<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 1999
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period _____ to _____
Commission File Number 1-8180
TECO ENERGY, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-2052286
------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
TECO PLAZA
702 N. FRANKLIN STREET
TAMPA, FLORIDA 33602
--------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (813) 228-4111
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
Common Stock, $1.00 par value New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
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 [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of February 29, 2000 was $2,271,355,290.
The number of shares of the registrant's common stock outstanding as of
February 29, 2000 was 126,186,405.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement relating to the 2000 Annual Meeting
of Shareholders of the registrant are incorporated by reference into Part III.
<PAGE> 2
PART I
ITEM 1. BUSINESS.
TECO ENERGY
TECO Energy, Inc. (TECO Energy) was incorporated in Florida in 1981,
as part of a restructuring in which it became the parent corporation of Tampa
Electric Company. TECO Energy currently owns no operating assets but holds all
of the common stock of Tampa Electric Company and the other subsidiaries listed
below. TECO Energy is a public utility holding company exempt from registration
under the Public Utility Holding Company Act of 1935.
TECO Energy's significant business segments are identified below:
-- Tampa Electric Company, a Florida corporation and TECO Energy's
largest subsidiary, through its Tampa Electric division (Tampa Electric)
provides retail electric service to more than 552,000 customers in West Central
Florida with a net system generating capability of 3,569 megawatts (MWS). In
1997, TECO Energy acquired Lykes Energy, Inc. (the Peoples companies). As part
of this acquisition, Lykes' regulated gas distribution utility was merged into
Tampa Electric Company and now operates as the Peoples Gas System division of
Tampa Electric Company (Peoples Gas System or PGS). PGS is engaged in the
purchase, distribution and marketing of natural gas for residential,
commercial, industrial and electric power generation customers in the State of
Florida. With 253,000 customers, PGS has operations in Florida's major
metropolitan areas. Annual natural gas throughput (the amount of gas delivered
to its customers including transportation only service) in 1999 was 1.1 billion
therms.
-- TECO Transport Corporation (TECO Transport), a Florida corporation,
owns no operating assets but owns all of the common stock of four subsidiaries
which transport, store and transfer coal and other dry bulk commodities.
-- TECO Coal Corporation (TECO Coal), a Kentucky corporation, owns no
operating assets but owns all of the common stock of five subsidiaries that own
mineral rights, and own/or operate surface and underground mines and coal
processing and loading facilities in Kentucky, Tennessee and Virginia.
-- TECO Power Services Corporation (TECO Power Services), a Florida
corporation, has subsidiaries that have interests in independent power projects
in Florida, Virginia, Hawaii and Guatemala, and has investments in
unconsolidated affiliates that participate in independent power projects and
electric distribution in other parts of the U.S. and the world.
TECO Energy's other diversified businesses include the following
corporations identified below:
-- TECO Coalbed Methane, Inc. (TECO Coalbed Methane), an Alabama
corporation, participates in the production of natural gas from coalbeds
located in Alabama's Black Warrior Basin.
-- Peoples Gas Company (PGC), a Florida corporation, sells liquefied
petroleum gas, or propane, to approximately 62,000 customers, primarily within
peninsular Florida. In February 2000, TECO Energy entered into an agreement to
form a joint venture to combine PGC's propane operations with that of three
other companies. The combined entity, to be named US Propane, L.P., would be
among the ten largest propane retailers in the nation, with nearly 200,000
customers. The participating companies expect this transaction to be completed
in the second quarter 2000.
-- TECO Gas Services, Inc. (TECO Gas Services), a Florida corporation,
provides gas management and marketing services to large municipal, industrial
and power generation customers.
-- Bosek, Gibson and Associates, Inc. (BGA), a Florida corporation,
provides engineering and energy services to customers primarily in Florida and
in California.
For financial information regarding TECO Energy's significant business
segments, see NOTE K, SEGMENT INFORMATION on pages 59 through 61.
TECO Energy and its subsidiaries had 5,487 employees as of Dec. 31,
1999.
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TAMPA ELECTRIC--ELECTRIC OPERATIONS
Tampa Electric Company was incorporated in Florida in 1899 and was
reincorporated in 1949. Tampa Electric Company is a public utility operating
within the state of Florida. Through its Tampa Electric division, it is engaged
in the generation, purchase, transmission, distribution and sale of electric
energy. The retail territory served comprises an area of about 2,000 square
miles in West Central Florida, including Hillsborough County and parts of Polk,
Pasco and Pinellas Counties, and has an estimated population of over one
million. The principal communities served are Tampa, Winter Haven, Plant City
and Dade City. In addition, Tampa Electric engages in wholesale sales to
utilities and other resellers of electricity. It has three electric generating
stations in or near Tampa, one electric generating station in southwestern Polk
County, Florida and two electric generating stations (one of which is on
long-term standby) located near Sebring, a city located in Highlands County in
South Central Florida.
Tampa Electric had 2,850 employees as of Dec. 31, 1999, of which 1,067
were represented by the International Brotherhood of Electrical Workers (IBEW)
and 345 by the Office and Professional Employees International Union.
In 1999, approximately 46 percent of Tampa Electric's total operating
revenue was derived from residential sales, 29 percent from commercial sales, 9
percent from industrial sales and 16 percent from other sales including bulk
power sales for resale.
The sources of operating revenue and megawatt-hour sales for the years
indicated were as follows:
<TABLE>
<CAPTION>
OPERATING REVENUE
(millions) 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Residential $ 557.4 $ 563.2 $ 532.3
Commercial 345.5 335.2 326.7
Industrial-Phosphate 54.2 59.3 61.3
Industrial-Other 56.2 53.4 51.5
Other retail sales of electricity 86.8 86.9 85.0
Sales for resale 86.1 89.6 94.3
Deferred revenues (11.9) 38.3 30.5
Other 25.5 8.7 7.6
-------- -------- --------
$1,199.8 $1,234.6 $1,189.2
======== ======== ========
MEGAWATT-HOUR SALES
(thousands) 1999 1998 1997
------ ------ ------
Residential 6,967 7,050 6,500
Commercial 5,336 5,173 4,901
Industrial 2,224 2,520 2,466
Other retail sales of electricity 1,278 1,284 1,223
Sales for resale 2,160 2,486 3,160
-------- -------- --------
17,965 18,513 18,250
======== ======== ========
</TABLE>
No significant part of Tampa Electric's business is dependent upon a
single customer or a few customers, the loss of any one or more of whom would
have a significantly adverse effect on Tampa Electric, except for IMC-Agrico
(IMCA), a large phosphate producer representing less than 3 percent of Tampa
Electric's 1999 base revenues.
Tampa Electric's business is not highly seasonal, but winter peak
loads are experienced due to fewer daylight hours and colder temperatures, and
summer peak loads are experienced due to use of air conditioning and other
cooling equipment.
REGULATION
The retail operations of Tampa Electric are regulated by the Florida
Public Service Commission (FPSC), which has jurisdiction over retail rates, the
quality of service, issuances of securities, planning, siting and construction
of facilities, accounting and depreciation practices and other matters.
In general, the FPSC's pricing objective is to set rates at a level
that allows the utility to collect total revenues (revenue requirements) equal
to its cost of providing service, including a reasonable return on invested
capital.
The costs of owning, operating and maintaining the utility system,
other than fuel, purchased power, conservation and certain environmental costs,
are recovered through base rates. These costs include operation and maintenance
expenses, depreciation and taxes, as well as a return on Tampa Electric's
investment in assets used and useful in providing electric service
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(rate base). The rate of return on rate base, which is intended to approximate
Tampa Electric's weighted cost of capital, primarily includes its costs for
debt, deferred income taxes at a zero cost rate and an allowed return on common
equity. Base prices are determined in FPSC price setting hearings which occur
at irregular intervals at the initiative of Tampa Electric, the FPSC or other
parties. See the discussion of the FPSC-approved agreements covering 1995
through 1999 on page 32.
Fuel, conservation, certain environmental and certain purchased power
costs are recovered through levelized monthly charges established pursuant to
the FPSC's cost recovery clauses. These charges, which are reset annually in an
FPSC proceeding, are based on estimated costs of fuel, environmental
compliance, conservation programs and purchased power and estimated customer
usage for a specific recovery period, with a true-up adjustment to reflect the
variance of actual costs from the projected charges.
The FPSC may disallow recovery of any costs that it considers
imprudently incurred.
Tampa Electric is also subject to regulation by the Federal Energy
Regulatory Commission (FERC) in various respects including wholesale power
sales, certain wholesale power purchases, transmission services and accounting
and depreciation practices.
Federal, state and local environmental laws and regulations cover air
quality, water quality, land use, power plant, substation and transmission line
siting, noise and aesthetics, solid waste and other environmental matters. See
ENVIRONMENTAL MATTERS on pages 6 and 7.
TECO Transport, TECO Coal and TECO Power Services' subsidiaries sell
transportation services, coal, and generating capacity and energy,
respectively, to Tampa Electric in addition to third parties. The transactions
between Tampa Electric and these affiliates and the prices paid by Tampa
Electric are subject to regulation by the FPSC and FERC, and any charges deemed
to be imprudently incurred may not be allowed to be recovered from Tampa
Electric's customers. See UTILITY REGULATION on pages 32 through 34. Except for
transportation services performed by TECO Transport under the U.S. bulk cargo
preference program, the prices charged by TECO Transport and TECO Coal
subsidiaries to third-party customers are not subject to regulatory oversight.
See also TECO POWER SERVICES on pages 11 and 12.
COMPETITION
Tampa Electric's retail electric business is substantially free from
direct competition with other electric utilities, municipalities and public
agencies. At the present time, the principal form of competition at the retail
level consists of natural gas and propane for residential and commercial
customers and the self-generation option is available to larger users of
electric energy. Such users may seek to expand their options through various
initiatives including legislative and/or regulatory changes that would permit
competition at the retail level. Tampa Electric intends to take all appropriate
actions to retain and expand its retail business, including managing costs and
providing high-quality service to retail customers.
In 1999, the FERC approved a market-based sales tariff for Tampa
Electric which allows Tampa Electric to sell excess power at market prices. The
FERC had already approved market-based prices for interstate sales for Tampa
Electric and the other state investor owned utilities (IOUs); however, Tampa
Electric is the only utility with intrastate market-based sales authority.
There is presently active competition in the wholesale power markets
in Florida, and this is increasing largely as a result of the Energy Policy Act
of 1992 and related federal initiatives. This Act removed for independent power
producers certain regulatory barriers and required utilities to transmit power
from such producers, utilities and others to wholesale customers as more fully
described below.
In April 1996, the FERC issued its Final Rule on Open Access
Non-discriminatory Transmission, Stranded Costs, Open Access Same-time
Information System (OASIS) and Standards of Conduct. These rules work together
to open access for wholesale power flows on transmission systems. Utilities
such as Tampa Electric owning transmission facilities are required to provide
services to wholesale transmission customers comparable to those they provide
to themselves on comparable terms and conditions including price. Among other
things, the rules require transmission services to be unbundled from power
sales and owners of transmission systems must take transmission service under
their own transmission tariffs.
Transmission system owners are also required to implement an OASIS
system providing, via the Internet, access to transmission service information
(including price and availability), and to rely exclusively on their own OASIS
system for such information for purposes of their own wholesale power
transactions. To facilitate compliance, owners must implement Standards of
Conduct to ensure that personnel involved in marketing wholesale power are
functionally separated from personnel involved in transmission services and
reliability functions. Tampa Electric, together with other utilities, has
implemented an OASIS system and believes it is in compliance with the Standards
of Conduct.
In addition to these transmission developments at the federal level,
there have been initiatives at the state level to facilitate the construction
of merchant power plants, i.e. plants built on speculation with a portion or
all of their capacity not subject to purchase agreements. Tampa Electric has
opposed these efforts. See WHOLESALE POWER MARKET on pages 33 and 34 for a
further description of proposed projects and the issues involved.
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FUEL
About 97 percent of Tampa Electric's generation for 1999 was from its
coal-fired units which provide approximately 86 percent of the Company's total
system energy requirements. About the same level is anticipated for 2000.
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Tampa Electric's average delivered fuel cost per million BTU and
average delivered cost per ton of coal burned have been as follows:
<TABLE>
<CAPTION>
AVERAGE COST
PER MILLION BTU: 1999 1998 1997 1996 1995
---------------- ------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C>
Coal $ 2.00 $ 1.99 $ 1.97 $ 2.01 $ 2.15
Oil $ 3.09 $ 3.14 $ 3.76 $ 3.68 $ 2.76
Composite $ 2.03 $ 2.03 $ 2.01 $ 2.05 $ 2.16
AVERAGE COST PER TON
OF COAL BURNED $44.63 $44.44 $44.50 $46.71 $50.97
</TABLE>
Tampa Electric's generating stations burn fuels as follows: Gannon
Station burns low-sulfur coal; Big Bend Station, which has sulfur dioxide
scrubber capabilities, burns a combination of low-sulfur coal and coal of a
somewhat higher sulfur content; Polk Power Station burns high-sulfur coal which
is gasified subject to sulfur removal prior to combustion; Hookers Point
Station burns low-sulfur oil; Phillips Station burns oil of a somewhat higher
sulfur content; and Dinner Lake Station, which was placed on long-term reserve
standby in March 1994, burned natural gas and oil.
COAL. Tampa Electric used approximately 7.3 million tons of coal
during 1999 and estimates that its coal consumption will be about 7.9 million
tons for 2000. During 1999, Tampa Electric purchased approximately 64 percent
of its coal under long-term contracts with six suppliers, including TECO Coal,
and 36 percent of its coal in the spot market or under intermediate-term
purchase agreements. During December 1999, the average delivered cost of all
coal delivered (including transportation) was $44.35 per ton, or $1.88 per
million BTU. About 8 percent of Tampa Electric's 1999 coal requirements were
supplied by TECO Coal. As discussed in the TECO COAL section on page 10 and 11,
Tampa Electric's long-term contract with TECO Coal expired at the end of 1999
and will not be renewed. Tampa Electric expects to obtain approximately 53
percent of its coal requirements in 2000 under long-term contracts with five
suppliers and the remaining 47 percent in the spot market or under
intermediate-term purchase agreements. Tampa Electric's remaining long-term
coal contracts provide for revisions in the base price to reflect changes in a
wide range of cost factors and for suspension or reduction of deliveries if
environmental regulations should prevent Tampa Electric from burning the coal
supplied, provided that a good faith effort has been made to continue burning
such coal. For information concerning transportation services and sales of coal
by affiliated companies to Tampa Electric, see TECO TRANSPORT on page 10 and
TECO COAL on pages 10 and 11.
In 1999, about 67 percent of Tampa Electric's coal supply was
deep-mined, approximately 32 percent was surface-mined and the remainder was a
processed oil by-product known as petroleum coke. Federal surface-mining laws
and regulations have not had any material adverse impact on Tampa Electric's
coal supply or results of its operations. Tampa Electric, however, cannot
predict the effect on the market price of coal of any future mining laws and
regulations. Although there are reserves of surface-mineable coal dedicated by
suppliers to Tampa Electric's account, high-quality coal reserves in Kentucky
that can be economically surface-mined are being depleted and in the future
more coal will be deep-mined. This trend is not expected to result in any
significant additional costs to Tampa Electric.
OIL. Tampa Electric had supply agreements through Dec. 31, 1999 for
No. 2 fuel oil and No. 6 fuel oil for its Polk and Hookers Point stations, and
its four combustion turbine units at prices based on Gulf Coast Cargo spot
prices. Contracts for the supply of No. 6 fuel oil through Dec. 31, 2000 are
expected to be finalized by March 31, 2000. The price for No. 2 fuel oil
deliveries taken in December 1999 was $30.14 per barrel, or $5.20 per million
BTU. There were no No. 6 fuel oil deliveries taken in December 1999.
FRANCHISES
Tampa Electric holds franchises and other rights that, together with
its charter powers, give it the right to carry on its retail business in the
localities it serves. The franchises are irrevocable and are not subject to
amendment without the consent of Tampa Electric, although, in certain events,
they are subject to forfeiture.
Florida municipalities are prohibited from granting any franchise for
a term exceeding 30 years. If a franchise is not renewed by a municipality, the
franchisee may choose to exercise its statutory right to require the
municipality to purchase any and all property used in connection with the
franchise at a valuation to be fixed by arbitration or, if arbitration is
unsuccessful, by eminent domain. In addition, all of the municipalities except
for the cities of Tampa and Winter Haven have reserved the right to purchase
Tampa Electric's property used in the exercise of its franchise, if the
franchise is not renewed.
Tampa Electric has franchise agreements with 13 incorporated
municipalities within its retail service area. These agreements have various
expiration dates ranging from December 2005 to September 2021.
Franchise fees payable by Tampa Electric, which totaled $20.8 million
in 1999, are calculated using a formula based primarily on electric revenues.
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Utility operations in Hillsborough, Pasco, Pinellas and Polk Counties
outside of incorporated municipalities are conducted in each case under one or
more permits to use county rights-of-way granted by the county commissioners of
such counties. There is no law limiting the time for which such permits may be
granted by counties. There are no fixed expiration dates for the Hillsborough
County and Pinellas County agreements. The agreements covering electric
operations in Pasco and Polk counties expire in 2033 and 2005, respectively.
ENVIRONMENTAL MATTERS
Tampa Electric met the environmental compliance requirements for the
Phase I emission limitations imposed by the Clean Air Act Amendments (CAAA)
which became effective Jan. 1, 1995 by using blends of lower-sulfur coal,
integrating the Big Bend Unit Four flue gas desulfurization (FGD) system with
Unit Three, implementing operational modifications and purchasing emission
allowances. For Phase II, which began Jan. 1, 2000, further reductions in
sulfur dioxide (SO2) and nitrogen oxide (NOx) emissions were required. To
comply with the Phase II SO2 requirements, the company installed a new FGD
system at Big Bend Units One and Two and will rely less on fuel blending and
SO2 allowance purchases. The $83 million scrubber was placed in service on Dec.
30, 1999 and will significantly reduce the amount of SO2 emitted by Tampa
Electric's Big Bend Units One and Two. As a result of this project, all of the
units at Big Bend Station, Tampa Electric's largest generating station, are
equipped with FGD, or scrubber technology. The FPSC approved recovery of the
costs associated with the new Big Bend Units One and Two FGD system in November
1999 and cost recovery began in January 2000. In order to comply with the Phase
II NOx emission limits on a system wide average, Tampa Electric has implemented
combustion optimization projects at Big Bend and Gannon Stations.
In 1997, the EPA began an investigation under the Clean Air Act (CAA)
of coal-fired electric power generators to determine compliance with New Source
Review (NSR) environmental permitting requirements associated with repairs,
maintenance, modifications and operational changes made to the facilities over
the years. The EPA asserted that certain electric utilities, including Tampa
Electric, should have applied for pre-construction permits for certain unit
maintenance projects, and that the permitting review of such projects would
have included NSR, resulting in requirements that the units meet more
restrictive, Best Available Control Technology (BACT) standards for NOx, SO2
and particulate matter (PM). Tampa Electric disagreed with EPA's interpretation
of its NSR rules and its definitions of what constitutes maintenance. On Nov.
3, 1999, despite Tampa Electric's extensive efforts to reach a mutually
agreeable settlement with the EPA, the Department of Justice sued Tampa
Electric and six other electric utilities and issued an administrative order
against TVA on behalf of the EPA for alleged violations of the CAA associated
with this NSR issue. Coincident with the lawsuits, EPA issued Notices of
Violations (NOV) alleging similar NSR violations under the relevant State
Implementation Plans (SIP).
Following notice to the State of Florida of the EPA's NOV, the Florida
Department of Environmental Protection (DEP), the agency responsible for
enforcement of the Air Quality SIP, began negotiations to resolve the same
allegations under the SIP that Tampa Electric had not applied for appropriate
permits for certain unit maintenance projects at Gannon and Big Bend Stations
and, therefore, had operated the coal-fired units without BACT for NOx and SO2.
Effective Dec. 16, 1999, a Consent Final Judgment (CFJ) entered into between
DEP and Tampa Electric resolved the DEP claims. The requirements of the CFJ
require the implementation of several environmental initiatives which include
repowering certain Gannon Station units with natural gas and placing the
remaining Gannon units on reserve standby by the end of 2004. It also requires
Tampa Electric to implement other specific initiatives to further reduce NOx,
SO2 and PM emissions at Big Bend Station Unit Four by 2007 and Big Bend Units
One, Two and Three by 2010.
On Feb. 29, 2000, Tampa Electric Company, the U.S. Environmental
Protection Agency and the U.S. Department of Justice announced they had
resolved the federal agencies' pending enforcement actions (including the NOV)
filed last year against Tampa Electric. The resolution, which was in the form
of a consent decree, resulted in full and final settlement of the November 1999
federal litigation and NOV alleging violations of NSR requirements of the Clear
Air Act. The Consent Decree was lodged with the U.S. District Court for the
Middle District of Florida in Tampa, Florida, and is subject to a 30-day public
comment period, before it may be entered by the Court at which time it will
become effective.
The agreement is substantially the same as Tampa Electric's earlier
agreement with the Florida Department of Environmental Protection with respect
to environmental controls and pollution reductions reached on Dec. 7, 1999;
however, it contains specific detail with respect to the availability of the
scrubbers and earlier incremental NOx reduction efforts on Big Bend Units One,
Two and Three. In order to eliminate the uncertainties of litigation and in
exchange for a release from past liability and a safe harbor during the 10-year
term of the consent decree, the Company agreed to pay a $3.5 million civil
penalty. Under the consent decree, Tampa Electric will commit to a
comprehensive cleanup program that will dramatically decrease emissions from
the company's power plants. The agreement makes Tampa Electric the first
utility in the nation to respond to EPA's coal-fired utility initiative.
Engineering for the repowering project began in January 2000, and the
company anticipates that commercial operation for the first repowered unit will
occur by May 1, 2003. The repowering of additional units is scheduled to be
completed by May 1, 2004. When these units are repowered, the station will be
renamed the Bayside Power Station and will have an increased total
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station capacity of about 1,475 megawatts of natural gas-fueled electric
energy.
Tampa Electric Company is a potentially responsible party for certain
superfund sites and, through its Peoples Gas System division, for certain
former manufactured gas plant sites. While the joint and several liability
associated with these sites presents the potential for significant response
costs, Tampa Electric Company estimates its ultimate financial liability at
approximately $20 million over the next 10 years. The environmental remediation
costs associated with these sites are not expected to have a significant impact
on customer prices.
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EXPENDITURES. During the five years ended Dec. 31, 1999, Tampa
Electric spent $212.2 million on capital additions to meet environmental
requirements including $92.8 million for the Polk Power Station project.
Environmental expenditures are estimated at $6.4 million for 2000 and $17.3
million in total for 2001 through 2004. These totals exclude amounts required
to comply with the CAAA, as discussed in the following paragraphs.
Tampa Electric is complying with the Phase I emission limitations
imposed by the CAAA which became effective Jan. 1, 1995 by using blends of
lower-sulfur coal, controlling stack emissions and purchasing emission
allowances.
In December 1999, Tampa Electric put into operation a flue gas
desulfurization (FGD) system or "scrubber" at Big Bend Units One and Two. As a
result of the installation of this FGD system, all of the units at Big Bend
Station, Tampa Electric's largest generating station, will be equipped with
scrubber technology. This technology will reduce the sulfur dioxide emissions
from these units and will allow Tampa Electric to achieve compliance with the
requirements of the Clean Air Act Amendments. As of Dec. 31, 1999, Tampa
Electric had spent approximately $80 million on the FGD project, and it expects
the total expenditures for the scrubber to be about $83 million.
The FPSC approved the FGD system as the most cost effective
alternative for Tampa Electric to meet its CAAA compliance requirements and the
recovery of prudently incurred costs through the environmental cost recovery
clause. Cost recovery began in January 2000.
Tampa Electric may petition the FPSC for recovery of certain other
environmental compliance costs on a current basis pursuant to a statutory
environmental cost recovery procedure used in connection with the above
described FGD system, along with environmental costs required by the consent
decree described above.
In 1999, Tampa Electric recovered $8 million of environmental
compliance costs through the environmental cost recovery clause. These were
costs incurred by Tampa Electric after April 1993 to comply with environmental
regulations that were not included in the then current base rates. In addition,
Tampa Electric may recover environmental compliance costs through base rates.
PEOPLES GAS SYSTEM--GAS OPERATIONS
Peoples Gas System, Inc. and West Florida Natural Gas Company were
acquired by TECO Energy in June 1997 and now operate as the Peoples Gas System
division of Tampa Electric Company. PGS is engaged in the purchase,
distribution and sale of natural gas for residential, commercial, industrial
and electric power generation customers in the State of Florida.
PGS uses two interstate pipelines to deliver gas to it for sale or
other delivery to customers connected to its distribution system. PGS does not
engage in the exploration for or production of natural gas. Currently, PGS
operates a natural gas distribution system that serves approximately 253,000
customers. The system includes approximately 8,100 miles of mains and over
4,800 miles of service lines.
In 1999, the total throughput for PGS was 1.1 billion therms. Of this
total throughput, 23 percent was gas purchased and resold to retail customers
by PGS, 72 percent was third party supplied gas delivered for retail customers,
and 5 percent was gas sold off-system. Industrial and power generation
customers consumed approximately 69 percent of PGS' annual therm volume.
Commercial customers used approximately 26 percent with the balance consumed by
residential customers.
While the residential market represents only a small percentage of
total therm volume, residential operations generally comprise 23 percent of
total revenues. New residential construction and conversions of existing
residences to gas have steadily increased since the late 1980's.
Natural gas has historically been used in many traditional industrial
and commercial operations throughout Florida, including production of products
such as steel, glass, ceramic tile and food products. Gas climate control
technology is expanding throughout Florida, and commercial/industrial customers
including schools, hospitals, office complexes and churches are utilizing this
new technology.
Within the PGS operating territory, large cogeneration facilities
utilize gas technology in the production of electric power and steam. Over the
past three years, the company has transported, on average, about 238 million
therms annually to facilities involved in cogeneration.
