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Employee Postretirement Benefits

12 Months Ended

Dec. 31, 2018

Compensation And Retirement Disclosure [Abstract]

5. Employee Postretirement Benefits

Pension Benefits

TEC is a participant in the comprehensive retirement plans of TECO Energy, including a qualified, non-contributory defined benefit retirement plan that covers substantially all employees. Benefits are based on the employees’ age, years of service and final average earnings. Where appropriate and reasonably determinable, the portion of expenses, income, gains or losses allocable to TEC are presented. Otherwise, such amounts presented reflect the amount allocable to all participants of the TECO Energy retirement plans.

Amounts disclosed for pension benefits in the following tables and discussion also include the fully-funded obligations for the SERP and the unfunded obligations of the Restoration Plan. The SERP is a non-qualified, non-contributory defined benefit retirement plan available to certain members of senior management. The Restoration Plan is a non-qualified, non-contributory defined benefit retirement plan that allows certain members of senior management to receive contributions as if no IRS limits were in place.

Other Postretirement Benefits

TECO Energy and its subsidiaries currently provide certain postretirement health care and life insurance benefits (Other Benefits) for most employees retiring after age 50 meeting certain service requirements. Where appropriate and reasonably determinable, the portion of expenses, income, gains or losses allocable to TEC are presented. Otherwise, such amounts presented reflect the amount allocable to all participants of the TECO Energy postretirement health care and life insurance plans. Postretirement benefit levels are substantially unrelated to salary. TECO Energy reserves the right to terminate or modify the plans in whole or in part at any time.

Obligations and Funded Status

TEC recognizes in its statement of financial position the over-funded or under-funded status of its allocated portion of TECO Energy’s postretirement benefit plans. This status is measured as the difference between the fair value of plan assets and the PBO in the case of its defined benefit plan, or the APBO in the case of its other postretirement benefit plan. Changes in the funded status are reflected, net of estimated tax benefits, in benefit liabilities and regulatory assets. The results of operations are not impacted.

The following table provides a detail of the change in TECO Energy’s benefit obligations and change in plan assets for combined pension plans (pension benefits) and TECO Energy’s Florida-based other postretirement benefit plan (other benefits).

TECO Energy	Pension Benefits						Other Benefits ⁽²⁾
Obligations and Funded Status
(millions)	2018			2017			2018			2017
Change in benefit obligation
Net benefit obligation at beginning of year	$	812		$	770		$	193		$	175
Service cost		21			20			2			2
Interest cost		29			31			7			7
Plan participants’ contributions		0			0			4			3
Plan curtailment		0			(1	)		0			0
Plan settlement		(7	)		(26	)		0			0
Benefits paid		(55	)		(51	)		(19	)		(16	)
Actuarial loss (gain)		(50	)		69			(14	)		22
Net benefit obligation at end of year	$	750		$	812		$	173		$	193

Change in plan assets
Fair value of plan assets at beginning of year	$	766		$	649		$	0		$	0
Actual return on plan assets		(63	)		122			0			0
Employer contributions		10			46			0			0
Employer direct benefit payments		8			27			15			13
Plan participants’ contributions		0			0			4			3
Plan settlement		(7	)		(26	)		0			0
Benefits paid		(54	)		(51	)		(19	)		(16	)
Direct benefit payments		(1	)		(1	)		0			0
Fair value of plan assets at end of year ⁽¹⁾	$	659		$	766		$	0		$	0

(1)	The MRV of plan assets is used as the basis for calculating the EROA component of periodic pension expense. MRV reflects the fair value of plan assets adjusted for experience gains and losses (i.e. the differences between actual investment returns and expected returns) spread over five years.

(2)	Represent amounts for TECO Energy’s Florida-based other postretirement benefit plan.

