.1   

Long-term assets and other deferred debits

     155.5         161.2   
                 

Total assets

   $ 220.3       $ 219.3   
                 

Current liabilities

   $ 22.6       $ 17.6   

Long-term liabilities and other deferred credits

     40.6         51.2   

Equity

     157.1         150.5   
                 

Total liabilities and equity

   $ 220.3       $ 219.3   
                 

Tampa Electric Company has entered into multiple PPAs with wholesale energy providers in Florida to ensure the ability to meet customer energy demand and to provide lower cost options in the meeting of this demand. These agreements range in size from 121 MW to 370 MW of available capacity, are with similar entities and contain similar provisions. Because some of these provisions provide for the transfer or sharing of a number of risks inherent in the generation of energy, these agreements meet the definition of being variable interest entities. These risks include: operating and maintenance; regulatory; credit; commodity/fuel; and energy market risk. Tampa Electric Company has reviewed these risks and has determined that the owners of these entities have retained the majority of these risks over the expected life of the underlying generating assets, have the power to direct the most significant activities, the obligation or right to absorb losses or benefits and hence remain the primary beneficiaries. As a result, Tampa Electric Company is not required to consolidate any of these entities. Tampa Electric Company purchased $45.0 million and $46.3 million, and $151.5 million and $144.6 million, under these PPAs for the three months and nine months ended Sep. 30, 2010 and 2009, respectively.

 

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In one instance Tampa Electric Company’s agreement with the entity for 370 MW of capacity was entered into prior to Dec. 31, 2003, the effective date of these standards. Under the standards, the company is required to make an exhaustive effort to obtain sufficient information to determine if this entity is a VIE and which holder of the variable interests is the primary beneficiary. The owners of this entity are not willing to provide the information necessary to make these determinations, have no obligation to do so and the information is not available publicly. As a result, the company is unable to determine if this entity is a VIE and if so, which variable interest holder, if any, is the primary beneficiary. The company has no obligation to this entity beyond the purchase of capacity; therefore, the maximum exposure for the company is the obligation to pay for such capacity under terms of the PPA at rates that could be unfavorable to the wholesale market. The company purchased $14.7 million and $6.9 million, and $45.0 million and $24.3 million under this PPA for the three months and nine months ended Sep. 30, 2010 and 2009, respectively.

The company does not provide any material financial or other support to any of the VIEs it is involved with, nor is the company under any obligation to absorb losses associated with these VIEs. Other than the Guatemalan projects previously mentioned, in the normal course of business, our involvement with the remaining VIEs does not affect our Consolidated Condensed Balance Sheets, Statements of Income or Cash Flows.

17. Subsequent Events

CAFTA Arbitration Claim

On Jan. 13, 2009, a TECO Energy subsidiary, TECO Guatemala Holdings, LLC, (TGH), delivered a Notice of Intent to the Guatemalan government that it intended to file an arbitration claim against the Republic of Guatemala under the Dominican Republic Central America – United States Free Trade Agreement (DR – CAFTA) alleging a violation of fair and equitable treatment of its investment in EEGSA. On Oct. 20, 2010, TGH filed a Notice of Arbitration with the International Centre for Settlement of Investment Disputes to proceed with its arbitration claim.

The arbitration was prompted by actions of the Guatemalan government in July 2008 which, among other things, unilaterally reset the distribution tariff for EEGSA at levels well below the then existing tariffs. These actions caused a significant reduction in earnings from EEGSA. Until Oct. 21, 2010, TGH held a 24% ownership interest in EEGSA through a holding company (DECA II) with Iberdrola Energia, S.A. and Electricidade de Portugal, S.A. On such date, TGH’s interest was sold (see below). In connection with the sale of TGH’s ownership interest in EEGSA, TGH reserved the right to pursue the arbitration claim described above.

Sale of DECA II

On Oct. 21, 2010, a TECO Energy subsidiary, TPSU, sold its 30% interest in DECA II to EPM, a multi-utility company based in Medellín Colombia, under an SPA, for a sale price of $181.5 million. TPSU is a subsidiary of TECO Guatemala Holdings, LLC (TGH).

DECA II is a holding company in which, prior to the sale, TGH held a 30% interest, Iberdrola Energia, S.A. held a 49% interest and EDP – Energias de Portugal, S.A. held a 21% interest. Each of these parties sold its interest in DECA II pursuant to the SPA. DECA II holds an 80.9% ownership interest in EEGSA and affiliated companies. EEGSA is the largest Guatemalan distribution utility, which serves Guatemala City, the capital of Guatemala and the surrounding region.

