10-Q 1 te-10q_20150331.htm 10-Q

 

 

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 March 31, 2015

OR

¨

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

For the transition period from                      to                     

 

 

Commission

File No

 

Exact name of each registrant as specified in its charter, state of

incorporation, address of principal executive offices, telephone number

 

I.R.S. Employer

Identification Number

1-8180

 

TECO ENERGY, INC.

 

59-2052286

 

 

(a Florida corporation)

TECO Plaza

702 N. Franklin Street

Tampa, Florida 33602

(813) 228-1111

 

 

 

 

 

1-5007

 

TAMPA ELECTRIC COMPANY

 

59-0475140

 

 

(a Florida corporation)

TECO Plaza

702 N. Franklin Street

Tampa, Florida 33602

(813) 228-1111

 

 

 

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.     YES  x    NO  ¨

Indicate by check mark whether the registrants have submitted electronically and posted on their corporate website, 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 April 24, 2015 was 235,121,846. As of April 24, 2015, 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.

 

 

 

 

 

 


DEFINITIONS

Acronyms and defined terms used in this and other filings with the U.S. Securities and Exchange Commission include the following:

 

Term

  

Meaning

ABS

 

asset-backed security

ADR

 

American depository receipt

AFUDC

 

allowance for funds used during construction

AFUDC-debt

 

debt component of allowance for funds used during construction

AFUDC-equity

 

equity component of allowance for funds used during construction

AMT

 

alternative minimum tax

AOCI

 

accumulated other comprehensive income

APBO

 

accumulated postretirement benefit obligation

ARO

 

asset retirement obligation

BACT

 

Best Available Control Technology

BTU

 

British Thermal Unit

CAA

 

Federal Clean Air Act

CAIR

 

Clean Air Interstate Rule

capacity clause

 

capacity cost-recovery clause, as established by the FPSC

CCRs

 

coal combustion residuals

CES

 

Continental Energy Systems

CGESJ

 

Central Generadora Eléctrica San José, Limitada, owner of the San José Power Station in Guatemala

CMO

 

collateralized mortgage obligation

CNG

 

compressed natural gas

company

 

TECO Energy, Inc.

CPI

 

consumer price index

CSAPR

 

Cross State Air Pollution Rule

CO2

 

carbon dioxide

CT

 

combustion turbine

DR-CAFTA

 

Dominican Republic Central America – United States Free Trade Agreement

ECRC

 

environmental cost recovery clause

EEGSA

 

Empresa Eléctrica de Guatemala, S.A.

EEI

 

Edison Electric Institute

EGWP

 

Employee Group Waiver Plan

EPA

 

U.S. Environmental Protection Agency

EPS

 

earnings per share

ERISA

 

Employee Retirement Income Security Act

EROA

 

expected return on plan assets

ERP

 

enterprise resource planning

FASB

 

Financial Accounting Standards Board

FDEP

 

Florida Department of Environmental Protection

FERC

 

Federal Energy Regulatory Commission

FGT

 

Florida Gas Transmission Company

FPSC

 

Florida Public Service Commission

fuel clause

 

fuel and purchased power cost-recovery clause, as established by the FPSC

GCBF

 

gas cost billing factor

GHG

 

greenhouse gas(es)

HAFTA

 

Highway and Transportation Funding Act

HCIDA

 

Hillsborough County Industrial Development Authority

IASB

 

International Accounting Standards Board

ICSID

 

International Centre for the Settlement of Investment Disputes

IGCC

 

integrated gasification combined-cycle

IOU

 

investor owned utility

IRS

 

Internal Revenue Service

ISDA

 

International Swaps and Derivatives Association

ITCs

 

investment tax credits

KW

 

kilowatt(s)

KWH

 

kilowatt-hour(s)

LIBOR

 

London Interbank Offered Rate

MAP-21

 

Moving Ahead for Progress in the 21st Century Act

MBS

 

mortgage-backed securities

2


Term

  

Meaning

MD&A

 

the section of this report entitled Management’s Discussion and Analysis of Financial Condition and Results of Operations

Met

 

metallurgical

MMA

 

The Medicare Prescription Drug, Improvement and Modernization Act of 2003

MMBTU

 

one million British Thermal Units

MRV

 

market-related value

MSHA

 

Mine Safety and Health Administration

MW

 

megawatt(s)

MWH

 

megawatt-hour(s)

NAESB

 

North American Energy Standards Board

NAV

 

net asset value

NMGC

 

New Mexico Gas Company, Inc.