At December 31, the aggregate financial position for TECO Energy pension plans and Florida-based other postretirement plans with benefit obligations in excess of plan assets was as follows:

TECO Energy	Pension Benefits						Other Benefits ⁽¹⁾
Funded Status
(millions)	2018			2017			2018			2017
Benefit obligation (PBO/APBO)	$	750		$	812		$	173		$	193
Less: Fair value of plan assets		659			766			0			0
Funded status at end of year	$	(91	)	$	(46	)	$	(173	)	$	(193	)

(1)	Represent amounts for TECO Energy’s Florida-based other postretirement benefit plan.

The accumulated benefit obligation for TECO Energy consolidated defined benefit pension plans was $705 million at December 31, 2018 and $762 million at December 31, 2017.

The amounts recognized in TEC’s Consolidated Balance Sheets for pension and other postretirement benefit obligations and plan assets at December 31 were as follows:

TEC	Pension Benefits						Other Benefits
Amounts recognized in balance sheet
(millions)	2018			2017			2018			2017
Accrued benefit costs and other current liabilities	$	(5	)	$	(7	)	$	(10	)	$	(10	)
Deferred credits and other liabilities		(68	)		(30	)		(137	)		(154	)
	$	(73	)	$	(37	)	$	(147	)	$	(164	)

Unrecognized gains and losses and prior service credits and costs are recorded in regulatory assets for TEC. The following table provides a detail of the unrecognized gains and losses and prior service credits and costs.

TEC	Pension Benefits				Other Benefits
Amounts recognized in regulatory assets
(millions)	2018		2017		2018		2017
Net actuarial loss (gain)	$	251	$	215	$	45	$	70
Prior service cost (credit)		0		1		0		(13	)
Amount recognized	$	251	$	216	$	45	$	57

Assumptions used to determine benefit obligations at December 31:

	Pension Benefits						Other Benefits
	2018			2017			2018			2017
Discount rate		4.33	%		3.62	%		4.38	%		3.70	%
Rate of compensation increase-weighted average		3.75	%		3.32	%		3.75	%		3.31	%
Healthcare cost trend rate
Immediate rate	n/a			n/a				6.31	%		6.58	%
Ultimate rate	n/a			n/a				4.50	%		4.50	%
Year rate reaches ultimate	n/a			n/a			2038			2038

A one-percentage-point change in assumed health care cost trend rates would have the following effect on TEC’s benefit obligation:

(millions)		1% Increase				1 % Decrease
Effect on PBO		$	5			$	(4	)

The discount rate assumption used to determine the December 31, 2018 and 2017 benefit obligation was based on a cash flow matching technique that matches yields from high-quality (AA-rated, non-callable) corporate bonds to TECO Energy’s projected cash flows for the plans to develop a present value that is converted to a discount rate assumption.

Amounts recognized in Net Periodic Benefit Cost, OCI and Regulatory Assets

TECO Energy	Pension Benefits													Other Benefits ⁽¹⁾
	2018					2017					2016			2018			2017			2016
(millions)
Service cost	$	21				$	20				$	19		$	2		$	2		$	2
Interest cost		29					31					31			7			7			7
Expected return on plan assets		(49	)				(48	)				(46	)		0			0			0
Amortization of:
Actuarial loss		19					17					16			1			0			0
Prior service (benefit) cost		0					0					0			(2	)		(2	)		(2	)
Curtailment loss (gain)		0					0					1			0			0			0
Settlement loss		2		⁽³	⁾		7		⁽²	⁾		1			0			0			0
Net periodic benefit cost	$	22				$	27				$	22		$	8		$	7		$	7

New prior service cost	$	0		$	0		$	1		$	0		$	0	$	0
Net loss (gain) arising during the year		62			(5	)		47			(14	)		22		5
Amounts recognized as component of net periodic benefit cost:
Amortization or curtailment recognition of prior service (benefit) cost		0			0			0			2			2		2
Amortization or settlement of actuarial gain (loss)		(20	)		(24	)		(17	)		(1	)		0		0
Total recognized in OCI and regulatory assets	$	42		$	(29	)	$	31		$	(13	)	$	24	$	7
Total recognized in net periodic benefit cost, OCI and regulatory assets	$	64		$	(2	)	$	53		$	(5	)	$	31	$	14

(1)	Represents amounts for TECO Energy’s Florida-based other postretirement benefit plan

(2)	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.