TGH received $181.5 million of the $605.0 million total purchase price for its 30% interest. In addition, TGH will repatriate approximately $25.0 million of cash previously held offshore in a tax deferral structure. The sale will result in a fourth quarter pretax book gain of approximately $38.0 million at TECO Guatemala. During the third quarter, TECO Guatemala recorded a $24.9 million income tax charge related to the unwinding of the tax deferral structure as the earnings from DECA II are no longer considered indefinitely reinvested. During the fourth quarter, the company anticipates recording approximately $15.0 million of Guatemalan and U.S. tax expenses as a result of the transaction.

Redemption of 7.0% notes due May 1, 2012

On Nov. 3, 2010, TECO Energy and TECO Finance submitted optional redemption notices to holders of $73.2 million and $163.1 million, respectively, of 7.0% notes due May 1, 2012. The optional redemption price of the 7.0% notes is equal to the greater of (i) 100% of the principal amount of 7.0% notes redeemed or (ii) the present value of the remaining payments of principal and interest on the 7.0% notes redeemed, discounted at an applicable treasury rate (as defined in the 7.0% notes indenture) plus 25 basis points; in either case, the optional redemption price will include accrued and unpaid interest to the redemption date. Settlement of the optional redemption is expected to be Dec. 2, 2010.

 

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TAMPA ELECTRIC COMPANY

In the opinion of management, the unaudited consolidated condensed financial statements include all adjustments that are of a recurring nature and necessary to state fairly the financial position of Tampa Electric Company as of Sep. 30, 2010 and Dec. 31, 2009, and the results of operations and cash flows for the periods ended Sep. 30, 2010 and 2009. The results of operations for the three months and nine months ended Sep. 30, 2010 are not necessarily indicative of the results that can be expected for the entire fiscal year ending Dec. 31, 2010. References should be made to the explanatory notes affecting the consolidated financial statements contained in Tampa Electric Company’s Annual Report on Form 10-K for the year ended Dec. 31, 2009 and to the notes on pages 37 through 48 of this report.

INDEX TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

     Page
No.
 

Consolidated Condensed Balance Sheets, Sep. 30, 2010 and Dec. 31, 2009

     32-33   

Consolidated Condensed Statements of Income and Comprehensive Income for the three month and nine month periods ended Sep. 30, 2010 and 2009

     34-35   

Consolidated Condensed Statements of Cash Flows for the nine month periods ended Sep. 30, 2010 and 2009

     36   

Notes to Consolidated Condensed Financial Statements

     37-48   

 

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TAMPA ELECTRIC COMPANY

Consolidated Condensed Balance Sheets

Unaudited

 

Assets

(millions)

   Sep. 30,
2010
    Dec. 31,
2009
 

Property, plant and equipment

    

Utility plant in service

    

Electric

   $ 6,306.2      $ 6,065.9   

Gas

     1,041.0        1,017.2   

Construction work in progress

     189.1        303.0   
                

Property, plant and equipment, at original costs

     7,536.3        7,386.1   

Accumulated depreciation

     (2,068.6     (1,988.1
                
     5,467.7        5,398.0   

Other property

     4.7        4.4   
                

Total property, plant and equipment, net

     5,472.4        5,402.4   
                

Current assets

    

Cash and cash equivalents

     16.2        5.5   

Receivables, less allowance for uncollectibles of $2.1 and $1.6 at Sep. 30, 2010 and Dec. 31, 2009, respectively

     298.5        228.6   

Inventories, at average cost

    

Fuel

     114.1        85.8   

Materials and supplies

     59.3        55.8   

Current regulatory assets

     67.6        109.2   

Current derivative assets

     0.7        0.8   

Taxes receivable

     0.0        16.8   

Prepayments and other current assets

     13.8        12.0   
                

Total current assets

     570.2        514.5   
                

Deferred debits

    

Unamortized debt expense

     17.8        20.1   

Long-term regulatory assets

     327.4        335.6   

Other

     24.0        1.2   
                

Total deferred debits

     369.2        356.9   
                

Total assets

   $ 6,411.8      $ 6,273.8   
                

The accompanying notes are an integral part of the consolidated condensed financial statements.

 

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TAMPA ELECTRIC COMPANY

Consolidated Balance Sheets – continued

Unaudited

Liabilities and Capital    Sep. 30,     Dec. 31,  

(millions)

   2010     2009  

Capital

    

Common stock

   $ 1,852.4      $ 1,802.4   

Accumulated other comprehensive loss

     (5.5     (6.1

Retained earnings

     326.0        307.5   
                

Total capital

     2,172.9        2,103.8   

Long-term debt, less amount due within one year

     1,991.0        1,994.4   
                

Total capitalization

     4,163.9        4,098.2   
                

Current liabilities

    