NMGI

 

New Mexico Gas Intermediate, Inc.

NMPRC

 

New Mexico Public Regulation Commission

NOL

 

net operating loss

Note

 

Note to consolidated financial statements

NOx

 

nitrogen oxide

NPNS

 

normal purchase normal sale

NYMEX

 

New York Mercantile Exchange

O&M expenses

 

operations and maintenance expenses

OCI

 

other comprehensive income

OPEB

 

other postretirement benefits

OTC

 

over-the-counter

PBGC

 

Pension Benefit Guarantee Corporation

PBO

 

postretirement benefit obligation

PCI

 

pulverized coal injection

PCIDA

 

Polk County Industrial Development Authority

PGA

 

purchased gas adjustment

PGAC

 

purchased gas adjustment clause

PGS

 

Peoples Gas System, the gas division of Tampa Electric Company

PM

 

particulate matter

PPA

 

power purchase agreement

PPSA

 

Power Plant Siting Act

PRP

 

potentially responsible party

PUHCA 2005

 

Public Utility Holding Company Act of 2005

REIT

 

real estate investment trust

RFP

 

request for proposal

ROE

 

return on common equity

Regulatory ROE

 

return on common equity as determined for regulatory purposes

RPS

ROW

 

renewable portfolio standards

rights-of-way

S&P

 

Standard and Poor’s

SCR

 

selective catalytic reduction

SEC

 

U.S. Securities and Exchange Commission

SO2

 

sulfur dioxide

SERP

 

Supplemental Executive Retirement Plan

SPA

 

stock purchase agreement

STIF

 

short-term investment fund

Tampa Electric

 

Tampa Electric, the electric division of Tampa Electric Company

TCAE

 

Tampa Centro Americana de Electridad, Limitada, majority owner of the Alborada Power Station

TEC

 

Tampa Electric Company, the principal subsidiary of TECO Energy, Inc.

TECO Coal

 

TECO Coal LLC, and its subsidiaries, a coal producing subsidiary of TECO Diversified

TECO Diversified

 

TECO Diversified, Inc., a subsidiary of TECO Energy, Inc. and parent of TECO Coal Corporation

TECO Energy

 

TECO Energy, Inc.

TECO Finance

 

TECO Finance, Inc., a financing subsidiary for the unregulated businesses of TECO Energy, Inc.

TECO Guatemala

 

TECO Guatemala, Inc., a subsidiary of TECO Energy, Inc., parent company of formerly owned generating and transmission assets in Guatemala

TGH

 

TECO Guatemala Holdings, LLC

TRC

 

TEC Receivables Company

USACE

 

U.S. Army Corps of Engineers

3


Term

  

Meaning

U.S. GAAP

 

generally accepted accounting principles in the United States

VIE

 

variable interest entity

WRERA

 

The Worker, Retiree and Employer Recovery Act of 2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4


PART I. FINANCIAL INFORMATION

 

Item 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

5


TECO ENERGY, INC.

Consolidated Condensed Balance Sheets

Unaudited

 

Assets

Mar. 31,

 

 

Dec. 31,

 

(millions)

2015

 

 

2014

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

32.8

 

 

$

25.4

 

Receivables, less allowance for uncollectibles of $2.2 and $2.1

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

 

262.8

 

 

 

299.8

 

Inventories, at average cost

 

 

 

 

 

 

 

Fuel

113.6

 

 

96.4

 

Materials and supplies

 

74.7

 

 

 

75.4

 

Derivative assets

 

0.3

 

 

 

0.0

 

Regulatory assets

 

52.0

 

 

 

53.6

 

Deferred income taxes

 

63.2

 

 

 

72.8

 

Prepayments and other current assets

 

32.2

 

 

 

22.6

 

Assets held for sale

 

97.1

 

 

 

109.6

 

Total current assets

 

728.7

 

 

 

755.6

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

 

 

 

 

 

Utility plant in service

 

 

 

 

 

 

 

Electric

 

7,152.7

 

 

 

7,094.8

 

Gas

 

2,008.6

 

 

 

1,984.6

 

Construction work in progress

 

634.7

 

 

 

640.0

 

