10-Q 1 d10q.htm FORM 10Q Form 10Q
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 June 30, 2011

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.

(a Florida corporation)

TECO Plaza

702 N. Franklin Street

Tampa, Florida 33602

(813) 228-1111

  59-2052286
1-5007  

TAMPA ELECTRIC COMPANY

(a Florida corporation)

TECO Plaza

702 N. Franklin Street

Tampa, Florida 33602

(813) 228-1111

  59-0475140

 

 

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 Aug. 1, 2011 was 215,722,727. As of Aug. 1, 2011, 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.

Index to Exhibits appears on page 59.

 

 

 


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 Jun. 30, 2011 and Dec. 31, 2010, and the results of their operations and cash flows for the periods ended Jun. 30, 2011 and 2010. The results of operations for the three month and six month periods ended Jun. 30, 2011 are not necessarily indicative of the results that can be expected for the entire fiscal year ending Dec. 31, 2011. 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, 2010 and to the notes on pages 10 through 29 of this report.

INDEX TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

    

Page

No.

 

Consolidated Condensed Balance Sheets, Jun. 30, 2011 and Dec. 31, 2010

     3-4   

Consolidated Condensed Statements of Income for the three month and six month periods ended Jun. 30, 2011 and 2010

     5-6   

Consolidated Condensed Statements of Comprehensive Income for the three month and six month periods ended Jun. 30, 2011 and 2010

     7   

Consolidated Condensed Statements of Cash Flows for the six month periods ended Jun. 30, 2011 and 2010

     8   

Notes to Consolidated Condensed Financial Statements

     9   

 

2


Table of Contents

TECO ENERGY, INC.

Consolidated Condensed Balance Sheets

Unaudited

 

Assets

(millions)

   Jun. 30
2011
     Dec. 31,
2010
 

Current assets

     

Cash and cash equivalents

   $ 61.8       $ 67.5   

Short-term investments

     0.0         14.8   

Receivables, less allowance for uncollectables of $4.5 and $4.5 at Jun. 30, 2011 and Dec. 31, 2010, respectively

     335.4         333.4   

Inventories, at average cost

     

Fuel

     150.6         169.5   

Materials and supplies

     83.2         78.1   

Current derivative asset

     3.2         2.7   

Current regulatory assets

     43.9         62.7   

Prepayments and other current assets

     32.0         28.5   

Income tax receivables

     0.1         0.4   
                 

Total current assets

     710.2         757.6   
                 

Property, plant and equipment

     

Utility plant in service

     

Electric

     6,594.6         6,558.9   

Gas

     1,135.3         1,115.0   

Construction work in progress

     243.8         212.4   

Other property

     413.7         398.5   
                 

Property, plant and equipment

     8,387.4         8,284.8   

Accumulated depreciation

     (2,528.9)         (2,443.8)   
                 

Total property, plant and equipment, net

     5,858.5         5,841.0   
                 

Other assets

     

Deferred income taxes, net

     0.0         57.3   

Long-term regulatory assets

     331.9         341.9   

Long-term derivative assets

     0.6         0.2   

Goodwill

     55.4         55.4   

Deferred charges and other assets

     141.4         141.2   
                 

Total other assets

     529.3         596.0   
                 

Total assets

   $ 7,098.0       $ 7,194.6   
                 

 

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

3


Table of Contents

TECO ENERGY, INC.

Consolidated Condensed Balance Sheets – continued

Unaudited

 

Liabilities and Capital
(millions)

   Jun. 30,
2011
     Dec. 31,
2010
 

Current liabilities

     

Long-term debt due within one year

     

Recourse

   $ 121.9       $ 67.1   

Non-recourse

     11.2         11.2   

Notes payable

     32.0         12.0   

Accounts payable

     238.2         281.5   

Customer deposits

     158.2         156.5   

Current regulatory liabilities

     103.0         110.0   

Current derivative liabilities

     12.6         27.2   

Interest accrued

     43.5         42.4   

Taxes accrued

     48.2         26.2   

Other current liabilities

     18.2         18.2   
  

 

 

    

 

 

 

Total current liabilities

     787.0         752.3   
  

 

 

    

 

 

 

Other liabilities

     

Deferred income taxes, net

     14.9         0.0   

Investment tax credits

     10.2         10.4   

Long-term regulatory liabilities

     632.2         630.8   

Long-term derivative liabilities

     1.5         2.6   

Deferred credits and other liabilities

     486.9         479.8   

Long-term debt, less amount due within one year

     

Recourse

     2,921.2         3,114.6   

Non-recourse

     27.9         33.5   
  

 

 

    

 

 

 

Total other liabilities

     4,094.8         4,271.7   
  

 

 

    

 

 

 

Commitments and Contingencies (see Note 10)

     

Capital

     

Common equity (400.0 million shares authorized; par value $1; 215.7 million shares and 214.9 million shares outstanding at Jun. 30, 2011 and Dec. 31, 2010, respectively)

     215.7         214.9   

Additional paid in capital

     1,546.8         1,542.0   

Retained earnings

     468.8         430.0   

Accumulated other comprehensive loss

     (15.5)         (17.2)   
  

 

 

    

 

 

 

Total TECO Energy, Inc. capital

     2,215.8         2,169.7   

Noncontrolling interest

     0.4         0.9   
  

 

 

    

 

 

 

Total capital

     2,216.2         2,170.6   
  

 

 

    

 

 

 

Total liabilities and capital

   $ 7,098.0       $ 7,194.6   
  

 

 

    

 

 

 

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

 

4


Table of Contents

TECO ENERGY, INC.

Consolidated Condensed Statements of Income

Unaudited

 

     Three months ended Jun. 30,  

(millions, except per share amounts)

   2011      2010  

Revenues

     

Regulated electric and gas (includes franchise fees and gross receipts taxes of $27.1 in 2011 and $28.1 in 2010)

   $ 656.5       $ 665.2   

Unregulated

     229.2         233.6   
  

 

 

    

 

 

 

Total revenues

     885.7         898.8   
  

 

 

    

 

 

 

Expenses

     

Regulated operations

     

Fuel

     194.2         185.4   

Purchased power

     43.9         49.1   

Cost of natural gas sold

     54.1         59.4   

Other

     82.1         96.5   

Operation other expense

     

Mining related costs

     130.7         137.6   

Guatemalan power generation

     22.7         17.7   

Other

     1.7         1.5   

Maintenance

     48.5         47.8   

Depreciation and amortization

     81.2         77.9   

Taxes, other than income

     55.5         56.0   
  

 

 

    

 

 

 

Total expenses

     714.6         728.9   
  

 

 

    

 

 

 

Income from operations

     171.1         169.9   
  

 

 

    

 

 

 

Other income (expense)

     

Allowance for other funds used during construction

     0.3         0.3   

Other income

     1.5         2.2   

(Loss) on debt extinguishment

     0.0         (6.6)   

Income from equity investments

     0.0         4.2   
  

 

 

    

 

 

 

Total other income

     1.8         0.1   
  

 

 

    

 

 

 

Interest charges

     

Interest expense

     51.3         58.4   

Allowance for borrowed funds used during construction

     (0.1)         (0.2)   
  

 

 

    

 

 

 

Total interest charges

     51.2         58.2   
  

 

 

    

 

 

 

Income before provision for income taxes

     121.7         111.8   

Provision for income taxes

     44.1         36.1   
  

 

 

    

 

 

 

Net income

   $ 77.6       $ 75.7   

Less: Net income attributable to noncontrolling interest

     (0.1)         (0.2)   
  

 

 

    

 

 

 

Net income attributable to TECO Energy

   $ 77.5       $ 75.5   
  

 

 

    

 

 

 

Average common shares outstanding – Basic

     213.6         212.5   

                           – Diluted

     215.2         214.7   
  

 

 

    

 

 

 

Earnings per share attributable to TECO Energy – Basic

   $ 0.36       $ 0.35   

                                                – Diluted

   $ 0.36       $ 0.35   
  

 

 

    

 

 

 

Dividends paid per common share outstanding

   $ 0.215       $ 0.205   
  

 

 

    

 

 

 

 

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

5


Table of Contents

TECO ENERGY, INC.

Consolidated Condensed Statements of Income

Unaudited

 

     Six months ended Jun. 30,  

(millions, except per share amounts)

   2011      2010  

Revenues

     

Regulated electric and gas (includes franchise fees and gross receipts taxes of $55.5 in 2011 and $59.0 in 2010)

   $ 1,243.6       $ 1,371.7   

Unregulated

     438.2         439.4   
  

 

 

    

 

 

 

Total revenues

     1,681.8         1,811.1   
  

 

 

    

 

 

 

Expenses

     

Regulated operations

     

Fuel

     339.1         349.4   

Purchased power

     71.1         106.3   

Cost of natural gas sold

     136.1         175.4   

Other

     160.4         184.4   

Operation other expense

     

Mining related costs

     254.7         255.2   

Guatemalan power generation

     42.8         32.9   

Other

     3.1         3.1   

Maintenance

     97.3         92.5   

Depreciation and amortization

     161.0         154.9   

Restructuring charges

     0.0         1.5   

Taxes, other than income

     114.2         116.7   
  

 

 

    

 

 

 

Total expenses

     1,379.8         1,472.3   
  

 

 

    

 

 

 

Income from operations

     302.0         338.8   
  

 

 

    

 

 

 

Other income (expense)

     

Allowance for other funds used during construction

     0.6         1.3   

Other income

     3.0         5.6   

(Loss) on debt extinguishment

     0.0         (33.0)   

Income from equity investments

     0.0         6.9   
  

 

 

    

 

 

 

Total other income

     3.6         (19.2)   
  

 

 

    

 

 

 

Interest charges

     

Interest expense

     104.1         118.3   

Allowance for borrowed funds used during construction

     (0.3)         (0.8)   
  

 

 

    

 

 

 

Total interest charges

     103.8         117.5   
  

 

 

    

 

 

 

Income before provision for income taxes

     201.8         202.1   

Provision for income taxes

     72.5         70.4   
  

 

 

    

 

 

 

Net income

   $ 129.3       $ 131.7   

Less: Net income attributable to noncontrolling interest

     (0.1)         (0.4)   
  

 

 

    

 

 

 

Net income attributable to TECO Energy

   $ 129.2       $ 131.3   
  

 

 

    

 

 

 

Average common shares outstanding – Basic

     213.3         212.4   

                           – Diluted

     215.1         214.5   
  

 

 

    

 

 

 

Earnings per share attributable to TECO Energy – Basic

   $ 0.60       $ 0.61   

                                                – Diluted

   $ 0.60       $ 0.61   
  

 

 

    

 

 

 

Dividends paid per common share outstanding

   $ 0.420       $ 0.405   
  

 

 

    

 

 

 

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

 

6


Table of Contents

TECO ENERGY, INC.