Long-term debt due within one year

     3.4        3.7   

Notes payable

     27.0        55.0   

Accounts payable

     188.5        206.1   

Customer deposits

     154.9        151.2   

Current regulatory liabilities

     108.7        85.4   

Current derivative liabilities

     45.5        33.1   

Current deferred income taxes

     0.2        15.9   

Interest accrued

     44.5        27.7   

Taxes accrued

     61.2        12.1   

Other

     12.0        16.5   
                

Total current liabilities

     645.9        606.7   
                

Deferred credits

    

Non-current deferred income taxes

     589.5        543.8   

Investment tax credits

     10.5        10.8   

Long-term derivative liabilities

     5.8        3.6   

Long-term regulatory liabilities

     614.5        602.6   

Other

     381.7        408.1   
                

Total deferred credits

     1,602.0        1,568.9   
                

Total liabilities and capital

   $ 6,411.8      $ 6,273.8   
                

The accompanying notes are an integral part of the consolidated condensed financial statements.

 

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TAMPA ELECTRIC COMPANY

Consolidated Condensed Statements of Income and Comprehensive Income

Unaudited

 

     Three months ended Sep. 30,  

(millions)

   2010     2009  

Revenues

    

Electric (includes franchise fees and gross receipts taxes of $26.4 in 2010 and $25.7 in 2009)

   $ 593.5      $ 620.8   

Gas (includes franchise fees and gross receipts taxes of $4.6 in 2010 and $4.8 in 2009)

     114.1        98.6   
                

Total revenues

     707.6        719.4   
                

Expenses

    

Operations

    

Fuel

     224.5        253.5   

Purchased power

     45.2        46.3   

Cost of natural gas sold

     61.0        47.5   

Other

     96.0        87.0   

Maintenance

     28.7        32.1   

Depreciation

     65.9        61.9   

Restructuring charges

     0.0        22.6   

Taxes, federal and state

     38.9        33.9   

Taxes, other than income

     47.4        45.6   
                

Total expenses

     607.6        630.4   
                

Income from operations

     100.0        89.0   
                

Other income

    

Allowance for other funds used during construction

     0.3        2.5   

Taxes, non-utility federal and state

     (0.3     (0.2

Other income, net

     0.9        0.8   
                

Total other income

     0.9        3.1   
                

Interest charges

    

Interest on long-term debt

     32.6        32.6   

Other interest

     2.8        2.7   

Allowance for borrowed funds used during construction

     (0.1     (0.9
                

Total interest charges

     35.3        34.4   
                

Net income

   $ 65.6      $ 57.7   
                

Other comprehensive income, net of tax

    

Net unrealized gain on cash flow hedges

     0.2        0.2   
                

Total other comprehensive income, net of tax

     0.2        0.2   
                

Comprehensive income

   $ 65.8      $ 57.9   
                

The accompanying notes are an integral part of the consolidated condensed financial statements.

 

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TAMPA ELECTRIC COMPANY

Consolidated Condensed Statements of Income and Comprehensive Income

Unaudited

     Nine months ended Sep. 30,  

(millions)

   2010     2009  

Revenues

    

Electric (includes franchise fees and gross receipts taxes of $69.6 in 2010 and $70.5 in 2009)

   $ 1,671.6      $ 1,691.8   

Gas (includes franchise fees and gross receipts taxes of $20.4 in 2010 and $18.3 in 2009)

     408.2        344.8   
                

Total revenues

     2,079.8        2,036.6   
                

Expenses

    

Operations

    

Fuel

     573.9        707.7   

Purchased power

     151.5        144.6   

Cost of natural gas sold

     236.4        186.7   

Other

     280.2        244.8   

Maintenance

     90.3        100.1   

Depreciation

     195.3        181.0   

Restructuring charges

     0.0        22.6   

Taxes, federal and state

     114.7        80.8   

Taxes, other than income

     141.9        138.0   
                

Total expenses

     1,784.2        1,806.3   
                

Income from operations

     295.6        230.3   
                

Other income

    

Allowance for other funds used during construction

     1.6        8.3   

Taxes, non-utility federal and state

     (0.6     (0.6

Other income, net

     2.5        3.0   
                

Total other income

     3.5        10.7   
                

Interest charges

    

Interest on long-term debt

     98.1        95.4   

Other interest

     8.4        8.5   

Allowance for borrowed funds used during construction

     (0.9     (3.2
                

Total interest charges

     105.6        100.7   
                

Net income

   $ 193.5      $ 140.3   
                

Other comprehensive income, net of tax

    

Net unrealized gain on cash flow hedges

     0.6        0.5   
                

Total other comprehensive income, net of tax

     0.6        0.5   
                

Comprehensive income

   $ 194.1      $ 140.8   
                

The accompanying notes are an integral part of the consolidated condensed financial statements.