Other property

 

14.6

 

 

 

14.5

 

Property, plant and equipment, at original costs

 

9,810.6

 

 

 

9,733.9

 

Accumulated depreciation

 

(2,645.9

)

 

 

(2,645.7

)

Total property, plant and equipment, net

 

7,164.7

 

 

 

7,088.2

 

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

 

Regulatory assets

 

350.0

 

 

 

348.5

 

Goodwill

 

408.4

 

 

 

408.3

 

Deferred charges and other assets

 

64.8

 

 

 

65.8

 

Assets held for sale

 

60.9

 

 

 

59.8

 

Total other assets

 

884.1

 

 

 

882.4

 

Total assets

$

8,777.5

 

 

$

8,726.2

 

 

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

 

6


 TECO ENERGY, INC.

Consolidated Condensed Balance Sheets - continued

Unaudited

 

Liabilities and Capital

Mar. 31,

 

 

Dec. 31,

 

(millions)

2015

 

 

2014

 

Current liabilities

 

 

 

 

 

 

 

Long-term debt due within one year

$

524.5

 

 

$

274.5

 

Notes payable

 

206.0

 

 

 

139.0

 

Accounts payable

 

248.4

 

 

 

288.6

 

Customer deposits

 

178.2

 

 

 

176.2

 

Regulatory liabilities

 

49.4

 

 

 

57.0

 

Derivative liabilities

 

35.5

 

 

 

36.6

 

Interest accrued

 

57.7

 

 

 

39.9

 

Taxes accrued

 

29.0

 

 

 

29.9

 

Other

 

16.7

 

 

 

16.8

 

Liabilities associated with assets held for sale

 

33.7

 

 

 

39.4

 

Total current liabilities

 

1,379.1

 

 

 

1,097.9

 

 

 

 

 

 

 

 

 

Other liabilities

 

 

 

 

 

 

 

Deferred income taxes

 

547.9

 

 

 

519.2

 

Investment tax credits

 

8.9

 

 

 

9.0

 

Regulatory liabilities

 

720.0

 

 

 

729.0

 

Derivative liabilities

 

5.3

 

 

 

6.1

 

Deferred credits and other liabilities

 

360.1

 

 

 

370.9

 

Liabilities associated with assets held for sale

 

65.7

 

 

 

65.4

 

Long-term debt, less amount due within one year

 

3,103.2

 

 

 

3,354.0

 

Total other liabilities

 

4,811.1

 

 

 

5,053.6

 

 

 

 

 

 

 

 

 

Commitments and contingencies (see Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital

 

 

 

 

 

 

 

Common equity (400.0 million shares authorized; par value $1; 235.6 million

   and 234.9 million shares outstanding at Mar. 31, 2015 and Dec. 31, 2014,

   respectively)

 

235.6

 

 

 

234.9

 

Additional paid in capital

 

1,881.9

 

 

 

1,875.9

 

Retained earnings

 

484.6

 

 

 

479.6

 

Accumulated other comprehensive loss

 

(14.8

)

 

 

(15.7

)

Total capital

 

2,587.3

 

 

 

2,574.7

 

Total liabilities and capital

$

8,777.5

 

 

$

8,726.2

 

 

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

7


TECO ENERGY, INC.

Consolidated Condensed Statements of Income

Unaudited

 

 

 

 

Three months ended Mar. 31,

 

(millions, except per share amounts)

 

 

2015

 

 

2014

 

Revenues

 

 

 

 

 

 

 

 

 

Regulated electric and gas

 

 

$

689.9

 

 

$

575.7

 

Unregulated

 

 

 

3.1

 

 

 

2.3

 

Total revenues

 

 

 

693.0

 

 

 

578.0

 

Expenses

 

 

 

 

 

 

 

 

 

Regulated operations and maintenance

 

 

 

 

 

 

 

 

 

Fuel

 

 

 

144.1

 

 

 

149.6

 

Purchased power

 

 

 

17.1

 

 

 

18.2

 

Cost of natural gas sold

 

 

 

103.0

 

 

 

47.1

 

Other

 

 

 

143.7

 

 

 

120.6

 

Operations and maintenance other expense

 

 

 

1.6

 

 

 

3.2

 

Depreciation and amortization

 

 

 

85.5

 

 

 

75.9

 

Taxes, other than income

 

 

 