Revenues and therms for PGS for the years ended Dec. 31, are as follows:
<TABLE>
<CAPTION>
Revenues Therms
(millions) 1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Residential $ 59.0 $ 57.7 $ 56.3 52.1 52.7 48.9
Commercial 125.5 141.2 138.9 273.5 266.0 247.6
Industrial 29.3 20.9 23.2 331.9 305.0 288.6
Power Generation 10.4 10.4 11.7 405.2 288.3 314.7
Other revenues 27.5 22.6 19.5 - - -
- ----- ------ ------ ------ ------- ----- -----
Total $251.7 $252.8 $249.6 1,062.7 912.0 899.8
====== ====== ====== ======= ===== =====
</TABLE>
PGS had 845 employees as of Dec. 31, 1999. A total of 82 employees in
six of the company's 13 operating divisions
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are represented by various union organizations.
REGULATION
The operations of PGS are regulated by the FPSC separate from the
regulation of Tampa Electric Company's electric operations. The FPSC has
jurisdiction over rates, service, issuance of certain securities, safety,
accounting and depreciation practices and other matters.
In general, the FPSC sets rates at a level that allows a utility such
as PGS to collect total revenues (revenue requirements) equal to its cost of
providing service, including a reasonable return on invested capital.
The basic costs, other than the costs of purchased gas and interstate
pipeline capacity, of providing natural gas service are recovered through base
rates. Base rates are designed to recover the costs of owning, operating and
maintaining the utility system. The rate of return on rate base, which is
intended to approximate PGS' weighted cost of capital, primarily includes its
cost for debt, deferred income taxes at a zero cost rate, and an allowed return
on common equity. Base prices are determined in FPSC proceedings which occur at
irregular intervals at the initiative of PGS, the FPSC or other parties.
PGS recovers the costs it pays for gas supply and interstate
transportation for system supply through the Purchased Gas Adjustment (PGA)
clause. This charge is designed to recover the costs incurred by PGS for
purchased gas, and for holding and using interstate pipeline capacity for the
transportation of gas it sells to its customers. These charges are adjusted
monthly based on a cap approved annually in an FPSC hearing. The cap is based
on estimated costs of purchased gas and pipeline capacity, and estimated
customer usage for a specific recovery period, with a true-up adjustment to
reflect the variance of actual costs and usage from the projected charges for
prior periods. In 1999, PGS received Commission approval to begin recovering
costs using different billing factors for residential and commercial customers.
In addition to its base rates and purchased gas adjustment clause
charges for system supply customers, PGS customers (except interruptible
customers) also pay a per-therm charge for all gas consumed to recover the
costs incurred by the company in developing and implementing energy
conservation programs, which are mandated by Florida law and approved and
supervised by the FPSC. PGS is permitted to recover, on a dollar-for-dollar
basis, expenditures made in connection with these programs if it demonstrates
that the programs are cost effective for its ratepayers.
In June 1996, following informal workshops held in late 1995, the FPSC
initiated a proceeding for the purpose of investigating the unbundling of
natural gas services provided by PGS and other local distribution companies
subject to the FPSC's regulatory jurisdiction.
In February 2000, the FPSC proposed a rule that would require natural
gas utilities to offer transportation-only service to all non-residential
customers. PGS believes a generic rule is unnecessary and is opposed to this
broad proposal. The rulemaking process is expected to last anywhere from six
months to in excess of a year. It is unclear whether the FPSC staff action will
lead to FPSC adoption of a rule requiring further unbundling.
Under a separate docket, in June 1999, PGS extended for a two-year
period its existing, experimental unbundling program to 2,600 customers from
the previous 170 customers. This program, known as the Firm Transportation
Aggregation (FTA) program, advances the unbundling initiative being pursued by
the FPSC Staff, but contemplates a more reasonable pace toward total unbundled
service to non-residential customers. In July, PGS petitioned the FPSC for
approval of FTA-2 which contains terms and conditions similar to FTA, except it
allows customers new to PGS to transport immediately. Marketers are also
allowed to convert existing sales service customers to transportation under
FTA-2 equal to the amount of "new" load served by the marketers. The FTA-2 went
into effect in October 1999, but a hearing is scheduled for early 2000 to
address issues raised by the FPSC staff. Under the unbundling activities
currently underway and those that have FPSC approval pending, PGS would
continue to receive its base rate for distribution regardless of whether a
customer decided to opt for transportation only service, or to continue bundled
service. It is therefore, not expected that unbundling will have a material
adverse effect on PGS' earnings in the future.
In addition to economic regulation, PGS is subject to the FPSC's
safety jurisdiction, pursuant to which the FPSC regulates the construction,
operation and maintenance of PGS' distribution system. In general, the FPSC has
implemented this by adopting the Minimum Federal Safety Standards and reporting
requirements for pipeline facilities and transportation of gas prescribed by
the U.S. Department of Transportation in Parts 191, 192 and 199, Title 49, Code
of Federal Regulations.
PGS is also subject to Federal, state and local environmental laws and
regulations pertaining to air and water quality, land use, noise and
aesthetics, solid waste and other environmental matters.
COMPETITION
PGS is not in direct competition with any other regulated distributors
of natural gas for customers within its service areas. At the present time, the
principal form of competition for residential and small commercial customers is
from companies providing other sources of energy and energy services including
fuel oil, electricity and in some cases liquid propane gas. PGS has taken
actions to retain and expand its commodity and transportation business,
including managing costs and providing high
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quality service to customers. The multiple PGA factors approved in 1999 and the
FTA-2 program are both designed to improve the competitiveness of natural gas
for commercial load.
Competition is most prevalent in the large commercial and industrial
markets. In recent years, these classes of customers have been targeted by
competing companies seeking to sell gas directly either using PGS facilities or
transporting gas through other facilities, thereby bypassing PGS facilities.
Many of these competitors are larger natural gas marketers with a national
presence. The FPSC has allowed PGS to adjust rates to meet competition for the
largest interruptible customers.
GAS SUPPLIES
PGS purchases gas from various suppliers depending on the needs of its
customers. The gas is delivered to the PGS distribution system through two
interstate pipelines on which PGS has reserved firm transportation capacity for
further delivery by PGS to its customers.
Gas is delivered by Florida Gas Transmission Company (FGT) through
more than 40 interconnections (gate stations) serving PGS' operating divisions.
In addition, PGS' Jacksonville Division receives gas delivered by the South
Georgia Natural Gas Company (South Georgia) pipeline through a gate station
located northwest of Jacksonville.
Companies with firm pipeline capacity receive priority in scheduling
deliveries during times when the pipeline is operating at its maximum capacity.
PGS presently holds sufficient firm capacity to permit it to meet the gas
requirements of its system commodity customers except during localized
emergencies affecting the PGS distribution system, and on abnormally cold days.
Firm transportation rights on an interstate pipeline represent a right
to use the amount of the capacity reserved for transportation of gas, on any
given day. PGS pays reservation charges on the full amount of the reserved
capacity whether or not it actually uses such capacity on any given day. When
the capacity is actually used, PGS pays a volumetrically based usage charge for
the amount of the capacity actually used. The levels of the reservation and
usage charges are regulated by FERC. PGS actively markets any excess capacity
available on a day to day basis to partially offset costs recovered through the
Purchased Gas Adjustment Clause.
PGS procures natural gas supplies using base load and swing supply
contracts distributed among various vendors along with spot market purchases.
Pricing generally takes the form of either a variable price based on published
indices, or a fixed price for the contract term.
Neither PGS nor any of its interconnected interstate pipelines has
storage facilities in Florida. PGS occasionally faces situations when the
demands of all of its customers for the delivery of gas cannot be met. In these
instances, it is necessary that PGS interrupt or curtail deliveries to its
interruptible customers. In general, the largest of PGS' industrial customers
are in the categories that are first curtailed in such situations. PGS' tariff
and transportation agreements with these customers give PGS the right to divert
these customers' gas to other higher priority users during the period of
curtailment or interruption. PGS pays these customers for such gas at the price
they paid their suppliers (if purchased by the customer under a contract with a
term of five years or longer), or at a published index price (if purchased by
the customer pursuant to a contract with a term less than five years), and in
either case pays the customer for charges incurred for interstate pipeline
transportation to the PGS system.
FRANCHISES
PGS holds franchise and other rights with 89 municipalities within its
service area. These include the cities of Jacksonville, Daytona Beach, Eustis,
Orlando, Lakeland, Tampa, St. Petersburg, Bradenton, Sarasota, Avon Park,
Frostproof, Palm Beach Gardens, Pompano Beach, Fort Lauderdale, Hollywood,
North Miami, Miami Beach, Miami, Panama City and Ocala. These agreements give
PGS a right to operate within the franchise territory. The franchises are
irrevocable and are not subject to amendment without the consent of PGS,
although in certain events, they are subject to forfeiture.
Municipalities are prohibited from granting any franchise for a term
exceeding 30 years. If a franchise is not renewed by a municipality, the
franchisee may choose to exercise its statutory right to require the
municipalities to purchase any and all property used in connection with the
franchise at a valuation to be fixed by arbitration or, if arbitration is
unsuccessful, by eminent domain. In addition, several of the municipalities
have reserved the right to purchase PGS' property used in the exercise of its
franchise, if the franchise is not renewed.
PGS' franchise agreements with the incorporated municipalities within
its service area have various expiration dates ranging from March 2000 through
December 2029.
In March 2000, the City of Lakeland notified PGS that it intended to
begin negotiations to exercise its right to purchase PGS' property consisting
of approximately 200 miles of gas lines in the Lakeland franchise area when its
franchise agreement with PGS expired on March 13, 2000. PGS serves
approximately 5,000 customers in Lakeland. PGS has continued its discussions
with the City of Lakeland, urging the city to renew this agreement. While PGS
believes it is best suited to serve these customers, it cannot at this time
predict the ultimate outcome of these activities. If negotiations prove to be
unsuccessful, then a resolution will only be achieved through appropriate legal
action.
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Franchise fees payable by PGS, which totaled $7.4 million in 1999, are
calculated using various formulas which are based principally on natural gas
revenues. Franchise fees are collected from only those customers within each
franchise area.
Utility operations in areas outside of incorporated municipalities are
conducted in each case under one or more permits to use county rights-of-way
granted by the county commissioners of such counties. There is no law limiting
the time for which such permits may be granted by counties. There are no fixed
expiration dates and these rights are, therefore, considered perpetual.
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ENVIRONMENTAL MATTERS
PGS's operations are subject to federal, state and local statutes,
rules and regulations relating to the discharge of materials into the
environment and the protection of the environment generally that require
monitoring, permitting and ongoing expenditures. These expenditures have not
been significant in the past, but the trend is toward stricter standards,
greater regulation and more extensive permitting requirements.
Tampa Electric Company is a potentially responsible party for certain
superfund sites and, through its Peoples Gas System division, for certain
former manufactured gas plant sites. While the joint and several liability
associated with these sites presents the potential for significant response
costs, Tampa Electric Company estimates its ultimate financial liability at
approximately $20 million over the next 10 years. The environmental remediation
costs associated with these sites are not expected to have a significant impact
on customer prices.
PGS believes that it is in substantial compliance with applicable
environmental laws, regulations, orders and rules. It is allowed to recover
certain prudently incurred environmental costs through rates charged to its
customers.
EXPENDITURES. During the five years ended Dec. 31, 1999, PGS has not
incurred any material capital additions to meet environmental requirements, nor
are any anticipated for 2000 through 2004.
TECO TRANSPORT
TECO Transport owns all of the common stock of four subsidiaries which
transport, store and transfer coal and other dry bulk commodities. TECO
Transport currently owns no operating assets.
TECO Transport and its subsidiaries had 1,129 employees as of Dec. 31,
1999.
All of TECO Transport's subsidiaries perform substantial services for
Tampa Electric. In 1999, approximately 60 percent of TECO Transport's revenues
were from third-party customers and 40 percent were from Tampa Electric. The
pricing for services performed by TECO Transport's operating companies for
Tampa Electric is based on a fixed price per ton, adjusted quarterly for
changes in certain fuel and price indices. Most of the third-party utilization
of the ocean-going barges is for domestic phosphate movements and domestic and
international movements of other dry bulk commodities. Both the terminal and
river transport operations handle a variety of dry bulk commodities for
third-party customers.
A substantial portion of TECO Transport's business is dependent upon
Tampa Electric, industrial phosphate customers, export coal and grain
customers, and participation in the U.S. Department of Agriculture cargo
preference program.
TECO Transport's barge subsidiaries consist of Gulfcoast Transit
Company (Gulfcoast), which transports products in the Gulf of Mexico and
worldwide, and Mid-South Towing Company (Mid-South), which operates on the
Mississippi, Ohio and Illinois rivers. Their primary competitors are other
barge and shipping lines and railroads as well as a number of other companies
offering transportation services on the waterways used by TECO Transport's
subsidiaries. To date, physical and technological improvements have allowed
barge operators to maintain competitive rate structures with alternate methods
of transporting bulk commodities when the origin and destination of such
shipments are contiguous to navigable waterways.
Electro-Coal Transfer Corporation (Electro-Coal) operates a major
transfer and storage terminal on the Mississippi River south of New Orleans.
Demand for the use of such terminals is dependent upon customers' use of water
transportation versus alternate means of moving bulk commodities and the demand
for these commodities. Competition consists primarily of mid-stream operators
and another land-based terminal located nearby.
The business of TECO Transport's subsidiaries, taken as a whole, is
not subject to significant seasonal fluctuation.
The Interstate Commerce Act exempts from regulation water
transportation of certain dry bulk commodities. In 1999, all transportation
services provided by TECO Transport's subsidiaries were within this exemption.
TECO Transport's subsidiaries are also subject to the provisions of
the Clean Water Act of 1977 which authorizes the Coast Guard and the EPA to
assess penalties for oil and hazardous substance discharges. Under this Act,
these agencies are also empowered to assess clean-up costs for such discharges.
TECO Transport believes it is in substantial compliance with applicable
environmental laws, regulations, orders and rules. In 1999, TECO Transport
spent $.8 million for environmental compliance. Environmental expenditures are
estimated at $.7 million in 2000, primarily for work on solid waste disposal
and storm water drainage at the Electro-Coal facility in Louisiana and for
expenses related to oil and bilge water disposal at its river-barge repair
facility in Illinois.
TECO COAL
TECO Coal owns no operating assets but holds all of the common stock
of Gatliff Coal Company (Gatliff), Rich Mountain Coal Company (Rich Mountain),
Clintwood Elkhorn Mining Company (Clintwood), Pike-Letcher Land Company
(Pike-Letcher,) Premier Elkhorn Coal Company (Premier), and Bear Branch Coal
Company (Bear Branch). TECO Coal's subsidiaries own mineral rights, and own or
operate surface and underground mines and coal processing and loading
facilities in Kentucky, Virginia and Tennessee.
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TECO Coal and its subsidiaries had 327 employees as of Dec. 31, 1999.
In 1999, TECO Coal subsidiaries sold 7.2 million tons of coal, with
approximately 93 percent sold to third parties and 7 percent sold to Tampa
Electric. Tampa Electric has reduced its coal purchases from TECO Coal as a
result of its efforts to reduce costs and its successful increased use of
conventional steam coal from other sources. TECO Coal expects increased sales
volumes to other parties from the Premier and Clintwood operations to offset
the impact on operating results of lower sales to Tampa Electric in 2000. The
Tampa Electric long-term contract with TECO Coal expired at the end of 1999 and
will not be renewed.
Rich Mountain has no reserves; it mines coal reserves owned by
Gatliff.
In January 2000, TECO Coal purchased two synthetic fuel production
facilities to be located at the company's Premier Elkhorn and Clintwood Elkhorn
mines in Kentucky. The synthetic fuel production process utilizes a blend that
includes coal fines, low grade coal and raw coal. The facilities are expected
to be operational by mid-2000 and are expected to produce at least 720,000 tons
of synthetic fuel on an annual basis. Sales of the fuel processed through these
types of facilities are eligible for non-conventional fuels tax credits under
Section 29 of the Internal Revenue Code, which are available through 2007.
Primary competitors of TECO Coal's subsidiaries are other coal
suppliers, many of which are located in Central Appalachia. To date, TECO Coal
has been able to compete for coal sales by mining high-quality steam and
specialty coals and by effectively managing production and processing costs.
The operations of underground mines, including all related surface
facilities, are subject to the Federal Coal Mine Safety and Health Act of 1977.
TECO Coal's subsidiaries are also subject to various Kentucky and Tennessee
mining laws which require approval of roof control, ventilation, dust control
and other facets of the coal mining business. Federal and state inspectors
inspect the mines to ensure compliance with these laws. TECO Coal believes it
is in substantial compliance with the standards of the various enforcement
agencies. It is unaware of any mining laws or regulations having a prospective
effective date that would materially affect the market price of coal sold by
its subsidiaries.
TECO Coal's subsidiaries are subject to various federal, state and
local air and water pollution standards in their mining operations. In 1999
approximately $1.6 million was spent on environmental protection and
reclamation programs. TECO Coal expects to spend a similar amount in 2000 on
these programs.
The coal mining operations are also subject to the Surface Mining
Control and Reclamation Act of 1977 which places a charge of $.15 and $.35 on
every net ton mined of underground and surface coal, respectively, to create a
fund for reclaiming land and water adversely affected by past coal mining.
Other provisions establish standards for the control of environmental effects
and reclamation of surface coal mining and the surface effects of underground
coal mining, and requirements for federal and state inspections.
TECO POWER SERVICES
TECO Power Services (TPS) has subsidiaries that have interests in
independent power projects in Florida, Virginia, Hawaii and Guatemala, and has
investments in unconsolidated affiliated entities that participate in
independent power projects in other parts of the U.S. and the world. It had 164
employees as of Dec. 31, 1999.
There are a number of companies competing with TPS for investment
opportunities in the U.S. and worldwide. Several of these competitors are
larger and have access to more resources. To date, TPS has competed effectively
for independent power investment opportunities based on its success in finding,
marketing and developing sound, well managed independent power projects that
have good returns, experienced partners and strong risk mitigation, in the U.S.
and in Central America.
Hardee Power Partners Ltd. (Hardee Power), a Florida limited
partnership whose general and limited partners are wholly owned subsidiaries of
TPS, owns the Hardee Power Station, a 295-megawatt combined cycle electric
generating facility located in Hardee County, Florida, which began commercial
operation on Jan. 1, 1993. Hardee Power has 20-year power supply agreements,
which began in 1993, for all of the capacity and energy of the Hardee Power
Station with Seminole Electric Cooperative (Seminole Electric), a Florida
electric cooperative that provides wholesale power to 10 electric distribution
cooperatives, and with Tampa Electric. Under the Seminole Electric agreement,
Hardee Power has agreed to supply Seminole Electric with an additional 145
megawatts of capacity during the first 10 years of the contract, which it is
purchasing from Tampa Electric's coal-fired Big Bend Unit Four for resale to
Seminole Electric.
In September 1999, TPS announced a 75-megawatt expansion at Hardee
Power Station. The added capacity at Hardee will serve Tampa Electric. The
construction phase began in November 1999, and is scheduled for completion in
May 2000. It is part of a long-range expansion effort to eventually increase
its capacity to a total of 440-megawatts.
Through its ownership and operation of a wholesale generating facility
in the U.S., TECO Power Services is subject to regulation by the FERC in
various respects. Depending upon the nature of the project, FERC may regulate,
among other things, the rates, terms and conditions for the sale of electric
capacity and energy.
Like Tampa Electric, the U.S. operations of TECO Power Services are
subject to federal, state and local environmental laws and regulations covering
air quality, water quality, land use, power plant, substation and transmission
line siting, noise and aesthetics, solid waste and other environmental matters.
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In November 1999, TPS announced its 50 percent participation in the
Hamakua Energy Project, a 60-megawatt combined-cycle cogeneration facility under
construction in Hamakua, Hawaii. The Hamakua facility is scheduled for its
first phase of service in July 2000, with a second phase scheduled for November
2000. TPS and J.A. Jones Ventures will jointly own and operate the project
under a 30-year power purchase agreement with Hawaii Electric Light Company.
Tampa Centro Americana de Electricidad, Limitada (TCAE), an entity
96.06-percent owned by TPS Guatemala One, Inc. (TPS Guatemala One), a
subsidiary of TECO Power Services, has a U.S. dollar-denominated power sales
agreement to provide 78 megawatts of capacity to an electric utility in
Guatemala, Empresa Electrica de Guatemala, S.A. (EEGSA) for a 15-year period
ending in 2010. (TPS later acquired an interest in EEGSA, as described below.)
The project (the Alborada Power Station) consists of two combustion turbines
built at a total cost of approximately $50 million. TECO Power Services has
obtained from the Overseas Private Investment Corporation (OPIC), an agency of
the U.S. government, $29 million of limited recourse financing for the Alborada
Power Station and political risk insurance for currency inconvertibility,
expropriation and political violence covering up to 90 percent of its equity
investment and economic returns.
TCAE began commercial operation of the Alborada Power Station in 1995.
The power sales agreement between TCAE and the power purchaser, EEGSA, provides
for a capacity charge and operations and maintenance expense payments. The
capacity charge is subject to adjustment due to output, heat rate and
availability. EEGSA is responsible for providing the fuel for the plant with
TECO Power Services providing assistance in fuel administration.
EEGSA, a private distribution and generation company formed in 1994,
serves more than 560,000 customers. EEGSA's service territory includes the
capital of Guatemala, Guatemala City.
In 1996, a TECO Power Services affiliate, Central Generadora Electrica
San Jose, SRL (CGESJ) signed a U.S.-dollar denominated power sales agreement
with EEGSA to provide 120 megawatts of capacity for 15 years beginning in 2000.
The project consists of a single unit pulverized coal baseload facility (the
San Jose Power Station) including port modifications to accommodate the
importation of coal. The total cost of the project is estimated at $187
million. At Dec. 31, 1999, 33 percent of CGESJ was owned by another U.S.
independent power producer (a subsidiary of The Coastal Corporation). In
January 2000, TPS, through a buy-out of its partner, increased its ownership
interest in CGESJ to 100 percent. Political risk insurance has been obtained
from OPIC for inconvertibility, expropriation and political violence covering
up to 90 percent of their equity investment and economic returns. Construction
financing, guaranteed by TPS has been obtained for the project. During January
2000, construction of the San Jose Power Station was completed and the project
went into commercial operation. This facility is the first coal-fueled plant in
Central America and meets environmental standards set by the World Bank.
In September 1998, a consortium that includes TPS, Iberdrola, an
electric utility in Spain, and Electricidade de Portugal, an electric utility
in Portugal, completed the purchase of an 80 percent ownership interest in
EEGSA. TPS owns a 30 percent interest in this consortium and contributed $100
million in equity. The total purchase price paid by the consortium was $520
million. The consortium obtained limited-recourse debt financing for a portion
of the purchase price.
In August 1998, TPS and Mosbacher Power Partners, Ltd. (Mosbacher
Power), an independent power company headquartered in Houston, agreed to
jointly develop, own and operate domestic and international independent power
projects. Under this arrangement, TPS will, among other things, provide capital
and technical expertise to Mosbacher and gain an expanded domestic and
international presence with opportunities for project returns, including
preferred returns before benefits are shared.
In October 1998, TPS, through the Mosbacher Power joint venture (TM
Power Ventures or TMPV) discussed above, made certain loans to two existing
projects and acquired an interest in a repowered independent power project in
the Czech Republic. TM Power Ventures, Nations Energy Corp., NRG Energy, El
Paso Energy International and Stredoceske Energeticke Zavody (STE), a Czech
regional distribution company, were owners of the project at Dec. 31, 1999. In
January 2000, TM Power Ventures acquired an additional 13.35 percent ownership
interest in the Czech Republic project, increasing TMPV's ownership interest in
this project to 26.7 percent. The facility, after planned expansion, will have
a net total capacity of 344 megawatts and is scheduled to go in service during
the first quarter of 2000.
In November 1999, TPS through TM Power Ventures, acquired a 50%
interest in the construction and operation of a 312- megawatt power plant on
the Delmarva Peninsula of Virginia. The project will be completed in two
phases, with the first phase expected to go in service the second quarter of
2000 and the second phase to be completed approximately one year later.
In February 1999, TPS formed a joint venture relationship with Energia
Global International, Ltd. (EGI), a Bermuda-based energy development firm. EGI
owns and operates electric generation and cogeneration facilities in Central
America with a particular emphasis on renewable power (i.e. hydro, geothermal,
wind, biomass). It also has interests in electric distribution companies in El
Salvador and Panama.
See the discussion of the risks inherent in doing business
internationally in the INVESTMENT CONSIDERATIONS section on page 36.
TECO COALBED METHANE
TECO Coalbed Methane participates in the production of natural gas
from coalbeds located in Alabama's Black Warrior
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Basin. TECO Coalbed Methane has invested $213 million as the principal investor
in three ventures which control, in the aggregate, approximately 100,000 acres
of lease holdings. At the end of 1999, TECO Coalbed Methane had interests in
741 wells that were operational and producing gas for sale. These wells are
operated by Energen Resources, a unit of Energen Corporation, and, to a much
lesser extent, by other third-party operators.
A non-conventional fuel tax credit is available on all production
through the year 2002. The tax credit escalates with inflation and could be
limited based upon domestic oil prices. In 1999, domestic oil prices would have
had to exceed $48 per barrel for this limitation to have been effective.
All production from these wells is committed for the life of the
reserves based on spot prices which are tied to the price of onshore Louisiana
gas.
TECO Coalbed Methane's operations are subject to federal, state and
local regulations for air emissions and water and waste disposal. It believes
its operations are in substantial compliance with all applicable environmental
laws and regulations.
PEOPLES GAS COMPANY
Peoples Gas Company (PGC) is engaged in the purchase, distribution and
marketing of liquified petroleum gas (propane) for residential, commercial, and
industrial customers in the State of Florida. It possesses no production
facilities but purchases propane gas from major national suppliers. In 1999,
PGC served approximately 62,000 customers and sold 34 million gallons of
propane.
PGC acquired one additional Florida propane business in 1999, and
three in 1998. These acquisitions facilitated growth of PGC's existing market
in Jacksonville, and its expansion into new markets in Gainesville, Ocala, Fort
Myers and Naples.
Propane has historically been used in many residential, industrial and
commercial operations throughout Florida, including production of durable
products such as steel, glass, ceramic tile and food products.
Propane is purchased under short-term contracts which enables PGC to
make purchases at prevailing market prices. During 1997, PGC entered into
options contracts to limit the exposure to propane price increases; these
contracts expired in early 1998, and PGC did not enter into any additional
options contracts. PGC may employ similar or other price management strategies
in the future.
