Fair Value Measurements

3 Months Ended

Mar. 31, 2015

Fair Value Measurements

13. Fair Value Measurements

Items Measured at Fair Value on a Recurring Basis

Accounting guidance governing fair value measurements and disclosures provides that fair value represents the amount that would be received in selling an asset or the amount that would be paid in transferring a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based upon assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, accounting guidance also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1:  Observable inputs, such as quoted prices in active markets;

Level 2:  Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

Level 3:  Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.

Assets and liabilities are measured at fair value based on one or more of the following three valuation techniques noted under accounting guidance:

(A)  Market approach:  Prices and other relevant information generated by market transactions involving

identical or comparable assets or liabilities;

(B)  Cost approach:  Amount that would be required to replace the service capacity of an asset (replacement

cost); and

(C)  Income approach:  Techniques to convert future amounts to a single present amount based upon market

expectations (including present value techniques, option-pricing and excess earnings models).  

The fair value of financial instruments is determined by using various market data and other valuation techniques.  

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 Mar. 31, 2015 and Dec. 31, 2014. 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.     

Recurring Fair Value Measures
	As of Mar. 31, 2015
(millions)	Level 1		Level 2		Level 3		Total
Assets
Interest rate swaps	$	0.0	$	0.3	$	0.0	$	0.3
Liabilities
Natural gas swaps	$	0.0	$	40.8	$	0.0	$	40.8
	As of Dec. 31, 2014
(millions)	Level 1		Level 2		Level 3		Total
Liabilities
Natural gas swaps	$	0.0	$	42.7	$	0.0	$	42.7

Natural gas swaps are OTC swap instruments. The market approach is used in determining the fair value of natural gas swaps and the primary pricing inputs are the 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 (see Note 12).

Interest rate swaps are also OTC swap instruments. The income approach is used in determining the fair value of interest rate swaps and the primary pricing inputs are LIBOR swap rates. For each instrument, the projected forward swap rate is used to determine the stream of cash flows over the life of the contract. The cash flows are then discounted using a spot discount rate to determine 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, the intent of the parties, indications of credit deterioration and whether the markets in which the company transacts have experienced dislocation. At Mar. 31, 2015, the fair value of derivatives was not materially affected by nonperformance risk. There were no Level 3 assets or liabilities for the periods presented.

Tampa Electric Company [Member]

Fair Value Measurements

11. Fair Value Measurements

Items Measured at Fair Value on a Recurring Basis

Accounting guidance governing fair value measurements and disclosures provides that fair value represents the amount that would be received in selling an asset or the amount that would be paid in transferring a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based upon assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, accounting guidance also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1:  Observable inputs, such as quoted prices in active markets;

Level 2:  Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

Level 3:  Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.

Assets and liabilities are measured at fair value based on one or more of the following three valuation techniques noted under accounting guidance:

(A)  Market approach:  Prices and other relevant information generated by market transactions involving

identical or comparable assets or liabilities;

(B)  Cost approach:  Amount that would be required to replace the service capacity of an asset (replacement

cost); and

(C)  Income approach:  Techniques to convert future amounts to a single present amount based upon market

expectations (including present value techniques, option-pricing and excess earnings models).

The fair value of financial instruments is determined by using various market data and other valuation techniques.  

The following tables set forth by level within the fair value hierarchy, TEC’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of Mar. 31, 2015 and Dec. 31, 2014. 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. TEC’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.  

Recurring Derivative Fair Value Measures
	As of Mar. 31, 2015
(millions)	Level 1		Level 2		Level 3		Total
Assets
Interest rate swaps	$	0.0	$	0.3	$	0.0	$	0.3
Liabilities
Natural gas swaps	$	0.0	$	40.8	$	0.0	$	40.8
	As of Dec. 31, 2014
(millions)	Level 1		Level 2		Level 3		Total
Liabilities
Natural gas swaps	$	0.0	$	42.7	$	0.0	$	42.7

Natural gas swaps are OTC swap instruments. The market approach is used in determining the fair value of natural gas swaps and the primary pricing inputs are the 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 (see Note 10).

Interest rate swaps are also OTC swap instruments. The income approach is used in determining the fair value of interest rate swaps and the primary pricing inputs are LIBOR swap rates. For each instrument, the projected forward swap rate is used to determine the stream of cash flows over the life of the contract. The cash flows are then discounted using a spot discount rate to determine fair value.

TEC considered the impact of nonperformance risk in determining the fair value of derivatives. TEC considered the net position with each counterparty, past performance of both parties, the intent of the parties, indications of credit deterioration and whether the markets in which TEC transacts have experienced dislocation. At Mar. 31, 2015, the fair value of derivatives was not materially affected by nonperformance risk. There were no Level 3 assets or liabilities for the periods presented.