51.8

 

 

 

47.8

 

Total expenses

 

 

 

546.8

 

 

 

462.4

 

Income from continuing operations

 

 

 

146.2

 

 

 

115.6

 

Other income

 

 

 

 

 

 

 

 

 

Allowance for other funds used during construction

 

 

 

3.8

 

 

 

2.4

 

Other income

 

 

 

1.6

 

 

 

(0.9

)

Total other income

 

 

 

5.4

 

 

 

1.5

 

Interest charges

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

49.8

 

 

 

41.0

 

Allowance for borrowed funds used during construction

 

 

 

(1.9

)

 

 

(1.4

)

Total interest charges

 

 

 

47.9

 

 

 

39.6

 

Income from continuing operations before provision for

   income taxes

 

 

 

103.7

 

 

 

77.5

 

Provision for income taxes

 

 

 

39.9

 

 

 

29.1

 

Net income from continuing operations

 

 

 

63.8

 

 

 

48.4

 

Discontinued operations

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations

 

 

 

(9.6

)

 

 

1.2

 

Benefit from income taxes

 

 

 

(3.8

)

 

 

(0.5

)

Income (loss) on discontinued operations, net

 

 

 

(5.8

)

 

 

1.7

 

Net income

 

 

$

58.0

 

 

$

50.1

 

Average common shares outstanding

– Basic

 

 

232.8

 

 

 

215.2

 

 

– Diluted

 

 

233.5

 

 

 

215.7

 

Earnings per share from continuing operations

– Basic

 

$

0.27

 

 

$

0.22

 

 

– Diluted

 

$

0.27

 

 

$

0.22

 

Earnings per share from discontinued operations

– Basic

 

$

(0.02

)

 

$

0.01

 

 

– Diluted

 

$

(0.02

)

 

$

0.01

 

Earnings per share

– Basic

 

$

0.25

 

 

$

0.23

 

 

– Diluted

 

$

0.25

 

 

$

0.23

 

Dividends paid per common share outstanding

 

 

$

0.225

 

 

$

0.220

 

 

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

 

 

 

8


TECO ENERGY, INC.

Consolidated Condensed Statements of Comprehensive Income

Unaudited

 

 

 

 

 

 

 

 

Three months ended Mar. 31,

 

(millions)

2015

 

 

2014

 

Net income

$

58.0

 

 

$

50.1

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

Gain on cash flow hedges

 

0.3

 

 

 

0.2

 

Amortization of unrecognized benefit costs

 

0.6

 

 

 

0.5

 

Increase in unrecognized postemployment costs

 

0.0

 

 

 

(8.2

)

Other comprehensive income (loss), net of tax

 

0.9

 

 

 

(7.5

)

Comprehensive income

$

58.9

 

 

$

42.6

 

 

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

 

 

 

9


TECO ENERGY, INC.

Consolidated Condensed Statements of Cash Flows

Unaudited

 

 

Three months ended Mar. 31,

 

(millions)

2015

 

 

2014

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net income

$

58.0

 

 

$

50.1

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

85.9

 

 

 

84.9

 

Deferred income taxes and investment tax credits

 

36.0

 

 

 

28.8

 

Allowance for other funds used during construction

 

(3.8

)

 

 

(2.4

)

Non-cash stock compensation

 

3.9

 

 

 

3.7

 

Gain on sales of business/assets

 

0.0

 

 

 

(0.1

)

Deferred recovery clauses

 

(5.7

)

 

 

2.6

 

Receivables, less allowance for uncollectibles

 

51.0

 

 

 

18.1

 

Inventories

 

(15.7

)

 

 

0.4

 

Prepayments and other current assets

 

(10.9

)

 

 

(0.2

)

Taxes accrued

 

1.7

 

 

 

15.5

 

Interest accrued

 

17.8

 

 

 

22.9

 

Accounts payable

 

(63.5

)

 

 

(25.2

)

Other

 

(7.7

)

 

 

(12.2

)

Cash flows from operating activities

 

147.0

 

 

 

186.9

 

Cash flows from investing activities

 

 

 

 

 

 

 

Capital expenditures

 

(160.0

)

 

 

(136.3

)

Allowance for other funds used during construction

 

3.8

 

 

 

2.4

 

Other investing activities

 

(0.2

)

 

 

0.2

 