PGC purchases propane from a small number of major national suppliers.
The company has storage capacity in excess of one million gallons, mostly in
South and Central Florida. Delivery of propane to PGC storage facilities
throughout the northern and northeastern markets in Florida is primarily by
railcars and tanker trucks which PGC owns, and throughout the central and
southeastern parts of the State is primarily by trucks and railcars controlled
by a major propane supplier.
The majority of PGC's propane is delivered into tanks and containers
on the customer's premises via bulk delivery trucks. Propane block systems are
also an integral part of the company's propane distribution operations in the
residential market. Large industrial and commercial customers often take
delivery in tanker trucks directly from the supply terminals.
In the Florida propane market, there are over 30 distributors
competing within the residential and commercial markets. Competition in Florida
ranges from a number of large, national companies to numerous local,
independent operators, PGC being the largest. The primary focus among
distributors is to gain market share through new customer growth (i.e.,
providing service for home construction). Propane competes directly with
natural gas, electricity and fuel oil, and its marketing areas are not limited
by a pipeline infrastructure.
In February 2000, TECO Energy, Inc. entered into an agreement to form
a joint venture to combine its Peoples Gas Company propane operations with the
propane operations of Atmos Energy Corporation, AGL Resources, Inc. and
Piedmont Natural Gas Company, Inc. The combined entity, to be named US Propane,
L.P., would be among the ten largest propane retailers in the nation, with
nearly 200,000 customers. Focused on the Southeast, US Propane will have
operations in Alabama, Florida, Georgia, Kentucky, North Carolina, South
Carolina and Tennessee. The joint venture is expected to allow PGC and the
other participating companies to improve their regional competitiveness. This
transaction is subject to regulatory approval for one of the proposed
participants and other customary conditions. The participating companies expect
this transaction to be completed in early May 2000.
TECO GAS SERVICES
TECO Gas Services provides gas management and marketing services for
large industrial customers. In 1999, it provided gas management for three
cogeneration facilities. TECO Gas Services owns no operating assets.
BOSEK, GIBSON AND ASSOCIATES
BGA is an engineering energy services company headquartered in Tampa.
It has 9 offices in Florida and one in California, and had 150 employees as of
Dec. 31, 1999.
It provides engineering, construction management and energy services
to more than 400 customers, including public schools, universities, health care
facilities and other governmental facilities throughout Florida and California.
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ITEM 2. PROPERTIES.
TECO Energy believes that the physical properties of its operating
companies are adequate to carry on their businesses as currently conducted. The
properties of Tampa Electric and the subsidiaries of TECO Power Services are
generally subject to liens securing long-term debt.
TAMPA ELECTRIC
At Dec. 31, 1999, Tampa Electric had five electric generating plants
and four combustion turbine units in service with a total net winter generating
capability of 3,569 megawatts, including Big Bend (1,742-MW capability from
four coal units), Gannon (1,160-MW capability from six coal units), Hookers
Point (189-MW capability from five oil units), Phillips (34-MW capability from
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two diesel units), Polk (250-MW capability from one integrated gasification
combined cycle unit (IGCC)) and four combustion turbine units located at the
Big Bend and Gannon stations (194 MWs). The capability indicated represents the
demonstrable dependable load carrying abilities of the generating units during
winter peak periods as proven under actual operating conditions. Units at
Hookers Point went into service from 1948 to 1955, at Gannon from 1957 to 1967,
and at Big Bend from 1970 to 1985. The Polk IGCC unit began commercial
operation in September 1996. In 1991, Tampa Electric purchased two power plants
(Dinner Lake and Phillips) from the Sebring Utilities Commission (Sebring).
Dinner Lake (11-MW capability from one natural gas unit) and Phillips were
placed in service by Sebring in 1966 and 1983, respectively. In March 1994,
Dinner Lake Station was placed on long-term reserve standby.
Engineering for repowering Gannon Station began in January 2000, and
the company anticipates that commercial operation for the first repowered unit
will occur by May 1, 2003. The repowering of additional units is scheduled to
be completed by May 1, 2004. When these units are repowered, the station will
be renamed the Bayside Power Station. Total station capacity is expected to
increase to about 1,475 megawatts.
Tampa Electric owns 221 substations having an aggregate transformer
capacity of 16,654,239 KVA. The transmission system consists of approximately
1,196 pole miles of high voltage transmission lines, and the distribution
system consists of 6,939 pole miles of overhead lines and 2,838 trench miles of
underground lines. As of Dec. 31, 1999, there were 576,803 meters in service.
All of this property is located in Florida.
All plants and important fixed assets are held in fee except that
title to some of the properties is subject to easements, leases, contracts,
covenants and similar encumbrances and minor defects, of a nature common to
properties of the size and character of those of Tampa Electric.
Tampa Electric has easements for rights-of-way adequate for the
maintenance and operation of its electrical transmission and distribution lines
that are not constructed upon public highways, roads and streets. It has the
power of eminent domain under Florida law for the acquisition of any such
rights-of-way for the operation of transmission and distribution lines.
Transmission and distribution lines located in public ways are maintained under
franchises or permits.
Tampa Electric has a long-term lease for its office building in
downtown Tampa which serves as headquarters for TECO Energy, Tampa Electric and
numerous other TECO Energy subsidiaries.
PEOPLES GAS SYSTEM
PGS' distribution system extends throughout the areas it serves in
Florida, and consists of approximately 12,900 miles of pipe, including
approximately 8,100 miles of mains and over 4,800 miles of service lines.
PGS operating divisions are located in thirteen markets throughout
Florida. While most of the operations, storage and administrative facilities
are owned, a small number are leased.
TECO TRANSPORT
Electro-Coal's storage and transfer terminal is on a 1,070-acre site
fronting on the Mississippi River, approximately 40 miles south of New Orleans.
Electro-Coal owns 342 of these acres in fee, with the remainder held under
long-term leases.
Mid-South operates a fleet of 18 towboats and over 710 river barges,
most of which it owns, on the Mississippi, Ohio and Illinois rivers. This
includes three towboats and 110 covered river barges chartered in March 1998
under a five-year agreement which provides for the acquisition of these assets
at the conclusion of the charter term. Mid-South owns 15 acres of land fronting
on the Ohio River at Metropolis, Illinois on which its operating offices,
warehouse and repair facilities are located. Fleeting and repair services for
its barges and those of other barge lines are performed at this location.
Additionally, Mid-South performs fleeting and supply activities at leased
facilities in Cairo, Illinois.
As of Dec. 31, 1999, Gulfcoast owned and operated a fleet of 12
ocean-going tug/barge units, a 30,000 ton ocean-going ship and a 40,000 ton
ocean-going ship, with a combined cargo capacity of over 413,000 tons. In
January 2000,Gulfcoast sold one tug and plans to sell the associated 19,000 ton
cargo capacity barge.
TECO COAL
TECO Coal, through its subsidiaries, controls over 178,700 acres of
coal reserves and mining property in Kentucky, Virginia and Tennessee.
Pike-Letcher controls in excess of 50,000 acres in Pike and Letcher
Counties, Kentucky. These properties contain estimated proven and probable
reserves in excess of 110 million tons.
Premier owns and operates a preparation plant and unit-train loadout
facility in Pike County, Kentucky and conducts surface and deep mining
operations of reserves which are leased from Pike-Letcher. Premier does not own
any coal reserves.
Clintwood has 68,000 acres of coal reserves held under long-term
leases in Pike County, Kentucky and Buchanan County, Virginia. These properties
contain estimated proven and probable reserves in excess of 45 million tons.
Clintwood owns
18
<PAGE> 19
and operates two rail tipples and coal preparation plants near the mines.
Gatliff has 38,700 acres of coal reserves and mining property in Knox
and Whitley Counties, Kentucky and Campbell County, Tennessee. Gatliff owns
9,000 acres in fee and leases 29,700 acres under long-term leases. These
properties contain estimated proven and probable coal reserves in excess of 10
million tons. This coal, which combines low-sulfur and low-ash fusion
temperature characteristics, is found in both deep and surface mines. Gatliff
owns and operates a rapid-loading rail tipple and a coal preparation plant near
its deep mines. In 1996, TECO Coal closed certain of its older Gatliff mines.
Bear Branch controls by long-term lease 22,000 acres in Perry and
Knott Counties, Kentucky, containing approximately 70 million tons of
undeveloped reserves.
Rich Mountain operates a surface mine for Gatliff in Campbell County,
Tennessee, and does not own any coal reserves.
TECO POWER SERVICES
Hardee Power has a lease for approximately 1,300 acres of land in
Hardee and Polk Counties, Florida on which the Hardee Power Station is located.
The lease has a term that runs through 2012 with options to extend the term for
up to an additional 20 years.
In addition, a TECO Power Services' subsidiary has a 50-percent
interest in Enserch/Jones Hamakua Land Partnership, L.L.C. owns 140 acres in
Hawaii on which the Hamakua Energy facility is being constructed. Another TECO
Power Services' subsidiary has a 96.06-percent interest in TCAE, which owns 7
acres in Guatemala on which the Alborada Power Station is located. Finally,
another TECO Power Services subsidiary has a 100-percent ownership in a project
entity, CGESJ, which owns 190 acres in Guatemala on which the San Jose Power
Station is located.
TECO COALBED METHANE
TECO Coalbed Methane's interest in proved gas reserves at Dec. 31,
1999 was independently estimated to be 159 billion cubic feet for 615 wells.
TECO Coalbed Methane's gas production for 1999 was 16.6 billion cubic
feet.
PEOPLES GAS COMPANY
At Dec. 31, 1999, PGC's operating divisions are located in 21 markets
throughout the state; most of its facilities are leased.
ITEM 3. LEGAL PROCEEDINGS.
On Nov. 3, 1999, a civil action was filed by the U.S. Department of
Justice on behalf of the U.S. Environmental Protection Agency against Tampa
Electric Company in the United States District Court for the Middle District of
Florida, and EPA issued a Notice of Violation (NOV) for violations under the
Florida State Implementation Plan (SIP). Both enforcement actions alleged that
Tampa Electric made modifications to its Big Bend and Gannon generating plants
without obtaining permits and installing the best available pollution control
equipment as required by the Prevention of Significant Deterioration provisions
of the Clean Air Act and the requirements of the SIP.
On Feb. 29, 2000, Tampa Electric Company, the U.S. Environmental
Protection Agency and the U.S. Department of Justice announced they had
resolved the federal agencies' pending enforcement actions (including the NOV)
filed last year against Tampa Electric. The resolution, which was in the form
of a consent decree, resulted in full and final settlement of the November 1999
federal litigation and NOV alleging violations of the New Source Review (NSR)
requirements of the Clear Air Act. The Consent Decree was lodged with the U.S.
District Court for the Middle District of Florida in Tampa, Florida, and is
subject to a 30-day public comment period, before it may be entered by the
Court at which time it will become effective. See the discussion under TAMPA
ELECTRIC--ELECTRIC OPERATIONS - ENVIRONMENTAL MATTERS.
Gatliff Coal Company has been the subject of a federal investigation
arising from the discharge of waste water from an orphan mine pit that
allegedly was not in compliance with discharge restrictions in applicable
permits. In February 2000, in order to resolve this matter, Gatliff agreed in
principle to accept a misdemeanor violation of the Rivers and Harbors Act for
negligent discharge of waste, and to pay a fine of $20,000 and contribute
$180,000 to environmental protection projects in the region. Gatliff's
agreement is conditioned on the federal government's agreeing that neither
Gatliff nor its affiliates will be subject to debarment or suspension with
respect to governmental contracts as a result of the plea agreement. An earlier
proceeding at the state level was resolved through a consent order under which
Gatliff paid approximately $7,000 in fines.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter of 1999 to a vote of
TECO Energy's security holders, through the solicitation of proxies or
otherwise.
19
<PAGE> 20
EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the current executive officers of TECO Energy is as
follows:
<TABLE>
<CAPTION>
CURRENT POSITIONS AND PRINCIPAL
NAME AGE OCCUPATIONS DURING LAST FIVE YEARS
---- --- ----------------------------------
<S> <C> <C>
Robert D. Fagan 55 Chairman of the Board, President and Chief Executive Officer, December
1999 to date; President and Chief Executive Officer, May 1999 to December
1999; and prior thereto, President of PP&L Global, Inc. (independent power),
Fairfax, Virginia.
William N. Cantrell 47 President-Peoples Gas Companies, June 1997 to date; Director of Peoples Gas
Transition Team, January 1997 to June 1997; Vice President-Energy Supply
of Tampa Electric Company, April 1995 to January 1997; and prior thereto,
Vice President-Energy Resources Planning of Tampa Electric Company.
Roger A. Dunn 57 Vice President-Human Resources, July 1995 to date; and prior thereto, Senior
Vice President-Human Resources and Corporate Affairs of LTV Corporation
(steel manufacturer), Cleveland, Ohio.
Royston K. Eustace 58 Senior Vice President-Business Development, April 1998 to date; and prior
thereto, Vice President-Strategic Planning and Business Development.
Gordon L. Gillette 40 Vice President-Finance and Chief Financial Officer, April 1998 to date; Vice
President-Regulatory Affairs, April 1997 to April 1998; Vice President-
Regulatory and Business Strategy of Tampa Electric Company, April 1996 to
April 1997; Vice President-Regulatory Affairs of Tampa Electric Company,
January 1995 to April 1996.
Richard Lehfeldt 48 Senior Vice President-External Affairs, November 1999 to date; and prior
thereto, Vice President and Assistant General Counsel of Edison Mission
Energy (independent power), Irvine, California.
Richard E. Ludwig 54 Vice President-Independent Power Operations, and President-TECO Power
Services Corporation, 1992 to date.
Sheila M. McDevitt 53 Vice President-General Counsel, January 1999 to date; and prior thereto, Vice
President-Assistant General Counsel.
John B. Ramil 44 President of Tampa Electric Company, April 1998 to date; Vice President-
Finance and Chief Financial Officer, November 1997 to April 1998; Vice
President-Energy Services and Planning of Tampa Electric Company,
November 1994 to November 1997; Vice President-Energy Services and Bulk
Power of Tampa Electric Company, April 1994 to November 1994.
D. Jeffrey Rankin 53 President-TECO Transport Corporation, 1981 to date.
</TABLE>
There is no family relationship between any of the persons named
above. The term of office of each officer extends to the meeting of the Board
of Directors following the next annual meeting of shareholders, scheduled to be
held on April 19, 2000, and until his successor is elected and qualified.
20
<PAGE> 21
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The following table shows the high, low and closing sale prices for
shares of TECO Energy common stock, which is listed on the New York Stock
Exchange, and dividends paid per share, per quarter.
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
--- --- --- ---
<S> <C> <C> <C> <C>
1999
----
High $28 $23 13/16 $23 1/8 $22 1/2
Low $19 7/8 $19 3/4 $19 5/8 $18 3/8
Close $19 7/8 $22 3/4 $21 1/8 $18 9/16
Dividend $.31 $.325 $.325 $.325
1998
----
High $28 1/2 $28 5/16 $28 7/8 $30 5/8
Low $25 9/16 $25 3/16 $24 3/4 $26 3/4
Close $28 1/4 $26 13/16 $28 9/16 $28 3/16
Dividend $.295 $.31 $.31 $.31
</TABLE>
- -------------------
The approximate number of shareholders of record of common stock of
TECO Energy as of Feb. 29, 2000 was 26,031.
TECO Energy's primary source of funds is dividends from its operating
companies. Tampa Electric's first mortgage bonds and certain long-term debt
issues at Peoples Gas System contain provisions that limit the payment of
dividends on the common stock of Tampa Electric Company. Substantially all of
Tampa Electric Company's retained earnings were available for dividends
throughout 1999.
21
<PAGE> 22
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
YEAR ENDED DEC. 31, ------------ ------------- ------------- ------------ -------------
(millions, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues $ 1,983.0 $ 1,955.7 $ 1,860.8 $ 1,773.2(4) $ 1,656.6(4)
============ ============= ============= ============ =============
Net income:
From continuing operations $ 200.9(1) $ 204.2(2) $ 211.5(3) $ 217.6(4) $ 201.9(4)
From discontinued operations (2.5) (3.8) (6.6) (1.1) (1.6)
Disposal of discontinued
operations (12.3) 6.1 (3.0) -- --
------------ ------------- ------------- ------------ -------------
Net income $ 186.1(1) $ 206.5(2) $ 201.9(3) $ 216.5(4) $ 200.3(4)
============ ============= ============= ============ =============
Total assets $ 4,690.1 $ 4,179.3 $ 3,960.4 $ 3,901.6(4) $ 3,801.0(4)
Long-term debt $ 1,207.8 $ 1,279.6 $ 1,080.2 $ 1,118.0(4) $ 1,126.4(4)
Earnings per average share (EPS)
outstanding -- basic:
From continuing operations $ 1.53(1) $ 1.55(2) $ 1.62(3) $ 1.68(4) $ 1.57(4)
From discontinued operations (0.02) (0.03) (0.05) (0.01) (0.01)
Disposal of discontinued
operations (0.09) .05 (0.03) -- --
------------ ------------- ------------- ------------ -------------
Earnings per average common
share outstanding -- basic $ 1.42(1) $ 1.57(2) $ 1.54(3) $ 1.67(4) $ 1.56(4)
============ ============= ============= ============ =============
Common dividends paid per
common share (5) $ 1.285 $ 1.225 $ 1.165 $ 1.105 $ 1.0475
</TABLE>
- -----------------
(1) Includes the effect of charges discussed in NOTE L on page 61, which
reduced net income by $19.6 million and earnings per share by $0.15 in
1999.
(2) Includes the effect of charges discussed in NOTE L on page 61, which
reduced net income by $19.6 million and earnings per share by $0.15 in
1998.
(3) Includes the effect of merger-related transaction expenses, which reduced
net income by $5.3 million and earnings per share by $0.04 in 1997.
(4) Amounts shown prior to 1997 have been restated to include the results of
the Peoples companies merger.
(5) Dividend paid for TECO Energy Common Stock (not restated for Peoples Gas
companies merger).
22
<PAGE> 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
THE MANAGEMENT'S DISCUSSION AND ANALYSIS WHICH FOLLOWS CONTAINS FORWARD-LOOKING
STATEMENTS WHICH ARE SUBJECT TO THE INHERENT UNCERTAINTIES IN PREDICTING FUTURE
RESULTS AND CONDITIONS. CERTAIN FACTORS THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE PROJECTED IN THESE FORWARD-LOOKING STATEMENTS ARE
SET FORTH IN THE INVESTMENT CONSIDERATIONS SECTION.
EARNINGS SUMMARY:
TECO Energy's basic earnings from continuing operations were $1.53 per
share in 1999 compared with $1.55 per share in 1998. Earnings were $1.42 per
share in 1999, which include charges of $.11 per share for discontinued
operations reflecting management's decision to exit TeCom's automated energy
management systems business in 1999. This compares with earnings of $1.57 per
share in 1998, which included a gain of $.02 per share reflecting a net gain
from discontinued oil and gas operations partially offset by losses at TeCom.
In September 1999, TECO Energy's Board of Directors authorized a
$150-million share repurchase program, representing approximately 5 percent of
the company's outstanding common stock. As of the end of 1999, 5.4 million
shares had been repurchased, constituting approximately 75 percent of the
authorized program. Because the shares were repurchased late in the year, the
effect on earnings per share in 1999 was immaterial.
<TABLE>
<CAPTION>
1999 CHANGE 1998 CHANGE 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
EARNINGS PER SHARE - BASIC
Continuing operations $ 1.53 -1.3% $ 1.55 -4.3% $ 1.62
Discontinued operations (.11) -- .02 -- (.08)
------- ------ ------
Earnings per share $ 1.42 -9.6% $ 1.57 1.9% $ 1.54
====== ====== ======
EARNINGS PER SHARE - DILUTED
Continuing operations $ 1.53 -.6% $ 1.54 -4.3% $ 1.61
Discontinued operations (.11) -- .02 -- (.07)
------ ------ ------
Earnings per share $ 1.42 -9.0% $ 1.56 1.3% $ 1.54
====== ====== ======
NET INCOME FROM CONTINUING
OPERATIONS (millions) $200.9 -1.6% $204.2 -3.5% $211.5
AVERAGE COMMON SHARES
OUTSTANDING
Basic (millions) 131.0(1) -.5% 131.7 .7% 130.8
Diluted (millions) 131.2(1) -.8% 132.2 .8% 131.2
</TABLE>
- -----------------
(1) Average shares outstanding for 1999 reflects the repurchase of 5.4 million
shares between inception of the program in September and year-end.
Earnings in 1999 and 1998 were affected by certain events and
adjustments that were unusual in nature and resulted in charges which are not
expected to recur in future periods. These charges are described in the CHARGES
TO EARNINGS section on pages 20 and 21. In addition, earnings in 1997 included
net charges of $.04 per share related to the merger with the Peoples Gas
companies.
23
<PAGE> 24
The following table shows earnings per share from continuing operations in each
year without the effects of these charges.
<TABLE>
<CAPTION>
1999 CHANGE 1998 CHANGE 1997
----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
EARNINGS PER SHARE BY OPERATING
GROUP - BASIC (FROM CONTINUING
OPERATIONS, WITHOUT CHARGES)
Regulated companies
Tampa Electric $1.06 -.9% $1.07 3.9% $1.03
Peoples Gas System .15 25.0% .12 9.1% .11
Diversified companies/other .47 -7.8% .51 -1.9% .52
----- ----- -----
EARNINGS PER SHARE, WITHOUT CHARGES $1.68 -1.2% $1.70 2.4% $1.66
===== ===== =====
PER-SHARE CHARGES BY OPERATING GROUP
Regulated companies
Tampa Electric $(.11) $(.07) $ --
Peoples Gas System -- -- (.01)
Diversified companies/other (.04) (.08) (.03)
----- ----- -----
$(.15) $(.15) $(.04)
===== ===== =====
RETURN ON AVERAGE COMMON EQUITY
FROM CONTINUING OPERATIONS
Including charges 13.2% 13.3% 14.3%
Without charges 14.5% 14.5% 14.7%
</TABLE>
CHARGES TO EARNINGS
1999 CHARGES
In 1999 and 1998 TECO Energy recognized certain charges that were
unusual and nonrecurring in nature. These charges in 1999 totaled $21.1 million
pretax ($19.6 million after tax, or $.15 per share) and consisted of the
following:
Tampa Electric recorded a charge of $10.5 million ($6.4 million
after-tax) based on Florida Public Service Commission (FPSC) audits of its 1997
and 1998 earnings which, among other things, limited its regulatory equity
ratio to 58.7 percent, a decrease of 91 basis points and 224 basis points from
1997's and 1998's ratios, respectively.
Tampa Electric also recorded a charge of $3.5 million after tax,
representing management's estimate of additional expense to resolve the
litigation filed by the United States Environmental Protection Agency (EPA).
See the ENVIRONMENTAL COMPLIANCE section.
After-tax charges totaling $6.1 million were also recorded reflecting
corporate income tax provisions and settlements related to prior years' tax
returns. These charges were recorded at Tampa Electric (a $3.8-million net
after-tax charge, after recovery under the then- current regulatory agreement),
and at TECO Energy (a $2.3-million after-tax charge).
A charge of $6.0 million ($3.6 million after tax) was recorded to
adjust the carrying value of certain investments in leveraged aircraft leases
to reflect lower anticipated residual values.
1998 CHARGES
In 1998, TECO Energy recorded charges totaling $31.1 million pretax
($19.6 million after tax, or $.15 per share). These charges consisted of the
following:
TECO Coal recorded a charge of $13.6 million ($8.9 million after tax)
to adjust the asset values of certain mining facilities, primarily at its
Gatliff mine, to reflect their expected value after the expiration of the Tampa
Electric contract at the end of 1999. TECO Coal expects no further asset
adjustments related to the expiration of the Tampa Electric contract.
The FPSC ruled in September 1997 that under the regulatory agreements
effective through 1999 the costs associated with two long-term wholesale power
sales contracts should be assigned to the wholesale jurisdiction and that for
retail rate-making purposes the costs transferred from retail to wholesale
should reflect average costs rather than the lower incremental costs on which
the two contracts were based. As a result of this decision and the related
reduction of the retail rate base upon which Tampa Electric is allowed to earn
a return, these contracts became uneconomic. One contract was terminated in
1997. As to the other contract, which expires in March 2001, Tampa Electric
entered into firm power purchase contracts with third parties to provide
replacement power through 1999 and the associated generation assets are no
longer separated from the retail jurisdiction. The cost of purchased power
under these contracts exceeded the revenues expected through 1999. To reflect
this difference, Tampa Electric recorded a $9.6 million charge ($5.9-million
after-tax) in 1998. In November 1999, the FPSC approved a company proposed
treatment for the remaining 14 1/2 months of the contract that flows 100
percent of the revenues from the contract back to retail customers.
24
<PAGE> 25
Tampa Electric also recorded a charge of $7.3 million ($4.4 million
after tax) in other expense for an FPSC decision in 1998 denying recovery of
certain BTU coal quality price adjustments for coal purchases since 1993.
TECO Energy recorded $0.4 million, after tax, representing
merger-related costs in 1998 in connection with the Griffis, Inc. merger.
STRATEGY AND OUTLOOK
TECO Energy's strategy, which was first articulated in specific terms
in September 1999, includes three major components: grow its Florida
operations, which include Tampa Electric and Peoples Gas, grow its TECO Power
Services independent power operations and maximize the value of the TECO
Transport water transportation business.
Management has stated that its objective for 2000 is to achieve
earnings per share growth of 7 percent over 1999's normalized earnings base of
$1.68, which excludes the effect of the charges discussed previously. Because
of the nature and timing of recent investments, this earnings growth is
expected to be higher in the latter part of the year.
Management's expectations for the various operating companies are
summarized below:
Tampa Electric and Peoples Gas System are positioned to see growth in
sales and earnings at or above the rate of customer growth, which is estimated
at 2.5 percent and about 4 percent, respectively.
TECO Power Services has several important projects coming online in
2000 and also expects continued earnings growth from existing projects. As a
result, management expects the 2000 earnings contribution from TECO Power
Services to be more than double 1999's earnings and more than triple 1998's
earnings.
