10-Q 1 ck0000096271-10q_20180331.htm 10-Q ck0000096271-10q_20180331.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended March 31, 2018

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

1-5007

 

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 registrant (1) has 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) has been subject to such filing requirements for the past 90 days.     YES      NO  

Indicate by check mark whether the registrant has submitted electronically and posted on its 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 registrant was required to submit and post such files).     YES      NO  

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

  

Emerging growth company

 

If an emerging growth company, indicate by check mark whether Tampa Electric Company has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

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

As of May 7, 2018, 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 specified in General Instruction H(2) of Form 10-Q.

 

 

 

 

 

 

 


ACRONYMS

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

 

Term

  

Meaning

ABS

 

asset-backed security

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

AOCI

 

accumulated other comprehensive income

APBO

 

accumulated postretirement benefit obligation

ARO

 

asset retirement obligation

ASC

 

Accounting Standards Codification

BACT

 

Best Available Control Technology

CAD

 

Canadian dollars

CAIR

 

Clean Air Interstate Rule

CCRs

 

coal combustion residuals

CMO

 

collateralized mortgage obligation

CNG

 

compressed natural gas

CPI

 

consumer price index

CSAPR

 

Cross State Air Pollution Rule

CO2

 

carbon dioxide

CT

 

combustion turbine

ECRC

 

environmental cost recovery clause

EEI

 

Edison Electric Institute

EGWP

 

Employee Group Waiver Plan

Emera

 

Emera Inc., a geographically diverse energy and services company headquartered in Nova Scotia, Canada

EPA

 

U.S. Environmental Protection Agency

ERISA

 

Employee Retirement Income Security Act

EROA

 

expected return on plan assets

EUSHI

 

Emera US Holdings Inc., a wholly owned subsidiary of Emera, which is the sole shareholder of TECO Energy’s common stock

FASB

 

Financial Accounting Standards Board

FDEP

 

Florida Department of Environmental Protection

FERC

 

Federal Energy Regulatory Commission

FPSC

 

Florida Public Service Commission

GHG

 

greenhouse gas(es)

HAFTA

 

Highway and Transportation Funding Act

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)

kWac

 

kilowatt on an alternating current basis

MAP-21

 

Moving Ahead for Progress in the 21st Century Act

MBS

 

mortgage-backed securities

MD&A

 

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

Merger

 

Merger of Merger Sub Company with and into TECO Energy, with TECO Energy as the surviving corporation

MGP

 

manufactured gas plant

Merger Agreement

 

Agreement and Plan of Merger dated September 4, 2015, by and among TECO Energy, Emera and Merger Sub Company

Merger Sub Company

 

Emera US Inc., a Florida corporation

MMA

 

The Medicare Prescription Drug, Improvement and Modernization Act of 2003

MMBTU

 

one million British Thermal Units

MRV

 

market-related value

MW

 

megawatt(s)

MWH

 

megawatt-hour(s)

NAESB

 

North American Energy Standards Board

2


Term

  

Meaning

NAV

 

net asset value

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

OPC

 

Office of Public Counsel

OPEB

 

other postretirement benefits

OTC

 

over-the-counter

PBGC

 

Pension Benefit Guarantee Corporation

PBO

 

postretirement benefit obligation

PGA

 

purchased gas adjustment

PGS

 

Peoples Gas System, the gas division of Tampa Electric Company

PPA

 

power purchase agreement

PRP

 

potentially responsible party

R&D

 

research and development

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

ROW

 

rights-of-way

S&P

 

Standard and Poor’s

SCR

 

selective catalytic reduction

SEC

 

U.S. Securities and Exchange Commission

SO2

 

sulfur dioxide

SoBRAs

 

solar base rate adjustments

SERP

 

Supplemental Executive Retirement Plan

STIF

 

short-term investment fund

Tampa Electric

 

Tampa Electric, the electric division of Tampa Electric Company

TEC

 

Tampa Electric Company

TECO Energy

 

TECO Energy, Inc., the direct parent company of Tampa Electric Company

TSI

 

TECO Services, Inc.

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

 

 

 

3


 

TAMPA ELECTRIC COMPANY

Consolidated Condensed Balance Sheets

Unaudited

 

Assets

March 31,

 

 

December 31,

 

(millions)

2018

 

 

2017

 

Property, plant and equipment

 

 

 

 

 

 

 

Utility plant

 

 

 

 

 

 

 

Electric

$

8,606

 

 

$

8,555

 

Gas

 

1,641

 

 

 

1,609

 

Construction work in progress

 

301

 

 

 

263

 

Utility plant, at original costs

 

10,548

 

 

 

10,427

 

Accumulated depreciation

 

(3,046

)

 

 

(2,994

)

Utility plant, net

 

7,502

 

 

 

7,433

 

Other property

 

11

 

 

 

11

 

Total property, plant and equipment, net

 

7,513

 

 

 

7,444

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

16

 

 

 

13

 

Receivables, less allowance for uncollectibles of $1 at both March 31, 2018 and December 31, 2017

 

225

 

 

 

257

 

Due from affiliates

 

4

 

 

 

5

 

Inventories, at average cost

 

 