Consolidated Condensed Statements of Comprehensive Income

Unaudited

 

     Three months ended Jun. 30,      Six months ended Jun. 30,  

(millions)

   2011      2010      2011      2010  

Net income

   $ 77.6       $ 75.7       $ 129.3       $ 131.7   
                                   

Other comprehensive income (loss), net of tax

           

Net unrealized (losses) gains on cash flow hedges

     (1.4)         (0.4)         0.9         0.4   

Amortization of unrecognized benefit costs and other

     0.4         0.5         0.8         2.3   

Recognized benefit costs due to settlement

     0.0         0.0         0.0         0.9   
                                   

Other comprehensive (loss) income, net of tax

     (1.0)         0.1         1.7         3.6   
                                   

Comprehensive income

     76.6         75.8         131.0         135.3   
                                   

Comprehensive loss attributable to noncontrolling interests

     (0.1)         (0.2)         (0.1)         (0.4)   
                                   

Comprehensive income attributable to TECO Energy, Inc.

   $ 76.5       $ 75.6       $ 130.9       $ 134.9   
                                   

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

 

7


Table of Contents

TECO ENERGY, INC.

Consolidated Condensed Statements of Cash Flows

Unaudited

 

     Six months ended Jun. 30,  

(millions)

   2011      2010  

Cash flows from operating activities

     

Net income

   $ 129.3       $ 131.7   

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

     

Depreciation and amortization

     161.0         154.9   

Deferred income taxes

     69.0         72.6   

Investment tax credits, net

     (0.2)         (0.2)   

Allowance for funds used during construction

     (0.6)         (1.3)   

Non-cash stock compensation

     4.2         3.4   

Gain on sale of business/assets, pretax

     (0.3)         (0.6)   

Non-cash debt extinguishment, pretax

     0.0         0.9   

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

     0.0         (1.2)   

Deferred recovery clauses

     6.3         12.9   

Receivables, less allowance for uncollectibles

     (2.0)         (70.0)   

Inventories

     13.8         (36.9)   

Prepayments and other current assets

     (3.5)         (2.8)   

Taxes accrued

     22.3         27.2   

Interest accrued

     4.6         3.9   

Accounts payable

     (34.6)         39.4   

Other

     17.5         (6.3)   
                 

Cash flows from operating activities

     386.8         327.6   
                 

Cash flows from investing activities

     

Capital expenditures

     (200.2)         (275.1)   

Allowance for funds used during construction

     0.6         1.3   

Net proceeds from sale of business/assets

     2.9         0.9   

Net cash increase from consolidation (1)

     0.0         24.1   

Contributions to unconsolidated affiliates

     0.0         (1.3)   

Other investments

     14.4         0.8   
                 

Cash flows (used in) investing activities

     (182.3)         (249.3)   
                 

Cash flows from financing activities

     

Dividends

     (90.4)         (86.7)   

Proceeds from the sale of common stock

     5.4         3.0   

Proceeds from long-term debt issuance

     0.0         543.5   

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

     (144.6)         (507.6)   

Dividend to noncontrolling interest

     (0.6)         (0.7)   

Net increase in short-term debt

     20.0         22.0   
                 

Cash flows (used in) financing activities

     (210.2)         (26.5)   
                 

Net (decrease) increase in cash and cash equivalents

     (5.7)         51.8   

Cash and cash equivalents at beginning of period

     67.5         46.0   
                 

Cash and cash equivalents at end of period

   $ 61.8       $ 97.8   
                 

 

(1) In accordance with new accounting guidance, effective Jan. 1, 2010, the company reconsolidated $24.1 million in cash and cash equivalents related to two projects in Guatemala.

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

 

8


Table of Contents

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.

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 its subsidiaries as of Jun. 30, 2011 and Dec. 31, 2010, and the results of operations and cash flows for the periods ended Jun. 30, 2011 and 2010. The results of operations for the three month and six month periods ended Jun. 30, 2011 are not necessarily indicative of the results that can be expected for the entire fiscal year ending Dec. 31, 2011.

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 Jun. 30, 2011 and Dec. 31, 2010, unbilled revenues of $62.3 million and $65.5 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 $27.1 million and $55.5 million, respectively, for the three and six months ended Jun. 30, 2011, compared to $28.1 million and $59.0 million for the three and six months ended Jun. 30, 2010. 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 amounts totaled $27.1 million and $55.4 million, respectively, for the three and six months ended Jun. 30, 2011, compared to $28.0 million and $58.8 million for the three and six months ended Jun. 30, 2010.

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 $43.9 million and $71.1 million, respectively, for the three and six months ended Jun. 30, 2011, compared to $49.1 million and $106.3 million for the three and six months ended Jun. 30, 2010. 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, the cash inflows and outflows are included in the operating section. For natural gas 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.

 

9


Table of Contents

2. New Accounting Pronouncements

Presentation of Comprehensive Income

In June 2011, the Financial Accounting Standards Board (FASB) issued guidance requiring companies to present the total of comprehensive income, the components of net income and the components of other comprehensive income, in a single continuous statement of comprehensive income or in two separate but consecutive statements. The guidance is effective for interim and annual periods beginning after Dec. 15, 2011. The company will adopt the guidance as required. It will have no effect on the company’s results of operations, financial position or cash flows.

Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (IFRS)

In May 2011, the FASB issued guidance to more closely align its fair value measurement and disclosure requirements with IFRS. The guidance relates to: measuring the fair value of financial instruments that are managed in a portfolio; the application of premiums and discounts in fair value measurement; and disclosures for items required to be disclosed, but not reported on the statement of financial position, at fair value and Level 3 measures. The guidance is effective for interim and annual periods beginning after Dec. 15, 2011. The company will adopt the guidance as required. It will have no effect on the company’s results of operations, financial 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 operations 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.

Storm Damage Cost Recovery

Tampa Electric accrues $8.0 million annually to an FPSC-approved self-insured storm damage reserve. Tampa Electric’s storm reserve was $41.4 million and $37.4 million as of Jun. 30, 2011 and Dec. 31, 2010, 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.

 

10


Table of Contents

Details of the regulatory assets and liabilities as of Jun. 30, 2011 and Dec. 31, 2010 are presented in the following table:

Regulatory Assets and Liabilities

 

(millions)

   Jun. 30,
2011
     Dec. 31,
2010
 

Regulatory assets:

     

Regulatory tax asset (1)

   $ 65.2       $ 66.6   
  

 

 

    

 

 

 

Other:

     

Cost recovery clauses

     22.7         41.9   

Postretirement benefit asset

     231.8         237.5   

Deferred bond refinancing costs (2)

     13.2         15.4   

Environmental remediation

     22.9         23.6   

Competitive rate adjustment

     3.2         3.3   

Other

     16.8         16.3   
  

 

 

    

 

 

 

Total other regulatory assets

     310.6         338.0   
  

 

 

    

 

 

 

Total regulatory assets

     375.8         404.6   

Less: Current portion

     43.9         62.7   
  

 

 

    

 

 

 

Long-term regulatory assets

   $ 331.9       $ 341.9   
  

 

 

    

 

 

 

Regulatory liabilities:

     

Regulatory tax liability (1)

   $ 17.0       $ 17.7   
  

 

 

    

 

 

 

Other:

     

Cost recovery clauses

     78.5         76.2   

Environmental remediation

     21.2         21.2   

Storm damage reserve

     41.4         37.4   

Deferred gain on property sales (3)

     5.5         6.3   

Provision for stipulation and other (4)

     0.7         9.8   

Accumulated reserve-cost of removal

     570.9         572.2   
  

 

 

    

 

 

 

Total other regulatory liabilities

     718.2         723.1   
  

 

 

    

 

 

 

Total regulatory liabilities

     735.2         740.8   

Less: Current portion

     103.0         110.0   
  

 

 

    

 

 

 

Long-term regulatory liabilities

   $ 632.2       $ 630.8   
  

 

 

    

 

 

 

 

(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 provision to reflect the FPSC approved PGS stipulation regarding PGS’s 2010 earnings above 11.75%. A one-time credit to customer bills totaling $3.0 million was applied in April 2011 and the $6.2 million remaining balance of the 2010 earnings above 11.75% was credited to accumulated depreciation reserves in June 2011.

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

 

     Jun. 30,      Dec 31,  

(millions)

   2011      2010  

Clause recoverable (1)

   $ 25.9       $ 45.2   

Components of rate base (2)

     243.3         248.1   

Regulatory tax assets (3)

     65.2         66.6   

Capital structure and other (3)

     41.4         44.7   
  

 

 

    

 

 

 

Total

   $ 375.8       $ 404.6   
  

 

 

    

 

 

 

 

(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.