At TECO Transport, management expects a return to normal shipments to
Tampa Electric in 2000, but anticipates continued weakness in the depressed
export coal market. Assuming that the export coal market remains depressed
throughout the year, the company expects about 7 percent growth from TECO
Transport in 2000.
TECO Coal expects to benefit from the mid-year addition of recently
acquired synthetic fuel facilities, including the related Section 29
non-conventional fuels credits. Management expects these benefits to
substantially offset the decline expected from the 1999 expiration of the coal
sales contract with Tampa Electric.
TECO Coalbed Methane expects production to decline at a normal 6 to 7
percent rate. Forward gas prices for 2000 indicate prices higher than 1999
which, if realized, could produce earnings in 2000 at or near 1999 levels.
The company expects higher borrowing levels in 2000 associated with
additional investments in the operating businesses. These borrowings, combined
with higher expected interest rates throughout the year, are expected to result
in interest costs approximately $.07 per share higher in 2000, excluding any
interest related to the share repurchase program. Management expects to
complete the share repurchase program in 2000 and estimates a positive net
benefit to earnings of about $.04 per share, including any interest costs
associated with borrowing for shares repurchased.
The above forward-looking statements are subject to many factors that
could cause actual results and conditions to differ materially from those
projected in these statements. See the INVESTMENT CONSIDERATIONS section.
OPERATING RESULTS
TECO ENERGY'S OPERATING RESULTS
Operating income in 1999, excluding charges described in the CHARGES
TO EARNINGS section, declined 2 percent to $415.7 million, primarily from the
recognition of a $17.5 million net benefit from deferred revenues at Tampa
Electric in 1998 which was not available in 1999. For a description of deferred
revenues, see the UTILITY REGULATION - RATE STABILIZATION STRATEGY section.
Contributing favorably to operating income in 1999 were strong Tampa Electric
customer growth of over 2.5 percent and lower operations and maintenance
expenses at both Tampa Electric and Peoples Gas System. TECO Transport and TECO
Power Services achieved higher operating income, while TECO Coal's and TECO
Coalbed Methane's operating income were lower.
In 1998, operating income, excluding charges described in the CHARGES
TO EARNINGS section, grew 3 percent to $424.5 million. Tampa Electric and
Peoples Gas System contributed to the increase, reflecting good growth from a
strong local economy, expansion of the gas system and the recognition of $38.3
million of previously deferred revenues at Tampa Electric. TECO Coal and TECO
Transport also achieved higher operating income, while TECO Power Services and
TECO Coalbed Methane's operating income were lower.
Operating income in 1997 of $412.7 million reflected the recognition
of $30.5 million of previously deferred revenues at Tampa Electric, the
inclusion of Polk Unit One in rate base for earnings purposes and strong
performance by the diversified companies, particularly TECO Transport.
The following table shows the unconsolidated revenues and operating
income from continuing operations of the significant business segments,
excluding charges described in the CHARGES TO EARNINGS section. For additional
detail, refer to the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - FOOTNOTE K,
SEGMENT INFORMATION.
25
<PAGE> 26
<TABLE>
<CAPTION>
CONTRIBUTIONS BY OPERATING GROUP (UNCONSOLIDATED)
(millions) 1999 CHANGE 1998 CHANGE 1997
---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
REVENUES
Tampa Electric $1,199.8(1) -2.8% $1,234.6(2) 3.8% $1,189.2(3)
Peoples Gas System 251.7 -.4% 252.8 1.3% 249.6
Diversified companies(4)
TECO Transport 251.9 9.5% 230.0 5.2% 218.7
TECO Coal 237.3 2.1% 232.4 7.8% 215.6
TECO Power Services 109.5 10.9% 98.7 6.1% 93.0
Other diversified businesses 109.8 -.7% 110.6 6.7% 103.7
OPERATING INCOME(4)
Tampa Electric $ 263.9 -5.6% $ 279.7 3.0% $ 271.5
Peoples Gas System 43.2 20.7% 35.8 6.5% 33.6
Diversified companies(5)
TECO Transport 46.8 8.3% 43.2 2.6% 42.1
TECO Coal 21.5 -8.5% 23.5 18.1% 19.9
TECO Power Services 17.3 33.1% 13.0 -14.5% 15.2
Other diversified businesses 33.0 -12.7% 37.8 -.8% 38.1
</TABLE>
(1) Includes $11.9 million of deferred revenues. This amount is before the
$7.9 million deferred revenue benefit recognized under the regulatory
agreement related to the charge for tax settlements, described in the
CHARGES TO EARNINGS section.
(2) Includes the recognition of previously deferred revenues totaling $38.3
million offset by temporary base rate reductions of $20.8 million,
described in the UTILITY REGULATION - RATE STABILIZATION STRATEGY section.
(3) Includes the recognition of previously deferred revenues totaling $30.5
million offset by temporary base rate reductions of $4.6 million,
described in the UTILITY REGULATION - RATE STABILIZATION STRATEGY section.
(4) From continuing operations, excluding the charges described in the CHARGES
TO EARNINGS section.
(5) Includes items that were reclassified for consolidated financial statement
purposes. The principal items are the non- conventional fuels tax credit
related to coalbed methane production and interest expense on the
limited-recourse debt related to the independent power operations. In the
Consolidated Statements of Income, the tax credit is part of the provision
for income taxes and the interest is part of interest expense. Certain
amounts have been restated to conform to current year presentation.
TAMPA ELECTRIC - ELECTRIC OPERATIONS
TAMPA ELECTRIC OPERATING RESULTS
Tampa Electric's 1999 operating income, before charges described in
the CHARGES TO EARNINGS section, decreased 6 percent from 1998. Results in 1999
included the deferral of $11.9 million of revenues excluding an offsetting
nonrecurring pretax benefit of $7.9 million of deferred revenues recognized
under the then current regulatory agreement related to the charge for tax
settlements. 1998's results reflected the recognition of $38.3 million of
previously deferred revenues partially offset by a $20.8 million temporary base
rate reduction. Favorably impacting 1999, customer growth was 2.5 percent and
operations and maintenance expenses were $9.6 million lower, primarily the
result of efficiency improvements in 1999. Expenses were higher in 1998,
primarily to enhance system reliability.
<TABLE>
<CAPTION>
SUMMARY OF OPERATING RESULTS
(millions) 1999 CHANGE 1998 CHANGE 1997
------------ ------ ------------ ------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 1,199.8(1) -2.8% $ 1,234.6(2) 3.8% $ 1,189.2(3)
Operating expenses 935.9 -2.0% 954.9(4) 4.1% 917.7
---------- ----------
Operating income $ 263.9 -5.6% $ 279.7 3.0% $ 271.5
========== ========== ==========
</TABLE>
(1) Includes $11.9 million of deferred revenues. This amount is before the
$7.9 million deferred revenue benefit recognized under the regulatory
agreement related to the charge for tax settlements, described in the
CHARGES TO EARNINGS section.
(2) Includes the recognition of previously deferred revenues totaling $38.3
million offset by temporary base rate reductions of $20.8 million,
described in the UTILITY REGULATION - RATE STABILIZATION STRATEGY SECTION.
(3) Includes the recognition of previously deferred revenues totaling $30.5
million offset by temporary base rate reductions of $4.6 million,
described in the UTILITY REGULATION - RATE STABILIZATION STRATEGY SECTION.
26
<PAGE> 27
(4) Excludes a pretax charge of $9.6 million for treatment of a wholesale
contract, described in the CHARGES TO EARNINGS section.
TAMPA ELECTRIC OPERATING REVENUES
The economy in Tampa Electric's service area continued to grow in
1999, with increased employment from corporate relocations and expansions. The
Tampa metropolitan area's employment grew over 5 percent in 1999, placing it
among the top five in the U.S. for job growth.
Tampa Electric's 1999 operating revenues decreased 3 percent,
primarily because the company deferred revenues in 1999, while in 1998 it
benefitted from the recognition of revenues deferred in prior years. The
company experienced customer growth of 2.5 percent while retail energy sales
were 1.4 percent lower. Tampa Electric's 1998 revenues, including recognition
of $38.3 million of previously deferred revenues partially offset by a $20.8
million temporary base rate reduction, increased almost 4 percent, with
customer growth increasing 2.3 percent and retail energy sales up 6.2 percent.
Overall, the company experienced a higher-margin customer mix in 1999,
primarily the result of retail customer growth of 2.5 percent and strong
commercial sales. Total retail energy sales were lower primarily due to a
slowdown in the phosphate industry, the lowest margin sector.
Combined residential and commercial energy sales increased slightly in
1999, as the addition of almost 13,000 new customers more than offset the
effects of mild weather. These sales increased over 7 percent in 1998,
reflecting the addition of almost 12,000 customers and increased demand during
warmer-than-normal summer weather.
Non-phosphate industrial sales increased in 1999 and 1998, reflecting
the shift of some commercial customers to the industrial classification to take
advantage of favorable tax law changes on electricity used in manufacturing.
This shift does not affect Tampa Electric revenues.
Sales to the phosphate industry declined in 1999 and in 1998. The
phosphate industry has experienced a slowdown over the past two years. Several
mines were shut down in late 1998, and additional closures were announced in
1999. The phosphate industry is currently experiencing lower pricing and
oversupply. According to phosphate industry sources, the market is expected to
remain in this downturn for the next two years and to rebound in 2002. Revenues
from phosphate sales represented slightly less than 3 percent of base revenues
in 1999 and in 1998.
Based on expected growth reflecting population increases and business
expansion, Tampa Electric projects retail energy sales growth of approximately
2.5 percent annually over the next five years, with combined energy sales
growth in the residential and commercial sectors of almost 3 percent annually.
Energy sales to non-phosphate industrial customers are expected to grow almost
2 percent annually over the next five years.
These growth projections assume continued local area economic growth,
normal weather and certain other factors. See the INVESTMENT CONSIDERATIONS
section.
Non-fuel revenues from sales to other utilities were $37 million in
1999, $36 million in 1998 and $39 million in 1997. Megawatt hours sold to other
utilities decreased in 1999 primarily because of mild weather and lower Tampa
Electric generating unit availability. The slight increase in non-fuel revenues
in 1999 was the result of increased partial-requirement sales due to
contractual escalations in megawatt requirements.
<TABLE>
<CAPTION>
MEGAWATT-HOUR SALES
(thousands) 1999 CHANGE 1998 CHANGE 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Residential 6,967 -1.2% 7,050 8.5% 6,500
Commercial 5,336 3.2% 5,173 5.5% 4,901
Industrial 2,224 -11.7% 2,520 2.2% 2,466
Other 1,278 -0.5% 1,284 5.0% 1,223
------ ------ ------
Total retail 15,805 -1.4% 16,027 6.2% 15,090
Sales for resale 2,160 -13.1% 2,486 -21.3% 3,160
------ ------ ------
Total energy sold 17,965 -3.0% 18,513 1.4% 18,250
====== ====== ======
Retail customers (average) 543.7 2.5% 530.3 2.3% 518.4
===== ===== =====
</TABLE>
TAMPA ELECTRIC OPERATING EXPENSES
Overall expenses were down 2 percent in 1999, reflecting lower fuel
consumption and lower operations and maintenance expense. Partially offsetting
these reductions were property tax settlements and environmental study costs
associated with the state environmental settlement described below and in the
ENVIRONMENTAL COMPLIANCE section.
Non-fuel operations and maintenance expenses decreased 4 percent in
1999, the result of effective cost management and improved efficiency
throughout the company. Required expenditures to enhance system reliability and
timing of generation station outages contributed to the higher maintenance
costs in 1998.
Tampa Electric's 250-megawatt, state-of-the-art, clean-coal technology
Polk Unit One was placed into service in late 1996. Between 1996 and 1999, a
total of approximately $29 million was received from the U.S. Department of
Energy (DOE) to partially offset the unit's non-fuel operations and maintenance
expenses. 1999 was the last year in which Tampa Electric was eligible to
receive DOE funding for Polk Unit One.
27
<PAGE> 28
Non-fuel operations and maintenance expenses in 2000 are expected to
be higher than in 1999, reflecting the discontinuance of DOE funding of $6 to 7
million and operating expenses estimated at $4 to 5 million associated with the
new Big Bend flue-gas desulfurization system, described in the ENVIRONMENTAL
COMPLIANCE section. Following 2000, expenses are expected to increase at or
below the rate of inflation over the next several years.
<TABLE>
<CAPTION>
OPERATING EXPENSES
(millions) 1999 CHANGE 1998 CHANGE 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Other operating expenses $163.6 -1.3% $165.7 .4% $165.1
Maintenance 87.1 -7.9% 94.6 21.0% 78.2
Depreciation 147.6 1.0% 146.1 3.3% 141.4
Taxes, other than income 98.8 1.6% 97.2 5.9% 91.8
------ ------ ------
Operating expenses 497.1 -1.3% 503.6 5.7% 476.5
------ ------ ------
Fuel 304.0 -17.1% 366.6 -1.8% 373.4
Purchased power 134.8 59.1% 84.7 25.1% 67.8
------ ------ ------
Total fuel expense 438.8 -2.8% 451.3 2.3% 441.2
------ ------ ------
Total operating expenses $935.9 -2.0% $954.9 4.1% $917.7
====== ====== ======
</TABLE>
Reflecting normal plant additions to serve the growing customer base,
depreciation expense increased 1 percent in 1999 and 3.3 percent in 1998.
Depreciation expense is projected to rise significantly for the next several
years due to the addition of a flue gas desulfurization system in 2000 and
expected additional depreciation of certain assets related to the Gannon
repowering project. See the ENVIRONMENTAL COMPLIANCE section.
Taxes other than income increased in 1999 as a result of higher
property taxes due to the settlement of prior year tax issues with Polk County.
This settlement clarified issues mainly related to Polk Unit One for 1997, 1998
and beyond in a manner satisfactory to the company. Taxes other than income
increased in 1998 as a result of higher gross receipts taxes and franchise fees
related to higher energy sales. The sales-related taxes are recovered through
customer bills.
Fuel expense decreased in 1999 from 1998 due to lower energy sales and
a higher reliance on purchased power attributable to lower unit availability.
Average coal costs, on a cents-per-million BTU basis, increased slightly in
1999 and 1 percent in 1998. In 1998, the FPSC disallowed, retroactively to the
beginning of 1993, certain quality adjustments for coal purchased from a Tampa
Electric affiliate, resulting in a pretax charge of $7.3 million.
Purchased power increased in 1999 due to lower unit availability, the
provision of replacement power for certain wholesale power sales contracts and
an explosion at the Gannon plant in April. In 1998, purchased power increased
primarily due to weather-related demand. In each year, substantially all fuel
and purchased power expenses were recovered through the fuel adjustment clause.
Nearly all of Tampa Electric's generation in the last three years has
been from coal, and the fuel mix is expected to continue to be substantially
comprised of coal until 2003 when the first of three repowered units is
scheduled to begin operating on natural gas. See the ENVIRONMENTAL COMPLIANCE
section.
External forecasts indicate relatively stable coal prices for the next
few years. On a total energy supply basis, company- generation accounted for 88
percent of the total system energy requirement in 1999, compared with 92
percent in 1998.
On April 8, 1999, an explosion at Tampa Electric's Gannon Station Unit
Six, a 375-megawatt generator that was off line for scheduled spring
maintenance, resulted in damage to the unit, the temporary shut down of the
other five units at the Station and injuries to 45 employees and contractors,
including three fatalities. The units at Gannon Station that were affected by
the accident were returned to service in the second and third quarter. The cost
of replacement fuel and purchased power totaled $5 million; $1.8 million was
approved by the FPSC for recovery through Tampa Electric's fuel and purchased
power clause with little impact on customer rates, and the balance was
recovered from interruptible customers. The costs resulting from the accident
were substantially covered by insurance. The impact on current-year operation
and maintenance expenses was approximately $2 million. The U.S. Occupational
Safety and Health Administration (OSHA) concluded its safety investigation at
the Gannon Station. OSHA found no willful violations, and Tampa Electric agreed
not to contest OSHA's citations. Tampa Electric paid $30,075 in fines to OSHA
largely related to the explosion at the Gannon plant. This amount included a
reduction of 10 percent due to the company's excellent safety history.
PEOPLES GAS SYSTEM
Peoples Gas System (PGS) achieved operating income growth of 21
percent in 1999, with the increase due primarily to new customer additions from
system expansion and lower operating expenses resulting from management's
decision to discontinue the appliance sales and service business in mid-1998.
The benefits of customer growth for the year were partially offset by the less
favorable weather patterns during 1999.
Operating income grew 7 percent in 1998, from new customer additions
and higher average utilization per customer. The benefits of customer growth
for the year were partially offset by the effects of warmer-than-normal weather
during the winter months and by restructuring costs associated with
management's decision to exit the appliance sales and service business.
28
<PAGE> 29
The actual cost of gas and upstream transportation purchased and
resold to end-use customers is recovered through a Purchased Gas Adjustment
(PGA) clause approved by the FPSC.
<TABLE>
<CAPTION>
SUMMARY OF OPERATING RESULTS
(millions) 1999 CHANGE 1998 CHANGE 1997
------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenues $ 251.7 -.4% $252.8 1.3% $249.6
Cost of gas sold 107.7 -6.7% 115.4 -3.5% 119.6
Operating expenses 100.8 -.8% 101.6 5.4% 96.4
------- ------ ------
Operating income $ 43.2 20.7% $ 35.8 6.5% $ 33.6
======= ====== ======
Therms sold (millions) - by Customer Segment
Residential 52.1 -1.1% 52.7 7.8% 48.9
Commercial 273.5 2.8% 266.0 7.4% 247.6
Industrial 331.9 8.8% 305.0 5.7% 288.6
Power Generation 405.2 40.5% 288.3 -8.4% 314.7
------- ------ ------
Total 1,062.7 16.5% 912.0 1.4% 899.8
======= ====== ======
Therms sold (millions) - By Sales Type
System Supply 300.0 -6.5% 320.8 9.6% 292.6
Transportation 762.7 29.0% 591.2 -2.6% 607.2
------- ------ ------
Total 1,062.7 16.5% 912.0 1.4% 899.8
======= ====== ======
Customers (thousands) - average 248.4 3.7% 239.6 2.2% 234.4
======= ====== ======
</TABLE>
Residential therm sales decreased slightly in 1999, the result of less
favorable weather patterns in the first quarter offset in part by new customer
additions. Therm sales to commercial customers increased in 1999, reflecting a
growing number of higher- margin customers.
Operating revenues from residential customers increased 2 percent in
1999. Revenue from commercial customers decreased 9 percent, while revenues
from industrial and power generation customers were up approximately 33
percent.
The increase in operating revenues in the residential segment reflects
higher revenue from monthly customer charges, the result of strong residential
customer growth in 1999.
The decline in operating revenues from the commercial segment reflects
a shift from commodity sales to transportation sales for a growing number of
commercial customers. For commodity sales, the cost-of-gas pass-through is
included in operating revenues; for transportation customers, there is no
cost-of-gas pass-through. Therefore, the net financial impact to the company is
the same for both groups.
Operating expenses decreased in 1999, reflecting cost savings
associated with management's decision in mid-1998 to exit the appliance sales
and service business.
PGS expects to invest an average of $50 to $60 million per year for
the next five years to grow the business. Infrastructure is being expanded both
in areas currently served and in areas not yet served by natural gas.
In 1998, PGS announced plans to expand into the Southwest Florida
market providing service to Fort Myers, Naples, Cape Coral and surrounding
areas. In 1999, the company began connecting customers and delivering gas to
North Fort Myers and expects to complete the long-haul portion of this
extension of its distribution system by the end of the first quarter of 2000.
External sources anticipate that more than 100,000 new homes and businesses
will be added in this market over the next decade, representing a significant
opportunity for growth in the high-end residential and the commercial customer
sectors.
The company also has expanded service to the U.S. Naval Station at
Mayport near Jacksonville and anticipates that the Mayport facilities and
surrounding communities will use over 2.6 million therms of natural gas
annually. In addition, PGS will construct 19 miles of pipeline in 2000 to
connect Jacksonville Electric Authority's planned combustion turbine generating
units.
PGS expects increases in sales volumes and corresponding revenues in
2000, and continued customer additions and related revenues reflecting the
Southwest Florida expansion and other expansion efforts throughout the state.
These growth projections assume continued local area economic growth,
normal weather and other factors. See the INVESTMENT CONSIDERATIONS section.
PGS is the largest investor-owned gas distribution utility in Florida,
with about 70 percent of the investor owned local distribution company market.
It serves approximately 250,000 customers in all of the major metropolitan
areas of Florida.
29
<PAGE> 30
TECO POWER SERVICES
TECO Power Services (TPS) recorded significantly higher operating
income in 1999, reflecting contributions from new initiatives in 1999 and
growing contributions from existing operating projects and investments.
Capitalization of interest during construction on the San Jose Power Station
also contributed to the improved results for the year.
Higher contributions to earnings were made by the Hardee and Alborada
plants, reflecting lower interest expense as debt balances were reduced. In
addition, TM Power Ventures (TMPV), the Mosbacher Power Partners joint venture
which was added in 1998, yielded higher contributions in 1999 as new projects
began commercial operation. Empresa Electrica de Guatemala (EEGSA), the
Guatemalan electric utility in which TPS acquired a 24 percent interest in
1998, had better results in 1999 as operational improvements and customer
additions favorably impacted earnings.
In February 1999, TPS formed an alliance with Energia Global
International, Ltd. (EGI), a company with significant interests in Central
America. EGI has investments in four power projects in operation or under
construction in Costa Rica and Guatemala, and an electric distribution company
in El Salvador. TPS initially committed $25 million in the form of a loan, and
may provide an additional $9 million for new projects or acquisitions. TPS may
at a later time convert this loan into an equity position in EGI. The interest
income from the EGI loan contributed to TPS' net income in 1999 and will
provide similar contributions in 2000.
In September 1999, TPS announced a 75-megawatt expansion of its first
generation project, the 295-megawatt Hardee Power Station in Central Florida.
The added capacity at Hardee will serve the need of Tampa Electric and is
scheduled for completion in May 2000.
In November 1999, TPS announced its 50 percent participation in a
60-megawatt facility under construction in Hamakua, Hawaii. The first phase of
this project is expected to go into service in July 2000.
Also in November 1999, TMPV reached an agreement to build, own and
operate a 312-megawatt electric generating facility on the Delmarva Peninsula
in Virginia. The first phase of the planned $175-million project is scheduled
to go into service in June 2000.
In January 2000, TPS began commercial operation of its 120-megawatt
San Jose Power Station in Guatemala. TPS had increased its ownership interest
in this project to 67 percent in December 1999 and completed the acquisition of
the remaining ownership interest through a series of transactions with its
former partner in January 2000. TPS has a 15-year power supply agreement with
EEGSA, the same Guatemalan distribution utility in which TPS purchased an
equity interest in 1998.
TPS expects these projects to make meaningful contributions to
earnings in 2000 and expects its overall earnings in 2000 to be more than
double 1999's earnings and more than triple 1998 levels.
TPS recorded slightly lower operating income in 1998, reflecting a
significant increase in business development activity in 1998 and higher
interest expense. Although 1998's operating income was lower than in 1997, net
income was slightly higher, reflecting lower taxes in Guatemala. See the
INVESTMENT CONSIDERATIONS section.
TPS PROJECT SUMMARY
<TABLE>
<CAPTION>
TPS ECONOMIC IN SERVICE/
INTEREST PARTICIPATION
PROJECT LOCATION SIZE (%) DATE
- ------- -------- ---- ------------ -------------
<S> <C> <C> <C> <C>
Hardee Power Station Florida 370 MWs 100% Jan. 1993, May 2000
Alborada Power Station Guatemala 78 MWs 96% Sept. 1995
San Jose Power Station Guatemala 120 MWs 100% Jan. 2000
Hamakua Energy Project Hawaii 60 MWs 50% Jul. 2000, Nov. 2000
Commonwealth Chesapeake
Power Station Virginia 312 MWs 95% Jul. 2000, Jun. 2001
Energy Center Kladno
Generating(ECKG) Czech Republic 343 MWs 25% Jan. 2000
Empresa Electrica de
Guatemala (EEGSA) Guatemala 560,000 24% Sept. 1998
retail
electric customers
</TABLE>
30
<PAGE> 31
TECO TRANSPORT
Operating income at TECO Transport increased 8 percent in 1999
reflecting a strong export grain market and increased movements of
steel-related products on the river systems. Additionally, both depreciation
and fuel expense were lower. Partially offsetting these improvements, coal
shipments for Tampa Electric were down in 1999, and there was continued
weakness in the export coal market.
TECO Transport recorded slightly higher operating income in 1998,
primarily from utilizing added equipment on the river system, a full year's
operation of an ocean vessel acquired in 1997, increased northbound shipments
on the river, and lower fuel and depreciation expense. Improvements were
partially offset by a weak export coal market and extreme weather in 1998,
which created delays and difficult operating conditions in each of the
transportation businesses.
In mid-1998, TECO Transport expanded its river fleet by about 20
percent, adding 110 barges and three towboats.
Tampa Electric coal shipments are expected to return to normal levels
in 2000. The company expects grain shipments to remain strong, reflecting
continued support of the U.S. government sponsored grain export program.
However, grain shipments are expected to be lower than 1999 due to the pickup
in Tampa Electric volumes. In addition, weakness in the export coal market is
expected to continue.
TECO Transport expects to continue diversifying into new markets and
cargoes, including spot market grain sales in Puerto Rico and aggregates and
cement on Florida's east coast. Significant factors that will influence results
are weather, bulk commodity prices and domestic and international economic
conditions. See the INVESTMENT CONSIDERATIONS section.
TECO COAL
TECO Coal's operating income decreased almost 9 percent in 1999,
excluding the effect of a $13.6 million charge in 1998 described in the Charges
to Earnings section. Lower 1999 operating income reflected expected lower Tampa
Electric volumes and weak prices in the metallurgical and steam markets,
partially offset by higher third-party volumes and cost efficiencies.
In 1998, operating income, excluding the $13.6 million charge,
increased 18 percent due to continued growth in sales to the metallurgical and
steam markets, lower unit costs at the Gatliff and Clintwood Elkhorn facilities
and improved preparation plant performance at its Clintwood Elkhorn facility.
Coal sales increased to 7.2 million tons in 1999, compared with 6.8
million tons in 1998 and 6.1 million tons in 1997. Volumes in 2000 are expected
to exceed 8 million tons.