 

 

 

 

 

Fuel

 

55

 

 

 

60

 

Materials and supplies

 

93

 

 

 

90

 

Regulatory assets

 

67

 

 

 

77

 

Prepayments and other current assets

 

19

 

 

 

13

 

Total current assets

 

479

 

 

 

515

 

 

 

 

 

 

 

 

 

Deferred debits

 

 

 

 

 

 

 

Regulatory assets

 

351

 

 

 

356

 

Other

 

52

 

 

 

49

 

Total deferred debits

 

403

 

 

 

405

 

Total assets

$

8,395

 

 

$

8,364

 

 

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

 

4


 

 TAMPA ELECTRIC COMPANY

Consolidated Condensed Balance Sheets - continued

Unaudited

 

Liabilities and Capitalization

March 31,

 

 

December 31,

 

(millions)

2018

 

 

2017

 

Capitalization

 

 

 

 

 

 

 

Common stock

$

2,755

 

 

$

2,645

 

Accumulated other comprehensive loss

 

(2

)

 

 

(2

)

Retained earnings

 

301

 

 

 

335

 

Total capital

 

3,054

 

 

 

2,978

 

Long-term debt

 

1,860

 

 

 

1,860

 

Total capitalization

 

4,914

 

 

 

4,838

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Long-term debt due within one year

 

304

 

 

 

304

 

Notes payable

 

300

 

 

 

305

 

Accounts payable

 

174

 

 

 

233

 

Due to affiliates

 

17

 

 

 

21

 

Customer deposits

 

130

 

 

 

131

 

Regulatory liabilities

 

67

 

 

 

58

 

Accrued interest

 

37

 

 

 

14

 

Accrued taxes

 

29

 

 

 

12

 

Other

 

24

 

 

 

44

 

Total current liabilities

 

1,082

 

 

 

1,122

 

 

 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

 

 

Deferred income taxes

 

841

 

 

 

825

 

Regulatory liabilities

 

1,218

 

 

 

1,227

 

Deferred credits and other liabilities

 

340

 

 

 

352

 

Total long-term liabilities

 

2,399

 

 

 

2,404

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (see Note 8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and capitalization

$

8,395

 

 

$

8,364

 

 

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

 

5


 

TAMPA ELECTRIC COMPANY

Consolidated Condensed Statements of Income and Comprehensive Income

Unaudited

 

 

Three months ended March 31,

 

(millions)

2018

 

 

2017

 

Revenues

 

 

 

 

 

 

 

Electric

$

461

 

 

$

442

 

Gas

 

136

 

 

 

111

 

Total revenues

 

597

 

 

 

553

 

Expenses

 

 

 

 

 

 

 

Fuel

 

122

 

 

 

131

 

Purchased power

 

13

 

 

 

7

 

Cost of natural gas sold

 

55

 

 

 

36

 

Operations and maintenance

 

157

 

 

 

128

 

Depreciation and amortization

 

93

 

 

 

85

 

Taxes, other than income

 

52

 

 

 

49

 

Total expenses

 

492

 

 

 

436

 

Income from operations

 

105

 

 

 

117

 

Other income

 

 

 

 

 

 

 

Allowance for equity funds used during construction

 

0

 

 

 

1

 

Other income, net

 

2

 

 

 

2

 

Total other income

 

2

 

 

 

3

 

Interest charges

 

 

 

 

 

 

 

Interest on long-term debt

 

27

 

 

 

28

 

Other interest

 

3

 

 

 

2

 

Allowance for borrowed funds used during construction

 

0

 

 

 

(1

)

Total interest charges

 

30

 

 

 

29

 

Income before provision for income taxes

 

77

 

 

 

91

 

Provision for income taxes

 

14

 

 

 

35

 

Net income

$

63

 

 

$

56

 

Comprehensive income

$

63

 

 

$

56

 

 

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

 

6


 

TAMPA ELECTRIC COMPANY

Consolidated Condensed Statements of Cash Flows

Unaudited

 

 

Three months ended March 31,

 

(millions)

2018

 

 

2017

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net income

$

63

 

 

$

56

 

Adjustments to reconcile net income to cash from operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

93

 

 

 

85

 

Deferred income taxes and investment tax credits

 

8

 

 

 

35

 

Deferred recovery clauses

 

(7

)

 

 

(23

)

Receivables, less allowance for uncollectibles

 

32

 

 

 

11

 

Inventories

 

2

 

 

 

(8

)

Taxes accrued

 

23

 

 

 

16

 

Interest accrued

 

23

 

 

 

22

 

Accounts payable

 

(68

)

 

 

(101

)

Regulatory assets and liabilities

 

20

 

 

 

(5

)

Other

 

(32

)

 

 

(12

)

Cash flows from operating activities

 

157

 

 

 

76

 

Cash flows used in investing activities

 

 

 

 

 

 

 

Capital expenditures

 

(162

)

 

 

(143

)

Cash flows used in investing activities

 

(162

)

 

 

(143

)

Cash flows from financing activities

 

 

 

 

 

 

 

Equity contributions from TECO Energy

 

110

 

 

 

27

 

Net increase (decrease) in short-term debt

 