 

11


Table of Contents

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 2009 consolidated federal income tax return during 2010. The U.S. federal statute of limitations remains open for the year 2007 and onward. Years 2010 and 2011 are currently being examined by the IRS under its Compliance Assurance Program. TECO Energy does not expect the settlement of current IRS examinations to significantly change the total amount of unrecognized tax benefits by the end of 2011. 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 second quarter of 2010, the company finalized the settlements of certain state items that were under appeal. As a result, the company recorded a $1.6 million after-tax benefit, excluding interest. During the six months ended Jun. 30, 2010, the company recorded a total of $4.0 million after-tax benefit, excluding interest, for these state items.

The company recognizes interest and penalties associated with uncertain tax positions in “Operation other expense-Other” on the Consolidated Condensed Statements of Income in accordance with standards for accounting for uncertainty in income taxes. For the six months ended Jun. 30, 2011, the company recorded $0.2 million of interest charges. For the six months ended Jun. 30, 2010, the company recorded $1.3 million of interest income as a result of reaching a favorable settlement for certain state items that were under appeal. No amounts were recorded for penalties for the six month periods ended Jun. 30, 2011 or 2010.

The effective tax rate increased to 35.92% for the six-months ended Jun. 30, 2011 from 34.84% for the same period in 2010. The six-month period ended Jun. 30, 2010 included a benefit from the settlements of certain state items and a benefit resulting from the permanently reinvested earnings at DECA II, offset by a $5.9 million foreign tax credit valuation allowance.

5. Employee Postretirement Benefits

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

 

12


Table of Contents

Pension Expense

 

(millions)    Pension Benefits      Other Postretirement Benefits  

Three months ended Jun. 30,

   2011      2010      2011      2010  

Components of net periodic benefit expense

           

Service cost

   $ 3.8       $ 3.9       $ 0.5       $ 0.8   

Interest cost on projected benefit obligations

     7.7         8.4         2.7         2.5   

Expected return on assets

     (9.5)         (9.2)         0.0         0.0   

Amortization of:

           

Transition obligation

     0.0         0.0         0.6         0.6   

Prior service (benefit) cost

     (0.1)         (0.1)         0.2         0.2   

Actuarial loss (gain)

     2.8         3.2         (0.1)         0.0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Pension expense

     4.7         6.2         3.9         4.1   

Settlement cost

     0.0         0.1         0.0         0.0   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

   $ 4.7       $ 6.3       $ 3.9       $ 4.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Six months ended Jun. 30,

                           

Components of net periodic benefit expense

           

Service cost

   $ 8.0       $ 8.1       $ 1.1       $ 1.6   

Interest cost on projected benefit obligations

     15.5         16.7         5.5         5.4   

Expected return on assets

     (19.2)         (18.2)         0.0         0.0   

Amortization of:

           

Transition obligation

     0.0         0.0         1.2         1.2   

Prior service (benefit) cost

     (0.2)         (0.2)         0.4         0.4   

Actuarial loss

     5.6         6.2         0.0         0.0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Pension expense

     9.7         12.6         8.2         8.6   

Settlement cost

     0.0         1.6         0.0         0.0   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

   $ 9.7       $ 14.2       $ 8.2       $ 8.6   
  

 

 

    

 

 

    

 

 

    

 

 

 

For the fiscal 2011 plan year, TECO Energy assumed an expected long-term return on plan assets of 7.75% and a discount rate of 5.30% for pension benefits under its qualified pension plan, and a discount rate of 5.25% for its other postretirement benefits as of their Jan. 1, 2011 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 and six months ended Jun. 30, 2011, TECO Energy and its subsidiaries reclassed $0.7 million and $1.3 million, respectively, of unamortized transition obligation, prior service cost and actuarial losses from accumulated other comprehensive income to net income as part of periodic benefit expense. In addition, during the three and six months ended Jun. 30, 2011, Tampa Electric Company reclassed $2.7 million and $5.7 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 settlement charges of $0.1 million and $1.6 million, respectively, for the three and six months ended Jun. 30, 2010 for payouts from its TECO Energy Group Supplemental Executive Retirement Program (SERP).

In March 2010, the Patient Protection and Affordable Care Act and a companion bill, The Health Care and Education Reconciliation Act were signed into law. Among other things, both 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.

 

13


Table of Contents

6. Short-Term Debt

At Jun. 30, 2011 and Dec. 31, 2010, the following credit facilities and related borrowings existed:

Credit Facilities

 

     Jun. 30, 2011      Dec. 31, 2010  
                   Letters                    Letters  
     Credit      Borrowings      of Credit      Credit      Borrowings      of Credit  

(millions)

   Facilities      Outstanding  (1)      Outstanding      Facilities      Outstanding  (1)      Outstanding  

Tampa Electric Company:

                 

5-year facility(2)

   $ 325.0       $ 7.0       $ 0.7       $ 325.0       $ 5.0       $ 0.7   

1-year accounts receivable facility

     150.0         0.0         0.0         150.0         7.0         0.0   

TECO Energy/TECO Finance:

                 

5-year facility (2)(3)

     200.0         25.0         0.0         200.0         0.0         6.7   
                                                     

Total

   $ 675.0       $ 32.0       $ 0.7       $ 675.0       $ 12.0       $ 7.4   
                                                     

 

(1) Borrowings outstanding are reported as notes payable.
(2) This 5-year facility matures May 9, 2012.
(3) 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 35.0 basis points. The weighted-average interest rate on outstanding amounts payable under the credit facilities at Jun. 30, 2011 and Dec. 31, 2010 were 0.65% and 0.64%, respectively.

Tampa Electric Company Accounts Receivable Facility

On Feb. 18, 2011, Tampa Electric Company and TEC Receivables Corporation (TRC), a wholly-owned subsidiary of Tampa Electric Company, amended their $150 million accounts receivable collateralized borrowing facility, entering into Omnibus Amendment No. 9 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. 17, 2012, (ii) provides that TRC will pay program and liquidity fees, which will total 70 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

Purchase in Lieu of Redemption of Polk County Industrial Development Authority Solid Waste Disposal Facility Revenue Refunding Bonds (Tampa Electric Company Project), Series 2010

On Mar. 1, 2011, Tampa Electric Company purchased in lieu of redemption $75.0 million Polk County Industrial Development Authority (PCIDA) Solid Waste Disposal Facility Revenue Refunding Bonds (Tampa Electric Company Project), Series 2010 (the PCIDA Bonds). On Nov. 23, 2010, the PCIDA had issued the PCIDA Bonds in a term-rate mode pursuant to the terms of the Loan and Trust Agreement governing those bonds. Proceeds of the PCIDA Bonds were used to redeem $75.0 million PCIDA Solid Waste Disposal Facility Revenue Refunding Bonds (Tampa Electric Company Project), Series 2007, which previously had been in auction rate mode and had been held by Tampa Electric Company since Mar. 26, 2008. The PCIDA Bonds bore interest at the initial term rate of 1.50% per annum from Nov. 23, 2010 to Mar. 1, 2011.

On Mar. 26, 2008, Tampa Electric Company purchased in lieu of redemption $20.0 million Hillsborough County Industrial Development Authority (HCIDA) Pollution Control Revenue Refunding Bonds (Tampa Electric Company Project), Series 2007C. After the Mar. 1, 2011 purchase of the PCIDA Bonds, $95.0 million in bonds purchased in lieu of redemption were held by the trustee at the direction of Tampa Electric Company as of Jun. 30, 2011 (Held Bonds) to provide an opportunity to evaluate refinancing alternatives. The Held Bonds effectively offset the outstanding debt balances and are presented net on the balance sheet.

 

14


Table of Contents

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

On Mar. 15, 2010, TECO Finance, Inc. (TECO Finance) issued $250.0 million aggregate principal amount of 4.00% Notes due Mar. 15, 2016 and $300.0 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 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.

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 $70.0 million principal amount of TECO Energy notes for cash and approximately $230.0 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 quarter ended Jun. 30, 2010. “Loss on debt extinguishment” also includes remaining unamortized debt issue costs of $0.9 million.

 

15


Table of Contents

8. Other Comprehensive Income

TECO Energy reported the following other comprehensive income (OCI) for the three and six months ended Jun. 30, 2011 and 2010, related to changes in the fair value of cash flow hedges and amortization of unrecognized benefit costs associated with the company’s pension plans:

Other Comprehensive Income

 

     Three months ended Jun. 30,      Six months ended Jun. 30,  

(millions)

   Gross      Tax      Net      Gross      Tax      Net  

2011

                 

Unrealized (loss) gain on cash flow hedges

   ($ 1.3)       $ 0.5       ($ 0.8)       $ 2.9       ($ 1.1)       $ 1.8   

Less: Gain reclassified to net income

     (0.9)         0.3         (0.6)         (1.4)         0.5         (0.9)   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

(Loss) Gain on cash flow hedges

     (2.2)         0.8         (1.4)         1.5         (0.6)         0.9   

Amortization of unrecognized benefit costs and other

     0.7         (0.3)         0.4         1.3         (0.5)         0.8   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other comprehensive (loss) income

   ($ 1.5)       $ 0.5       ($ 1.0)       $ 2.8       ($ 1.1)       $ 1.7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

2010

                 

Unrealized loss on cash flow hedges

   ($ 1.9)       $ 0.8       ($ 1.1)       ($ 1.4)       $ 0.4       ($ 1.0)   

Less: Loss reclassified to net income

     1.1         (0.4)         0.7         2.2         (0.8)         1.4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

(Loss) Gain on cash flow hedges

     (0.8)         0.4         (0.4)         0.8         (0.4)         0.4   

Amortization of unrecognized benefit costs and other

     0.8         (0.3)         0.5         1.4         0.9         2.3   

Recognized benefit costs due to settlement

     (0.6)         0.6         0.0         0.9         0.0         0.9   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other comprehensive income

   ($ 0.6)       $ 0.7       $ 0.1       $ 3.1       $ 0.5       $ 3.6   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Accumulated Other Comprehensive Loss

 

(millions)

   Jun. 30, 2011      Dec. 31, 2010  

Unrecognized pension losses and prior service costs(1)

   ($ 25.8)       ($ 26.6)   

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

     13.6         13.6   

Net unrealized losses from cash flow hedges(3)

     (3.3)         (4.2)   
  

 

 

    

 

 

 

Total accumulated other comprehensive loss

   ($ 15.5)       ($ 17.2)   
  

 

 

    

 

 

 

 

(1) Net of tax benefit of $15.9 million and $16.2 million as of Jun. 30, 2011 and Dec. 31, 2010, respectively.
(2) Net of tax expense of $5.8 million and $5.8 million as of Jun. 30, 2011 and Dec. 31, 2010, respectively.
(3) Net of tax benefit of $2.2 million and $ 2.7 million as of Jun. 30, 2011 and Dec. 31, 2010, respectively.