Tampa Electric shipments represented 7 percent of total volumes in
1999 and 11 percent in 1998. Shipments to Tampa Electric of 510,000 tons
declined by about 33 percent in 1999 after a 25 percent decline in 1998.
Success in burning alternative lower-cost steam coals has enabled Tampa
Electric to adopt a strategy of phasing down coal shipments from TECO Coal for
the last several years. The contract with Tampa Electric expired at the end of
1999 and was not renewed.
In June 1999, TECO Coal acquired the assets of Race Fork Coal in
Buchanan County, Virginia. These assets included a preparation plant and
loadout facility and about 12 million tons of coal reserves that can be
marketed to both the metallurgical and steam markets. This operation will add
500,000 to 750,000 tons per year to Clintwood Elkhorn's existing operations.
In January 2000, TECO Coal purchased two synthetic fuel production
facilities to be located at the company's Premier Elkhorn and Clintwood Elkhorn
mines in Kentucky. The synthetic fuel production process utilizes a blend that
includes raw coal, low grade coal and coal fines. The facilities are expected
to be operational by mid-2000 and are expected to produce at least 720,000 tons
of synthetic fuel on an annual basis. Sales of the fuel processed through these
types of facilities are eligible for non-conventional fuels tax credits under
Section 29 of the Internal Revenue Code, which are available through 2007. TECO
Coal expects that these facilities will add at least $.04 per share to
consolidated earnings on an annual basis.
OTHER DIVERSIFIED COMPANIES
TECO COALBED METHANE'S operating income declined 14 percent in 1999
reflecting production decreases that were only partially offset by reduced
operating costs. Production declined to 16.6 billion cubic feet (Bcf) in 1999
from 17.6 Bcf in 1998. Effective gas prices, including the results of hedging,
fell $.12 per thousand cubic feet (Mcf) in 1999 and $.15 per Mcf in 1998.
Proven reserves were estimated at 159 Bcf as of year-end reflecting the
company's effective well restimulation efforts and the higher price of gas
which caused additional reserves to be considered economic. Proven reserves
were estimated at 162 Bcf in 1998.
In 1998, operating income decreased more than 22 percent as production
declined to 17.6 Bcf from 19.2 Bcf in 1997, more than offsetting lower per unit
operating costs.
Production is expected to decline 6 to 7 percent in 2000, reflective
of the normal declining production profile for these types of gas wells.
Production from TECO Coalbed Methane's reserves are eligible for
Section 29 non-conventional fuels tax credits
31
<PAGE> 32
through 2002. The credit has been level at $1.05 per Mcf since 1997 and is
expected to be $1.05 per Mcf in 2000.
All gas produced is sold under contract at spot market prices for the
life of the reserves. Although natural gas prices can be volatile, the Section
29 tax credits provide stability to TECO Coalbed Methane's operating results.
See the INVESTMENT CONSIDERATIONS section.
PEOPLES GAS COMPANY (PGC), the unregulated propane gas business
acquired in the 1997 Peoples Gas companies merger, is the largest independent
propane distributor in Florida.
In July 1999, the company acquired the assets of Commercial Propane,
Inc., a Southwest Florida-based propane distribution business delivering
900,000 gallons of propane annually. In January 1998, TECO Energy acquired
Griffis Gas, Inc. in a stock-for- stock merger transaction that was accounted
for as a pooling of interests. About 600,000 shares of TECO Energy common stock
were issued in the transaction. This acquisition facilitated growth of the
company's existing market in the Jacksonville area and expansion into new
markets in Gainesville and Ocala. Prior-year financial results were not
restated for the effects of this merger due to its size.
PGC's operating income decreased in 1999. Gallons sold were almost 9
percent above last year, despite unseasonably warm weather in the first
quarter. However, average margins were below the prior year level reflecting
higher fuel costs.
PGC's operating income increased significantly in 1998, reflecting
higher volumes resulting from the acquisition of Griffis Gas and two other
propane businesses, which increased its customer base by 40 percent. Operating
results were also favorably impacted by improved margins throughout the year.
Reflecting the impact of the acquisitions, operating expenses were higher in
1998, which partially offset the volume growth and improved margins.
The company ended 1999 with approximately 62,000 customers and sales
of 34 million gallons of propane, compared with 55,000 customers and 31 million
gallons in 1998.
In February 2000, TECO Energy, Inc. entered into an agreement to form
a joint venture to combine its Peoples Gas Company propane operations with the
propane operations of Atmos Energy Corporation, AGL Resources, Inc. and
Piedmont Natural Gas Company, Inc. The combined entity, to be named US Propane,
L.P., would be among the ten largest propane retailers in the nation, with
nearly 200,000 customers. Focused on the Southeast, US Propane will have
operations in Alabama, Florida, Georgia, Kentucky, North Carolina, South
Carolina and Tennessee. The joint venture is expected to allow PGC and the
other participating companies to improve their regional competitiveness. This
transaction is subject to regulatory approval for one of the proposed
participants and other customary conditions. The participating companies expect
this transaction to be completed in early May 2000.
TECO GAS SERVICES, INC. is another unregulated business acquired in
the Peoples Gas companies merger. It provides gas management and marketing
services for large municipal, industrial and power generation customers.
The company's focus is on increasing its customer base while
continuing to provide gas management services for three large cogeneration
facilities.
BOSEK, GIBSON AND ASSOCIATES, INC. (BGA), an energy services company
headquartered in Tampa with nine offices throughout Florida and one in
California, was acquired by TECO Energy in 1996. It provides design,
engineering and construction services to more than 300 customers, including
public schools, universities, health care organizations and commercial
businesses throughout Florida and California.
BGA continues growing its business infrastructure and project
portfolio to better compete with the larger energy service companies in the
diversified energy service field. Several significant project development
efforts are underway. These efforts include providing energy efficiency turnkey
services for public and private sector markets, power reliability solutions and
district cooling/chilled water plants.
DISCONTINUED OPERATIONS
TECOM, INC. (NOW KNOWN AS TECO INVENTORY COMPANY)
In November 1999, the assets of TeCom, the company's advanced energy
management technology subsidiary, were sold to Invensys Intelligent Building
Systems. TeCom was unable to develop the right distribution channels to
effectively reach the market.
In connection with the exit of this business, an after-tax charge of
$12.9 million was recorded in 1999, representing the write-off of all
capitalized development costs, severance and other exit costs partially offset
by sale proceeds. As of Dec. 31, 1999, less than $1 million remained reserved
for exit costs.
TECO OIL & GAS, INC.
In 1997, TECO Energy announced its intent to exit the conventional oil
and gas exploration and production business because of its small scale of
operations and earnings volatility.
For 1997, TECO Energy reported an after-tax loss from discontinued
operations of $9.6 million which included the net operating results for the
year for the conventional oil and gas business and the write-off of three
offshore wells that ceased production.
In 1998, TECO Oil & Gas sold its offshore assets to American Resources
Offshore (ARO) for cash and a promissory note. Based on the likely impact of
certain economic factors, including low oil and gas prices, TECO Energy wrote
off the recorded value of all assets associated with the discontinued oil and
gas operation, including the remaining on-shore assets. The after-tax gain net
of charges from discontinued operations in 1998 was $6.1 million, or
approximately $.05 per share.
32
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In 1999, the company completed a transaction in which it sold the note
from ARO in return for $500,000 in cash. The company also sold an option
relating to its ARO warrants, which expired unexercised. In a separate
transaction, ARO agreed to be responsible for disputed joint billing payments
of approximately $425,000. As part of this settlement, ARO also conveyed to the
company overriding royalty interest in two offshore Gulf of Mexico blocks. The
company does not expect any future royalty receipts to be significant.
YEAR 2000 COMPUTER SYSTEMS PREPARATION
TECO Energy has encountered no significant problems related to the
Year 2000 issue and all computer systems are performing as expected to date.
The total cost of Year 2000 remediation was less than $10 million,
which included contracted resources, purchases and internal labor. A breakdown
of project costs is as follows: Tampa Electric - $6.5 million, Peoples Gas
System - $2.5 million, and the diversified companies - $.5 million.
Approximately 40 percent of these costs were attributable to testing expenses,
and the remainder consisted primarily of renovation or replacement costs. The
company does not anticipate any significant additional costs related to this
issue.
NON-OPERATING ITEMS
OTHER INCOME (EXPENSE)
Other income (expense) in 1999 included charges of $3.5 million to
provide for Tampa Electric's expected costs of settling an EPA lawsuit, $10.5
million for a regulatory decision limiting the utility's regulatory equity
ratio to 58.7 percent for 1997 and 1998, and $6.0 million to adjust the
carrying value of certain leveraged lease investments.
Other income (expense) in 1998 included a charge of $7.3 million at
Tampa Electric reflecting an FPSC decision denying recovery of certain coal
expenses from an affiliate. These 1999 and 1998 charges are described in the
CHARGES TO EARNINGS section.
Allowance for other funds used during construction (AFUDC) was $1.3
million in 1999 and $.1 million in 1997; no AFUDC was recorded in 1998. AFUDC
is expected to increase over the next several years reflecting Tampa Electric's
generation expansion activities.
INTEREST CHARGES
Interest charges were $123.7 million compared to $104.3 million in
1998. A charge for income tax settlements and provisions, discussed in the
CHARGES TO EARNINGS section, included $9 million of interest expense and
accounted for approximately half of the increase over 1998. Higher borrowing
levels associated with new investments in the operating businesses also
increased interest expense.
Interest charges were down slightly in 1998, reflecting lower interest
on a declining deferred revenue balance at Tampa Electric and lower short-term
rates, partially offset by higher borrowing levels for new business
initiatives.
INCOME TAXES
Income tax expense increased in 1999 reflecting higher pretax income
and the effect of recording income tax provisions and settlements related to
prior years' tax returns. In 1998, income taxes were lower due to lower pretax
income resulting from $23.2 million of charges. Income tax expense as a percent
of income from continuing operations before taxes was 30 percent in 1999, 29
percent in 1998 and 31 percent in 1997.
Total income tax expense was reduced by the federal tax credit related
to the production of coalbed methane. This tax credit totaled $17.2 million in
1999, $18.9 million in 1998, and $20.2 million in 1997. The tax credit has been
level at $1.05 per Mcf since 1997. This rate escalates with inflation but could
be limited by domestic oil prices. In 1999, domestic oil prices would have had
to exceed $48 per barrel for this limitation to have been effective. The
federal tax credit on production of coalbed methane is available through the
year 2002.
The income tax effect of gains and losses from discontinued operations
is shown as a component of results from discontinued operations.
Income tax expense for 1999 includes $5.0 million for charges
described in the CHARGES TO EARNINGS section reflecting corporate income tax
provisions and settlement expenses related to prior years' tax returns. These
adjustments, including interest of $9.0 million, were recorded at Tampa
Electric, TECO Investments and at the TECO Energy corporate level.
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ACCOUNTING STANDARDS
REPORTING COMPREHENSIVE INCOME
In 1997, the Financial Accounting Standards Board (FASB) issued
Financial Accounting Standard (FAS) 130, Reporting Comprehensive Income,
effective for fiscal years beginning after Dec. 15, 1997. This standard
requires that comprehensive income, which includes net income as well as
certain changes in assets and liabilities recorded in common equity, be
reported in the financial statements. In 1999, the company recorded a loss of
$5.5 million after tax, representing an adjustment to the minimum pension
liability associated with the company's non-qualified supplemental executive
retirement plan in comprehensive income. For 1998 and 1997, there were no
components of comprehensive income other than net income.
REPORTING ON THE COSTS OF START-UP ACTIVITIES
In 1999, the company adopted AICPA Statement of Position (SOP) 98-5,
Reporting on the Costs of Start-up Activities. It requires costs of start-up
activities and organization costs to be expensed as incurred. Start-up
activities are broadly defined as those one-time activities related to events
such as opening a new facility, conducting business in a new territory and
organizing a new entity. Some costs, such as the costs of acquiring or
constructing long-lived assets and bringing them into service, are not subject
to SOP 98-5. The costs expensed in 1999 in accordance with SOP 98-5 were not
significant.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
In 1998, the FASB issued FAS 133, Accounting for Derivative
Instruments and Hedging. This standard is effective for fiscal years beginning
after June 15, 2000. The new standard, as amended, requires an entity to
recognize derivatives as either assets or liabilities in the financial
statements, to measure those instruments at fair value and to reflect the
changes in fair value of those instruments as either components of
comprehensive income or in net income, depending on the types of those
instruments.
In preparation for adoption of this Statement effective Jan. 1, 2001,
the company has completed an analysis of the information required by FAS 133.
The company has determined that such activity has been minimal and relatively
short term in duration. From time to time, TECO Energy has entered into
futures, swaps and options contracts to hedge the selling price for its
physical production at TECO Coalbed Methane, to limit exposure to gas price
increases at both the regulated natural gas utility and unregulated propane
business, and to limit exposure to fuel price increases at TECO Transport. As
of Dec. 31, 1999, TECO Energy had hedging transactions in place to protect
against selling price variability at TECO Coalbed Methane and purchase price
variability of natural gas at Peoples Gas Company. TECO Energy has not used
derivatives or other financial products for speculative purposes. At this
point, the company does not anticipate that the adoption of FAS 133 will
significantly impact its financial statements. Management will continue to
document all current and possible future uses of derivatives, evaluate their
effectiveness for hedging treatment and utilize procedures and methods for
measuring them.
CAPITAL EXPENDITURES
TECO Energy's 1999 capital expenditures of $426 million included $229
million for Tampa Electric, $78 million for Peoples Gas System and $119 million
for the diversified companies. Tampa Electric invested $142 million in 1999 for
equipment and facilities to meet its growing customer base and generating
equipment maintenance, $64 million to complete the construction of a flue-gas
desulfurization (FGD) system, or "scrubber," for Big Bend Units One and Two,
and $23 million toward the construction of Polk Units Two and Three, which are
natural gas and No. 2 oil-fired combustion turbines. Capital expenditures for
Peoples Gas System were approximately $60 million for system expansion,
including approximately $17 million related to its Southwest Florida expansion,
and approximately $17 million for maintenance of the existing system. TECO
Transport invested $19 million in 1999 for equipment additions and normal
equipment replacement. TECO Coal spent $23 million, which includes the
acquisition of the Race Fork Coal assets as well as for mining equipment
replacements. TECO Power Services' capital expenditures totaled $120 million
related to the San Jose Power Station and the expansion of the Hardee Power
Station.
TECO Energy estimates total capital expenditures for ongoing
operations to be $615 million for 2000 and $1.6 billion during the 2001-2004
period. For 2000, Tampa Electric expects to spend $234 million, consisting of
$51 million for the repowering project at the Gannon Station, $42 million in
construction costs on Polk Unit Two and $141 million for other capital
expenditures. At the end of 1999, Tampa Electric had outstanding commitments of
about $66 million for the repowering project. Tampa Electric's total capital
expenditures over the 2001-2004 period are projected to be $1.2 billion,
including $114 million for generation expansion and $554 million for the
repowering project.
Capital expenditures for Peoples Gas System are expected to be about
$66 million in 2000 and $211 million during the 2001-2004 period for
infrastructure expansion to grow the customer base. Included in these amounts
are $4 million in 2000 for the Southwest Florida expansion and expenditures of
approximately $40 million annually for other revenue-producing projects
associated with normal system growth and expansion. The remainder represents
expenditures for ongoing maintenance capital.
The diversified companies expect capital expenditures of about $315
million in 2000 and $206 million during the 2001-
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2004 period. Included in the 2000 amounts are $243 million at TECO Power
Services for increasing ownership of the San Jose Power Station to 100 percent,
for construction of the Commonwealth Chesapeake Power Station and the Hardee
Power Station expansion. Commitments at the end of 1999 were $158 million,
mainly for the construction of the Commonwealth Chesapeake Power Station in
Virginia and for the acquisition of the remaining interest in the San Jose
Power Station in early 2000. A significant amount of the capital expenditures
for TPS will be financed with non-recourse project financing. These estimates
do not take into account future projects that may emerge. Also included in
these amounts are TECO Coal's acquisition of synthetic fuel production
facilities in 2000, and renewal and replacement capital including river barges.
ENVIRONMENTAL COMPLIANCE
Tampa Electric met the environmental compliance requirements for the
Phase I emission limitations imposed by the Clean Air Act Amendments (CAAA)
which became effective Jan. 1, 1995 by using blends of lower-sulfur coal,
integrating the Big Bend Unit Four FGD system with Unit Three, implementing
operational modifications and purchasing emission allowances. For Phase II,
which began Jan. 1, 2000, further reductions in sulfur dioxide (SO2) and
nitrogen oxide (NOx) emissions were required. To comply with the Phase II SO2
requirements, the company installed a new FGD system at Big Bend Units One and
Two and will rely less on fuel blending and SO2 allowance purchases. The $83
million scrubber was placed in service on Dec. 30, 1999 and will significantly
reduce the amount of SO2 emitted by Tampa Electric's Big Bend Units One and
Two. As a result of this project, all of the units at Big Bend Station, Tampa
Electric's largest generating station, are equipped with FGD, or scrubber
technology. The FPSC approved recovery of the costs associated with the Big
Bend Units One and Two FGD system in November 1999 and cost recovery began in
January 2000. In order to comply with the Phase II NOx emission limits on a
system wide average, Tampa Electric has implemented combustion optimization
projects at Big Bend and Gannon Stations.
In 1997, the EPA began an investigation under the Clean Air Act (CAA)
of coal-fired electric power generators to determine compliance with New Source
Review (NSR) environmental permitting requirements associated with repairs,
maintenance, modifications and operational changes made to the facilities over
the years. The EPA asserted that certain electric utilities, including Tampa
Electric, should have applied for pre-construction permits for certain unit
maintenance projects, and that the permitting review of such projects would
have included NSR, resulting in requirements that the units meet more
restrictive, Best Available Control Technology (BACT) standards for NOx, SO2
and particulate matter (PM). Tampa Electric disagreed with EPA's interpretation
of its NSR rules and its definitions of what constitutes maintenance. On Nov.
3, 1999, despite Tampa Electric's extensive efforts to reach a mutually
agreeable settlement with the EPA, the Department of Justice sued Tampa
Electric and six other electric utilities and issued an administrative order
against TVA on behalf of the EPA for alleged violations of the CAA associated
with this NSR issue. Coincident with the lawsuits, EPA issued Notices of
Violations (NOV) alleging similar NSR violations under the relevant State
Implementation Plans (SIP).
Following notice to the State of Florida of the EPA's NOV, the Florida
Department of Environmental Protection (DEP), the agency responsible for
enforcement of the Air Quality SIP, began negotiations to resolve the same
allegations under the SIP that Tampa Electric had not applied for appropriate
permits for certain unit maintenance projects at Gannon and Big Bend Stations
and, therefore, had operated the coal-fired units without BACT for NOx and SO2.
Effective Dec. 16, 1999, a Consent Final Judgment (CFJ) entered into between
DEP and Tampa Electric resolved the DEP claims. The requirements of the CFJ
require the implementation of several environmental initiatives which include
repowering certain Gannon Station units with natural gas and placing the
remaining Gannon units on reserve standby by the end of 2004. It also requires
Tampa Electric to implement other specific initiatives to further reduce NOx,
SO2 and PM emissions at Big Bend Station Unit Four by 2007 and Big Bend Units
One, Two and Three by 2010.
On Feb. 29, 2000, Tampa Electric Company, the U.S. Environmental
Protection Agency and the U.S. Department of Justice announced they had
resolved the federal agencies' pending enforcement actions (including the NOV)
filed last year against Tampa Electric. The resolution, which was in the form
of a consent decree, resulted in full and final settlement of the November 1999
federal litigation and NOV alleging violations of NSR requirements of the Clear
Air Act. The Consent Decree was lodged with the U.S. District Court for the
Middle District of Florida in Tampa, Florida, and is subject to a 30-day public
comment period, before it may be entered by the Court at which time it will
become effective.
The agreement is substantially the same as Tampa Electric's earlier
agreement with the Florida Department of Environmental Protection with respect
to environmental controls and pollution reductions reached on Dec. 7, 1999;
however, it contains specific detail with respect to the availability of the
scrubbers and earlier incremental NOx reduction efforts on Big Bend Units One,
Two and Three. In order to eliminate the uncertainties of litigation and in
exchange for a release from past liability and a safe harbor during the 10-year
term of the consent decree, the Company agreed to pay a $3.5 million civil
penalty. Under the consent decree, Tampa Electric will commit to a
comprehensive cleanup program that will dramatically decrease emissions from
the company's power plants. The agreement makes Tampa Electric the first
utility in the nation to respond to EPA's coal-fired utility initiative.
Engineering for the repowering project began in January 2000, and the
company anticipates that commercial operation for the first repowered unit will
occur by May 1, 2003. The repowering of additional units is scheduled to be
completed by May 1, 2004. When these units are repowered, the station will be
renamed the Bayside Power Station and will have an increased total station
capacity of about 1,475 megawatts of natural gas-fueled electric energy.
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Tampa Electric Company is a potentially responsible party for certain
superfund sites and, through its Peoples Gas System division, for certain
former manufactured gas plant sites. While the joint and several liability
associated with these sites presents the potential for significant response
costs, Tampa Electric Company estimates its ultimate financial liability at
approximately $20 million over the next 10 years. The environmental remediation
costs associated with these sites are not expected to have a significant impact
on customer prices.
UTILITY REGULATION
RATE STABILIZATION STRATEGY
Tampa Electric's objectives of stabilizing prices through 1999 and
securing fair earnings opportunities during this period were accomplished
through agreements entered into in 1996 with the Florida Office of Public
Counsel (OPC) and the Florida Industrial Power Users Group (FIPUG) which were
approved by the FPSC.
Prior to these agreements, the FPSC approved a plan submitted by Tampa
Electric to defer certain 1995 revenues. Under this plan Tampa Electric's
allowed return on equity (ROE) was established at an 11.75 percent midpoint
with a range of 10.75 percent to 12.75 percent. For 1995 an initial $15 million
of revenues were deferred as well as 50 percent of actual revenues in excess of
a ROE of 11.75 percent up to a net earned ROE of 12.75 percent. Also as part of
this plan, Tampa Electric's oil backout tariff was eliminated as of January
1996, reducing annual revenues by approximately $12 million.
In 1995, Tampa Electric deferred $51 million of revenues under this
plan. The deferred revenues accrued interest at the 30-day commercial paper
rate as specified in the Florida Administrative Code.
In 1996, the FPSC approved agreements between Tampa Electric, the OPC
and the FIPUG which froze base rates for the electric utility through 1999,
returned $50 million to customers between October 1996 and December 1998
through refunds and a temporary base rate reduction and allowed full recovery
of the capital costs incurred for the Polk Unit One project.
In addition, the agreements set forth multi-year plans for allocating
revenues based on Tampa Electric's ROE. For the years 1996 through 1998, Tampa
Electric retained all revenues contributing to an ROE up to 11.75 percent.
Under this plan, any additional revenues were allocated as follows:
In 1996, 40 percent of any actual revenues contributing to an ROE in
excess of 11.75 percent were included in 1996 revenues. The remaining 60
percent were deferred for recognition in 1997 and 1998. The company deferred
$34 million in 1996. This amount and the deferred revenues and interest from
1995 (less $25 million of refunds) provided $68 million for recognition by the
company in 1997 and 1998.
In 1997, 40 percent of any revenues that contributed to an ROE in
excess of 11.75 percent up to 12.75 percent were included in revenues. The
remaining 60 percent were deferred for use in 1998, as were all revenues in
excess of 12.75 percent. The company recognized $31 million in 1997 of the
revenues and interest deferred from 1995 and 1996.
In 1998, 40 percent of any revenues that contributed to an ROE in
excess of 11.75 percent up to 12.75 percent were included in revenues. The
remaining 60 percent, as well as all revenus in excess of 12.75 percent were
deferred for anticipated refund to customers, pending resolution of the FIPUG
protest of the FPSC decision as discussed below. The Company recognized $38
million in 1998 of the revenues and interest deferred from prior years.
For 1999, 60 percent of the revenues contributing to an ROE in excess
of 12 percent were deferred for refund to customers in 2000 following final
review by the FPSC. Tampa Electric's 1999 results reflect an anticipated refund
to customers of $4.0 million earned above the 12 percent.
In 1999, the FPSC reviewed Tampa Electric's earnings for 1997 and 1998
and ordered that $11.2 million plus interest be refunded to customers in 2000.
In November 1999, FIPUG protested the FPSC decisions for both years and
requested a hearing to review a wide range of costs incurred by the company
over the two-year period. The FPSC ordered that the $11.2 million refund be
withheld with interest until the protest is heard and resolved. A hearing is
scheduled for August 2000.
The regulatory arrangements described above covered periods that ended
on Dec. 31, 1999. Tampa Electric's rates and its 11.75 percent allowed rate of
return on common equity midpoint will continue in effect until such time as
changes are occasioned by an agreement approved by the FPSC or other FPSC
action as a result of rate or other proceedings initiated by Tampa Electric,
FPSC staff or other interested parties. Tampa Electric believes that its
currently allowed ROE range is reasonable based on the current interest rate
environment and previous FPSC rulings.
COST RECOVERY CLAUSES
In October 1999, Tampa Electric filed with the FPSC for approval of
fuel, capacity, environmental and conservation cost recovery clause rates for
the period January 2000 through December 2000. On Nov. 22 and 23, 1999, the
FPSC held hearings and: 1) approved the company's proposed replacement fuel and
purchased power costs associated with the Gannon Unit Six explosion; 2)
approved the company's proposed regulatory treatment for the remaining terms of
a wholesale power sales agreement for Jan. 1, 2000 through March 15, 2001; 3)
approved cost recovery of purchased power agreements entered into for 1999 and
2000 for enhanced system reliability including a 12-year agreement entered into
with Hardee Power Partners; 4) approved the recovery of capital and operating
and maintenance costs for the Big Bend Units One and Two FGD system; and
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5) approved a fair accounting treatment for retired environmental assets that
are being replaced by new technology environmental assets. Including these
changes, the total residential bill for 1,000 kwh in 2000 will be $81.78, which
represents a $1.90, or 2 percent increase over 1999 rates.
LONG RANGE POWER SUPPLY PLANNING
Tampa Electric filed a 10-year site plan with the FPSC in April 1999.