(5

)

 

 

106

 

Dividends to TECO Energy

 

(97

)

 

 

(65

)

Other financing activities

 

0

 

 

 

(1

)

Cash flows from financing activities

 

8

 

 

 

67

 

Net increase in cash and cash equivalents

 

3

 

 

 

0

 

Cash and cash equivalents at beginning of period

 

13

 

 

 

10

 

Cash and cash equivalents at end of period

$

16

 

 

$

10

 

Supplemental disclosure of non-cash activities

 

 

 

 

 

 

 

Change in accrued capital expenditures

$

0

 

 

$

(12

)

 

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

 

 

7


 

TAMPA ELECTRIC COMPANY

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

UNAUDITED

 

1. Summary of Significant Accounting Policies

See TEC’s Annual Report on Form 10-K for the year ended December 31, 2017 for a complete discussion of accounting policies. The significant accounting policies for TEC include:

Principles of Consolidation and Basis of Presentation

TEC is a wholly owned subsidiary of TECO Energy, which is an indirect, wholly owned subsidiary of Emera. TEC is comprised of the electric division, referred to as Tampa Electric, and the natural gas division, referred to as PGS.

Intercompany balances and transactions within the divisions 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 TEC as of March 31, 2018 and December 31, 2017, and the results of operations and cash flows for the periods ended March 31, 2018 and 2017. The results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results that can be expected for the entire fiscal year ending December 31, 2018.

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 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.

Revenue Recognition

Regulated electric revenue

Electric revenues are recognized when obligations under the terms of a contract are satisfied, which is primarily when electricity is delivered to customers over time as the customer simultaneously receives and consumes the benefits of the electricity. Electric revenues are recognized on an accrual basis and include billed and unbilled revenues. Revenues related to the sale of electricity are recognized at rates approved by the respective regulator and recorded based on metered usage, which occur on a periodic, systematic basis. At the end of each reporting period, the electricity delivered to customers, but not billed, is estimated and the corresponding unbilled revenue is recognized. TEC’s estimate of unbilled revenue at the end of the reporting period is calculated by estimating the number of MWh delivered to customers at the established rate expected to prevail in the upcoming billing cycle. This estimate includes assumptions as to the pattern of energy demand, weather, line losses and inter-period changes to customer classes.

Regulated gas revenue

Gas revenues are recognized when obligations under the terms of a contract are satisfied, which is primarily when gas is delivered to customers over time as the customer simultaneously receives and consumes the benefits of the gas. Gas revenues are recognized on an accrual basis and include billed and unbilled revenues.  Revenues related to the distribution and sale of gas are recognized at rates approved by the regulator and recorded based on metered usage, which occur on a periodic, systematic basis. At the end of each reporting period, the gas delivered to customers, but not billed, is estimated and the corresponding unbilled revenue is recognized. TEC’s estimate of unbilled revenue at the end of the reporting period is calculated by estimating the number of therms delivered to customers at the established rate expected to prevail in the upcoming billing cycle. This estimate includes assumptions as to the pattern of usage, weather, and inter-period changes to customer classes.

Other

See Accounting for Franchise Fees and Gross Receipts below for the accounting for gross receipts taxes. Sales and other taxes TEC collects concurrent with revenue-producing activities are excluded from revenue.  

Receivables and Allowance for Uncollectible Accounts

Receivables from contracts with customers, which consist of services billed to residential, commercial, industrial and other customers, were $218 million and $229 million as of March 31, 2018 and December 31, 2017, respectively. An allowance for uncollectible accounts is established based on TEC’s collection experience. Circumstances that could affect Tampa Electric’s and PGS’s estimates of uncollectible receivables include, but are not limited to, customer credit issues, the level of natural gas prices, customer deposits and general economic conditions. Accounts are written off once they are deemed to be uncollectible.

As of March 31, 2018 and December 31, 2017, unbilled revenues of $62 million and $66 million, respectively, are included in the “Receivables” line item on the Consolidated Condensed Balance Sheets.

8


 

Accounting for Franchise Fees and Gross Receipts

Tampa Electric and PGS are allowed to recover certain costs from customers on a dollar-per-dollar basis 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. 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 $29 million and $26 million for the three months ended March 31, 2018 and 2017, respectively.

 

 

2. New Accounting Pronouncements

Change in Accounting Policy

The new U.S. GAAP accounting policies that are applicable to and adopted by TEC in 2018 are described as follows:

Revenue from Contracts with Customers

On January 1, 2018, TEC adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers and all the related amendments, which created a new, principle-based revenue recognition framework. The standard has been codified as ASC Topic 606. 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 to. The guidance requires additional disclosures regarding the nature, amount, timing and uncertainty of revenue and related cash flows arising from contracts with customers. This guidance is effective for annual reporting periods, including interim reporting within those periods, beginning after December 15, 2017.  

TEC adopted ASC 606 using the modified retrospective method. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with historic accounting practices. The adoption of ASC 606 resulted in no adjustments to TEC’s opening retained earnings as of the adoption date or TEC’s consolidated condensed income statement for the three months ended March 31, 2018. The impact of the adoption of the new standard is expected to be immaterial to TEC’s net income on an ongoing basis.