(3)	Represents TECO Energy’s SERP and Restoration settlement charges as a result of the retirement of certain executives. These charges did impact TEC’s financial statements.

TEC’s portion of the net periodic benefit costs for pension benefits was $16 million, $14 million and $13 million for 2018, 2017 and 2016, respectively. TEC’s portion of the net periodic benefit costs for other benefits was $8 million, $6 million and $6 million for 2018, 2017 and 2016, respectively. TEC’s portion of net periodic benefit costs for pension and other benefits is included as an expense on the Consolidated Statements of Income in “Operations & maintenance”.

The estimated net loss for the defined benefit pension plans that will be amortized by TEC from regulatory assets into net periodic benefit cost over the next fiscal year is $12 million. There are no prior service credits to be amortized from regulatory assets into net periodic benefit cost in 2019 for the other postretirement benefit plan.

TEC’s postretirement benefit plans were not explicitly impacted by the Merger. However, as a result of the Merger, TECO Energy remeasured its postretirement benefits plans on the Merger effective date, July 1, 2016. As a result of the remeasurements, TEC’s net periodic benefit cost increased by $1 million for pension benefits for the six months ended December 31, 2016. Additionally, a curtailment loss for the SERP of $1 million was recognized by TECO Energy in 2016 as a result of retirements due to the Merger. In addition, TECO Energy recognized a settlement charge related to the SERP of $7 million in 2017 due to retirements that have occurred as a result of the Merger. TEC was not impacted by the curtailment loss or settlement charge.

TEC recognized a settlement charge in 2018 relating to the retirement of an executive in the SERP plan. TEC expects to recognize a settlement charge of approximately $1 million in 2019 related to the retirement of a SERP participant. TEC expects to recognize settlement charges of approximately $1 million in 2019 related to the retirement of Restoration plan participants.

Assumptions used to determine net periodic benefit cost for years ended December 31:

	Pension Benefits									Other Benefits
	2018			2017			2016			2018			2017			2016
Discount rate		3.62	%		4.11	%		4.69	%		3.70	%		4.28	%	4.67%/3.85%
Expected long-term return on plan assets		6.85	%		7.00	%		7.00	%	N/A			N/A			N/A
Rate of compensation increase		3.32	%		2.57	%		2.59	%		3.31	%		2.48	%		2.50	%
Healthcare cost trend rate
Initial rate	n/a			n/a			n/a				6.58	%		6.83	%		7.05	%
Ultimate rate	n/a			n/a			n/a				4.50	%		4.50	%		4.50	%
Year rate reaches ultimate	n/a			n/a			n/a			2038			2038			2038

The discount rate assumption used to determine the benefit cost for 2018, 2017 and from the Merger date to December 31, 2016 was based on the same technique that was used to determine the December 31, 2018 and 2017 benefit obligation as discussed above. The discount rate assumption used to determine the January 1, 2016 through June 30, 2016 benefit cost was based on a cash flow matching technique developed by outside actuaries and a review of current economic conditions. This technique constructed hypothetical bond portfolios using high-quality (AA or better by S&P) corporate bonds available from the Barclays Capital database at the measurement date to meet the plan’s year-by-year projected cash flows. The technique calculated all possible bond portfolios that produce adequate cash flows to pay the yearly benefits and then selected the portfolio with the highest yield and used that yield as the recommended discount rate. The change in the discount rate approach was a result of the Merger and done to align methodologies with Emera. The change in discount rate resulting from the different methodology used to select a discount rate did not have a material impact on TEC’s financial statements and provides consistency with Emera’s method for selecting a discount rate.