Cash flows used in investing activities

 

(156.4

)

 

 

(133.7

)

Cash flows from financing activities

 

 

 

 

 

 

 

Dividends

 

(53.0

)

 

 

(48.0

)

Proceeds from the sale of common stock

 

2.8

 

 

 

1.6

 

Net increase (decrease) in short-term debt

 

67.0

 

 

 

(55.0

)

Cash flows from (used) in financing activities

 

16.8

 

 

 

(101.4

)

Net increase (decrease) in cash and cash equivalents

 

7.4

 

 

 

(48.2

)

Cash and cash equivalents at beginning of the period

 

25.4

 

 

 

185.2

 

Cash and cash equivalents at end of the period

$

32.8

 

 

$

137.0

 

Supplemental disclosure of non-cash activities

 

 

 

 

 

 

 

Change in accrued capital expenditures

$

11.5

 

 

$

14.6

 

 

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

 

 

 


10


 

TECO ENERGY, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

UNAUDITED

 

1. Summary of Significant Accounting Policies

See TECO Energy, Inc.’s 2014 Annual Report on Form 10-K for a complete discussion of accounting policies. The significant accounting policies for all utility and diversified operations include:

Principles of Consolidation and Basis of Presentation

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 TECO Energy, Inc. and its subsidiaries as of Mar. 31, 2015 and Dec. 31, 2014, and the results of operations and cash flows for the periods ended Mar. 31, 2015 and 2014. The results of operations for the three months ended Mar. 31, 2015 are not necessarily indicative of the results that can be expected for the entire fiscal year ending Dec. 31, 2015.

The consolidated financial statements include NMGI and NMGC from the acquisition date of Sept. 2, 2014 through Mar. 31, 2015. In addition, all periods have been adjusted to reflect the reclassification of results from operations to discontinued operations for TECO Coal and certain charges at Parent that directly related to TECO Coal (see Note 15).

The use of estimates is inherent in the preparation of financial statements in accordance with U.S. 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 U.S. GAAP.

Revenues

As of Mar. 31, 2015 and Dec. 31, 2014, unbilled revenues of $63.8 million and $86.6 million, respectively, are included in the “Receivables” line item on the Consolidated Condensed Balance Sheets.

Accounting for Excise Taxes, Franchise Fees and Gross Receipts

TECO Coal incurs most of TECO Energy’s total excise taxes, which are accrued as an expense and reconciled to the actual cash payment of excise taxes. As general expenses, they are not specifically recovered through revenues. Excise taxes paid by the regulated utilities are not material and are expensed when incurred.

Tampa Electric and PGS are allowed to recover certain costs from customers on a dollar-per-dollar basis through prices 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. Franchise fees and gross receipt taxes payable by Tampa Electric and PGS are included as an expense on the Consolidated Condensed Statements of Income in “Taxes, other than income”. These amounts totaled $27.4 million and $27.2 million for the three months ended Mar. 31, 2015 and 2014, respectively.

NMGC is an agent in the collection and payment of franchise fees and gross receipt taxes and is not required by a tariff to present the amounts on a gross basis. Therefore, NMGC’s franchise fees and gross receipt taxes are presented net with no line-item impact on the Consolidated Condensed Statements of Income.

 

2. New Accounting Pronouncements

Revenue from Contracts with Customers

In May 2014, the FASB issued guidance regarding the accounting for revenue from contracts with customers. The standard is principle-based and provides a five-step model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This guidance is effective for the company beginning in 2017 and allows for either full retrospective adoption or modified retrospective adoption. The company is currently evaluating the impact of the adoption of this guidance on its financial statements but does not expect the impact to be significant.

Presentation of Debt Issuance Costs

In April 2015, the FASB issued guidance regarding the presentation of debt issuance costs on the balance sheet. Under the new guidance, an entity is required to present debt issuance costs as a direct deduction from the carrying amount of the related debt liability rather than as a deferred charge (i.e., as an asset) under current guidance. This guidance is effective for the company beginning in 2016 and is required to be applied on a retrospective basis for all periods presented.

11


 

3. Regulatory

Tampa Electric’s retail business and PGS are regulated by the FPSC. Tampa Electric is also subject to regulation by the FERC 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.