Recognition and Measurement of Financial Assets and Financial Liabilities

On January 1, 2018, TEC adopted ASU 2016-01, Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities and all the related amendments. The standard provides guidance for the recognition, measurement, presentation and disclosure of financial assets and liabilities. This guidance is effective for annual reporting periods, including interim reporting within those periods, beginning after December 15, 2017. There was no impact on the consolidated financial statements as a result of the adoption of this standard.

Clarifying the Definition of a Business

In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business. The standard provides guidance to assist entities with evaluating when a set of transferred assets and activities is a business. This guidance is effective for annual reporting periods, including interim reporting within those periods, beginning after December 15, 2017 and is required to be applied prospectively. TEC adopted ASU 2017-01 effective January 1, 2018. There was no impact on the consolidated financial statements as a result of the adoption of this standard.

Future Accounting Pronouncements

TEC considers the applicability and impact of all ASUs issued by the FASB.  The ASUs that have been issued, but that are not yet effective, are consistent with those disclosed in TEC’s Annual Report on Form 10-K for the year ended December 31, 2017, with the exception of the items noted below.

Leases

In February 2016, the FASB issued ASU 2016-02, Leases. The standard, codified as ASC Topic 842, increases transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet for leases with terms of more than 12 months. Under the existing guidance, operating leases are not recorded as assets and liabilities on the balance sheet. The effect of leases on the consolidated statements of income and the consolidated statements of cash flows is largely unchanged. The guidance will require additional disclosures regarding key information about leasing arrangements. This guidance is effective for annual reporting periods, including interim reporting within those periods, beginning after December 15, 2018. Early adoption is permitted and is required to be applied using a modified retrospective approach. TEC will not early adopt the standard.

In January 2018, the FASB issued an amendment to ASC Topic 842 which permits companies to elect to not evaluate existing land easements under the new standard if the land easements were not previously accounted for under existing lease guidance. TEC

9


 

expects to elect this practical expedient. In November 2017, the FASB voted to amend ASC Topic 842 to allow companies to elect not to restate their comparative periods in the period of adoption when transitioning to the standard. The amendment is expected to be finalized in the second quarter of 2018. TEC expects to elect this practical expedient.

TEC expects that the standard will affect its financial position by increasing the assets and liabilities recorded relating to its operating leases. However, the ultimate impact of the new standard on TEC’s financial statements and disclosures has not yet been determined. In 2017, TEC developed and began execution of a project plan which included holding training sessions with key stakeholders throughout the organization and gathering detailed information on existing lease arrangements. Remaining activities to be performed include evaluating the available implementation alternatives, calculating the lease asset and liability balances associated with individual contractual arrangements and assessing the disclosure requirements. TEC continues to monitor FASB amendments to ASC Topic 842.

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The standard allows reclassification from accumulated other comprehensive income to retained earnings for certain tax effects resulting from the Tax Cuts and Jobs Act that would otherwise be stranded in accumulated other comprehensive income. This guidance is effective for annual reporting periods, including interim reporting within those periods, beginning after December 15, 2018, with early adoption permitted. TEC is currently in the process of evaluating the impact of adoption of this standard on its consolidated financial statements.

 

 

3. Regulatory

Tampa Electric Base Rates - 2017 Agreement

On September 27, 2017, Tampa Electric filed with the FPSC an amended and restated settlement agreement that replaced the 2013 base rate settlement agreement and extended it four years through 2021. The FPSC approved the agreement on November 6, 2017.    

The amended agreement provides for SoBRAs for TEC’s investments in solar generation. The solar investments are expected to go into service in tranches beginning in September 2018 through January 2021. In order for each tranche of SoBRAs to take effect, Tampa Electric must show that each tranche is cost-effective and each individual project has a cost cap of $1,500/kWac.  Additionally, in order to receive a SoBRA for the last tranche of 50 MWs, the first two tranches of 400 MW must be constructed at or below $1,475/kWac. Tampa Electric plans to invest approximately $850 million in these solar projects.   

The amended agreement further contains a provision whereby Tampa Electric agrees to quantify the impact of tax reform on net operating income and neutralize the impact of tax reform through a reduction in base revenues within 120 days of when tax reform becomes law. Additionally, any effects of tax reform between the effective date and the date the base rates are adjusted would be refunded through a one-time clause refund in 2019. See “Tampa Electric Tax Reform and Storm Settlement” below for information regarding the impact of tax reform.

On December 12, 2017, TEC filed its first petition regarding the SoBRAs along with supporting tariffs demonstrating the cost-effectiveness of the September 1, 2018 tranche representing 145 MW and $24 million in estimated revenue requirements. The FPSC approved the tariffs on the first SoBRA filing on May 8, 2018.