The expected return on assets assumption was based on historical returns, fixed income spreads and equity premiums consistent with the portfolio and asset allocation. A change in asset allocations could have a significant impact on the expected return on assets. Additionally, expectations of long-term inflation, real growth in the economy and a provision for active management and expenses paid were incorporated in the assumption. For the year ended December 31, 2018, TECO Energy’s pension plan’s actual earned losses were approximately 8%.

The compensation increase assumption was based on the same underlying expectation of long-term inflation together with assumptions regarding real growth in wages and company-specific merit and promotion increases.

A one-percentage-point change in assumed health care cost trend rates would have a less than $1 million effect on net periodic benefit cost.

Pension Plan Assets

Pension plan assets (plan assets) are invested in a mix of equity and fixed income securities. TECO Energy’s investment objective is to obtain above-average returns while minimizing volatility of expected returns and funding requirements over the long term. TECO Energy’s strategy is to hire proven managers and allocate assets to reflect a mix of investment styles, emphasize preservation of principal to minimize the impact of declining markets, and stay fully invested except for cash to meet benefit payment obligations and plan expenses.

TECO Energy	2018 Target Allocation		Actual Allocation, End of Year
Asset Category			2018			2017
Equity securities	47%-53%			46	%		51	%
Fixed income securities	47%-53%			54	%		49	%
Total		100%		100	%		100	%

TECO Energy reviews the plan’s asset allocation periodically and re-balances the investment mix to maximize asset returns, optimize the matching of investment yields with the plan’s expected benefit obligations, and minimize pension cost and funding. TECO Energy expects to take additional steps to more closely match plan assets with plan liabilities.

The plan’s investments are held by a trust fund administered by JP Morgan Chase Bank, N.A. (JP Morgan). Investments are valued using quoted market prices on an exchange when available. Such investments are classified Level 1. In some cases where a market exchange price is available but the investments are traded in a secondary market, acceptable practical expedients are used to calculate fair value.

If observable transactions and other market data are not available, fair value is based upon third-party developed models that use, when available, current market-based or independently-sourced market parameters such as interest rates, currency rates or option volatilities. Items valued using third-party generated models are classified according to the lowest level input or value driver that is most significant to the valuation. Thus, an item may be classified in Level 3 even though there may be significant inputs that are readily observable.

As required by the fair value accounting standards, the investments are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The plan’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. For cash equivalents, the cost approach was used in determining fair value. For bonds and U.S. government agencies, the income approach was used. For other investments, the market approach was used. The following table sets forth by level within the fair value hierarchy the plan’s investments.

Pension Plan Investments

TECO Energy	At Fair Value as of December 31, 2018
(millions)
	Level 1			Level 2			Level 3		NAV ⁽¹⁾		Total
Cash	$	(3	)	$	0		$	0	$	0	$	(3	)
Accounts receivable		10			0			0		0		10
Accounts payable		(51	)		0			0		0		(51	)
Short-term investment funds (STIFs)		17			0			0		0		17
Common stocks		32			0			0		0		32
Real estate investment trusts (REITs)		3			0			0		0		3
Mutual funds		97			0			0		0		97
Municipal bonds		0			1			0		0		1
Government bonds		0			59			0		0		59
Corporate bonds		0			55			0		0		55
Collateralized mortgage obligations (CMOs)		0			1			0		0		1
Long Futures		6			0			0		0		6
Swaps		0			3			0		0		3
Purchase options (swaptions)		0			1			0		0		1
Written options (swaptions)		0			(1	)		0		0		(1	)
Investments not utilizing the practical expedient		111			119			0		0		230
Common and collective trusts ⁽¹⁾		0			0			0		330		330
Mutual fund ⁽¹⁾		0			0			0		99		99
Total investments	$	111		$	119		$	0	$	429	$	659

(1)

In accordance with accounting standards, certain investments that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts in this table are to permit reconciliation of the fair value hierarchy to amounts presented in the Consolidated Balance Sheet.