NMGC is subject to regulation by the NMPRC. The NMPRC has jurisdiction over the regulatory matters related, directly and indirectly, to NMGC providing service to its customers, including, among other things, rates, accounting procedures, securities issuances, and standards of service. NMGC must follow certain accounting guidance that pertains specifically to entities that are subject to such regulation. Comparable to the FPSC, the NMPRC sets rates at a level that allows utilities such as NMGC to collect total revenues (revenue requirement) equal to their cost of providing service, plus a reasonable return on invested capital.

 

Regulatory Assets and Liabilities

Tampa Electric, PGS and NMGC 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; the deferral of costs as regulatory assets to the period in which the regulatory agency recognizes them when cost recovery is ordered over a period longer than a fiscal year; and the advance recovery of expenditures for approved costs such as future storm damage or the future removal of property.

Details of the regulatory assets and liabilities as of Mar. 31, 2015 and Dec. 31, 2014 are presented in the following table:

 

Regulatory Assets and Liabilities

 

 

 

 

 

 

 

(millions)

Mar. 31, 2015

 

 

Dec. 31, 2014

 

Regulatory assets:

 

 

 

 

 

 

 

Regulatory tax asset (1)

$

70.5

 

 

$

69.2

 

Other:

 

 

 

 

 

 

 

Cost-recovery clauses

 

42.8

 

 

 

45.1

 

Postretirement benefit asset (2)

 

195.6

 

 

 

194.0

 

Deferred bond refinancing costs (3)

 

7.0

 

 

 

7.2

 

Debt basis adjustment (3)

 

20.1

 

 

 

20.9

 

Environmental remediation

 

53.4

 

 

 

53.1

 

Competitive rate adjustment

 

2.6

 

 

 

2.8

 

Other

 

10.0

 

 

 

9.8

 

Total other regulatory assets

 

331.5

 

 

 

332.9

 

Total regulatory assets

 

402.0

 

 

 

402.1

 

Less: Current portion

 

52.0

 

 

 

53.6

 

Long-term regulatory assets

$

350.0

 

 

$

348.5

 

Regulatory liabilities:

 

 

 

 

 

 

 

Regulatory tax liability (1)

$

6.6

 

 

$

6.9

 

Other:

 

 

 

 

 

 

 

Cost-recovery clauses

 

19.4

 

 

 

25.9

 

Transmission and delivery storm reserve

 

56.1

 

 

 

56.1

 

Deferred gain on property sales (4)

 

0.5

 

 

 

0.8

 

Accumulated reserve - cost of removal

 

686.0

 

 

 

695.2

 

Other

 

0.8

 

 

 

1.1

 

Total other regulatory liabilities

 

762.8

 

 

 

779.1

 

Total regulatory liabilities

 

769.4

 

 

 

786.0

 

Less: Current portion

 

49.4

 

 

 

57.0

 

Long-term regulatory liabilities

$

720.0

 

 

$

729.0

 

(1)

Primarily related to plant life and derivative positions.

(2)

Amortized over remaining service life of plan participants.

(3)

Amortized over the term of the related debt instruments.

(4)

Amortized over a 5-year period with various ending dates.

12


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

 

Regulatory Assets

 

 

 

 

 

 

 

 

Mar. 31,

 

 

Dec. 31,

 

(millions)

2015

 

 

2014

 

Clause recoverable (1)

$

45.4

 

 

$

47.9

 

Components of rate base (2)

 

200.7

 

 

 

199.0

 

Regulatory tax assets (3)

 

70.5

 

 

 

69.2

 

Capital structure and other (3)

 

85.4

 

 

 

86.0

 

Total

$

402.0

 

 

$

402.1

 

(1)

To be recovered through cost-recovery mechanisms approved by the FPSC or NMPRC, as applicable, 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, including environmental remediation, have a recoverable period longer than a fiscal year and are recognized over the period authorized by the regulatory agency. Also included are unamortized loan costs, which are amortized over the life of the related debt instruments. See footnotes 1 and 2 in the prior table for additional information.

 

4. Income Taxes

The effective tax rate increased to 38.48% for the three months ended Mar. 31, 2015 from 37.55% for the same period in 2014.

