Jonathan G. Katz
U.S. Securities and Exchange Commission
450 Fifth Street NW
Washington, DC 20549-0609

July 18, 2002

Re: File No. S7-16-02

Dear Mr. Katz:

We appreciate the opportunity to provide formal comments to the Chairman and Staff of the Securities and Exchange Commission (collectively, the "Commission") with respect to the proposed rule, "Disclosure in Management's Discussion and Analysis about the Application of Critical Accounting Policies" (Release Nos. 33-8098; 34-345907). Recent events have confirmed the critical need for corporations to communicate appropriate information about their state of affairs in a clear, concise manner.

As a company, we have always recognized the importance of providing reliable, transparent information to investors. TECO Energy is an integrated electric and gas utility holding company with important energy-related unregulated operations including independent power generation; marine transportation; coal mining and synthetic fuel production; production of gas from coal seams; and energy engineering/construction services. Unlike companies that are solely energy traders or market-makers, we have the physical assets to deliver contracted power and gas sales, as well as take delivery of and consume gas, coal and fuel oil purchases. However, we observe that many investors do not currently distinguish between energy marketers/traders and asset-intense companies like TECO Energy. We believe this lack of distinction, on the part of investors, between speculative traders and companies engaged in selling power from owned assets may be partly due to the current complicated rules that require reporting sales of power from owned assets as though they were complex trading transactions.

Scope and Background

The Commission's effort to enhance periodic financial reporting under the Securities and Exchange Acts is meritorious. Alleviating investors' crisis of confidence is of utmost importance and, in that context, we support this proposal in general. In our opinion, a corporation must provide investors with timely, reliable and relevant insight into the economic position of the entity.

However, the proposed rule only requires additional disclosure items, rather than addressing certain inconsistencies in the accounting framework. The current intricate and complex rule-based accounting framework, established over time by the FASB and similar standard-setting bodies, creates an environment that focuses companies too much on the specifics of compliance, rather than focusing on conveying the true economic substance of transactions.

While the main intent of the proposal is to provide investors with greater transparency into how management views the business, and we support this aim, we believe that the proposed rule may not effectively meet this objective. This is because we believe it will require the submission of repetitive, and in some instances, arbitrary information to investors. Thus, the information overload dilemma already created by the current rules and reporting requirements will be compounded.

Scope Exceptions

The proposed rule covers a broad array of estimates used and made by management. We believe that certain estimates currently in use should be addressed in the context of the standard-setting process. Therefore, in the context of this proposed rule, we believe it necessary to limit our comments to exclude all accounting estimates related to the valuation of the following:

Current accounting standards generally require that both types of contracts be recorded at fair value, with the changes in fair value recorded in earnings.

Mark-to-Model Valuations

We believe that the mark-to-model valuation approach is not consistent with the Financial Accounting Standards Board ("FASB") Concept Statements. Specifically, FASB Concept Statement No. 2 ("CON 2") postulates that reliability is a primary quality and comparability/consistency is a secondary quality that makes accounting information useful for decision makers. Reliability refers to information that is objectively verifiable and neutral, as well as a faithful representation of the economic position of a company (see CON 2, ¶62). Mark-to-model valuation approaches rely on proprietary, subjective, and potentially biased views of long-term forward price movements in time periods where no verifiable market data exists.

Current accounting pronouncements do not contemplate the scenario where the valuation of a particular contract is based on data that is materially unreliable according to CON 2. We recommend that the Commission consider alternative guidance or reporting formats that convey more reliable, consistent and transparent information to investors.

Physical Delivery Valuations

We believe that contracts resulting in physical delivery of the underlying commodity, where the commodity is used or provided in the normal course of operations of the business2, should not be subject to mark-to-market accounting treatment due to the lack of relevancy of the information. The periodic gain or loss on a contract subject to mark-to-market valuation does not accurately represent the nature of the underlying transaction. Rather, the gain or loss represents opportunity benefit or cost, not future expected net benefit or cost.

The current model for reporting and disclosing mark-to-market gains and losses for such physically-delivered contracts does not provide investors with a clear picture of the financial condition of a company. We recommend that the Commission consider the current accounting literature as it pertains to these contracts. The International Accounting Standards Board's recent exposure draft proposing an amendment to International Accounting Standard No. 39 ("IAS 39") offers a principle-based solution, which would provide investors with a more accurate view of how management operates the business.

General Comments

The Commission's stated aim is to improve periodic financial reporting by offering investors a more transparent view of the estimates used by management to determine specific accounting figures. We believe investors would be best served by gaining insight into the reliability and integrity with which management selects and applies accounting estimates. To best meet the needs of investors, we offer the following observations on the proposed rule and draw particular attention to the comments related to Quantitative Disclosures:

Scope of the Proposals

Accounting Estimates Covered Under the Proposals

Quantitative Disclosures

Disclosure Relating to Segments


We support the Commission's aims to restore investor confidence and enhance the usefulness of regularly reported financial information. As currently proposed, the rule serves to initiate a discussion of what additional information will be useful for investors. However, in its current form, the proposed rule is unduly burdensome and does not achieve the level of differentiation between the sale of production from assets and trading that we believe is appropriate.

We will continue to actively support the Commission, accounting standard-setters and regulatory agencies in order to achieve the goal of enhancing the relevancy and reliability of reported financial information.


/s/ Gordon L. Gillette
Senior Vice President - Finance, and CFO
TECO Energy, Inc.

/s/ Shirley A. Myers
Vice President, Corporate Accounting and Tax
TECO Energy, Inc.


1 Mark-to-model is defined, for the purposes of this comment letter, as any valuation approach whereby an instrument or portion of an instrument (such as years 6-10 of a 10-year natural gas sales contract) is valued using prices and other significant inputs which are either (a) not directly observable, or (b) cannot be inferred based on observable, quoted market prices which extend beyond the term of the instrument. Inherently, mark-to-model refers to modeled prices, not to a mathematical equation based on observable, quoted market prices, such as a Black-equivalent option model used to value a European-style option on natural gas, expiring in 2 years.

2 E.g., a firm commitment to sell electricity generated by a specified power plant when economically feasible, where the power plant is anticipated to physically supply the electricity to the buyer, is within the confines of the normal operations of a company that owns and operates physical assets-not-withstanding the accounting distinction of what constitutes a "normal sale".