TECO Energy	At Fair Value as of December 31, 2017
(millions)
	Level 1			Level 2			Level 3		NAV ⁽¹⁾		Total
Cash	$	3		$	0		$	0	$	0	$	3
Accounts receivable		14			0			0		0		14
Accounts payable		(43	)		0			0		0		(43	)
STIFs		14			0			0		0		14
Common stocks		44			0			0		0		44
REITs		4			0			0		0		4
Mutual funds		196			0			0		0		196
Municipal bonds		0			2			0		0		2
Government bonds		0			55			0		0		55
Corporate bonds		0			45			0		0		45
MBS		0			(1	)		0		0		(1	)
CMOs		0			1			0		0		1
Swaps		0			4			0		0		4
Purchase options (swaptions)		0			1			0		0		1
Written options (swaptions)		0			(2	)		0		0		(2	)
Investments not utilizing the practical expedient		232			105			0		0		337
Common and collective trusts ⁽¹⁾		0			0			0		326		326
Mutual fund ⁽¹⁾		0			0			0		103		103
Total investments	$	232		$	105		$	0	$	429	$	766

(1)

The following list details the pricing inputs and methodologies used to value the investments in the pension plan:

•

Cash collateral is valued at cash posted due to its short-term nature.

•

The STIF is valued at net asset value (NAV). The fund is an open-end investment, resulting in a readily-determinable fair value. Additionally, shares may be redeemed any business day at the NAV calculated after the order is accepted. The NAV is validated with purchases and sales at NAV. These factors make the STIF a level 1 asset.

•

The primary pricing inputs in determining the fair value of the Common stocks and REITs are closing quoted prices in active markets.

•

The primary pricing inputs in determining the level 1 mutual funds are the mutual funds’ NAVs. The funds are registered open-ended mutual funds and the NAVs are validated with purchases and sales at NAV. Since the fair values are determined and published, they are considered readily-determinable fair values and therefore Level 1 assets.

•

The primary pricing inputs in determining the fair value of Municipal bonds are benchmark yields, historical spreads, sector curves, rating updates, and prepayment schedules. The primary pricing inputs in determining the fair value of Government bonds are the U.S. treasury curve, CPI, and broker quotes, if available. The primary pricing inputs in determining the fair value of Corporate bonds are the U.S. treasury curve, base spreads, YTM, and benchmark quotes. CMOs are priced using to-be-announced (TBA) prices, treasury curves, swap curves, cash flow information, and bids and offers as inputs. MBS are priced using TBA prices, treasury curves, average lives, spreads, and cash flow information.

•

Swaps are valued using benchmark yields, swap curves, and cash flow analyses.

•

Options are valued using the bid-ask spread and the last price.

•

The primary pricing input in determining the fair value of the mutual fund utilizing the practical expedient is its NAV. It is an unregistered open-ended mutual fund. The fund holds primarily corporate bonds, debt securities and other similar instruments issued by U.S. and non-U.S. public- or private-sector entities. The fund may purchase or sell securities on a when-issued basis. These transactions are made conditionally because a security has not yet been issued in the market, although it is authorized. A commitment is made regarding these transactions to purchase or sell securities for a predetermined price or yield, with payment and delivery taking place beyond the customary settlement period. Since this mutual fund is a closed-end mutual fund and the prices are not published to an external source, it uses NAV as a practical expedient. The redemption frequency is daily. The redemption notice period is the same day. There were no unfunded commitments as of December 31, 2018.

•

The common collective trusts are private funds valued at NAV. The NAVs are calculated based on bid prices of the underlying securities. Since the prices are not published to external sources, NAV is used as a practical expedient. Certain funds invest primarily in equity securities of domestic and foreign issuers while others invest in long duration U.S. investment-grade fixed income assets and seeks to increase return through active management of interest rate and credit risks. The redemption frequency of the funds ranges from daily to weekly and the redemption notice period ranges from 1 business day to 30 business days. There were no unfunded commitments as of December 31, 2018.

•

Discounted notes are valued at amortized cost.

•

Treasury bills are valued using benchmark yields, reported trades, broker dealer quotes, and benchmark securities.