The company’s U.S. subsidiaries join in the filing of a U.S. federal consolidated income tax return. The IRS concluded its examination of the company’s 2013 consolidated federal income tax return in January 2015. The U.S. federal statute of limitations remains open for the year 2011 and forward. Years 2014 and 2015 are currently under examination by the IRS under its Compliance Assurance Program. TECO Energy does not expect the results of current IRS examinations to significantly change the total amount of unrecognized tax benefits by the end of 2015. U.S. state jurisdictions have statutes of limitations generally ranging from three to four years from the filing of an income tax return. Additionally, any state net operating losses that were generated in prior years and are still being utilized are subject to examination by state jurisdictions. 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 taxing authorities in major state jurisdictions and foreign jurisdictions include 2005 and forward.    

 

 

5. Employee Postretirement Benefits

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

 

Pension Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(millions)

Pension Benefits

 

 

Other Postretirement Benefits

 

Three months ended Mar. 31,

2015

 

 

2014

 

 

2015

 

 

2014

 

Components of net periodic benefit expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

$

4.5

 

 

$

4.1

 

 

$

0.6

 

 

$

0.6

 

Interest cost

 

7.4

 

 

 

8.2

 

 

 

2.0

 

 

 

2.6

 

Expected return on assets

 

(10.8

)

 

 

(10.3

)

 

 

(0.3

)

 

 

0.0

 

Amortization of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior service (benefit) cost

 

(0.1

)

 

 

(0.1

)

 

 

(0.6

)

 

 

0.0

 

Actuarial loss

 

3.4

 

 

 

3.2

 

 

 

0.0

 

 

 

0.0

 

Regulatory asset

 

0.0

 

 

 

0.0

 

 

 

0.3

 

 

 

0.0

 

Net pension expense recognized in the

   TECO Energy Consolidated Condensed Statements of Income

$

4.4

 

 

$

5.1

 

 

$

2.0

 

 

$

3.2

 

For the fiscal 2015 plan year, TECO Energy is using an assumed long-term EROA of 7.00% and a discount rate of 4.256% for pension benefits under its qualified pension plan. For the Jan. 1, 2015 measurement of TECO Energy’s other postretirement benefits, TECO Energy assumed a discount rate of 4.206%. Additionally, TECO Energy made contributions of $14.9 million and $16.0 million to its pension plan for the three months ended Mar. 31, 2015 and 2014, respectively.

13


For the three months ended Mar. 31, 2015 and 2014, TECO Energy and its subsidiaries reclassified $0.8 million and $0.6 million, respectively, of pretax unamortized prior service benefit and actuarial losses from AOCI to net income as part of periodic benefit expense. In addition, during the three months ended Mar. 31, 2015 and 2014, the regulated companies reclassified $2.2 million and $2.5 million, respectively, of unamortized prior service benefit and actuarial losses from regulatory assets to net income as part of periodic benefit expense.

 

Black Lung Liability

TECO Coal is required by federal and state statutes to provide benefits to terminated, retired or (under state statutes) qualifying active employees for benefits related to black lung disease. TECO Coal is self-insured for black lung related claims. TECO Coal applies the accounting guidance of ASC 715, Compensation – Retirement Benefits, and annual expense is recorded for black lung obligations as determined by an independent actuary at the present value of the actuarially-computed liability for such benefits over the employee’s applicable term of service. At Mar. 31, 2015 and Dec. 31, 2014, TECO Coal had an actuarially-determined black lung liability of $24.8 million and $24.7 million, respectively. Expense related to the black lung liability recognized during the three months ended Mar. 31, 2015 and 2014 was not material.

As discussed in Note 15, TECO Coal was classified as an asset held for sale at Mar. 31, 2015. In accordance with ASC 715, an after-tax settlement charge of approximately $7.7 million related to the unfunded black lung obligations recorded in AOCI will be recognized as a loss from discontinued operations upon completion of the sale of TECO Coal, which is expected to occur in 2015.

 

 

6. Short-Term Debt

At Mar. 31, 2015 and Dec. 31, 2014, the following credit facilities and related borrowings existed:

 

Credit Facilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mar. 31, 2015

 

 

Dec. 31, 2014

 

 

 

 

 

 

 

 

 

 

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

 

 

$

5.0

 

 

$

0.6

 

 

$

325.0

 

 

$

12.0

 

 

$

0.6

 

      1-year accounts

          receivable facility

 

150.0

 

 

 

42.0

 

 

 

0.0

 

 

 

150.0

 

 

 

46.0

 

 

 

0.0

 

TECO Energy/TECO Finance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      5-year facility (2)(3)

 

300.0

 

 

 

144.0

 

 

 

0.0

 

 

 

300.0

 

 

 

50.0

 

 

 

0.0

 

New Mexico Gas Company:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      5-year facility (2)

 

125.0

 

 

 

15.0

 

 

 

2.3

 

 

 

125.0

 

 

 

31.0

 

 

 

1.7

 

Total

$

900.0

 

 

$

206.0

 

 

$

2.9

 

 

$

900.0

 

 

$

139.0

 

 

$

2.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)           Borrowings outstanding are reported as notes payable.