 

16


Table of Contents

9. Earnings Per Share

Earnings Per Share

 

     Three months ended Jun. 30,      Six months ended Jun. 30,  

(millions, except per share amounts)

   2011      2010      2011      2010  

Basic earnings per share

           

Net income

   $ 77.6       $ 75.7       $ 129.3       $ 131.7   

Less: Income attributable to noncontrolling interest

     (0.1)         (0.2)         (0.1)         (0.4)   

Less: Amount allocated to nonvested participating shareholders

     (0.4)         (0.5)         (0.7)         (1.0)   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

   $ 77.1       $ 75.0       $ 128.5       $ 130.3   
  

 

 

    

 

 

    

 

 

    

 

 

 

Average shares outstanding-common

     213.6         212.5         213.3         212.4   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

   $ 0.36       $ 0.35       $ 0.60       $ 0.61   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per share

           

Net income

   $ 77.6       $ 75.7       $ 129.3       $ 131.7   

Less: Income attributable to noncontrolling interest

     (0.1)         (0.2)         (0.1)         (0.4)   

Less: Amount allocated to nonvested participating shareholders

     (0.4)         (0.5)         (0.7)         (1.0)   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

   $ 77.1       $ 75.0       $ 128.5       $ 130.3   
  

 

 

    

 

 

    

 

 

    

 

 

 

Average shares outstanding-common

     213.6         212.5         213.3         212.4   

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

     1.6         2.2         1.8         2.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted average shares outstanding common - diluted

     215.2         214.7         215.1         214.5   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

   $ 0.36       $ 0.35       $ 0.60       $ 0.61   
  

 

 

    

 

 

    

 

 

    

 

 

 

Anti-dilutive shares

     1.6         8.4         2.0         9.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 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, financial condition or cash flows.

Merco Group at Aventura Landings v. Peoples Gas System

The first portion of a non-jury trial in this case was held in June 2011 in the Dade County, Florida Circuit Court. The trial is expected to resume and conclude in October 2011. Merco Group at Aventura Landings I, II and III (Merco) alleged that coal tar from a certain former PGS manufactured gas plant site had been deposited in the early 1960s onto property now owned by Merco. Merco alleged that it incurred approximately $3.9 million in costs associated with the removal of such coal tar and provided testimony claiming approximately $110.0 million plus interest in damages from out-of-pocket development expenses and lost profits due to the delay in its condominium development project allegedly caused by the presence of the coal tar. PGS maintains that it is not liable because the coal tar did not originate from its manufactured gas plant site and filed a third-party complaint against Continental Holdings, Inc., which Merco also added as a defendant in its suit, as the owner at the relevant time of the site that PGS believes was the source of the coal tar on Merco’s property. In addition, the court will consider PGS’s counterclaim against Merco which claims that, because Merco purchased the property with actual knowledge of the presence of coal tar on the property, Merco should contribute toward any damages resulting from the presence of coal tar.

 

17


Table of Contents

Superfund and Former Manufactured Gas Plant Sites

Tampa Electric Company, through its Tampa Electric and Peoples Gas divisions, is a potentially responsible party (PRP) for certain superfund sites and, through its Peoples Gas division, 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 Jun. 30, 2011, Tampa Electric Company has estimated its ultimate financial liability to be $21.3 million, primarily at PGS. This amount has been accrued and is primarily reflected in “Long-term regulatory liabilities” on the company’s Consolidated Condensed Balance Sheet. 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 clean-up 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.

In instances where other PRPs are involved, many of those PRPs are creditworthy and are likely to continue to be creditworthy for the duration of the remediation work. However, in those instances that they are not, Tampa Electric Company could be liable for more than Tampa Electric Company’s actual percentage of the remediation costs.

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 Comprehensive Environmental Response, Compensation, and Liability Act of 1980, commonly known as Superfund, 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, this assertion is not based upon any release of hazardous substances by Tampa Electric Company. Tampa Electric Company has responded to the EPA regarding such matter. The scope and extent of its potential liability, if any, and the costs of any required investigation and remediation have not been determined.

Environmental Protection Agency Administrative Order

In December 2010, Clintwood Elkhorn Mining Company, a subsidiary of TECO Coal Corporation (TECO Coal), received an Administrative Order from the EPA relating to the discharge of wastewater associated with inactive mining operations in Pike County, Kentucky. TECO Coal responded to the EPA on Feb. 14, 2011. The scope and extent of TECO Coal’s potential liability, if any, and the costs of any required investigation and remediation related to these inactive mining operations in the area have not been determined.

 

18


Table of Contents

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 Jun. 30, 2011 is as follows:

Guarantees-TECO Energy

 

(millions)                                   

Guarantees for the Benefit of:

   2011      2012-2015      After (1)
2015
     Total      Liabilities Recognized
at Jun. 30, 2011
 

TECO Coal

              

Guarantees:

              

Fuel purchase related (2)

     0.0         0.0         5.4         5.4         1.9   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     0.0         0.0         5.4         5.4         1.9   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other subsidiaries

              

Guarantees:

              

Fuel purchase/energy management (2)

     0.0         0.0         109.7         109.7         0.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 0.0       $ 0.0       $ 115.1       $ 115.1       $ 1.9   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Letters of Credit-Tampa Electric Company

 

(millions)

Letters of Credit for the Benefit of:

   2011      2012-2015      After  (1)
2015
     Total      Liabilities Recognized
at Jun. 30, 2011
 

Tampa Electric

              

Letters of credit

   $ 0.0       $ 0.0       $ 0.7       $ 0.7       $ 0.2   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 0.0       $ 0.0       $ 0.7       $ 0.7       $ 0.2   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) These letters of credit and guarantees renew annually and are shown on the basis that they will continue to renew beyond 2015.
(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 Jun. 30, 2011. 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 the other operating companies have certain restrictive covenants in specific agreements and debt instruments. At Jun. 30, 2011, 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.

 

19


Table of Contents

Segment Information (1)

 

(millions)    Tampa      Peoples      TECO      TECO      Other &      TECO  

Three months ended Jun. 30,

   Electric      Gas      Coal      Guatemala      Eliminations      Energy, Inc.  

2011

                 

Revenues - external

   $ 546.1       $ 110.4       $ 191.3       $ 36.1       $ 1.8       $ 885.7   

Sales to affiliates

     0.4         0.8         0.0         0.0         (1.2)         0.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

     546.5         111.2         191.3         36.1         0.6         885.7   

Depreciation

     55.3         12.0         11.7         1.9         0.3         81.2   

Total interest charges(1)

     30.4         4.4         1.7         1.9         12.8         51.2   

Internally allocated interest (1)

     0.0         0.0         1.7         1.6         (3.3)         0.0   

Provision (benefit) for taxes

     36.9         3.7         5.0         3.3         (4.8)         44.1   

Net income (loss) attributable to TECO Energy

   $ 58.4       $ 5.9       $ 15.8       $ 5.6       ($ 8.2)       $ 77.5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

2010

                 

Revenues - external

   $ 552.8       $ 112.4       $ 200.6       $ 32.9       $ 0.1       $ 898.8   

Sales to affiliates

     0.4         3.7         0.0         0.0         (4.1)         0.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

     553.2         116.1         200.6         32.9         (4.0)         898.8   

Equity earnings of unconsolidated affiliates

     0.0         0.0         0.0         4.8         (0.6)         4.2   

Depreciation

     53.6         11.4         11.0         1.8         0.1         77.9   

Total interest charges(1)

     30.8         4.6         1.8         4.4         16.6         58.2   

Internally allocated interest (1)

     0.0         0.0         1.7         3.2         (4.9)         0.0   

Provision (benefit) for taxes

     33.8         3.3         4.5         2.8         (8.3)         36.1   

Net income (loss) attributable to TECO Energy

   $ 56.8       $ 5.1       $ 20.7       $ 10.6       ($ 17.7)       $ 75.5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
(millions)    Tampa      Peoples      TECO      TECO      Other &      TECO  

Six months ended Jun. 30,

   Electric      Gas      Coal      Guatemala      Eliminations      Energy, Inc.  