Since that time, several events have occurred that have caused Tampa Electric
to make several modifications to its plan. First, as part of the FPSC's
assessment of Florida's electric reliability for future years, the FPSC ordered
a generic investigation into the aggregate reserve margins planned for
peninsular Florida. The investigation was to include an evaluation of the
manner in which reserve margins are calculated, the level of reserve margins
considered adequate for Florida's utilities, and the remedial action that would
be taken to assure adequate reserve margins. Prior to a formal, evidentiary
hearing scheduled to be held in November 1999, Tampa Electric along with
Florida Power & Light and Florida Power Corp. submitted a proposed stipulation
to the FPSC to voluntarily adopt a minimum 20 percent reserve margin planning
criteria from then current 15 percent criteria for the resolution of the issues
in the investigation. The Florida investor-owned utilities (IOUs) proposed to
implement the 20 percent criterion over a transition period of four years. In
December 1999 the FPSC approved the proposed stipulation. In addition, the FPSC
ordered its staff to conduct workshops to address reliability issues related to
non-firm electric resources that were identified in the original reserve margin
proceeding. These workshops are scheduled for the first quarter of 2000.
Subsequent to the approval of the stipulation, Tampa Electric filed a
modification to its planning reserve margin criteria to include a minimum 7
percent summer supply-side component (firm resources) to the overall 20 percent
reserve margin planning criteria. A supply-side reserve margin standard
establishes a balance of resources by requiring a minimum level of supply-side
reserves while not limiting the contributions of non-firm load resources.
Another change to the 10-year site plan was that Tampa Electric
accelerated the in-service date of its next two 180 megawatt combustion
turbines from January 2001 to September 2000 and from January 2003 to May 2002.
Finally the company entered into a 12-year purchased power agreement with
Hardee Power Partners. Tampa Electric's original purchased power agreement with
Hardee Power Partners, entered into in 1989, provided the company the option of
building out the existing site by installing a 75 megawatt combustion turbine
that is expected to be in service by May 15, 2000. Through all of these
actions, Tampa Electric expects enhanced system reliability for the benefit of
all its customers.
UTILITY COMPETITION: ELECTRIC
Tampa Electric's retail electric business is substantially free from
direct competition with other electric utilities, municipalities and public
agencies. At the present time, the principal form of competition at the retail
level consists of self-generation available to larger users of electric energy.
Such users may seek to expand their options through various initiatives,
including legislative and/or regulatory changes that would permit competition
at the retail level. Tampa Electric intends to take all appropriate actions to
retain and expand its retail business, including managing costs and providing
high-quality service to retail customers.
In December, the Federal Energy Regulatory Commission (FERC) issued
its rule on regional transmission organizations (RTOs). This rule is driven by
the FERC's continuing effort to effect open access to transmission facilities
in large, regional markets. The rule provides guidelines to utilities for
joining RTOs by December 2001. These guidelines specify minimum characteristics
and functions.
In response to the FERC activity in this area, the FPSC has been
holding workshops since January 1999 to discuss transmission issues within
peninsular Florida. Although the IOUs, municipals, cooperatives and marketers
participating in the workshops do not yet agree on how to resolve specific
issues related to planning, operations, pricing and governance, they and the
FPSC agree that a national one-size-fits-all approach is not appropriate. With
the encouragement of the FPSC, Tampa Electric is working with utilities in the
state and others to develop a peninsular Florida solution. These activities
have been recently accelerated by Florida Power Corp. and Carolina Power and
Light, recognizing that some type of RTO proposal is an integral feature for
FERC approval of their proposed merger.
WHOLESALE POWER MARKET
There is presently active competition in the wholesale power markets
in Florida, increasing largely as a result of the Energy Policy Act of 1992 and
related federal initiatives. This act removed certain regulatory barriers for
independent power producers and required utilities to transmit power from such
producers, utilities and others to wholesale customers.
In 1999, the city of New Smyrna Beach and an affiliate of Duke Energy
Corporation applied for an FPSC determination of need for a proposed
514-megawatt merchant power plant in Volusia County, Florida, to supply 30
megawatts of capacity and associated energy to the Utilities Commission of the
City of New Smyrna Beach with the remaining capacity to be used on a
speculative basis. Tampa Electric and others intervened to oppose this
proposal. Tampa Electric believes that only Florida utilities or entities with
contracts for firm capacity and an obligation to serve the long-term needs of a
Florida utility can legally be applicants under the Florida Power Plant Siting
Act (PPSA). The PPSA sets the state electric energy/environmental policy and
governs the building of new generation involving steam capacity of 75 megawatts
or more. It requires the applicant to
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demonstrate that a plant is needed prior to receiving construction and
operating permits. On March 4, 1999, the FPSC determined that the proponents of
the merchant plant were proper applicants under the PPSA and voted to approve
the need for the proposed merchant plant. This decision has been appealed by
the Florida IOUs and the Florida Supreme Court heard oral arguments on Feb.19,
2000. A decision on the appeal is not expected until April 2000 or later.
Following Duke/New Smyrna Beach, several companies have proposed
merchant plant projects in Florida. In September 1999, the Okeechobee
Generating Company, a subsidiary of Pacific Gas and Electric, filed for a
determination of need for two combined cycle units that would generate
approximately 550 megawatts. In addition several other merchant plants have
been proposed to be constructed in Florida that do not fall under the
requirements to file a determination of need due to the fact that the proposed
generation involves steam capacity less than 75 megawatts.
If the FPSC's decision to allow the Duke plant to operate is upheld or
other regulatory or legislative actions are taken that would allow the
construction of wholesale merchant power plants, the wholesale operations of
Tampa Electric and other Florida utilities could be adversely affected.
UTILITY COMPETITION: GAS
Although Peoples Gas System is not in direct competition with any
other regulated distributors of natural gas for customers within its service
areas, there are other forms of competition. At the present time, the principal
form of competition for residential and small commercial customers is from
companies providing other sources of energy, including electricity.
Competition is most prevalent in the large commercial and industrial
markets. In recent years, these classes of customers have been targeted by
companies seeking to sell gas directly, either using Peoples Gas System
facilities or transporting gas through other facilities, thereby bypassing
Peoples Gas System facilities. In response to this competition, various
programs have been developed including the provision of transportation services
at discounted rates.
In general, Peoples Gas System faces competition from other energy
source suppliers offering fuel oil, electricity and in some cases propane.
Peoples Gas System has taken actions to retain and expand its commodity and
transportation business, including managing costs and providing high-quality
service to customers.
INVESTMENT ACTIVITY:
At Dec. 31, 1999, TECO Energy had $97.5 million in cash, cash
equivalents and short-term investments versus $16.9 million at year-end 1998.
Cash increased at the end of 1999 to fund cash needs for the first several
weeks of 2000 and in anticipation of tight credit markets and temporarily high
borrowing rates at the beginning of 2000.
The company also has a continuing investment in leveraged leases of
$49 million. At Dec. 31, 1999, the leveraged lease investment offset by the
related deferred tax liability had essentially a zero balance; all leases
continue to perform on a current basis. The company has made no investment in
leveraged leases since 1989 and is considering selling certain of its leveraged
lease positions.
In addition, TPS had loans outstanding to EGI and Mosbacher Power
Partners as of Dec. 31, 1999 of $25 million and $13 million, respectively.
FINANCING ACTIVITY:
TECO Energy's 1999 year-end capital structure, excluding the effect of
unearned compensation, was 60 percent debt and 40 percent common equity. TECO
Power Services typically finances its power projects at commercial operation
with non-recourse project debt. Excluding this non-recourse debt of $154
million, the year-end capital structure was 57 percent debt and 43 percent
equity.
CREDIT RATINGS / SENIOR DEBT
<TABLE>
<CAPTION>
Duff & Phelps Moody's Standard & Poor's
------------- ------- -----------------
<S> <C> <C> <C>
Tampa Electric Company AA+ Aa2 AA
TECO Finance / TECO Energy AA- A1 AA-
</TABLE>
In September 1999, TECO Energy announced a program for the repurchase
of up to $150 million of its outstanding common stock. During 1999 the company
acquired 5.4 million shares at a cost of $114.8 million.
In the second quarter of 1998, Tampa Electric Company filed a
registration statement for the issuance of up to $200 million of medium-term
notes. In July 1998, Tampa Electric Company issued $50 million of Remarketed
Notes, due 2038. The Notes, which bear an initial coupon rate of 5.94%, are
subject to mandatory tender on July 15, 2001, at which time they will be
remarketed or redeemed. Net proceeds were $51 million, which included a premium
paid to Tampa Electric by the remarketing
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agent for the right to purchase the Notes in 2001. If this right is exercised,
for the following 10 years the Notes will bear interest at 5.41% plus a premium
based on Tampa Electric Company's then-current credit spread above United
States Treasury Notes with 10 years to maturity.
In the third quarter of 1998, TECO Energy filed a registration
statement for the issuance of up to $200 million of medium-term notes. In
September 1998, TECO Energy issued $150 million of Remarketed Notes, due 2038.
The Notes, which bear an initial coupon rate of 5.54%, are subject to mandatory
tender on Sept. 15, 2001, at which time they will be remarketed or redeemed.
Net proceeds were $153 million, which included a premium paid to TECO Energy by
the remarketing agent for the right to purchase the Notes in 2001. If this
right is exercised, for the following 10 years the Notes will bear interest at
5.41% plus a premium based on TECO Energy's then-current credit spread above
United States Treasury Notes with 10 years to maturity.
Proceeds from both note issues were used to repay short-term debt and
for general corporate purposes.
TECO Energy is exposed to changes in interest rates primarily as a
result of its borrowing activities. A hypothetical 10- percent increase in TECO
Energy's weighted average interest rate on its variable rate debt would have an
estimated $4 million impact on TECO Energy's earnings over the next fiscal
year.
A hypothetical 10-percent change in interest rates would not have a
significant impact on the estimated fair value of TECO Energy's long-term debt
at Dec. 31, 1999.
Based on policies and procedures approved by the Board of Directors,
from time to time TECO Energy enters into futures, swaps and option contracts
to moderate its exposure to interest rate changes, to hedge the selling price
for its physical production at TECO Coalbed Methane, to limit exposure to gas
price increases at both the regulated natural gas utility and unregulated
propane business and to limit exposure to fuel price increases at TECO
Transport. The benefits of these arrangements are at risk only in the event of
non-performance by the other party to the agreement, which the company does not
anticipate.
As TECO Power Services develops the Commonwealth Chesapeake Power
Station, and other similar projects, the company may utilize futures, swaps and
option contracts in connection with the marketing of power in order to reduce
the variability of electricity selling prices.
TECO Energy does not use derivatives or other financial instruments
for speculative purposes.
LIQUIDITY, CAPITAL RESOURCES:
TECO Energy and its operating companies met cash needs during 1999
with a balance of internally generated funds and short-term borrowings.
At Dec. 31, 1999, TECO Energy had bank credit lines of $485 million,
all of which were available.
TECO Energy anticipates that internally generated funds will meet most
of its capital requirements for ongoing operations and commitments in the
2000-2004 period. The company expects that some part of its capital
requirements, as well as any significant new investments, will be funded with
external capital, which may include debt of various maturities, preferred stock
and common stock.
TECO Power Services expects to finance, upon commercial operation, at
least 60 percent of the construction cost of its Commonwealth Chesapeake Power
Station and the expansion of its Hardee Power Station with non-recourse debt.
INVESTMENT CONSIDERATIONS:
The following are certain factors that could affect TECO Energy's
future results. They should be considered in connection with evaluating
forward-looking statements contained in this report and otherwise made by or on
behalf of TECO Energy, since these factors could cause actual results and
conditions to differ materially from those projected in these forward-looking
statements.
GENERAL ECONOMIC CONDITIONS. The company's businesses are dependent on
general economic conditions. In particular, the projected growth in Tampa
Electric's service area and in Florida is important to the realization of Tampa
Electric's and the Peoples Gas companies' forecasts for annual energy sales
growth. An unanticipated downturn in the local area's or Florida's economy
could adversely affect Tampa Electric's or the Peoples Gas companies' expected
performance.
The activities of the diversified businesses, particularly TECO
Transport, TECO Coal and TECO Power Services are also affected by general
economic conditions in the respective industries and geographic areas they
serve, both nationally and internationally. TPS' investments in international
distribution companies are dependent on growth in the service areas and
forecasts for annual energy sales growth.
WEATHER VARIATIONS. Most of TECO Energy's businesses are affected by
variations in general weather conditions and unusually severe weather. Tampa
Electric's and the Peoples Gas companies' energy sales are particularly
sensitive to variations in weather conditions. The TECO Energy companies
forecast energy sales on the basis of normal weather, which represents a
long-term historical average. Significant variations from normal weather could
have a material impact on energy sales. Unusual
39
<PAGE> 40
weather, such as hurricanes, could also have an effect on operating costs as
well as sales.
Peoples Gas System and Peoples Gas Company are more weather sensitive,
with a single winter peak period, than Tampa Electric, with both summer and
winter peak periods. Mild winter weather in Florida can be expected to
negatively impact results at the Peoples Gas companies.
Variations in weather conditions also affect the demand and prices for
the commodities sold by TECO Coalbed Methane and TECO Coal. TECO Transport also
is impacted by weather because of its effects on the supply of and demand for
the products transported. Severe weather conditions that could interrupt or
slow service and increase operating costs also affect these businesses.
POTENTIAL COMPETITIVE CHANGES. The electric industry has been
undergoing certain restructuring. Competition in wholesale power sales has been
introduced on a national level. Some states have mandated or encouraged
competition at the retail level, and in some situations required divestiture of
generating assets. While there is active wholesale competition in Florida, the
retail electric business has remained substantially free from direct
competition. Changes in the competitive environment occasioned by legislation,
regulation, market conditions or initiatives of other electric power providers,
however, particularly with respect to retail competition, could adversely
affect Tampa Electric's business and its performance. The company's projections
are based on its expectation that there will not be any significant change in
Tampa Electric's competitive environment.
The gas distribution industry has been subject to competitive forces
for several years. Further unbundling of gas service could adversely affect
Peoples Gas System.
REGULATORY ACTIONS. Tampa Electric and Peoples Gas System operate in
highly regulated industries. Their retail operations, including the prices
charged, are regulated by the FPSC, and Tampa Electric's wholesale power sales
and transmission services are subject to regulation by FERC. Changes in
regulatory requirements or adverse regulatory actions could have an adverse
effect on Tampa Electric's or Peoples Gas System's performance.
COMMODITY PRICE CHANGES. Most of TECO Energy's businesses are
sensitive to changes in certain commodity prices. Such changes could affect the
prices they charge, their operating costs and the competitive position of their
products and services.
In the case of Tampa Electric, fuel costs used for generation are
mostly affected by the cost of coal. Tampa Electric is able to recover the cost
of fuel through retail customers' bills, but increases in fuel costs affect
electric prices and therefore the competitive position of electricity against
other energy sources. Regarding wholesale sales, the ability to make sales and
the margins on power sales are affected by the cost of coal to Tampa Electric,
particularly as it relates to the cost of gas and oil to other power producers.
In the case of Peoples Gas System, costs for purchased gas and
pipeline capacity are recovered through retail customers' bills, but increases
in gas costs affect total retail prices and therefore the competitive position
of Peoples Gas System relative to electricity, other forms of energy and other
gas suppliers.
At the diversified companies, changes in gas, oil and coal prices
directly affect the margins at TECO Coalbed Methane, TECO Coal, TECO Transport
and Peoples Gas Company. TECO Coalbed Methane is exposed to commodity price
risk through the sale of natural gas. A hypothetical 10-percent change for the
year in the market price of natural gas would have an estimated earnings impact
of $2 million. TECO Coal is exposed to commodity price risk through coal sales.
A hypothetical 10-percent change in the market price of coal in any one year
would have an estimated earnings impact of between $5 million and $6 million.
TECO Transport is exposed to commodity price risk through fuel purchases. A
hypothetical 10-percent change in the market price of fuel in any one year
would have an estimated earnings impact of $1 million.
GAS PRODUCTION LEVELS. Results at TECO Coalbed Methane are affected by
its level of production, which is naturally declining. The company's forecast
assumes that production will decline 6 to 7 percent annually. Actual production
levels may be greater or less than those assumed.
BUSINESS GROWTH OPPORTUNITIES. Part of the company's previously
announced strategy is to grow its diversified business. Much of its longer-term
growth is dependent on the ability to find attractive acquisition and
development opportunities and independent power projects. The company's
long-range forecast is based on its expectation that it will be successful in
finding and capitalizing on these acquisition and development opportunities and
independent power projects, but there can be no assurance that its efforts will
be successful.
INTEREST RATES AND ACCESS TO CAPITAL. Changes in interest rates can
affect the cost of borrowing for TECO Energy and its subsidiaries on variable
rate debt outstanding, on refinancing of debt maturities and on incremental
borrowing to fund new investments. Included in the company's forecast is the
expectation that it will have access to sufficient capital on satisfactory
terms to fund growth opportunities including acquisition and development
opportunities and independent power projects.
INTERNATIONAL RISKS. TECO Power Services is involved in several
international projects and expects to enter into additional international
projects during the next few years. These projects involve numerous risks that
are not present in domestic projects, including expropriation, political
instability, currency exchange rate fluctuations, repatriation restrictions,
and regulatory and legal uncertainties. The company's financial forecast
assumes that TECO Power Services will mitigate losses associated with these
risks through a variety of risk mitigation measures, including specific
contractual provisions, teaming with strong international and local partners,
obtaining non-recourse financing and obtaining political risk insurance where
appropriate.
ENVIRONMENTAL MATTERS. TECO Energy's businesses are subject to
regulation by various governmental authorities dealing with air, water and
other environmental matters. Changes in compliance requirements or the
interpretation by governmental authorities of existing requirements may impose
additional costs on the company or result in the curtailment of some
activities. In addition, the company's financial forecast is based on its
expectation that the Consent Decree entered into by the Company, the EPA and
the Justice Department will be entered by the Court upon expiration of the
public comment period.
40
<PAGE> 41
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
TECO Energy is exposed to changes in interest rates primarily as a
result of its borrowing activities.
From time to time, TECO Energy or its affiliates may enter into
futures, swaps and option contracts to moderate exposure to interest rate
changes.
See the discussion of interest rate risk in the INVESTMENT
CONSIDERATIONS section on pages 33 and 34, and in the FINANCING ACTIVITY
section on page 36.
Commodity Price Risk
Currently, at Tampa Electric and Peoples Gas System, commodity price
increases due to changes in market conditions for fuel, purchased power and
natural gas are recovered through cost recovery clauses, with no effect on
earnings.
TECO Coalbed Methane is exposed to commodity price risk through the
sale of natural gas, and TECO Coal is exposed to commodity price risk through
coal sales.
From time to time, TECO Energy or its affiliates may enter into
futures, swaps and options contracts to hedge the selling price for physical
production at TECO Coalbed Methane, to limit exposure to gas price increases at
both the regulated natural gas utility and unregulated propane business, or to
limit exposure to fuel price increases at TECO Transport.
See the discussions of commodity price risks in the INVESTMENT
CONSIDERATIONS -- COMMODITY PRICE CHANGES section on page 36.
TECO Energy and its affiliates do not use derivatives or other
financial products for speculative purposes.
41
<PAGE> 42
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C>
Report of Independent Certified Public Accountants 43
Consolidated Balance Sheets, Dec. 31, 1999 and 1998 44
Consolidated Statements of Income for the years ended Dec. 31, 1999, 1998 and 1997 45
Consolidated Statements of Cash Flows for the years ended Dec. 31, 1999, 1998 and 1997 46
Consolidated Statements of Common Equity for the years ended Dec. 31, 1999, 1998 and 1997 47
Notes to Consolidated Financial Statements 48-67
Financial Statement Schedule II - Valuation and Qualifying Accounts for the years
ended Dec. 31, 1999, 1998 and 1997 69
</TABLE>
All other financial statement schedules have been omitted since they
are not required, are inapplicable or the required information is presented in
the financial statements or notes thereto.
42
<PAGE> 43
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and shareholders of TECO Energy, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of TECO Energy, Inc. and its subsidiaries at Dec. 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended Dec. 31, 1999, in conformity with accounting
principles generally accepted in the United States. In addition, in our
opinion, the financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Tampa, Florida
Jan. 14, 2000, except for the information in Note O,
for which the dates are Jan. 25, 2000 and Feb. 11, 2000.
43
<PAGE> 44
CONSOLIDATED BALANCE SHEETS
(MILLIONS)
ASSETS
<TABLE>
<CAPTION>
DEC. 31, 1999 1998
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 97.5 $ 16.9
Receivables, less allowance for uncollectibles 261.9 224.6
Inventories, at average cost
Fuel 84.0 93.2
Materials and supplies 69.5 64.1
Prepayments 18.9 15.1
---------- ----------
531.8 413.9
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, AT ORIGINAL COST
Utility plant in service
Electric 4,140.9 3,991.3
Gas 590.0 518.5
Construction work in progress 291.1 101.1
Other property 1,042.4 989.6
---------- ----------
6,064.4 5,600.5
Accumulated depreciation (2,436.6) (2,292.9)
---------- ----------
3,627.8 3,307.6
---------- ----------
OTHER ASSETS
Other investments 117.2 93.6
Investment in unconsolidated affiliates 103.3 124.5
Deferred income taxes 106.8 99.1
Deferred charges and other assets 203.2 140.6
---------- ----------
530.5 457.8
---------- ----------
$ 4,690.1 $ 4,179.3
========== ==========
LIABILITIES AND CAPITAL
CURRENT LIABILITIES
Long-term debt due within one year $ 155.8 $ 36.0
Notes payable 813.7 319.0
Accounts payable 218.1 208.1
Customer deposits 80.7 78.3
Interest accrued 16.4 14.2
Taxes accrued 36.9 5.1
---------- ----------
1,321.6 660.7
OTHER LIABILITIES
Deferred income taxes 509.4 499.9
Investment tax credits 41.7 46.7
Regulatory liability-tax related 13.3 34.0
Other deferred credits 178.5 150.6
Long-term debt, less amount due within one year 1,207.8 1,279.6
CAPITAL
Common equity 1,472.5 1,569.2
Unearned compensation (54.7) (61.4)
---------- ----------
$ 4,690.1 $ 4,179.3
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
44
<PAGE> 45
CONSOLIDATED STATEMENTS OF INCOME
(MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31, 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
REVENUES $ 1,983.0 $ 1,955.7 $ 1,860.8
---------- ---------- ----------
EXPENSES
Operation 1,053.0 1,043.1 958.7
Maintenance 125.3 128.9 114.2
Depreciation 232.2 233.0 231.7
Taxes, other than income 148.9 149.4 143.5
---------- ---------- ----------
1,559.4 1,554.4 1,448.1
---------- ---------- ----------
INCOME FROM OPERATIONS 423.6 401.3 412.7
---------- ---------- ----------
OTHER INCOME (EXPENSE)
Allowance for other funds used during construction 1.3 -- 0.1
Other income (expense) (13.3) (9.5) (0.1)
Preferred dividend requirements of Tampa Electric -- -- (0.5)
---------- ---------- ----------
(12.0) (9.5) (0.5)
---------- ---------- ----------
INCOME BEFORE INTEREST AND
INCOME TAXES 411.6 391.8 412.2
---------- ---------- ----------
INTEREST CHARGES
Interest expense 124.2 104.3 105.9
Allowance for borrowed funds used during construction (0.5) -- (0.1)
---------- ---------- ----------
123.7 104.3 105.8
---------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 287.9 287.5 306.4
Provision for income taxes 87.0 83.3 94.9
---------- ---------- ----------
NET INCOME FROM CONTINUING OPERATIONS 200.9 204.2 211.5
NET LOSS FROM DISCONTINUED OPERATIONS, NET OF INCOME
TAX BENEFIT OF $1.4 MILLION, $2.3 MILLION AND $3.7 MILLION
FOR 1999, 1998 AND 1997, RESPECTIVELY (2.5) (3.8) (6.6)
GAIN (LOSS) ON DISPOSAL OF DISCONTINUED OPERATIONS, NET OF
INCOME TAX BENEFIT OF $7.4 MILLION FOR 1999 AND $1.6 MILLION
FOR 1997, AND INCOME EXPENSE OF $3.9 MILLION FOR 1998 (12.3) 6.1 (3.0)
---------- ---------- ----------
NET INCOME $ 186.1 $ 206.5 $ 201.9
========== ========== ==========
Average common shares outstanding during year 131.0 131.7 130.8
========== ========== ==========
EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING
From continuing operations
--Basic $ 1.53 $ 1.55 $ 1.62
--Diluted $ 1.53 $ 1.54 $ 1.61
Net income
--Basic $ 1.42 $ 1.57 $ 1.54
--Diluted $ 1.42 $ 1.56 $ 1.54
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
45
<PAGE> 46
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(MILLIONS)
YEAR ENDED DEC. 31, 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 186.1 $ 206.5 $ 201.9
Adjustments to reconcile net income to net cash
from operating activities
Depreciation 232.2 233.0 231.7
Deferred income taxes (15.3) 14.6 (1.9)
Investment tax credits, net (5.0) (5.0) (5.0)
Allowance for funds used during construction (1.8) -- (0.2)
Amortization of unearned compensation 9.1 7.8 5.9
Loss (gain) on disposal of discontinued operations, pretax 19.8 (10.0) --
Deferred revenue 11.9 (38.3) (30.5)
Deferred recovery clause (38.2) 17.4 2.7
Refund to customers -- -- (19.8)
Charges (discussed in Note L) 21.1 31.1 --
Receivables, less allowance for uncollectibles (25.3) (2.0) 6.4
Inventories 5.0 (13.5) (21.4)
Taxes accrued 31.7 (8.8) (0.9)
Interest accrued (7.2) (7.7) 1.6
Accounts payable (25.3) 47.3 (2.8)
Other (17.5) 23.0 (16.9)
------- --------- --------
381.3 495.4 350.8
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (426.1) (296.1) (212.6)
Allowance for funds used during construction 1.8 -- 0.2
Purchase of minority interest (49.1) -- --
Net proceeds from sale of assets 1.0 37.5 --
Investment in unconsolidated affiliates (2.6) (135.1) (4.9)
Other non-current investments (29.9) 2.8 6.9
------- ---------- ----------
(504.9) (390.9) (210.4)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock 0.3 6.7 5.1
Purchase of treasury stock (114.8) -- --
Proceeds from long-term debt 28.0 201.2 29.3
Repayment of long-term debt (35.2) (16.2) (103.8)
Net decrease in credit lines -- -- (49.8)
Net increase (decrease) in short-term debt 494.7 (128.5) 141.2
Redemption of preferred stock -- -- (20.4)
Dividends (168.8) (161.4) (147.3)
------- ------- -------
204.2 (98.2) (145.7)
------- -------- -------
Net increase (decrease) in cash
and cash equivalents 80.6 6.3 (5.3)
Cash and cash equivalents at beginning
of year 16.9 10.6 15.9
------- --------- ---------
Cash and cash equivalents at end of year $ 97.5 $ 16.9 $ 10.6
======= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for
Interest (net of amounts capitalized) $ 116.9 $ 99.3 $ 115.5
Income taxes $ 62.1 $ 66.2 $ 97.4
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
46
<PAGE> 47
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMMON EQUITY
(MILLIONS)
ADDITIONAL OTHER TOTAL
COMMON PAID-IN TREASURY RETAINED COMPREHENSIVE UNEARNED COMMON
SHARES(1) STOCK CAPITAL STOCK EARNINGS INCOME COMPENSATION EQUITY
--------- ------ ------- ---------- -------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DEC. 31, 1996 129.7 $ 129.7 $ 350.4 $ -- $ 962.1 $ -- $ (70.7) $ 1,371.5
Net income for 1997 201.9 201.9
Common stock issued 0.4 0.4 7.3 (2.7) 5.0
Common stock issued-
West Florida Gas Inc. merger 0.8 0.8 (1.1) 5.8 5.5
Cash dividends declared (147.3) (147.3)
Amortization of unearned
compensation 5.9 5.9
Tax benefits-ESOP dividends
and stock options 0.1 2.1 2.2
----- ------- ------- -------- --------- ------ ------- ---------
BALANCE, DEC. 31, 1997 130.9 130.9 356.7 -- 1,024.6 -- (67.5) 1,444.7
Net income for 1998 206.5 206.5
Common stock issued 0.5 0.5 7.2 (1.7) 6.0
Common stock issued-
Griffis, Inc. merger 0.6 0.6 0.8 1.4
Cash Dividends declared (161.4) (161.4)
Amortization of unearned
compensation 7.8 7.8
Tax benefits-ESOP dividends
and stock options 0.7 2.1 2.8
----- ------- ------- -------- --------- ------ ------- ---------
BALANCE, DEC. 31, 1998 132.0 132.0 364.6 -- 1,072.6 -- (61.4) 1,507.8
Net income for 1999 186.1 186.1
Other comprehensive
income (loss), after tax (5.5) (5.5)
Common stock issued 0.1 0.1 2.6 (2.4) 0.3
Treasury shares purchased (5.4) (114.8) (114.8)
Cash Dividends declared (168.8) (168.8)
Amortization of unearned
compensation 9.1 9.1
Tax benefits-ESOP dividends
and stock options 1.7 1.9 3.6
----- ------- ------- -------- --------- ------ ------- ---------
BALANCE, DEC. 31, 1999 126.7 $ 132.1 $ 368.9 $ (114.8) $ 1,091.8 $ (5.5) $ (54.7) $ 1,417.8
===== ======= ======= ======== ========= ====== ======= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
(1) TECO Energy had 400 million shares of $1 par value common stock authorized
in 1999, 1998 and 1997.