•

Futures are valued using futures data, cash rate data, swap rates, and cash flow analyses.

Additionally, the non-qualified SERP had $14 million and $17 million of assets as of December 31, 2018 and 2017, respectively. Since the plan is non-qualified, its assets are included in the “Deferred charges and other assets” line item in TEC’s Consolidated Balance Sheets rather than being netted with the related liability. The non-qualified trust holds investments in a money market fund. The fund is an open-end investment, resulting in a readily-determinable fair value. Additionally, shares may be redeemed any business day at the NAV calculated after the order is accepted. The NAV is validated with purchases and sales at NAV. These factors make it a level 1 asset. The SERP was fully funded as of December 31, 2018 and 2017.

Other Postretirement Benefit Plan Assets

There are no assets associated with TECO Energy’s Florida-based other postretirement benefits plan.

Contributions

The qualified pension plan’s actuarial value of assets, including credit balance, was 112.5% of the Pension Protection Act funded target as of January 1, 2018 and is estimated at 110.6% of the Pension Protection Act funded target as of January 1, 2019.

TECO Energy’s policy is to fund the qualified pension plan at or above amounts determined by its actuaries to meet ERISA guidelines for minimum annual contributions and minimize PBGC premiums paid by the plan. TEC’s contribution is first set equal to its service cost. If a contribution in excess of service cost for the year is made, TEC’s portion is based on TEC’s proportion of the TECO Energy unfunded liability. TECO Energy made contributions to this plan in 2018, 2017 and 2016, which met the minimum funding requirements for 2018, 2017 and 2016. TEC’s portion of the contribution in 2018 was $8 million and in 2017 was $36 million. These amounts are reflected in the “Other” line on the Consolidated Statements of Cash Flows. TEC estimates its portion of the 2019 contribution to be $15 million. TEC estimates its portion of annual contributions from 2020 to 2023 will range from $14 million to $17 million per year based on current assumptions. The amounts TECO Energy expects to contribute are in excess of the minimum funding required under ERISA guidelines.

TEC’s portion of the contributions to the SERP in 2018, 2017 and 2016 was zero. Since the SERP is fully funded, TECO Energy does not expect to make significant contributions to this plan in 2019. TEC made SERP payments of approximately $7 million from the trust in 2018 and expects to make a SERP payment of approximately $5 million from the trust in 2019.

The other postretirement benefits are funded annually to meet benefit obligations. TECO Energy’s contribution toward health care coverage for most employees who retired after the age of 55 between January 1, 1990 and June 30, 2001 is limited to a defined dollar benefit based on service. TECO Energy’s contribution toward pre-65 and post-65 health care coverage for most employees retiring on or after July 1, 2001 is limited to a defined dollar benefit based on an age and service schedule. In 2019, TEC expects to make a contribution of about $10 million. Postretirement benefit levels are substantially unrelated to salary.

Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

Expected Benefit Payments

TECO Energy			Other
(including projected service and net of employee contributions)	Pension		Postretirement
	Benefits		Benefits
(millions)
2019	$	57	$	12
2020		55		12
2021		59		12
2022		60		12
2023		60		12
2024-2028		333		59

Defined Contribution Plan

TECO Energy has a defined contribution savings plan covering substantially all employees of TECO Energy and its subsidiaries that enables participants to save a portion of their compensation up to the limits allowed by IRS guidelines. TECO Energy and its subsidiaries match up to 6% of the participant’s payroll savings deductions. Effective January 1, 2017, the employer matching contributions increased from 70% to 75% with an additional incentive match of up to 25% of eligible participant contributions based on the achievement of certain operating company financial goals. During the period of January 2015 to December 2016, the employer matching contributions were 70% of eligible participant contributions with additional incentive match of up to 30% of eligible participant contributions based on the achievement of certain operating company financial goals. For the years ended December 31, 2018, 2017 and 2016, TEC’s portion of expense totaled $11 million, $11 million and $8 million, respectively, related to the matching contributions made to this plan.