2011

                 

Revenues - external

   $ 979.0       $ 264.6       $ 365.0       $ 69.7       $ 3.5       $ 1,681.8   

Sales to affiliates

     0.7         2.7         0.0         0.0         (3.4)         0.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

     979.7         267.3         365.0         69.7         0.1         1,681.8   

Depreciation

     110.2         23.8         22.6         3.7         0.7         161.0   

Total interest charges(1)

     61.3         8.9         3.4         3.8         26.4         103.8   

Internally allocated interest (1)

     0.0         0.0         3.3         3.1         (6.4)         0.0   

Provision (benefit) for taxes

     56.9         13.0         6.6         6.1         (10.1)         72.5   

Net income (loss) attributable to TECO Energy

   $ 90.0       $ 20.6       $ 24.0       $ 11.9       ($ 17.3)       $ 129.2   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

2010

                 

Revenues - external

   $ 1,077.6       $ 294.1       $ 372.6       $ 66.7       $ 0.1       $ 1,811.1   

Sales to affiliates

     0.7         14.9         0.0         0.0         (15.6)         0.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

     1,078.3         309.0         372.6         66.7         (15.5)         1,811.1   

Equity earnings of unconsolidated affiliates

     0.0         0.0         0.0         8.0         (1.1)         6.9   

Depreciation

     106.6         22.8         21.8         3.6         0.1         154.9   

Restructuring charges

     0.0         0.0         0.0         0.0         1.5         1.5   

Total interest charges(1)

     61.1         9.2         3.6         9.0         34.6         117.5   

Internally allocated interest (1)

     0.0         0.0         3.5         6.5         (10.0)         0.0   

Provision (benefit) for taxes

     61.6         14.5         6.9         6.8         (19.4)         70.4   

Net income (loss) attributable to TECO Energy

   $ 104.9       $ 23.0       $ 37.5       $ 21.0       ($ 55.1)       $ 131.3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

20


Table of Contents

(millions)

   Tampa
Electric
     Peoples
Gas
     TECO
Coal
     TECO
Guatemala
     Other &
Eliminations
     TECO
Energy, Inc.
 

At Jun. 30, 2011

                 

Goodwill

   $ 0.0       $ 0.0       $ 0.0       $ 55.4       $ 0.0       $ 55.4   

Total assets

   $ 5,808.1       $ 879.6       $ 359.1       $ 263.0       ($ 211.8)       $ 7,098.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At Dec. 31, 2010

                 

Goodwill

   $ 0.0       $ 0.0       $ 0.0       $ 55.4       $ 0.0       $ 55.4   

Total assets

   $ 5,833.3       $ 918.4       $ 332.2       $ 292.7       ($ 182.0)       $ 7,194.6   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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 January 2011 through June 2011 were at a pretax rate of 6.25%, for July 2010 through December 2010 were at a pretax rate of 6.50%, and for January 2010 through June 2010 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.

 

21


Table of Contents

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.

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 reflecting the impact of hedging activities on the fuel recovery clause. As a result, these changes are not recorded in OCI (see Note 3).

The 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 Jun. 30, 2011, 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 Jun. 30, 2011 and Dec. 31, 2010:

Total Derivatives(1)

 

     Jun. 30,      Dec. 31,  

(millions)

   2011      2010  

Current assets

   $ 3.2       $ 2.7   

Long-term assets

     0.6         0.2   
                 

Total assets

   $ 3.8       $ 2.9   
                 

Current liabilities

   $ 12.6       $ 27.2   

Long-term liabilities

     1.5         2.6   
                 

Total liabilities

   $ 14.1       $ 29.8   
                 

 

(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.

 

22


Table of Contents

The following table presents the derivative hedges of heating oil swaps and option contracts at Jun. 30, 2011 and Dec. 31, 2010 to limit the exposure to changes in the market price for diesel fuel used in the production of coal:

Heating Oil Derivatives

 

     Jun. 30,      Dec. 31,  

(millions)

   2011      2010  

Current assets

   $ 2.9       $ 1.6   

Long-term assets

     0.6         0.2   
                 

Total assets

   $ 3.5       $ 1.8   
                 

Current liabilities

   $ 0.0       $ 0.0   

Long-term liabilities

     0.4         0.0   
                 

Total liabilities

   $ 0.4       $ 0.0   
                 

The following table presents the derivative hedges of natural gas contracts at Jun. 30, 2011 and Dec. 31, 2010 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

 

     Jun. 30,      Dec. 31,  

(millions)

   2011      2010  

Current assets

   $ 0.3       $ 1.1   

Long-term assets

     0.0         0.0   
                 

Total assets

   $ 0.3       $ 1.1   
                 

Current liabilities

   $ 12.6       $ 27.2   

Long-term liabilities

     1.1         2.6   
                 

Total liabilities

   $ 13.7       $ 29.8   
                 

The ending balance in accumulated other comprehensive income (AOCI) related to the cash flow hedges and previously settled interest rate swaps at Jun. 30, 2011 is a net loss of $3.3 million after tax and accumulated amortization. This compares to a net loss of $4.2 million in AOCI after tax and accumulated amortization at Dec. 31, 2010.

The following table presents the fair values and locations of derivative instruments recorded on the balance sheet at Jun. 30, 2011:

Derivatives Designated As Hedging Instruments

 

    

Asset Derivatives

    

Liability Derivatives

 
(millions)    Balance Sheet    Fair      Balance Sheet    Fair  

at Jun. 30, 2011

  

Location

   Value     

Location

   Value  

Commodity Contracts:

           

Heating oil derivatives:

           

Current

   Derivative assets    $ 2.9       Derivative liabilities    $ 0.0   

Long-term

   Derivative assets      0.6       Derivative liabilities      0.4   

Natural gas derivatives:

           

Current

   Derivative assets      0.3       Derivative liabilities      12.6   

Long-term

   Derivative assets      0.0       Derivative liabilities      1.1   
                       

Total derivatives designated as hedging instruments

   $ 3.8          $ 14.1   
                       

 

23


Table of Contents

The following table presents the effect of energy related derivatives on the fuel recovery clause mechanism in the Consolidated Condensed Balance Sheet as of Jun. 30, 2011:

Energy Related Derivatives

 

    

Asset Derivatives

    

Liability Derivatives

 
(millions)    Balance Sheet    Fair      Balance Sheet    Fair  

at Jun. 30, 2011

  

Location (1)

   Value     

Location (1)

   Value  

Commodity Contracts:

           
Natural gas derivatives:            

Current

  

Regulatory liabilities

   $ 0.3      

Regulatory assets

   $ 12.6   

Long-term

  

Regulatory liabilities

     0.0      

Regulatory assets

   $ 1.1   
                       

Total

   $ 0.3          $ 13.7   
                       

 

(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 Jun. 30, 2011, net pretax losses of $12.3 million are expected to be reclassified from regulatory assets or liabilities to the Consolidated Condensed Statements of Income within the next twelve months.

The following tables present the effect of hedging instruments on OCI and income for the three months and six months ended Jun. 30:

 

For the three months ended Jun. 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)
 

2011

        

Interest rate contracts:

   $ 0.0      

Interest expense

   ($ 0.2)   

Commodity contracts:

        

Heating oil derivatives

     (0.8)      

Mining related costs

     0.8   
                    

Total

   ($ 0.8)          $ 0.6   
                    

2010

        

Interest rate contracts:

   $ 0.0      

Interest expense

   ($ 0.4)   

Commodity contracts:

        

Heating oil derivatives

     (1.1)      

Mining related costs

     (0.3)   
                    

Total

   ($ 1.1)          ($ 0.7)   
                    

 

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

 

24


Table of Contents

For the six months ended Jun. 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)
 

2011

        

Interest rate contracts:

   $ 0.0      

Interest expense

   ($ 0.3)   

Commodity contracts:

        

Heating oil derivatives

     1.8      

Mining related costs

     1.2   
                    

Total

   $ 1.8          $ 0.9   
                    

2010

        

Interest rate contracts:

   ($ 0.1)      

Interest expense

   ($ 0.9)   

Commodity contracts:

        

Heating oil derivatives

     (0.9)      

Mining related costs

     (0.5)   
                    

Total

   ($ 1.0)          ($ 1.4)   
                    

 

(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 and six months ended Jun. 30, 2011 and 2010, all hedges were effective.

The following table presents the derivative activity for instruments classified as qualifying cash flow hedges for the six months ended Jun. 30:

 

For the six months ended Jun 30:

(millions)

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

AOCI Into Income
 

2011

        

Interest rate swaps

   $ 0.0       $ 0.0       ($ 0.3)   

Heating oil derivatives

     3.1         1.8         1.2   
                          

Total

   $ 3.1       $ 1.8       $ 0.9   
                          

2010

        

Interest rate swaps

   ($ 0.5)       ($ 0.1)       ($ 0.9)   

Heating oil derivatives

     (1.4)         (0.9)         (0.5)   
                          

Total

   ($ 1.9)       ($ 1.0)       ($ 1.4)   
                          

 

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

 

25


Table of Contents

The maximum length of time over which the company is hedging its exposure to the variability in future cash flows extends to Dec. 31, 2014 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 Jun. 30, 2011, are expected to settle during the 2011, 2012, 2013 and 2014 fiscal years:

 

     Heating Oil Contracts      Natural Gas Contracts  

(millions)

   (Gallons)      (MMBTUs)  

Year

   Physical      Financial      Physical      Financial  

2011

     0.0         4.8         0.0         23.4   

2012

     0.0         2.6         0.0         21.9   

2013

     0.0         1.8         0.0         3.2   

2014

     0.0         1.0         0.0         0.0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     0.0         10.2         0.0         48.5   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 Jun. 30, 2011, 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 its 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.

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.

The table below presents the fair value of the overall contractual contingent liability positions for the company’s derivative activity at Jun. 30, 2011:

Contingent Features

 

(millions)

At Jun. 30, 2011

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

Credit Rating

   ($ 13.8)       ($ 13.8)       $ 0.0   

 

26


Table of Contents

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 Jun. 30, 2011 and Dec. 31, 2010. 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 and heating oil swaps, the market approach was used in determining fair value.