 

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TAMPA ELECTRIC COMPANY

Consolidated Condensed Statements of Cash Flows

Unaudited

 

     Nine months ended Sep. 30,  

(millions)

   2010     2009  

Cash flows from operating activities

    

Net income

   $ 193.5      $ 140.3   

Adjustments to reconcile net income to net cash from operating activities:

    

Depreciation

     195.3        181.0   

Deferred income taxes

     27.7        32.6   

Investment tax credits, net

     (0.3     (0.3

Allowance for funds used during construction

     (1.6     (8.3

Deferred recovery clause

     44.6        111.4   

Receivables, less allowance for uncollectibles

     (69.9     (46.6

Inventories

     (31.8     (20.7

Prepayments

     (1.8     (1.0

Taxes accrued

     65.9        34.5   

Interest accrued

     16.8        17.2   

Accounts payable

     17.7        (31.9

Gain on sale of assets, pretax

     (0.2     (0.4

Other

     5.0        39.4   
                

Cash flows from operating activities

     460.9        447.2   
                

Cash flows from investing activities

    

Capital expenditures

     (295.2     (461.0

Allowance for funds used during construction

     1.6        8.3   

Net proceeds from sale of assets

     0.0        0.4   
                

Cash flows used in investing activities

     (293.6     (452.3
                

Cash flows from financing activities

    

Proceeds from long-term debt

     0.0        102.1   

Common stock

     50.0        0.0   

Repayment of long-term debt

     (3.7     (5.5

Net (decrease) increase in short-term debt

     (28.0     25.0   

Dividends

     (174.9     (113.4
                

Cash flows (used in) from financing activities

     (156.6     8.2   
                

Net increase in cash and cash equivalents

     10.7        3.1   

Cash and cash equivalents at beginning of period

     5.5        3.6   
                

Cash and cash equivalents at end of period

   $ 16.2      $ 6.7   
                

The accompanying notes are an integral part of the consolidated condensed financial statements.

 

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TAMPA ELECTRIC COMPANY

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

UNAUDITED

1. Summary of Significant Accounting Policies

The significant accounting policies for Tampa Electric Company include:

Principles of Consolidation and Basis of Presentation

Tampa Electric Company is a wholly-owned subsidiary of TECO Energy, Inc., and is comprised of the Electric division, generally referred to as Tampa Electric, the Natural Gas division, generally referred to as Peoples Gas System (PGS) and the accounts of variable interest entities (VIEs) for which it is the primary beneficiary. Tampa Electric Company is considered to be the primary beneficiary of VIEs if it has both 1) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and 2) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. (See Note 12.)

All significant intercompany balances and intercompany transactions have been eliminated in consolidation. In the opinion of management, the unaudited consolidated condensed financial statements include all adjustments that are of a recurring nature and necessary to state fairly the financial position of Tampa Electric Company and subsidiaries as of Sep. 30, 2010 and Dec. 31, 2009, and the results of operations and cash flows for the periods ended Sep. 30, 2010 and 2009. The results of operations for the three and nine month periods ended Sep. 30, 2010 are not necessarily indicative of the results that can be expected for the entire fiscal year ending Dec. 31, 2010.

The use of estimates is inherent in the preparation of financial statements in accordance with generally accepted accounting principles (GAAP). Actual results could differ from these estimates. The year-end consolidated condensed balance sheet data was derived from audited financial statements, however this quarterly report on Form 10-Q does not include all year-end disclosures required for an annual report on Form 10-K by GAAP in the United States of America.

Revenues

As of Sep. 30, 2010 and Dec. 31, 2009, unbilled revenues of $60.3 million and $51.6 million, respectively, are included in the “Receivables” line item on the Consolidated Condensed Balance Sheets.

Accounting for Franchise Fees and Gross Receipts

The regulated utilities (Tampa Electric and PGS) are allowed to recover from customers certain costs incurred through rates approved by the Florida Public Service Commission (FPSC). The amounts included in customers’ bills for franchise fees and gross receipt taxes are included as revenues on the Consolidated Condensed Statements of Income. These amounts totaled $31.0 million and $90.0 million, respectively, for the three and nine months ended Sep. 30, 2010, compared to $30.5 million and $88.8 million, respectively, for the three and nine months ended Sep. 30, 2009. Franchise fees and gross receipt taxes payable by the regulated utilities are included as an expense on the Consolidated Condensed Statements of Income in “Taxes, other than income”. These totaled $31.1 million and $89.9 million, respectively, for the three and nine months ended Sep. 30, 2010, compared to $30.5 million and $88.7 million, respectively, for the three and nine months ended Sep. 30, 2009.

Purchased Power

Tampa Electric purchases power on a regular basis to meet the needs of its customers. Tampa Electric purchased power from entities not affiliated with TECO Energy at a cost of $45.2 million and $151.5 million, respectively, for the three and nine months ended Sep. 30, 2010, compared to $46.3 million and $144.6 million, respectively, for the three and nine months ended Sep. 30, 2009. Prudently incurred purchased power costs at Tampa Electric