Tampa Electric Storm Restoration Cost Recovery

As a result of Tampa Electric’s 2013 rate case settlement, in the event of a named storm that results in damage to its system, Tampa Electric can petition the FPSC to seek recovery of those costs over a 12-month period or longer as determined by the FPSC, as well as replenish its reserve to $56 million, the level of the reserve as of October 31, 2013. In the third quarter of 2017, Tampa Electric was impacted by Hurricane Irma and incurred costs for restoration currently estimated to be approximately $103 million, of which $92 million was charged to the storm reserve, $4 million was charged to O&M expense and $7 million was charged to capital expenditures. At March 31, 2018, the amount of estimated costs charged to the storm reserve regulatory liability exceeded the balance in the storm reserve by $46 million, which is recorded as a regulatory asset on the balance sheet as allowed by an FPSC order. Tampa Electric petitioned the FPSC on December 28, 2017 for recovery of estimated storm costs in excess of the reserve and to replenish the balance in the reserve to the $56 million level that existed as of October 31, 2013. An amended petition was filed with the FPSC on January 30, 2018. See the Regulatory Assets and Liabilities table below.

10


 

Tampa Electric Tax Reform and Storm Settlement

On March 1, 2018, the FPSC approved a settlement agreement filed by Tampa Electric that addresses both the recovery of storm costs and the return of tax reform benefits to customers (see Note 4) while keeping customer rates stable in 2018. Beginning on April 1, 2018, the agreement authorizes Tampa Electric to net the estimated amount of storm cost recovery against Tampa Electric’s estimated 2018 tax reform benefits. As a result, in the first quarter of 2018, Tampa Electric recorded O&M expense and a regulatory liability of $19 million in order to offset tax reform benefits in the first quarter due to the agreement allowing the netting of the recovery of storm costs with tax reform benefits. This deferral was recorded as a result of deferring the impact of the first quarter as the effective date of the agreement is April 1, 2018. The regulatory liability will be amortized over the remainder of 2018 as a credit against the recognition of storm expense beginning on April 1, 2018. Tampa Electric’s final storm costs subject to netting and final impact of tax reform on Tampa Electric’s base rates pursuant to the 2017 agreement will be determined in separate regulatory proceedings. Any difference will be trued up and recovered from or returned to customers in 2019. In addition, beginning in January 2019, Tampa Electric will reflect the full impact of tax reform on its base rates. Hearings on the tax reform impacts for all state utilities are tentatively scheduled for the second half of 2018.

PGS Base Rates

PGS’s base rates were established in May 2009. An updated settlement agreement was approved by the FPSC on February 7, 2017.

The PGS settlement does not contain a provision for tax reform. The FPSC approved that tax reform benefits should be applied to customers beginning on February 6, 2018 for utilities in Florida without an existing tax reform settlement provision, including PGS. As a result, PGS deferred the estimated tax reform benefits to customers and recorded a regulatory tax liability of $2 million for the period February 6 to March 31, 2018. PGS will file testimony supporting the calculation of the tax benefits and flowback of its excess deferred taxes on May 31, 2018.

Regulatory Assets and Liabilities

Tampa Electric and PGS apply the FASB’s accounting standards for regulated operations. Regulatory assets generally represent incurred costs that have been deferred, as their future recovery in customer rates is probable. Regulatory liabilities generally represent obligations to make refunds to customers from previous collections for costs that are not likely to be incurred or the advance recovery of expenditures for approved costs.

Details of the regulatory assets and liabilities are presented in the following table:

 

Regulatory Assets and Liabilities

 

 

 

 

 

 

 

(millions)

March 31, 2018

 

 

December 31, 2017

 

Regulatory assets:

 

 

 

 

 

 

 

Regulatory tax asset (1)

$

44

 

 

$

45

 

Cost-recovery clauses - deferred balances (2)

 

6

 

 

 

13

 

Environmental remediation (3)

 

29

 

 

 

33

 

Postretirement benefits (4)

 

268

 

 

 

272

 

Storm reserve (5)

 

46

 

 

 

47

 

Other

 

25

 

 

 

23

 

Total regulatory assets

 

418

 

 

 

433

 

Less: Current portion

 

67

 

 

 

77

 

Long-term regulatory assets

$

351

 

 

$

356

 

Regulatory liabilities:

 

 

 

 

 

 

 

Regulatory tax liability (6)

$

725

 

 

$

730

 

Tax reform and storm agreement (7)

 

19

 

 

 

0

 

Cost-recovery clauses (2)

 

20

 

 

 

32

 

Accumulated reserve - cost of removal (8)

 

516

 

 

 

518

 

Other

 

5

 

 

 

5

 

Total regulatory liabilities

 

1,285

 

 

 

1,285

 

Less: Current portion

 

67

 

 

 

58

 

Long-term regulatory liabilities

$

1,218

 

 

$

1,227

 

11


 

(1)

The regulatory tax asset is primarily associated with the depreciation and recovery of AFUDC-equity. This asset does not earn a return but rather is included in the capital structure, which is used in the calculation of the weighted cost of capital used to determine revenue requirements. It will be recovered over the expected life of the related assets. The regulatory tax asset balance reflects the impact of the federal tax rate reduction.  

(2)

These assets and liabilities are related to FPSC clauses and riders. They are recovered or refunded through cost-recovery mechanisms approved by the FPSC on a dollar-for-dollar basis in the next year. In the case of the regulatory asset related to derivative liability, recovery occurs in the year following the settlement of the derivative position.