 

(2)           This 5-year facility matures Dec. 17, 2018.

(3)           TECO Finance is the borrower and TECO Energy is the guarantor of this facility.

 

 

 

 

At Mar. 31, 2015, these credit facilities required commitment fees ranging from 12.5 to 30.0 basis points. The weighted-average interest rate on outstanding amounts payable under the credit facilities at Mar. 31, 2015 and Dec. 31, 2014 was 1.12% and 1.16%, respectively.  

Tampa Electric Company Accounts Receivable Facility

On Mar. 24, 2015, TEC and TRC amended and restated their $150 million accounts receivable collateralized borrowing facility in order to (i) appoint The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch (BTMU), as Program Agent, replacing the previous Program Agent, Citibank, N.A., (ii) add new lenders, and (iii) extend the scheduled termination date from Apr. 14, 2015 to Mar. 23, 2018, by entering into (a) an Amended and Restated Purchase and Contribution Agreement dated as of Mar. 24, 2015 between TEC and TRC and (b) a Loan and Servicing Agreement dated as of Mar. 24, 2015, among TEC as Servicer, TRC as Borrower, certain lenders named therein and BTMU, as Program Agent.

 

7. Long-Term Debt

Fair Value of Long-Term Debt

14


At Mar. 31, 2015, total long-term debt had a carrying amount of $3,627.7 million and an estimated fair market value of $4,035.8 million. At Dec. 31, 2014, total long-term debt had a carrying amount of $3,628.5 million and an estimated fair market value of $3,987.8 million. The company uses the market approach in determining fair value. The majority of the outstanding debt is valued using real-time financial market data obtained from Bloomberg Professional Service. The remaining securities are valued using prices obtained from the Municipal Securities Rulemaking Board and by applying estimated credit spreads obtained from a third party to the par value of the security. All debt securities are Level 2 instruments.  

 

Issuance of TECO Finance Floating Rate Notes due 2018

On Apr. 10, 2015, TECO Finance completed an offering of $250 million aggregate principal amount of floating rate notes due 2018, which are guaranteed by TECO Energy. See Note 16 for additional information.

 

 

8. Other Comprehensive Income

TECO Energy reported the following OCI for the three months ended Mar. 31, 2015 and 2014, related to changes in the fair value of cash flow hedges and amortization of unrecognized benefit costs associated with the company’s postretirement plans:

 

Other Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended Mar. 31,

 

(millions)

 

Gross

 

 

Tax

 

 

Net

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on cash flow hedges

 

$

0.3

 

 

$

(0.2

)

 

$

0.1

 

Reclassification from AOCI to net income (1)

 

 

0.4

 

 

 

(0.2

)

 

 

0.2

 

Gain on cash flow hedges

 

 

0.7

 

 

 

(0.4

)

 

 

0.3

 

Amortization of unrecognized benefit costs (2)

 

 

0.9

 

 

 

(0.3

)

 

 

0.6

 

Total other comprehensive income (loss)

 

$

1.6

 

 

$

(0.7

)

 

$

0.9

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on cash flow hedges

 

$

(0.1

)

 

$

0.0

 

 

$

(0.1

)

Reclassification from AOCI to net income (1)

 

 

0.4

 

 

 

(0.1

)

 

 

0.3

 

Gain on cash flow hedges

 

 

0.3

 

 

 

(0.1

)

 

 

0.2

 

Amortization of unrecognized benefit costs (2)

 

 

0.8

 

 

 

(0.3

)

 

 

0.5

 

Increase in unrecognized postemployment costs (3)

 

 

(12.9

)

 

 

4.7

 

 

 

(8.2

)

Total other comprehensive income (loss)

 

$

(11.8

)

 

$

4.3

 

 

$

(7.5