47
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The significant accounting policies for both utility and diversified
operations are as follows:
The consolidated financial statements include the accounts of TECO
Energy, Inc. (TECO Energy or the company) and its wholly owned subsidiaries,
including the Peoples Gas companies acquired in 1997.
The equity method of accounting is used to account for investments in
partnership arrangements in which TECO Energy or its subsidiary companies do
not have majority ownership or exercise control. The proportional share of
expenses, revenues and assets reflecting TECO Coalbed Methane's undivided
interest in joint venture property is included in the consolidated financial
statements.
All significant intercompany balances and intercompany transactions
have been eliminated in consolidation.
BASIS OF ACCOUNTING
Tampa Electric and Peoples Gas System (the regulated utilities)
maintain their accounts in accordance with recognized policies prescribed or
permitted by the Florida Public Service Commission (FPSC). In addition, Tampa
Electric maintains its accounts in accordance with recognized policies
prescribed or permitted by the Federal Energy Regulatory Commission (FERC).
These policies conform with generally accepted accounting principles in all
material respects.
The impact of Financial Accounting Standard (FAS) No. 71, Accounting
for the Effects of Certain Types of Regulation, has been minimal in the
experience of the regulated utilities, but when cost recovery is ordered over a
period longer than a fiscal year, costs are recognized in the period that the
regulatory agency recognizes them in accordance with FAS 71. Also as provided
in FAS 71, Tampa Electric has deferred revenues in accordance with the various
regulatory agreements approved by the FPSC in 1995, 1996 and 1999. Revenues are
recognized as allowed in 1997, 1998 and 1999 under the terms of the agreements.
The regulated utilities' retail business is regulated by the FPSC, and
Tampa Electric's wholesale business is regulated by FERC. Prices allowed, with
respect to Tampa Electric, by both agencies are generally based on the recovery
of prudent costs incurred plus a reasonable return on invested capital.
The use of estimates is inherent in the preparation of financial
statements in accordance with generally accepted accounting principles.
REVENUES AND FUEL COSTS
Revenues include amounts resulting from cost recovery clauses which
provide for monthly billing charges to reflect increases or decreases in fuel,
purchased capacity, conservation and environmental costs for Tampa Electric and
purchased gas, interstate pipeline capacity and conservation costs for Peoples
Gas System. These adjustment factors are based on costs projected for a
specific recovery period. Any over-recovery or under-recovery of costs plus an
interest factor are taken into account in the process of setting adjustment
factors for subsequent recovery periods. Over-recoveries of costs are recorded
as deferred credits, and under-recoveries of costs are recorded as deferred
charges.
In August 1996, the FPSC approved Tampa Electric's petition for
recovery of certain environmental compliance costs through the Environmental
Cost Recovery Clause.
In December 1994, Tampa Electric bought out a long-term coal supply
contract which would have expired in 2004 for a lump sum payment of $25.5
million and entered into two new contracts with the supplier. The coal supplied
under the new contracts is competitive in price with coal of comparable
quality. As a result of this buyout, Tampa Electric customers will benefit from
anticipated net fuel savings of more than $40 million through the year 2004. In
February 1995, the FPSC authorized the recovery of the $25.5-million buy-out
amount plus carrying costs through the Fuel and Purchased Power Cost Recovery
Clause over the 10-year period beginning April 1, 1995. In each of the years
1999, 1998 and 1997, $2.7 million of buy-out costs were amortized to expense.
Certain other costs incurred by the regulated utilities are allowed to
be recovered from customers through prices approved in the regulatory process.
These costs are recognized as the associated revenues are billed.
The regulated utilities accrue base revenues for services rendered but
unbilled to provide a closer matching of revenues and expenses.
In May 1996, the FPSC issued an order approving an agreement among
Tampa Electric, the Office of Public Council (OPC) and the Florida Industrial
Power Users Group (FIPUG) regarding 1996 earnings. This agreement provided for
a $25-million revenue refund to customers to be made over the 12-month period
beginning Oct. 1, 1996. This refund consisted of $15 million of revenues
deferred from 1996 and $10 million of revenues deferred from 1995, plus accrued
interest.
48
<PAGE> 49
In October 1996, the FPSC approved an agreement among Tampa Electric,
OPC and FIPUG that resolved all pending regulatory issues associated with the
Polk Power Station. The agreement allowed the full recovery of the capital
costs incurred in the construction of the Polk Power Station project, and
called for an extension of the base rate freeze established in the May
agreement through 1999. The October agreement also established a $25-million
temporary base rate reduction reflected as a credit on customer bills over a
15-month period. The reduction began Oct. 1, 1997 which immediately followed
the $25-million refund in the May agreement.
DEPRECIATION
TECO Energy provides for depreciation primarily by the straight-line
method at annual rates that amortize the original cost, less net salvage, of
depreciable property over its estimated service life. The provision for utility
plant in service, expressed as a percentage of the original cost of depreciable
property, was 4.0% for 1999, 4.1% for 1998 and 4.0% for 1997.
The original cost of utility plant retired or otherwise disposed of
and the cost of removal less salvage are charged to accumulated depreciation.
GOODWILL
Goodwill, classified as deferred charges on the consolidated balance
sheet, represents the excess of the purchase price over the fair value of the
net assets acquired in purchase transactions. Goodwill is being amortized on a
straight-line method over various periods not exceeding 40 years. Goodwill at
Dec. 31, 1999 and 1998, was $44.5 million and $7.4 million, respectively.
Goodwill increased by $32.6 million in December 1999 primarily due to TECO
Power Services' (TPS) increased ownership interest in the San Jose Power
Station. Accumulated amortization at Dec. 31, 1999 and 1998, was $2.0 million
and $1.4 million, respectively. Amortization of goodwill included in the
consolidated statements of income in 1999, 1998 and 1997 was $0.6 million, $0.5
million and $0.5 million, respectively.
ASSET IMPAIRMENT
The company periodically assesses whether there has been a permanent
impairment of its long-lived assets and certain intangibles held and used by
the company, in accordance with FAS 121, Accounting for the Impairment of
Long-lived Assets and Long-Lived Assets to be Disposed of. In 1998, TECO Coal
Corporation recorded an after-tax charge of $8.9 million to adjust asset values
of certain mining operations. No write-down of assets due to impairment was
required in 1999 or 1997.
REPORTING COMPREHENSIVE INCOME
The company has adopted FAS 130, Reporting Comprehensive Income. This
standard requires that comprehensive income, which includes net income as well
as certain changes in assets and liabilities recorded in common equity, be
reported in the financial statements. TECO Energy reported $5.5 million, after
tax, of comprehensive loss in 1999 related to an adjustment to the minimum
pension liability associated with the company's supplemental executive
retirement plan. There were no components of comprehensive income other than
net income for the years ended Dec. 31, 1998 and 1997.
REPORTING ON THE COSTS OF START-UP ACTIVITIES
In 1999, the company adopted AICPA Statement of Position (SOP) 98-5,
Reporting on the Costs of Start-up Activities. It requires costs of start-up
activities and organization costs to be expensed as incurred. Start-up
activities are broadly defined as those one-time activities related to events
such as opening a new facility, conducting business in a new territory and
organizing a new entity. Some costs, such as the costs of acquiring or
constructing long-lived assets and bringing them into service, are not subject
to SOP 98-5. The costs expensed in 1999 in accordance with SOP 98-5 were not
significant.
ACCOUNTING FOR CONTRACTS INVOLVED IN ENERGY TRADING AND RISK MANAGEMENT
ACTIVITIES
In 1998, the FASB's Emerging Issues Task Force (EITF) released Issue
98-10, Accounting for Contracts Involved in Energy Trading and Risk Management
Activities, effective for fiscal years beginning after Dec. 15, 1998. EITF
98-10 requires contracts for the purchase and sale of energy commodities that
are determined to be trading activities or contracts as defined in the Issue,
be valued at market on the balance sheet date, and the resulting gain or loss
reflected in earnings. At Dec. 31, 1999, the company does not have any
contracts for the purchase or sale of energy that would be classified as
trading activities as defined in EITF 98-10.
FOREIGN OPERATIONS
The functional currency of the company's foreign investments is
primarily the U.S. dollar. Transactions in the local currency are remeasured to
the U.S. dollar for financial reporting purposes with aggregate transaction
gains or losses included in net income. The aggregate transaction gains or
losses included in net income in 1999, 1998 and 1997 were not significant.
The investments are generally protected from any significant currency
gains or losses by the terms of the power sales agreements and other related
contracts, in which payments are defined in U.S. dollars.
49
<PAGE> 50
DEFERRED INCOME TAXES
TECO Energy utilizes the liability method in the measurement of
deferred income taxes. Under the liability method, the temporary differences
between the financial statement and tax bases of assets and liabilities are
reported as deferred taxes measured at current tax rates. Tampa Electric and
Peoples Gas System are regulated, and their books and records reflect approved
regulatory treatment, including certain adjustments to accumulated deferred
income taxes and the establishment of a corresponding regulatory tax liability
reflecting the amount payable to customers through future rates.
INVESTMENT TAX CREDITS
Investment tax credits have been recorded as deferred credits and are
being amortized to income tax expense over the service lives of the related
property.
OTHER DEFERRED CREDITS
Other deferred credits primarily include the accrued postretirement
benefit liability, the pension liability and minority interest.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC)
AFUDC is a non-cash credit to income with a corresponding charge to
utility plant which represents the cost of borrowed funds and a reasonable
return on other funds used for construction. The rate used to calculate AFUDC
is revised periodically to reflect significant changes in Tampa Electric's cost
of capital. The rate was 7.79% for 1999, 1998 and 1997. Total AFUDC for 1999
and 1997 was $1.8 million and $0.2 million, respectively. There were no
qualifying projects in 1998. The base on which AFUDC is calculated excludes
construction work in progress which has been included in rate base.
CAPITALIZED DEVELOPMENT COSTS
TeCom, Inc. (now known as TECO Inventory Company), a subsidiary of
TECO Energy, was developing for market advanced energy management and
automation systems for commercial and residential applications. On Nov. 4,
1999, TECO Energy completed the sale of the assets of TeCom for $1.0 million in
cash to Invensys Intelligent Building Systems, a division of the Barber- Colman
Company. TECO Energy decided to exit the automated energy management systems
business because it lacked the distribution channels necessary to effectively
reach the markets for its products. The capitalized development costs of $14.7
million were part of the asset sale. TeCom had capitalized product development
costs of $1.6 million in 1999, $6.8 million in 1998, and $6.5 million in 1997.
Amortization expense, which began in late 1998, for products that reached
general availability was $1.5 million in 1999, and $0.8 million in 1998.
TeCom's operating results for all years have been reclassified to be included
in discontinued operations. SEE NOTE I.
INTEREST CAPITALIZED
Interest costs for the construction of non-utility facilities are
capitalized and depreciated over the service lives of the related property.
CASH EQUIVALENTS
Cash equivalents are highly liquid, high-quality debt instruments
purchased with an original maturity of three months or less. The carrying
amount of cash equivalents approximated fair market value because of the short
maturity of these instruments. The amount of cash equivalents outstanding at
Dec. 31, 1999 was $94.2 million. There were no cash equivalents outstanding at
Dec. 31, 1998.
OTHER INVESTMENTS
Other investments include longer-term passive investments. At Dec. 31,
1999, other investments included leverage leases, TPS investments in the form
of loans to Energia Global International, Ltd. (EGI) and Mosbacher Power
Partners L.P. (MPP), and TPS' investment in TM Power Ventures' (TMPV)
13.35-percent ownership interest in the Czech Republic project. At Dec. 31,
1998, other investments included the continuing investment in leveraged leases
and TPS' loan to MPP.
The $25-million loan to EGI is evidenced by a 10% subordinated
promissory note that matures on Dec. 31, 2000. The $13- million unsecured loan
to MPP bears interest at 12% and matures in 2008. These financial instruments
have no quoted market prices and, accordingly, a reasonable estimate of fair
market value could not be made without incurring excessive costs. However, the
company believes by reference to stated interest rates and security
description, the fair value of these assets would not differ significantly from
the carrying value.
INVESTMENTS IN UNCONSOLIDATED AFFILIATES
Investments in unconsolidated affiliates are accounted for using the
equity method of accounting. At Dec. 31, 1999, these investments included TPS'
24-percent ownership interest in EEGSA, the Guatemalan electric utility, and
its 50-percent
50
<PAGE> 51
ownership interest in the Hamakua Power Station in Hawaii. At Dec. 31, 1998,
the investment in unconsolidated affiliates included the EEGSA investment and
the then current 46-percent ownership interest in the San Jose Power Station in
Guatemala.
On Dec. 30, 1999 TPS increased its ownership in the San Jose Power
Station to 67 percent and this investment was consolidated for financial
statement purposes. Net cash for the purchase of minority interest reflected:
<TABLE>
<CAPTION>
(millions)
<S> <C>
Current Assets $ 14.3
Construction Work in Progress 124.4
Goodwill 26.5
Other Assets (liabilities) (22.2)
Current Liabilities (17.9)
Long-term debt (55.4)
Remaining minority interest (20.6)
------
Net cash paid $ 49.1
======
</TABLE>
COALBED METHANE GAS PROPERTIES
TECO Coalbed Methane, a subsidiary of TECO Energy, has developed
jointly the natural gas potential in a portion of Alabama's Black Warrior
Basin.
TECO Coalbed Methane utilizes the successful efforts method to account
for its gas operations. Under this method, expenditures for unsuccessful
exploration activities are expensed currently.
Capitalized costs are amortized on the unit-of-production method using
estimates of proven reserves. Investments in unproven properties and major
development projects are not amortized until proven reserves associated with
the projects can be determined or until impairment occurs.
Aggregate capitalized costs related to wells producing and under
development at Dec. 31, 1999 and 1998 were $212.5 million and $210.3 million,
respectively. Net proven reserves at Dec. 31, 1999 and 1998 were as follows:
NET PROVEN RESERVES - COALBED METHANE GAS
<TABLE>
<CAPTION>
(billion cubic feet) 1999 1998
----- -----
<S> <C> <C>
Proven reserves, beginning of year 161.8 195.0
Production (16.6) (17.6)
Revisions of previous estimates 13.9 (15.6)
----- -----
Proven reserves, end of year 159.1 161.8
===== =====
Number of wells 615 655
===== =====
</TABLE>
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
In 1998, the Financial Accounting Standards Board (FASB) issued
Financial Accounting Standard (FAS) 133, Accounting for Derivative Instruments
and Hedging. This standard was initially to be effective for fiscal years
beginning after June 15, 1999. In July 1999, the FASB delayed the effective
date of this pronouncement until fiscal years beginning after June 15, 2000.
The new standard requires an entity to recognize derivatives as either assets
or liabilities in the financial statements, to measure those instruments at
fair value and to reflect the changes in fair value of those instruments as
either components of comprehensive income or in net income, depending on the
types of those instruments.
In preparation for adoption of this Statement effective Jan. 1, 2001,
the company has completed an initial review of business activities and
contracts, and has developed a preliminary inventory of derivative instruments
encompassed by FAS 133. The company has found that such activity has been
minimal and relatively short-term in duration. From time to time, TECO Energy
has entered into futures, swaps and options contracts to hedge the selling
price for its physical production at TECO Coalbed Methane, to limit exposure to
gas price increases at both the regulated natural gas utility and unregulated
propane business, and to limit exposure to fuel price increases at TECO
Transport. As of Dec. 31, 1999, TECO Energy had hedging transactions in place
to protect against selling price variability at TECO Coalbed Methane and
purchase price variability of natural gas at Peoples Gas. TECO Energy has not
used derivatives or other financial products for speculative purposes. At this
point, the company does not anticipate that the adoption of FAS 133 will
significantly impact its financial statements. Management will continue to
document all current and possible future uses of derivatives, evaluate their
effectiveness for hedging treatment, and develop procedures and methods for
measuring them.
RECLASSIFICATIONS
Certain prior year amounts were reclassified to conform with current
year presentation.
51
<PAGE> 52
B. COMMON EQUITY
STOCK-BASED COMPENSATION
In April 1996, the shareholders approved the 1996 Equity Incentive
Plan (the "1996 Plan"). The 1996 Plan superseded the 1990 Equity Incentive Plan
(the "1990 Plan") which superseded the 1980 Stock Option and Appreciation
Rights Plan (the "1980 Plan"), and no additional grants will be made under the
superseded Plans. The rights of the holders of outstanding options under the
1990 Plan and the 1980 Plan were not affected. The purpose of the 1996 Plan is
to attract and retain key employees of the company, to provide an incentive for
them to achieve long-range performance goals and to enable them to participate
in the long-term growth of the company. The 1996 Plan amended the 1990 Plan to
increase the number of shares of common stock subject to grants by 3,750,000
shares, expand the types of awards available to be granted and specify a limit
on the maximum number of shares with respect to which stock options and stock
appreciation rights may be made to any participant under the plan. Under the
1996 Plan, the Compensation Committee of the Board of Directors may award stock
grants, stock options and/or stock equivalents to officers and key employees of
TECO Energy and its subsidiaries. The Compensation Committee has discretion to
determine the terms and conditions of each award, which may be subject to
conditions relating to continued employment, restrictions on transfer or
performance criteria.
In April 1999, under the 1996 Plan, 1,157,800 stock options were
granted, with a weighted average option price of $21.54 and a maximum term of
10 years. In addition, 113,742 shares of restricted stock were awarded, each
with a weighted average fair value of $21.41. Compensation expense recognized
for stock grants awarded under the 1996 Plan was $1.6 million, $2.3 million and
$1.3 million in 1999, 1998 and 1997, respectively. The stock grants awarded in
1999 are primarily restricted subject to meeting specified total shareholder
return goals, vesting in three years if goals are met. The remaining stock
grants are restricted subject generally to continued employment, with the 1998
stock grants vesting in five years and the 1997 and 1996 stock grants vesting
at normal retirement age.
Stock option transactions during the last three years under the 1996
Plan, the 1990 Plan and the 1980 Plan (collectively referred to as the "Equity
Plans") are summarized as follows:
STOCK OPTIONS - EQUITY PLANS
<TABLE>
<CAPTION>
OPTION SHARES WEIGHTED AVG.
(THOUSANDS) OPTION PRICE
----------- ------------
<S> <C> <C>
1999
Outstanding, beginning of year 2,732 $23.06
Granted 1,158 $21.54
Exercised 32 $16.58
Canceled 31 $24.32
-----
Outstanding, end of year 3,827 $22.64
=====
Exercisable, end of year 171 $16.51
=====
Available for grant 2,806
1998
Outstanding, beginning of year 2,372 $20.70
Granted 750 $27.56
Exercised 385 $17.26
Canceled 5 $26.48
-----
Outstanding, end of year 2,732 $23.06
=====
Exercisable, end of year 2,732 $23.06
=====
Available for grant 4,047
=====
1997
Outstanding, beginning of year 2,286 $19.77
Granted 352 $24.38
Exercised 265 $17.53
Canceled 1 $24.38
-----
Outstanding, end of year 2,372 $20.70
=====
Exercisable, end of year 2,372 $20.70
=====
Available for grant 4,852
</TABLE> =====
As of Dec. 31, 1999 the 3.8 million options outstanding under the
Equity Plans are summarized below. Of the 3.8 million options outstanding, 0.2
million options were currently exercisable with option prices of $14.56-$17.38,
a weighted
52
<PAGE> 53
average option price of $16.51 and a weighted average remaining contractual
life of one year.
STOCK OPTIONS OUTSTANDING AT DEC. 31, 1999
<TABLE>
<CAPTION>
Weighted
Weighted Avg.
Option Avg. Remaining
Shares Range of Option Contractual
(thousands) Option Prices Price Life
----------- ------------- -------- -----------
<S> <C> <C> <C>
640 $14.56 - $19.44 $18.49 3 Years
1,517 $20.00 - $22.48 $21.27 8 Years
1,670 $23.55 - $27.56 $25.48 7 years
</TABLE>
In April 1997, the Shareholders approved the 1997 Director Equity Plan
(the "1997 Plan"), as an amendment and restatement of the 1991 Director Stock
Option Plan (the "1991 Plan"). The 1997 Plan supersedes the 1991 Plan, and no
additional grants will be made under the 1991 Plan. The rights of the holders
of outstanding options under the 1991 Plan will not be affected. The purpose of
the 1997 Plan is to attract and retain highly qualified non-employee directors
of the company and to encourage them to own shares of TECO Energy common stock.
The 1997 Plan is administered by the Board of Directors. The 1997 Plan amended
the 1991 Plan to increase the number of shares of common stock subject to
grants by 250,000 shares, expanded the types of awards available to be granted
and replaced the current fixed formula grant by giving the Board discretionary
authority to determine the amount and timing of awards under the Plan.
In 1999, 32,000 options were granted, with a weighted average option
price of $21.51. Transactions during the last three years under the 1997 Plan
are summarized as follows:
DIRECTOR EQUITY PLAN
<TABLE>
<CAPTION>
OPTION WEIGHTED AVG.
SHARES OPTION
(THOUSANDS) PRICE
----------- -------------
<S> <C> <C>
1999
Outstanding, beginning of year 241 $21.22
Granted 32 $21.51
Exercised -- --
Canceled -- --
---
Outstanding, end of year 273 $21.25
===
Exercisable, end of year 103 $18.00
===
Available for grant 364
1998
Outstanding, beginning of year 249 $20.59
Granted 24 $27.56
Exercised 32 $21.10
Canceled -- --
---
Outstanding, end of year 241 $21.22
===
Exercisable, end of year 241 $21.22
===
Available for grant 400
===
1997
Outstanding, beginning of year 215 $19.96
Granted 34 $24.60
Exercised -- --
Canceled -- --
---
Outstanding, end of year 249 $20.59
===
Exercisable, end of year 249 $20.59
===
Available for grant 428
===
</TABLE>
As of Dec. 31, 1999, the 273,000 options outstanding under the 1997
Plan with option prices of $17.72-$27.56, had a weighted average option price
of $21.25 and a weighted average remaining contractual life of five years. Of
the 273,000 options outstanding, 103,000 options were currently exercisable
with option prices of $17.72-$18.53, a weighted average option price of $18.00
and a weighted average remaining contractual life of two years.
53
<PAGE> 54
TECO Energy has adopted the disclosure-only provisions of FAS 123,
Accounting for Stock-Based Compensation (FAS 123), but applies Accounting
Principles Board Opinion No. 25 and related interpretations in accounting for
its plans. Therefore, since stock options are granted with an option price
greater than or equal to the fair value on date of grant, no compensation
expense has been recognized for stock options granted under the 1996 Plan and
the 1997 Plan. If the company had elected to recognize compensation expense for
stock options based on the fair value at grant date, consistent with the method
prescribed by FAS 123, net income and earnings per share would have been
reduced to the pro forma amounts shown below. These pro forma amounts were
determined using the Black-Scholes valuation model with weighted average
assumptions as shown below.