Recurring Fair Value Measures

 

     At fair value as of Jun. 30, 2011  

(millions)

   Level 1      Level 2      Level 3      Total  
Assets            

Natural gas swaps

   $ 0.0       $ 0.3       $ 0.0       $ 0.3   

Heating oil swaps

     0.0         3.5         0.0         3.5   
                                   

Total

   $ 0.0       $ 3.8       $ 0.0       $ 3.8   
                                   
Liabilities            

Natural gas swaps

   $ 0.0       $ 13.7       $ 0.0       $ 13.7   

Heating oil swaps

     0.0         0.4         0.0         0.4   
                                   

Total

   $ 0.0       $ 14.1       $ 0.0       $ 14.1   
                                   
     At fair value as of Dec. 31, 2010  

(millions)

   Level 1      Level 2      Level 3      Total  
Assets            

Natural gas swaps

   $ 0.0       $ 1.1       $ 0.0       $ 1.1   

Heating oil swaps

     0.0         1.8         0.0         1.8   
                                   

Total

   $ 0.0       $ 2.9       $ 0.0       $ 2.9   
                                   
Liabilities            

Natural gas swaps

   $ 0.0       $ 29.8       $ 0.0       $ 29.8   
                                   

Total

   $ 0.0       $ 29.8       $ 0.0       $ 29.8   
                                   

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 company considered the impact of nonperformance risk in determining the fair value of derivatives. The company considered the net position with each counterparty, past performance of both parties and the intent of the parties, indications of credit deterioration, and whether the markets in which we transact have experienced dislocation. At Jun. 30, 2011, the fair value of derivatives was not materially affected by nonperformance risk. The company’s net positions with substantially all counterparties were liability positions.

Fair Value of Debt

At Jun. 30, 2011, total long-term debt had a carrying amount of $3,082.2 million and an estimated fair market value of $3,354.8 million. At Dec. 31, 2010, total long-term debt had a carrying amount of $3,226.4 million and an estimated fair market value of $3,449.3 million.

14. Restructuring Charges

On Jul. 30, 2009, TECO Energy, Inc. announced organizational changes that resulted in severance and other benefits costs that were mostly expensed during the fourth quarter of 2009. For the six months ended Jun. 30, 2010, the remaining $1.5 million was recognized on the Consolidated Condensed Statements of Income under “Restructuring charges”.

 

27


Table of Contents

15. Variable Interest Entities

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.

Tampa Electric Company has entered into multiple power purchase agreements (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 mega-watts (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 VIEs. 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 $26.2 million and $42.0 million pursuant to PPAs for the three and six months ended Jun. 30, 2011, respectively, and $30.6 million and $61.0 million for the three and six months ended Jun. 30, 2010, respectively.

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 these 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. Under this PPA, Tampa Electric Company purchased $5.9 million and $13.0 million for the three and six months ended Jun. 30, 2011, respectively, and $17.6 million and $30.3 million for the three and six months ended Jun. 30, 2010, respectively.

Tampa Electric Company does not provide any material financial or other support to any of the VIEs it is involved with, nor is it under any obligation to absorb losses associated with these VIEs. In the normal course of business, Tampa Electric Company’s involvement with the remaining VIEs does not affect its Consolidated Condensed Balance Sheets, Statements of Income or Cash Flows.

 

 

28


Table of Contents

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 Jun. 30, 2011 and Dec. 31, 2010, and the results of operations and cash flows for the periods ended Jun. 30, 2011 and 2010. The results of operations for the three months and six months ended Jun. 30, 2011 are not necessarily indicative of the results that can be expected for the entire fiscal year ending Dec. 31, 2011. 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, 2010 and to the notes on pages 36 through 48 of this report.

INDEX TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

     Page
No.
 

Consolidated Condensed Balance Sheets, Jun. 30, 2011 and Dec. 31, 2010

     30-31   

Consolidated Condensed Statements of Income and Comprehensive Income for the three month and six month periods ended Jun. 30, 2011 and 2010

     32-33   

Consolidated Condensed Statements of Cash Flows for the six month periods ended Jun. 30, 2011 and 2010

     34   

Notes to Consolidated Condensed Financial Statements

     35   

 

29


Table of Contents

TAMPA ELECTRIC COMPANY

Consolidated Condensed Balance Sheets

Unaudited

 

Assets    Jun. 30,      Dec. 31,  

(millions)

   2011      2010  

Property, plant and equipment

     

Utility plant in service

     

Electric

   $ 6,379.1       $ 6,343.4   

Gas

     1,079.8         1,060.6   

Construction work in progress

     233.3         206.8   
                 

Property, plant and equipment, at original costs

     7,692.2         7,610.8   

Accumulated depreciation

     (2,163.1)         (2,093.9)   
                 
     5,529.1         5,516.9   

Other property

     5.1         4.7   
                 

Total property, plant and equipment, net

     5,534.2         5,521.6   
                 

Current assets

     

Cash and cash equivalents

     10.9         3.7   

Receivables, less allowance for uncollectibles of $3.2 and $3.2 at Jun. 30, 2011 and Dec. 31, 2010, respectively

     248.6         264.6   

Inventories, at average cost

     

Fuel

     100.6         119.0   

Materials and supplies

     63.6         59.1   

Current regulatory assets

     43.9         62.7   

Current derivative assets

     0.3         1.1   

Taxes receivable

     0.0         24.6   

Deferred tax asset

     0.0         1.5   

Prepayments and other current assets

     12.4         10.0   
                 

Total current assets

     480.3         546.3   
                 

Deferred debits

     

Unamortized debt expense

     15.9         17.8   

Long-term regulatory assets

     331.9         341.9   

Other

     10.5         10.9   
                 

Total deferred debits

     358.3         370.6   
                 

Total assets

   $ 6,372.8       $ 6,438.5   
                 

 

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

30


Table of Contents

TAMPA ELECTRIC COMPANY

Consolidated Condensed Balance Sheets -continued

Unaudited

 

Liabilities and Capital    Jun. 30,      Dec. 31,  

(millions)

   2011      2010  

Capital

     

Common stock

   $ 1,852.4       $ 1,852.4   

Accumulated other comprehensive loss

     (5.0)         (5.3)   

Retained earnings

     316.0         311.1   
  

 

 

    

 

 

 

Total capital

     2,163.4         2,158.2   

Long-term debt, less amount due within one year

     1,872.7         2,066.1   
  

 

 

    

 

 

 

Total capitalization

     4,036.1         4,224.3   
  

 

 

    

 

 

 

Current liabilities

     

Long-term debt due within one year

     122.0         3.4   

Notes payable

     7.0         12.0   

Accounts payable

     172.8         219.0   

Customer deposits

     158.2         156.5   

Current regulatory liabilities

     103.0         110.0   

Current derivative liabilities

     12.6         27.2   

Current deferred income taxes, net

     1.2         0.0   

Interest accrued

     29.8         24.6   

Taxes accrued

     28.7         14.0   

Other

     12.1         12.2   
  

 

 

    

 

 

 

Total current liabilities

     647.4         578.9   
  

 

 

    

 

 

 

Deferred credits

     

Non-current deferred income taxes, net

     685.9         631.5   

Investment tax credits

     10.2         10.4   

Long-term derivative liabilities

     1.1         2.6   

Long-term regulatory liabilities

     632.2         630.8   

Other

     359.9         360.0   
  

 

 

    

 

 

 

Total deferred credits

     1,689.3         1,635.3   
  

 

 

    

 

 

 

Commitments and Contingencies (see Note 8)

     

Total liabilities and capital

   $ 6,372.8       $ 6,438.5   
  

 

 

    

 

 

 

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

 

31


Table of Contents

TAMPA ELECTRIC COMPANY

Consolidated Condensed Statements of Income and Comprehensive Income

Unaudited

 

    

Three months ended! Jun. 30,

 

(millions)

   2011      2010  

Revenues

     

Electric (includes franchise fees and gross receipts taxes of $ 21.3 in 2011 and $ 21.8 in 2010)

   $ 546.4       $ 553.1   

Gas (includes franchise fees and gross receipts taxes of $ 5.8 in 2011 and $6.3 in 2010)

     110.4         112.4   
  

 

 

    

 

 

 

Total revenues

     656.8         665.5   
  

 

 

    

 

 

 

Expenses

     

Operations

     

Fuel

     194.2         185.4   

Purchased power

     43.9         49.1   

Cost of natural gas sold

     54.2         59.4   

Other

     82.0         96.5   

Maintenance

     31.6         31.6   

Depreciation

     67.3         65.0   

Taxes, federal and state

     40.4         37.0   

Taxes, other than income

     44.9         45.2   
  

 

 

    

 

 

 

Total expenses

     558.5         569.2   
  

 

 

    

 

 

 

Income from operations

     98.3         96.3   
  

 

 

    

 

 

 

Other income (expense)

     

Allowance for other funds used during construction

     0.3         0.3   

Taxes, non-utility federal and state

     (0.2)         (0.1)   

Other income, net

     0.7         0.8   
  

 

 

    

 

 

 

Total other income

     0.8         1.0   
  

 

 

    

 

 

 

Interest charges

     

Interest on long-term debt

     32.1         32.8   

Other interest

     2.8         2.8   

Allowance for borrowed funds used during construction

     (0.1)         (0.2)   
  

 

 

    

 

 

 

Total interest charges

     34.8         35.4   
  

 

 

    

 

 

 

Net income

     64.3         61.9   
  

 

 

    

 

 

 

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

   $ 64.5       $ 62.1   
  

 