(3)

This asset is related to costs associated with environmental remediation primarily at MGP sites. The balance is included in rate base, partially offsetting the related liability, and earns a rate of return as permitted by the FPSC. The timing of recovery is based on a settlement agreement approved by the FPSC.

(4)

This asset is related to the deferred costs of postretirement benefits and it is amortized over the remaining service life of plan participants. Deferred costs of postretirement benefits that are included in expense are recognized as cost of service for rate-making purposes as permitted by the FPSC.

(5)

See Tampa Electric Storm Restoration Cost Recovery above for information regarding this reserve. The regulatory asset is included in rate base and earns a rate of return as permitted by the FPSC. The asset will be recovered over a 12-month period.

(6)

The regulatory tax liability is primarily related to the revaluation of TEC’s deferred income tax balances at the lower income tax rate recorded in December 2017. As of March 31, 2018 and December 31, 2017, the liability related to the revaluation of the deferred income tax balances has been classified as non-current due to uncertainties around the timing and other regulatory decisions that will affect the amount of regulatory tax liability amortized and returned to customers through rate reductions or other revenue offsets in 2018. See Note 4 to the TEC Consolidated Condensed Financial Statements for further information.

(7)

This regulatory liability represents the offset to tax reform benefits in the first quarter of 2018 due to Tampa Electric’s settlement agreement allowing the netting of the recovery of storm costs with tax reform benefits. The amount will be amortized over the remainder of 2018 commencing on April 1, 2018. See Tampa Electric Tax Reform and Storm Settlement above for further information.

(8)

This item represents the non-ARO cost of removal in the accumulated reserve for depreciation. AROs are costs for legally required removal of property, plant and equipment. Non-ARO cost of removal represents estimated funds received from customers through depreciation rates to cover future non-legally required cost of removal of property, plant and equipment, net of salvage value upon retirement, which reduces rate base for ratemaking purposes. This liability is reduced as costs of removal are incurred.

 

 

4. Income Taxes

U.S. Tax Reform

On December 22, 2017, the U.S. Tax Cuts and Jobs Act of 2017 (the Act) was signed into legislation. The Act includes a broad range of tax reform changes affecting businesses, effective January 1, 2018 which provide a corporate federal tax rate reduction from 35% to 21%, 100% asset expensing, limitation of interest deduction, the repeal of section 199 domestic production deduction and the preservation of the existing normalization rules. The Act also provides that regulated electric and gas companies are exempt from the 100% asset expensing and interest expense deduction limitation. In accordance with U.S. GAAP, TEC was required to revalue its deferred income tax assets and liabilities based on the new 21% federal tax rate at the date of enactment. Additionally, under FPSC rules TEC was required to adjust deferred income tax assets and liabilities for changes in tax rates with a corresponding regulatory liability for the excess deferred taxes generated by the tax rate differential. See Note 3.

TEC continues to analyze certain aspects of the Act, including the uncertainty of the application of 100% asset expensing rules after September 27, 2017, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. Further adjustments, if any, will be recorded by TEC during the measurement period in 2018 as permitted by SEC Staff Accounting Bulletin 118, Income tax Accounting Implications of the Tax Cuts and Jobs Act. No measurement period adjustments have been recognized during the first quarter of 2018.

 

Income Tax Expense

TEC is included in a consolidated U.S. federal income tax return with EUSHI and its subsidiaries. TEC’s income tax expense is based upon a separate return method, modified for the benefits-for-loss allocation in accordance with respective tax sharing agreements with TECO Energy and EUSHI. To the extent that TEC’s cash tax positions are settled differently than the amount reported as realized under the tax sharing agreement, the difference is accounted for as either a capital contribution or a distribution.

TEC’s effective tax rates for the three months ended March 31, 2018 and 2017 were 18.18% and 38.46%, respectively. The decrease in the effective tax rates in 2018 versus the same period in 2017 was primarily due to tax reform impacts. TEC’s effective tax rate for the three months ended March 31, 2018 differed from the statutory rate principally due to tax reform impacts. TEC’s effective

12


 

tax rate for the three months ended March 31, 2017 differed from the statutory rate principally due to the tax benefit related to AFUDC-equity.

Unrecognized Tax Benefits

As of March 31, 2018, the amount of unrecognized tax benefits was $8 million, all of which was recorded as a reduction of deferred income tax assets for tax credit carryforwards. TEC believes that the total unrecognized tax benefits will decrease and be recognized within the next twelve months due to the ongoing audit examination of TECO Energy’s consolidated federal income tax return for the short tax year ending June 30, 2016. TEC had $8 million of unrecognized tax benefits at March 31, 2018, that, if recognized, would reduce TEC’s effective tax rate.

 

 

5. Employee Postretirement Benefits

 

TEC is a participant in the comprehensive retirement plans of TECO Energy. The following table presents detail related to TECO Energy’s periodic benefit cost for pension and other postretirement benefits. Amounts disclosed for TECO Energy’s pension benefits include the amounts related to its qualified pension plan and non-qualified, non-contributory SERP.