 

    

 

 

 

 

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

32


Table of Contents

TAMPA ELECTRIC COMPANY

Consolidated Condensed Statements of Income and Comprehensive Income

Unaudited

 

    

Six months ended Jun. 30,

 

(millions)

   2011      2010  

Revenues

     

Electric (includes franchise fees and gross receipts taxes of $ 40.6 in 2011 and $43.2 in 2010)

   $ 979.4       $ 1,078.1   

Gas (includes franchise fees and gross receipts taxes of $ 14.9 in 2011 and $15.8 in 2010)

     264.7         294.1   
                 

Total revenues

     1,244.1         1,372.2   
                 

Expenses

     

Operations

     

Fuel

     339.1         349.4   

Purchased power

     71.1         106.3   

Cost of natural gas sold

     136.2         175.4   

Other

     160.2         184.2   

Maintenance

     63.1         61.6   

Depreciation

     134.0         129.4   

Taxes, federal and state

     69.5         75.8   

Taxes, other than income

     91.5         94.5   
                 

Total expenses

     1,064.7         1,176.6   
                 

Income from operations

     179.4         195.6   
                 

Other income (expense)

     

Allowance for other funds used during construction

     0.6         1.3   

Taxes, non-utility federal and state

     (0.4)         (0.3)   

Other income, net

     1.2         1.6   
                 

Total other income

     1.4         2.6   
                 

Interest charges

     

Interest on long-term debt

     64.8         65.5   

Other interest

     5.7         5.6   

Allowance for borrowed funds used during construction

     (0.3)         (0.8)   
                 

Total interest charges

     70.2         70.3   
                 

Net income

     110.6         127.9   
                 

Other comprehensive income, net of tax

     
                 

Net unrealized gain on cash flow hedges

     0.3         0.4   
                 

Total other comprehensive income, net of tax

     0.3         0.4   
                 

Comprehensive income

   $ 110.9       $ 128.3   
                 

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

 

33


Table of Contents

TAMPA ELECTRIC COMPANY

Consolidated Condensed Statements of Cash Flows

Unaudited

 

     Six months ended Jun. 30,  

(millions)

   2011      2010  

Cash flows from operating activities

     

Net income

   $ 110.6       $ 127.9   

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

     

Depreciation

     134.0         129.4   

Deferred income taxes

     57.5         23.5   

Investment tax credits, net

     (0.2)         (0.2)   

Allowance for funds used during construction

     (0.6)         (1.3)   

Deferred recovery clause

     6.3         12.9   

Receivables, less allowance for uncollectibles

     16.0         (59.1)   

Inventories

     13.9         (41.2)   

Prepayments

     (2.4)         (1.3)   

Taxes accrued

     39.3         42.9   

Interest accrued

     5.2         4.2   

Accounts payable

     (38.3)         27.9   

Gain on sale of assets, pretax

     (0.1)         (0.2)   

Other

     15.2         (4.9)   
                 

Cash flows from operating activities

     356.4         260.5   
                 

Cash flows from investing activities

     

Capital expenditures

     (166.3)         (212.7)   

Allowance for funds used during construction

     0.6         1.3   

Net proceeds from sale of assets

     2.6         0.0   
                 

Cash flows used in investing activities

     (163.1)         (211.4)   
                 

Cash flows from financing activities

     

Common stock

     0.0         50.0   

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

     (75.3)         0.0   

Net (decrease) increase in short-term debt

     (5.0)         22.0   

Dividends

     (105.8)         (119.2)   
                 

Cash flows used in financing activities

     (186.1)         (47.2)   
                 

Net increase in cash and cash equivalents

     7.2         1.9   

Cash and cash equivalents at beginning of period

     3.7         5.5   
                 

Cash and cash equivalents at end of period

   $ 10.9       $ 7.4   
                 

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

 

 

34


Table of Contents

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. For the purposes of its consolidated financial reporting, Tampa Electric Company is comprised of the Electric division, generally referred to as Tampa Electric, the Natural Gas division, generally referred to as PGS, and potentially the accounts of 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. For the periods presented, no VIEs have been consolidated (See Note 13).

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 its subsidiaries as of Jun. 30, 2011 and Dec. 31, 2010, and the results of operations and cash flows for the periods ended Jun. 30, 2011 and 2010. The results of operations for the three month and six month periods ended Jun. 30, 2011 are not necessarily indicative of the results that can be expected for the entire fiscal year ending Dec. 31, 2011.

The use of estimates is inherent in the preparation of financial statements in accordance with 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 Jun. 30, 2011 and Dec. 31, 2010, unbilled revenues of $62.3 million and $65.5 million, respectively, are included in the “Receivables” line item on the Consolidated Condensed Balance Sheets.

Accounting for Franchise Fees and Gross Receipts

Tampa Electric and PGS are allowed to recover from customers certain costs incurred through rates approved by the 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 $27.1 million and $55.5 million, respectively, for the three and six months ended Jun. 30, 2011, compared to $28.1 million and $59.0 million for the three and six months ended Jun. 30, 2010. 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 amounts totaled $27.1 million and $55.4 million, respectively, for the three and six months ended Jun. 30, 2011, compared to $28.0 million and $58.8 million for the three and six months ended Jun. 30, 2010.

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 $43.9 million and $71.1 million, respectively, for the three and six months ended Jun. 30, 2011, compared to $49.1 million and $106.3 million for the three and six months ended Jun. 30, 2010. 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

Tampa Electric Company classifies cash inflows and outflows related to derivative and hedging instruments in the appropriate cash flow sections associated with the item being hedged. For natural gas 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.

2. New Accounting Pronouncements

Presentation of Comprehensive Income

In June 2011, the FASB issued guidance requiring companies to present the total of comprehensive income, the components of net income and the components of other comprehensive income, in a single continuous statement of comprehensive income or in two separate but consecutive statements. The guidance is effective for interim and annual periods beginning after Dec. 15, 2011. Tampa Electric Company will adopt the guidance as required. It will have no effect on Tampa Electric Company’s results of operations, financial position or cash flows.

 

35


Table of Contents

Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS

In May 2011, the FASB issued guidance to more closely align its fair value measurement and disclosure requirements with IFRS. The guidance relates to: measuring the fair value of financial instruments that are managed in a portfolio; the application of premiums and discounts in fair value measurement; and disclosures for items required to be disclosed, but not reported on the statement of financial position, at fair value and Level 3 measures. The guidance is effective for interim and annual periods beginning after Dec. 15, 2011. Tampa Electric Company will adopt the guidance as required. It will have no effect on Tampa Electric Company’s results of operations, financial 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 FERC under 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 operations 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.

Storm Damage Cost Recovery

Tampa Electric accrues $8.0 million annually to an FPSC-approved self-insured storm damage reserve. Tampa Electric’s storm reserve was $41.4 million and $37.4 million as of Jun. 30, 2011 and Dec. 31, 2010, 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.

 

36


Table of Contents

Details of the regulatory assets and liabilities as of Jun. 30, 2011 and Dec. 31, 2010 are presented in the following table:

Regulatory Assets and Liabilities

 

(millions)

   Jun. 30,
2011
     Dec. 31,
2010
 

Regulatory assets:

     

Regulatory tax asset (1)

   $ 65.2       $ 66.6   
  

 

 

    

 

 

 

Other:

     

Cost recovery clauses

     22.7         41.9   

Postretirement benefit asset

     231.8         237.5   

Deferred bond refinancing costs (2)

     13.2         15.4   

Environmental remediation

     22.9         23.6   

Competitive rate adjustment

     3.2         3.3   

Other

     16.8         16.3   
  

 

 

    

 

 

 

Total other regulatory assets

     310.6         338.0   
  

 

 

    

 

 

 

Total regulatory assets

     375.8         404.6   

Less: Current portion

     43.9         62.7   
  

 

 

    

 

 

 

Long-term regulatory assets

   $ 331.9       $ 341.9   
  

 

 

    

 

 

 

Regulatory liabilities:

     

Regulatory tax liability (1)

   $ 17.0       $ 17.7   
  

 

 

    

 

 

 

Other:

     

Cost recovery clauses

     78.5         76.2   

Environmental remediation

     21.2         21.2   

Storm damage reserve

     41.4         37.4   

Deferred gain on property sales (3)

     5.5         6.3   

Provision for stipulation and other (4)

     0.7         9.8   

Accumulated reserve-cost of removal

     570.9         572.2   
  

 

 

    

 

 

 

Total other regulatory liabilities

     718.2         723.1   
  

 

 

    

 

 

 

Total regulatory liabilities

     735.2         740.8   

Less: Current portion

     103.0         110.0   
  

 

 

    

 

 

 

Long-term regulatory liabilities

   $ 632.2       $ 630.8   
  

 

 

    

 

 

 

 

(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 provision to reflect the FPSC approved PGS stipulation regarding PGS’s 2010 earnings above 11.75%. A one-time credit to customer bills totaling $3.0 million was applied in April 2011 and the $6.2 million remaining balance of the 2010 earnings above 11.75% was credited to accumulated depreciation reserves in June 2011.

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)

   Jun. 30,
2011
     Dec 31,
2010
 

Clause recoverable (1)

   $ 25.9       $ 45.2   

Components of rate base (2)

     243.3         248.1   

Regulatory tax assets (3)

     65.2         66.6   

Capital structure and other (3)

     41.4         44.7   
  

 

 

    

 

 

 

Total

   $ 375.8       $ 404.6   
  

 

 

    

 

 

 

 

(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.

 

37


Table of Contents

4. Income Taxes

Tampa Electric Company is included in the filing of a consolidated federal income tax return with TECO Energy and its affiliates. Tampa Electric Company’s income tax expense is based upon a separate return computation. Tampa Electric Company’s effective tax rates for the six months ended Jun. 30, 2011 and Jun. 30, 2010 differ from the statutory rate principally due to state income taxes, domestic activity production deduction and the equity portion of Allowance for Funds Used During Construction.

The IRS concluded its examination of TECO Energy’s consolidated federal income tax return for the year 2009 during 2010. The U.S. federal statute of limitations remains open for the year 2007 and onward. Years 2010 and 2011 are currently under examination by the IRS under its Compliance Assurance Program. TECO Energy does not expect the settlement of current IRS examinations to significantly change the total amount of unrecognized tax benefits by the end of 2011. Florida’s statute of limitations is three 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 Florida’s tax authorities include 2007 and onward.

5. Employee Postretirement Benefits

Tampa Electric Company is a participant in the comprehensive retirement plans of TECO Energy. Amounts allocable to all participants of the TECO Energy retirement plans are found in Note 5, Employee Postretirement Benefits, in the TECO Energy, Inc. Notes to Consolidated Condensed Financial Statements. Tampa Electric Company’s portion of the net pension expense for the three months ended Jun. 30, 2011 and 2010, respectively, was $3.1 million and $4.4 million for pension benefits, and $3.2 million and $3.3 million for other postretirement benefits. For the six months ended Jun. 30, 2011 and 2010, respectively, net benefit expenses were $6.7 million and $9.3 million for pension benefits and $6.7 million and $6.9 million for other postretirement benefits.

For the fiscal 2011 plan year, TECO Energy assumed an expected long-term return on plan assets of 7.75% and a discount rate of 5.30% for pension benefits under its qualified pension plan, and a discount rate of 5.25% for its other postretirement benefits as of their Jan. 1, 2011 measurement dates.

Effective Dec. 31, 2006, in accordance with the accounting standard for defined benefit plans and other postretirement benefits, Tampa Electric Company adjusted its postretirement benefit obligations and recorded regulatory assets to reflect the unamortized transition obligation, prior service cost, and actuarial gains and losses of its postretirement benefit plans. Included in the benefit expenses discussed above, for the three months and six months ended Jun. 30, 2011, Tampa Electric Company reclassed $2.7 million and $5.7 million, respectively, of unamortized transition obligation, prior service cost and actuarial losses from regulatory assets to net income. For the three months and six months ended Jun. 30, 2010, Tampa Electric Company reclassed $3.3 million and $6.4 million, respectively.

In March 2010, the Patient Protection and Affordable Care Act and a companion bill, The Health Care and Education Reconciliation Act were signed into law. Among other things, both acts reduced 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, Tampa Electric Company reduced its deferred tax asset by $5.3 million and recorded a corresponding regulatory tax asset.

6. Short-Term Debt

At Jun. 30, 2011 and Dec. 31, 2010, the following credit facilities and related borrowings existed:

 

     Jun. 30, 2011      Dec. 31, 2010  

(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(2)

   $ 325.0       $ 7.0       $ 0.7       $ 325.0       $ 5.0       $ 0.7   

1-year accounts receivable facility

     150.0         0.0         0.0         150.0         7.0         0.0   
                                                     

Total

   $ 475.0       $ 7.0       $ 0.7       $ 475.0       $ 12.0       $ 0.7   
                                                     

 

(1) Borrowings outstanding are reported as notes payable.
(2) This 5-year facility matures May 9, 2012.

These credit facilities require commitment fees ranging from 7.0 to 35.0 basis points. The weighted-average interest rate on outstanding amounts payable under the credit facilities at Jun. 30, 2011 and Dec. 31, 2010 were 0.53% and 0.64%, respectively.

 

38


Table of Contents

Tampa Electric Company Accounts Receivable Facility

On Feb. 18, 2011, Tampa Electric Company and TRC, a wholly-owned subsidiary of Tampa Electric Company, amended their $150 million accounts receivable collateralized borrowing facility, entering into Omnibus Amendment No. 9 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. 17, 2012, (ii) provides that TRC will pay program and liquidity fees, which will total 70 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

Purchase in Lieu of Redemption of Polk County Industrial Development Authority Solid Waste Disposal Facility Revenue Refunding Bonds (Tampa Electric Company Project), Series 2010

On Mar. 1, 2011, Tampa Electric Company purchased in lieu of redemption $75.0 million Polk County Industrial Development Authority (PCIDA) Solid Waste Disposal Facility Revenue Refunding Bonds (Tampa Electric Company Project), Series 2010 (the PCIDA Bonds). On Nov. 23, 2010, the PCIDA had issued the PCIDA Bonds in a term-rate mode pursuant to the terms of the Loan and Trust Agreement governing those bonds. Proceeds of the PCIDA Bonds were used to redeem $75.0 million PCIDA Solid Waste Disposal Facility Revenue Refunding Bonds (Tampa Electric Company Project), Series 2007, which previously had been in auction rate mode and had been held by Tampa Electric Company since Mar. 26, 2008. The PCIDA Bonds bore interest at the initial term rate of 1.50% per annum from Nov. 23, 2010 to Mar. 1, 2011.

On Mar. 26, 2008, Tampa Electric Company purchased in lieu of redemption $20.0 million Hillsborough County Industrial Development Authority (HCIDA) Pollution Control Revenue Refunding Bonds (Tampa Electric Company Project), Series 2007C. After the Mar. 1, 2011 purchase of the PCIDA Bonds, $95.0 million in bonds purchased in lieu of redemption were held by the trustee at the direction of Tampa Electric Company as of Jun. 30, 2011 (Held Bonds) to provide an opportunity to evaluate refinancing alternatives. The Held Bonds effectively offset the outstanding debt balances and are presented net on the balance sheet.

 

39


Table of Contents

8. Commitments and Contingencies

Legal Contingencies

From time to time, Tampa Electric Company 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 loss. While the outcome of such proceedings is uncertain, management does not believe that their ultimate resolution will have a material adverse effect on Tampa Electric Company’s results of operations, financial condition or cash flows.

Merco Group at Aventura Landings v. Peoples Gas System

The first portion of a non-jury trial in this case was held in June 2011 in the Dade County, Florida Circuit Court. The trial is expected to resume and conclude in October 2011. Merco Group at Aventura Landings I, II and III (Merco) alleged that coal tar from a certain former PGS manufactured gas plant site had been deposited in the early 1960s onto property now owned by Merco. Merco alleged that it incurred approximately $3.9 million in costs associated with the removal of such coal tar and provided testimony claiming approximately $110.0 million plus interest in damages from out-of-pocket development expenses and lost profits due to the delay in its condominium development project allegedly caused by the presence of the coal tar. PGS maintains that it is not liable because the coal tar did not originate from its manufactured gas plant site and filed a third-party complaint against Continental Holdings, Inc., which Merco also added as a defendant in its suit, as the owner at the relevant time of the site that PGS believes was the source of the coal tar on Merco’s property. In addition, the court will consider PGS’s counterclaim against Merco which claims that, because Merco purchased the property with actual knowledge of the presence of coal tar on the property, Merco should contribute toward any damages resulting from the presence of coal tar.

Superfund and Former Manufactured Gas Plant Sites

Tampa Electric Company, through its Tampa Electric and Peoples Gas divisions, is a PRP for certain superfund sites and, through its Peoples Gas division, 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 Jun. 30, 2011, Tampa Electric Company has estimated its ultimate financial liability to be $21.3 million, primarily at PGS. This amount has been accrued and is primarily reflected in “Long-term regulatory liabilities” on Tampa Electric Company’s Consolidated Condensed Balance Sheet. 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 clean-up 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.

In instances where other PRPs are involved, many of those PRPs are creditworthy and are likely to continue to be creditworthy for the duration of the remediation work. However, in those instances that they are not, Tampa Electric Company could be liable for more than Tampa Electric Company’s actual percentage of the remediation costs.

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. EPA notified Tampa Electric Company that it is a potentially responsible party under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, commonly known as Superfund, 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, this assertion is not based upon any release of hazardous substances by Tampa Electric Company. Tampa Electric Company has responded to the EPA regarding such matter. The scope and extent of its potential liability, if any, and the costs of any required investigation and remediation have not been determined.

 

40


Table of Contents

Letters of Credit

A summary of the face amount or maximum theoretical obligation under Tampa Electric Company’s letters of credit as of Jun. 30, 2011 are as follows:

Letters of Credit-Tampa Electric Company

 

(millions)                                   

Letters of Credit for the Benefit of:

   2011      2012-2015      After  (1)
2015
     Total      Liabilities Recognized
at Jun. 30, 2011
 

Tampa Electric

              

Letters of credit

   $ 0.0       $ 0.0       $ 0.7       $ 0.7       $ 0.2   
                                            

Total

   $ 0.0       $ 0.0       $ 0.7       $ 0.7       $ 0.2   
                                            

 

(1) These letters of credit renew annually and are shown on the basis that they will continue to renew beyond 2015.

Financial Covenants

In order to utilize its bank credit facilities, Tampa Electric Company must meet certain financial tests as defined in the applicable agreements. In addition, Tampa Electric Company has certain restrictive covenants in specific agreements and debt instruments. At Jun. 30, 2011, Tampa Electric Company was in compliance with all applicable financial covenants.

 

41


Table of Contents

9. Segment Information

 

(millions)

Three months ended Jun. 30,

   Tampa
Electric
     Peoples
Gas
     Other &
Eliminations
     Tampa Electric
Company
 

2011

           

Revenues - external

   $ 546.4       $ 110.4       $ 0.0       $ 656.8   

Sales to affiliates

     0.1         0.8         (0.9)         0.0   
                                   

Total revenues

     546.5         111.2         (0.9)