 

TECO Energy Benefit Cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(millions)

Pension Benefits

 

 

Other Postretirement Benefits

 

Three months ended March 31,

2018

 

 

2017

 

 

2018

 

 

2017

 

Components of net periodic benefit cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

$

5

 

 

$

5

 

 

$

1

 

 

$

1

 

Interest cost

 

7

 

 

 

7

 

 

 

2

 

 

 

2

 

Expected return on assets

 

(12

)

 

 

(12

)

 

 

0

 

 

 

0

 

Amortization of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior service (benefit) cost

 

0

 

 

 

0

 

 

 

(1

)

 

 

(1

)

Actuarial (gain) loss

 

5

 

 

 

4

 

 

 

0

 

 

 

0

 

Settlement cost

 

0

 

 

 

7

 

(1)

 

0

 

 

 

0

 

Net periodic benefit cost

$

5

 

 

$

11

 

 

$

2

 

 

$

2

 

(1)

Represents TECO Energy’s SERP settlement charge as a result of retirements that occurred subsequent to the Merger with Emera. The charge did not impact TEC’s financial statements.

TEC’s portion of the net periodic benefit cost for the three months ended March 31, 2018 and 2017, respectively, was $3 million and $3 million for pension benefits, and $2 million and $1 million for other postretirement benefits.  

For the 2018 plan year, TECO Energy assumed a long-term EROA of 6.85% and a discount rate of 3.63% for pension benefits under its qualified pension plan. For the 2018 plan year of TECO Energy’s other postretirement benefits, TECO Energy used a discount rate of 3.70%.

TECO Energy made contributions of $10 million and $14 million to its qualified pension plan in the three months ended March 31, 2018 and 2017, respectively. TEC’s portion of these contributions was $8 million and $11 million, respectively. TECO Energy and TEC do not expect to make additional contributions to the pension plan for the remainder of 2018.

Included in the benefit cost discussed above, for the three months ended March 31, 2018 and 2017, TEC reclassified $4 million and $2 million, respectively, of unamortized prior service benefits and costs and actuarial gains and losses from regulatory assets to net income.

 

 

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6. Short-Term Debt

Details of the credit facilities and related borrowings are presented in the following table:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2018

 

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

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

 

 

$

1

 

 

$

325

 

 

$

5

 

 

$

1

 

3-year accounts

   receivable facility (3)

 

150

 

 

 

0

 

 

 

0

 

 

 

150

 

 

 

0

 

 

 

0

 

1-year term facility (4)

 

300

 

 

 

300

 

 

 

0

 

 

 

300

 

 

 

300

 

 

 

0

 

Total

$

775

 

 

$

300

 

 

$

1

 

 

$

775

 

 

$

305

 

 

$

1

 

(1)

Borrowings outstanding are reported as notes payable.

(2)

This 5-year facility matures March 22, 2022.

(3)

This 3-year facility matures March 22, 2021.

(4)

This 1-year facility matures on November 1, 2018.

At March 31, 2018, these credit facilities required commitment fees ranging from 12.5 to 35.0 basis points. The weighted-average interest rate on outstanding amounts payable under the credit facilities at March 31, 2018 and December 31, 2017 was 2.3% and 2.1%, respectively.

Tampa Electric Company Accounts Receivable Facility

On March 23, 2018, TEC amended its $150 million accounts receivable collateralized borrowing facility in order to extend the scheduled termination date to March 22, 2021, by entering into a Second Amended Loan and Servicing Agreement, among TEC, certain lenders and the program agent (the Loan Agreement). TEC will pay program and liquidity fees, which total 70 basis points at March 31, 2018. Interest rates on the borrowings are 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 either The Bank of Tokyo-Mitsubishi UFJ, Ltd.’s prime rate, the federal funds rate, or the London interbank deposit rate, plus a margin.  In the case of default, as defined under the terms of the Loan Agreement, TEC has pledged as collateral a pool of receivables equal to the borrowings outstanding. TEC continues to service, administer and collect the pledged receivables, which are classified as receivables on the balance sheet. As of March 31, 2018, TEC was in compliance with the requirements of the Loan Agreement.  

 

 

 

7. Long-Term Debt

Fair Value of Long-Term Debt

At March 31, 2018, TEC’s long-term debt had a carrying amount of $2,164 million and an estimated fair market value of $2,341 million. At December 31, 2017, TEC’s total long-term debt had a carrying amount of $2,164 million and an estimated fair market value of $2,412 million. The fair value of debt securities determined using Level 1 measurements was $55 million at March 31, 2018 and December 31, 2017. The fair value of the remaining debt securities is determined using Level 2 measurements (see Note 12 for information regarding the fair value hierarchy).

 

 

8. Commitments and Contingencies

Legal Contingencies

From time to time, TEC 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 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.

Superfund and Former Manufactured Gas Plant Sites

TEC, through its Tampa Electric and PGS divisions, is a PRP for certain superfund sites and, through its PGS division, for certain former MGP sites. While the joint and several liability associated with these sites presents the potential for significant response costs, as of March 31, 2018, TEC has estimated its ultimate financial liability to be $28 million, primarily at PGS. This amount has been accrued and is primarily reflected in the long-term liability section under “Deferred credits and other liabilities” on the

14


 

Consolidated Condensed Balance Sheets. The environmental remediation costs associated with these sites are expected to be paid over many years.

The estimated amounts represent only the portion of the cleanup costs attributable to TEC. The estimates to perform the work are based on TEC’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, most 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, TEC could be liable for more than TEC’s currently assessed 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. Under current regulations, these costs are recoverable through customer rates established in subsequent base rate proceedings.

Long-Term Commitments

TEC has commitments for purchased power and long-term leases, primarily for land, building space, vehicles, office equipment,  heavy equipment, other purchase obligations, long-term service agreements and capital projects.  In addition, TEC has payment obligations under contractual agreements for fuel, fuel transportation and power purchases that are recovered from customers under regulatory clauses. The following is a schedule of future payments under PPAs, minimum lease payments with non-cancelable lease terms in excess of one year, and other net purchase obligations/commitments at March 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

Long-term Service

 

 

 

 

 

 

 

 

 

 

 

Purchased

 

 

Operating

 

 

Agreements/Capital

 

 

Clause Recoverable

 

 

 

 

 

(millions)

 

Power

 

 

Leases

 

 

Projects

 

 

Commitments

 

 

Total

 

Year ended December 31:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2018

 

$

15

 

 

$

2

 

 

$

412

 

 

$

359

 

 

$

788

 

2019

 

 

0

 

 

 

2

 

 

 

155

 

 

 

237

 

 

 

394

 

2020

 

 

0

 

 

 

2

 

 

 

21

 

 

 

186

 

 

 

209

 

2021

 

 

0

 

 

 

2

 

 

 

15

 

 

 

155

 

 

 

172

 

2022

 

 

0

 

 

 

2

 

 

 

8

 

 

 

150

 

 

 

160

 

Thereafter

 

 

0

 

 

 

36

 

 

 

23

 

 

 

1,124

 

 

 

1,183

 

Total future minimum payments

 

$

15

 

 

$

46

 

 

$

634

 

 

$

2,211

 

 

$

2,906

 

 

Financial Covenants

TEC must meet certain financial tests, including a debt to capital ratio, as defined in the applicable banking agreements and has certain restrictive covenants in specific agreements and debt instruments. At March 31, 2018, TEC was in compliance with all required financial covenants.

 

 

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9. Segment Information

 

(millions)

Tampa

 

 

 

 

 

 

 

 

 

 

Tampa Electric

 

Three months ended March 31,

Electric

 

 

PGS

 

 

Eliminations

 

 

Company

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues - external

$

461

 

 

$

136

 

 

$

0

 

 

$

597

 

Intracompany sales

 

0

 

 

 

6

 

 

 

(6

)

 

 

0

 

Total revenues

 

461

 

 

 

142

 

 

 

(6

)

 

 

597

 

Total interest charges

 

26

 

 

 

4

 

 

 

0

 

 

 

30

 

Net income

$

48

 

 

$

15

 

 

$

0

 

 

$

63

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues - external

$

442

 

 

$

111

 

 

$

0

 

 

$

553

 

Intracompany sales

 

0

 

 

 

1

 

 

 

(1

)

 

 

0

 

Total revenues

 

442

 

 

 

112

 

 

 

(1

)

 

 

553

 

Total interest charges

 

25

 

 

 

4

 

 

 

0

 

 

 

29

 

Net income

$

42

 

 

$

14

 

 

$

0

 

 

$

56

 

Total assets at March 31, 2018

$

7,596

 

 

$

1,297

 

 

$

(498

)

(1)

$

8,395

 

Total assets at December 31, 2017

$

7,635

 

 

$

1,284

 

 

$

(555

)

(1)

$

8,364

 

 

(1)

Amounts relate to consolidated deferred tax reclassifications. Deferred tax assets are reclassified and netted with deferred tax liabilities upon consolidation.

 

10. Revenue

The following disaggregates TEC’s revenue by major source for the three months ended March 31, 2018:

 

(millions)

Tampa

 

 

 

 

 

 

 

 

 

 

Tampa Electric

 

Three months ended March 31, 2018

Electric

 

 

PGS

 

 

Eliminations

 

 

Company

 

Electric revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

$

230

 

 

$

0

 

 

$

0

 

 

$

230

 

Commercial

 

132

 

 

 

0

 

 

 

0

 

 

 

132

 

Industrial

 

38

 

 

 

0

 

 

 

0

 

 

 

38

 

Regulatory deferrals and unbilled revenue

 

(1

)

 

 

0

 

 

 

0

 

 

 

(1

)

Other (1)

 

62

 

 

 

0

 

 

 

0

 

 

 

62

 

Total electric revenue

 

461

 

 

 

0

 

 

 

0

 

 

 

461

 

Gas revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

0

 

 

 

56

 

 

 

0

 

 

 

56

 

Commercial

 

0

 

 

 

44

 

 

 

0

 

 

 

44

 

Industrial (2)

 

0

 

 

 

5

 

 

 

0

 

 

 

5

 

Other (3)

 

0

 

 

 

37

 

 

 

(6

)

 

 

31

 

Total gas revenue

 

0

 

 

 

142

 

 

 

(6

)

 

 

136