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
NET INCOME FROM CONTINUING OPERATIONS
(millions) As reported $200.9 $204.2 $211.5
Pro forma $198.5 $202.6 $210.8
NET INCOME As reported $186.1 $206.5 $201.9
(millions) Pro forma $183.7 $204.9 $201.1
NET INCOME FROM CONTINUING OPERATIONS
- -EPS BASIC As reported $ 1.53 $ 1.55 $ 1.62
Pro forma $ 1.52 $ 1.54 $ 1.61
NET INCOME
- -EPS BASIC As reported $ 1.42 $ 1.57 $ 1.54
Pro forma $ 1.40 $ 1.56 $ 1.54
ASSUMPTIONS 1999 1998 1997
------ ------ ------
Risk-free interest rate 5.26% 5.64% 6.81%
Expected lives (in years) 6 6 6
Expected stock volatility 19.14% 14.01% 12.60%
Dividend yield 4.55% 4.61% 4.79%
</TABLE>
DIVIDEND REINVESTMENT PLAN
In 1992, TECO Energy implemented a Dividend Reinvestment and Common
Stock Purchase Plan (DRP). Since 1997, the DRP purchased shares of TECO Energy
common stock on the open market for plan participants.
TREASURY STOCK
In September 1999, TECO Energy announced a program to repurchase up to
$150 million of its outstanding common stock. Shares acquired are considered
treasury shares. During 1999, the company acquired 5.4 million shares of its
outstanding common stock at a cost of $114.8 million; the average per share
price was $21.12. Earnings per share results were not significantly affected
due to the timing of the purchases.
SHAREHOLDER RIGHTS PLAN
In accordance with the company's Shareholder Rights Plan, a Right to
purchase one additional share of the company's common stock at a price of $90
per share is attached to each outstanding share of the company's common stock.
The Rights expire in May 2009, subject to extension. The Rights will become
exercisable 10 business days after a person acquires 10 percent or more of the
company's outstanding common stock or commences a tender offer that would
result in such person owning 10 percent or more of such stock. If any person
acquires 10 percent or more of the outstanding common stock, the rights of
holders, other than the acquiring person, become rights to buy shares of common
stock of the company (or of the acquiring company if the company is involved in
a merger or other business combination and is not the surviving corporation)
having a market value of twice the exercise price of each Right.
The company may redeem the Rights at a nominal price per Right until
10 business days after a person acquires 10 percent or more of the outstanding
common stock.
EMPLOYEE STOCK OWNERSHIP PLAN
Effective Jan. 1, 1990, TECO Energy amended the TECO Energy Group
Retirement Savings Plan, a tax-qualified benefit plan available to
substantially all employees, to include an employee stock ownership plan
(ESOP). During 1990, the ESOP purchased 7 million shares of TECO Energy common
stock on the open market for $100 million. The share purchase was financed
through a loan from TECO Energy to the ESOP. This loan is at a fixed interest
rate of 9.3% and will be repaid from dividends on ESOP shares and from TECO
Energy's contributions to the ESOP.
54
<PAGE> 55
TECO Energy's contributions to the ESOP were $7.5 million, $4.3
million, and $3.4 million in 1999, 1998 and 1997, respectively. TECO Energy's
annual contribution equals the interest accrued on the loan during the year
plus additional principal payments needed to meet the matching allocation
requirements under the plan, less dividends received on the ESOP shares. The
components of net ESOP expense recognized for the past three years are as
follows:
<TABLE>
<CAPTION>
(millions) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Interest expense $6.9 $7.3 $7.7
Compensation expense 7.5 5.5 4.7
Dividends (8.4) (8.1) (7.8)
---- ---- ----
Net ESOP expense $6.0 $4.7 $4.6
==== ==== ====
</TABLE>
Compensation expense was determined by the shares allocated method.
At Dec. 31, 1999, the ESOP had 2.7 million allocated shares, .2
million committed-to-be-released shares, and 3.6 million unallocated shares.
Shares are released to provide employees with the company match in accordance
with the terms of the TECO Energy Group Retirement Savings Plan and in lieu of
dividends on allocated ESOP shares. The dividends received by the ESOP are used
to pay debt service.
For financial statement purposes, the unallocated shares of TECO
Energy stock are reflected as a reduction of common equity, classified as
unearned compensation. Dividends on all ESOP shares are recorded as a reduction
of retained earnings, as are dividends on all TECO Energy common stock. The tax
benefit related to the dividends paid to the ESOP for allocated shares is a
reduction of income tax expense and for unallocated shares is an increase in
retained earnings. All ESOP shares are considered outstanding for earnings per
share computations.
C. PREFERRED STOCK
PREFERRED STOCK OF TECO ENERGY - $1 PAR
10 million shares authorized, none outstanding.
PREFERENCE STOCK OF TAMPA ELECTRIC - NO PAR
2.5 million shares authorized, none outstanding.
PREFERRED STOCK OF TAMPA ELECTRIC - NO PAR
2.5 million shares authorized, none outstanding.
PREFERRED STOCK OF TAMPA ELECTRIC-- $100 PAR VALUE
1.5 million shares authorized, none outstanding.
In July 1997, Tampa Electric retired all of its outstanding shares
($20 million aggregate par value) of 4.32% Series A, 4.16% Series B and 4.58%
Series D preferred stock at redemption prices of $103.75, $102.875 and $101.00
per share, respectively.
Cash dividends paid in 1997 were $0.2 million, $0.1 million and $0.3
million for Series A, Series B and Series D, respectively. These amounts
reflect dividends paid through July 16, 1997, the date that these series were
redeemed.
55
<PAGE> 56
D. LONG-TERM DEBT
<TABLE>
<CAPTION>
DEC. 31,
(millions) DUE 1999 1998
--- ----- -----
<S> <C> <C> <C>
TECO ENERGY
Medium-term notes payable: 9.29%(1) 2000 $ 50.0 $ 50.0
Medium-term notes payable: 5.35%(1)(2) 2001 150.0 150.0
--------- ---------
200.0 200.0
--------- ---------
TAMPA ELECTRIC
First mortgage bonds (issuable in series):
7 3/4% 2022 75.0 75.0
5 3/4% 2000 80.0 80.0
6 1/8% 2003 75.0 75.0
Installment contracts payable(3):
5 3/4% 2007 23.2 23.5
7 7/8% Refunding bonds(4) 2021 25.0 25.0
8% Refunding bonds(4) 2022 100.0 100.0
6 1/4% Refunding bonds(5) 2034 86.0 86.0
5.85% 2030 75.0 75.0
Variable rate: 3.21% for 1999 and 3.06% for 1998(1) 2025 51.6 51.6
Variable rate: 3.46% for 1999 and 3.17% for 1998(1) 2018 54.2 54.2
Variable rate: 3.69% for 1999 and3.39% for 1998(1) 2020 20.0 20.0
Medium-term notes payable: 5.11% (1)(6) 2001 38.0 38.0
--------- ---------
703.0 703.3
--------- ---------
PEOPLES GAS SYSTEM
Senior Notes (7)
10.35% 2007 6.2 6.8
10.33% 2008 8.0 8.6
10.3% 2009 8.8 9.2
9.93% 2010 9.0 9.4
8.0% 2012 30.5 32.0
Medium-term notes payable: 5.11% (1)(6) 2001 12.0 12.0
--------- ---------
74.5 78.0
--------- ---------
DIVERSIFIED COMPANIES
Dock and wharf bonds, variable rate:
3.77% for 1999 and 3.15% for 1998(1)(3) 2007 110.6 110.6
Mortgage notes payable: 7.6% 1999 -- 0.2
Non-recourse secured facility notes, Series A: 7.8% 2000-2012 131.9 137.9
Non-recourse secured facility note: 9.875% 2000-2008 22.0 24.4
Construction financing, variable rate: 6.97% for 1999(8) 2000-2009 73.3 --
Capital lease: implicit rate of 8.5% 2000-2003 31.6 33.4
Construction financing, 7.82% 2009 10.1 --
--------- ---------
379.5 306.5
--------- ---------
TECO FINANCE
Medium-term notes payable, various rates:
7.54% for 1999 and 7.26% for 1998(1) 2002 9.0 30.0
--------- ---------
Unamortized debt premium (discount), net (2.4) (2.2)
--------- ---------
1,363.6 1,315.6
Less amount due within one year(9) 155.8 36.0
--------- ---------
Total long-term debt $ 1,207.8 $ 1,279.6
========= =========
</TABLE>
(1) Composite year-end interest rate.
(2) These notes are subject to mandatory tender on Sept. 15, 2001, at which
time they will be redeemed or remarketed.
(3) Tax-exempt securities.
(4) Proceeds of these bonds were used to refund bonds with interest rates of
11 5/8% - 12 5/8%. For accounting purposes, interest expense has been
recorded using blended rates of 8.28%-8.66% on the original and refunding
bonds, consistent with regulatory treatment.
(5) Proceeds of these bonds were used to refund bonds with an interest rate of
9.9% in February 1995. For accounting purposes, interest expense has been
recorded using a blended rate of 6.52% on the original and refunding
bonds, consistent with regulatory treatment.
56
<PAGE> 57
(6) These notes are subject to mandatory tender on July 15, 2001, at which
time they will be redeemed or remarketed.
(7) These long-term debt agreements contain various restrictive covenants,
including provisions related to interest coverage, maximum levels of debt
to total capitalization and limitations on dividends.
(8) This construction financing was converted to long-term, non-recourse
financing, with a variable interest rate in early 2000, after the San Jose
Power Station began commercial operation.
(9) Of the amount due in 2000, $0.8 million may be satisfied by the
substitution of property in lieu of cash payments.
TECO Transport entered into a capital lease agreement with Midwest
Marine Management Company in March 1998 for the charter of additional capacity.
This lease covers 110 river barges and three towboats, classified as property,
plant and equipment on the balance sheet; the corresponding $35 million
five-year lease commitment was recorded as long-term debt on the balance sheet.
The following is a schedule of future minimum lease payments under the
capitalized lease together with the present value of the net minimum lease
payments as of Dec. 31, 1999:
<TABLE>
<CAPTION>
AMOUNT
YEAR ENDED DEC. 31: (MILLIONS)
- ------------------- ----------
<S> <C>
2000 4.6
2001 4.6
2002 4.6
2003 25.0
Total minimum lease payments 38.8
Less: Amount representing interest 7.2
Present value of net minimum lease payments,
including current maturities of $2.0 million $31.6
=====
</TABLE>
Substantially all of the property, plant and equipment of Tampa
Electric is pledged as collateral to secure its long-term debt. Maturities and
annual sinking fund requirements of long-term debt for the years 2001, 2002,
2003 and 2004 are $227.8 million, $39.7 million, $235.5 million and $32.7
million, respectively. Of these amounts $0.8 million per year for 2001 through
2004 may be satisfied by the substitution of property in lieu of cash payments.
At Dec. 31, 1999, total long-term debt had a carrying amount of
$1,207.8 million and an estimated fair market value of $1,234.3 million. The
estimated fair market value of long-term debt was based on quoted market prices
for the same or similar issues, on the current rates offered for debt of the
same remaining maturities, or for long-term debt issues with variable rates
that approximate market rates, at carrying amounts. The carrying amount of
long-term debt due within one year approximated fair market value because of
the short maturity of these instruments.
E. SHORT-TERM DEBT
Notes payable consisted primarily of commercial paper with weighted
average interest rates of 6.00% and 5.16%, at Dec. 31, 1999 and 1998,
respectively. The carrying amount of notes payable approximated fair market
value because of the short maturity of these instruments. Consolidated unused
lines of credit at Dec. 31, 1999 were $485 million. Certain lines of credit
require commitment fees ranging from .05% to .075% on the unused balances.
During 1995, TECO Finance entered into an interest rate exchange
agreement to moderate its exposure to interest rate changes. This three-year
agreement, which ended June 26, 1998, effectively converted the interest rate
on $100 million of short-term debt from a floating rate to a fixed rate. TECO
Finance paid a fixed rate of 5.8% and received a floating rate based on a
30-day commercial paper index. The costs of this agreement did not have a
significant impact on interest expense in 1998 or 1997.
F. RETIREMENT PLAN
TECO Energy has a non-contributory defined benefit retirement plan
which covers substantially all employees. Benefits are based on employees'
years of service and average final salary.
The company's policy is to fund the plan within the guidelines set by
ERISA for the minimum annual contribution and the maximum allowable as a tax
deduction by the IRS. About 73 percent of plan assets were invested in common
stock and 27 percent in fixed income investments at Dec. 31, 1999.
The Peoples Gas System retirement plan was merged with the TECO Energy
retirement plan effective Jan. 1, 1998. As of Dec. 31, 1997, Peoples Gas System
had a non-contributory defined benefit retirement plan which covered
substantially all employees. Benefits were based on employees' years of service
and average compensation during specified years of employment.
Peoples Gas System's retirement plan was funded annually by the
company within the guidelines set by ERISA for
57
<PAGE> 58
the minimum annual contribution and the maximum allowable as a tax deduction by
the IRS. Plan assets were invested primarily in a collective investment trust
consisting of equity securities, fixed income securities and cash equivalents.
All information prior to 1998 has been restated to include the Peoples
Gas System Retirement Plan.
Prior period amounts have also been restated to include the unfunded
obligations for the supplemental executive retirement plan, a non-qualified,
non-contributory defined benefit retirement plan available to certain senior
management. Inclusion of these obligations resulted in the recognition in 1999
of $5.5 million, after tax, of comprehensive loss related to minimum pension
liability.
In 1997, the Financial Accounting Standards Board issued FAS 132,
Employers' Disclosures about Pensions and Other Post Retirement Benefits. FAS
132 standardizes the disclosure requirements for pensions and other
postretirement benefits with additional information required on changes in the
benefit obligations and fair values of plan assets.
COMPONENTS OF NET PENSION EXPENSE
<TABLE>
<CAPTION>
(MILLIONS) 1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 12.9 $ 11.7 $ 10.4
Interest cost on projected benefit obligations 27.2 26.5 24.8
Expected return on plan assets (34.6) (31.5) (28.4)
Amortization of:
Unrecognized transition asset (0.9) (0.9) (0.9)
Prior service cost 1.2 1.2 1.2
Actuarial (gain) loss 5.2 1.2 0.2
------- ------- -------
Net pension expense 11.0 8.2 7.3
Special termination benefit charge -- 0.7 --
Curtailment charge -- (0.8) --
------- ------- -------
Net pension expense recognized in the
Consolidated Statements of Income $ 11.0 $ 8.1 $ 7.3
======= ======= =======
</TABLE>
RECONCILIATION OF THE FUNDED STATUS OF THE RETIREMENT PLAN AND THE ACCRUED
PENSION PREPAYMENT/(LIABILITY)
<TABLE>
<CAPTION>
(MILLIONS) DEC. 31, DEC. 31,
1999 1998
--------- --------
<S> <C> <C>
Project benefit obligation, beginning of year $ 414.9 $ 374.9
Change in benefit obligation due to:
Service cost 12.9 11.7
Interest cost 27.2 26.5
Actuarial (gain) loss (68.1) 29.5
Curtailments -- (1.1)
Special termination benefits -- 0.7
Gross benefits paid (26.5) (27.3)
------- -------
Projected benefit obligation, end of year 360.4 414.9
------- -------
Fair value of plan assets, beginning of year 468.7 414.8
Change in plan assets due to:
Actual return on plan assets 65.3 72.2
Employer contributions 7.6 9.0
Gross benefits paid (including expenses) (29.5) (27.3)
------- -------
Fair value of plan assets, end of year 512.1 468.7
------- -------
Funded status, end of year 151.7 53.8
Unrecognized net actuarial gain (188.6) (87.6)
Unrecognized prior service cost 11.3 12.5
Unrecognized net transition asset (5.7) (6.7)
------- -------
Accrued pension liability $(31.3) $(28.0)
======= =======
ASSUMPTIONS USED IN DETERMINING ACTUARIAL VALUATIONS
1999 1998
-------- --------
Discount rate to determine projected benefit obligation 7.75% 6.75%
Rates of increase in compensation levels 3.3-5.3% 3.3-5.3%
Plan asset growth rate through time 9% 9%
</TABLE>
58
<PAGE> 59
G. POSTRETIREMENT BENEFIT PLAN
TECO Energy and its subsidiaries currently provide certain
postretirement health care benefits for substantially all employees retiring
after age 55 meeting certain service requirements. The company contribution
toward health care coverage for most employees retiring after Jan. 1, 1990 is
limited to a defined dollar benefit based on years of service. Postretirement
benefit levels are substantially unrelated to salary. The company reserves the
right to terminate or modify the plans in whole or in part at any time. The
prior period amounts have been restated to include life insurance benefits.
COMPONENTS OF POSTRETIREMENT BENEFIT COST
<TABLE>
<CAPTION>
(MILLIONS)
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 3.6 $ 2.9 $ 2.5
Interest cost on projected benefit obligations 6.9 6.8 6.7
Amortization of transition obligation
(straight line over 20 years) 2.7 2.7 2.7
Amortization of prior service cost 0.6 0.6 0.6
Amortization of actuarial loss/(gain) 0.2 0.1 (0.1)
------ ------ -----
Net periodic Postretirement benefit expense $ 14.0 $ 13.1 $12.4
====== ====== =====
</TABLE>
RECONCILIATION OF THE FUNDED STATUS OF THE POSTRETIREMENT BENEFIT PLAN AND THE
ACCRUED LIABILITY (MILLIONS)
<TABLE>
<CAPTION>
DEC. 31, DEC. 31,
1999 1998
-------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligation, beginning of year $ 104.3 $ 95.5
Change in benefit obligation due to:
Service cost 3.6 2.9
Interest cost 6.9 6.8
Plan participants' contributions 0.6 0.3
Actuarial (gain) loss (16.3) 4.2
Gross benefits paid (6.0) (5.4)
------- --------
Accumulated postretirement benefit obligation, end of year $ 93.1 $ 104.3
======= ========
Funded status, end of year $(93.1) $ (104.3)
Unrecognized net loss from past experience (2.1) 14.3
Unrecognized prior service cost 6.4 7.1
Unrecognized transition obligation 35.6 38.3
------- --------
Liability for accrued postretirement benefit $ (53.2) $ (44.6)
======= ========
ASSUMPTIONS USED IN DETERMINING ACTUARIAL VALUATIONS
1999 1998
-------- -------
Discount rate to determine projected benefit obligation 7.75% 6.75%
</TABLE>
The assumed health care cost trend rate for medical costs prior to age
65 was 8.00% in 1999 and decreases to 5.75% in 2002 and thereafter. The assumed
health care cost trend rate for medical costs after age 65 was 6.50% in 1999
and decreases to 5.75% in 2002 and thereafter.
A 1-percent increase in the medical trend rates would produce a
5-percent ($0.6 million) increase in the aggregate service and interest cost
for 1999 and a 6-percent ($4.1 million) increase in the accumulated
postretirement benefit obligation as of Dec. 31, 1999.
A 1-percent decrease in the medical trend rates would produce a
5-percent ($0.5 million) decrease in the aggregate service and interest cost
for 1999 and a 5-percent ($3.7 million) decrease in the accumulated
postretirement benefit obligation as of Dec. 31, 1999.
59
<PAGE> 60
H. INCOME TAX EXPENSE
Income tax expense consists of the following components:
<TABLE>
<CAPTION>
(millions) FEDERAL STATE TOTAL
------- ----- -----
<S> <C> <C> <C>
1999
Currently payable $ 89.6 $ 13.0 $102.6
Deferred (11.5) 1.1 (10.4)
Amortization of investment tax credits (5.2) -- (5.2)
------ ------ ------
Income tax expense from continuing operations 72.9 14.1 87.0
------ ------ ------
Currently payable (3.6) (0.3) (3.9)
Deferred (4.4) (0.5) (4.9)
------ ------ ------
Income tax benefit from discontinued operations (8.0) (0.8) (8.8)
------ ------ ------
Total income tax expense $ 64.9 $ 13.3 $ 78.2
====== ====== ======
1998
Currently payable $ 61.0 $ 11.4 $ 72.4
Deferred 13.1 2.8 15.9
Amortization of investment tax credits (5.0) -- (5.0)
------ ------ ------
Income tax expense from continuing operations 69.1 14.2 83.3
------ ------ ------
Currently payable 2.8 0.1 2.9
Deferred (1.5) 0.2 (1.3)
------ ------ ------
Income tax expense from discontinued operations 1.3 0.3 1.6
------ ------ ------
Total income tax expense $ 70.4 $ 14.5 $ 84.9
====== ====== ======
1997
Currently payable $ 90.3 $ 10.2 $100.5
Deferred (7.6) 7.0 (0.6)
Amortization of investment tax credits (5.0) -- (5.0)
------ ------ ------
Income tax expense from continuing operations 77.7 17.2 94.9
------ ------ ------
Currently payable (5.9) 0.1 (5.8)
Deferred 0.6 (0.1) 0.5
------ ------ ------
Income tax benefit from discontinued operations (5.3) -- (5.3)
------ ------ ------
Total income tax expense $ 72.4 $ 17.2 $ 89.6
====== ====== ======
</TABLE>
Deferred taxes result from temporary differences in the recognition of
certain liabilities or assets for tax and financial reporting purposes. The
principal components of the company's deferred tax assets and liabilities
recognized in the balance sheet are as follows:
<TABLE>
<CAPTION>
(millions) DEC. 31, DEC. 31,
1999 1998
-------- ---------
<S> <C> <C>
Deferred income tax assets(1)
Property related $ 71.1 $ 63.0
Basis differences in oil and gas producing properties (2.5) (2.4)
Other 38.2 38.5
-------- --------
Total deferred income tax assets 106.8 99.1
-------- --------
Deferred income tax liabilities(1)
Property related (562.0) (548.5)
Basis differences in oil and gas producing properties (13.4) (15.7)
Alternative minimum tax credit carryforward 35.1 39.3
Other 30.9 25.0
-------- --------
Total deferred income tax liabilities (509.4) (499.9)
-------- --------
Accumulated deferred income taxes $ (402.6) $ (400.8)
======== ========
</TABLE>
(1) Certain property related assets and liabilities have been netted.
60
<PAGE> 61
The total income tax provisions differ from amounts computed by
applying the federal statutory tax rate to income before income taxes for the
following reasons:
<TABLE>
<CAPTION>
(millions) 1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net income from continuing operations $ 200.9 $ 204.2 $ 211.5
Total income tax provision 87.0 83.3 94.9
Preferred dividend requirements -- -- 0.5
------- ------- -------
Income from continuing operations before income
taxes and preferred dividend requirements $ 287.9 $ 287.5 $ 306.9
======= ======= =======
Income taxes on above at federal statutory rate of 35% $ 100.8 $ 100.6 $ 107.4
Increase (Decrease) due to:
State income tax, net of federal income tax 9.2 9.3 11.2
Amortization of investment tax credits (5.2) (5.0) (5.0)
Non-conventional fuels tax credit (17.2) (18.9) (20.2)
Other (0.6) (2.7) 1.5
------- ------- -------
Total income tax provision from continuing operations $ 87.0 $ 83.3 $ 94.9
======= ======= =======
Provision for income taxes as a percent of income from
continuing operations, before income taxes 30.2% 29.0% 30.9%
======= ======= =======
</TABLE>
The provision for income taxes as a percent of income from
discontinued operations was 37.5%, 35.0% and 34.8% for 1999, 1998 and 1997,
respectively. The total effective income tax rate differs from the federal
statutory rate due to state income tax, net of federal income tax and other
miscellaneous items.
I. DISCONTINUED OPERATIONS
TECOM (NOW KNOWN AS TECO INVENTORY COMPANY)
On Nov. 4, 1999, TECO Energy completed the sale of the assets of TeCom
for $1.0 million in cash to Invensys Intelligent Building Systems, a division
of the Barber-Colman Company. The company decided to exit the automated energy
management systems business because it lacked the distribution channels
necessary to effectively reach the markets for its products.
As a result of the company's intention to sell this business, all
activities of the subsidiary through Sept. 1, 1999, the measurement date, were
reported as discontinued operations on the Consolidated Statements of Income,
including amounts from prior years which have been reclassified from continuing
operations to discontinued operations. After-tax losses from discontinued
operations were $2.5 million, $3.8 million and $0.1 million, respectively, for
the years ended Dec. 31, 1999, 1998 and 1997. The loss on the sale of the
assets of TeCom, including an estimate of activities after the measurement
date, was reported as a loss on disposal of discontinued operations. The net,
after tax loss from TeCom's disposal of discontinued operations in 1999 was
$12.9 million, or 10 cents per share.
A summary of the net assets of TeCom is as follows:
<TABLE>
<CAPTION>
(millions) DEC. 31, DEC. 31,
1999 1998
-------- --------
<S> <C> <C>
Inventories, at average cost 0.1 $ 1.3
Other current assets 0.1 0.6
Net property, plant and equipment 0.2 1.1
Capitalized developments costs -- 14.6
Other assets -- 0.4
Total liabilities (0.8) (6.5)
----- ----
Net assets $(0.4) $11.5
===== =====
</TABLE>
Total revenues from discontinued operations related to TeCom were $1.2
million, $2.1 million and $1.2 million respectively, for the years ended Dec.
31, 1999, 1998 and 1997.
TECO OIL & GAS
On Aug. 28, 1997, the Company announced its plan to discontinue
operations of its conventional oil and gas subsidiary,
61
<PAGE> 62
TECO Oil & Gas, Inc. Since its formation in 1995, TECO Oil & Gas participated
in joint ventures utilizing 3-D seismic imaging in the exploration for oil and
gas. TECO Energy reported a net after-tax loss from discontinued oil and gas
operations of $6.5 million in 1997, which represented the results of the
subsidiary through Aug. 31, 1997, the measurement date. An estimate of
activities after that date, including the sale of the assets at book value, was
reported as a net after-tax loss on disposal of discontinued operations of $3.0
million in 1997.
In March 1998, TECO Oil & Gas sold its offshore assets to American
Resources Offshore, Inc. (ARO) for $57.7 million, consisting of $39.2 million
in cash and a subordinated note (the "ARO Note") in the principal amount of
$18.5 million. TECO Energy reported a net after-tax gain of $22.2 million from
the disposal of discontinued operations in the first quarter of 1998.
At Dec. 31, 1998, TECO Energy wrote off the recorded value of all
assets associated with the discontinued oil and gas operation, including the
$18.5-million ARO Note and associated accrued interest income and the remaining
on-shore assets. The net after-tax gain reported from disposal of discontinued
operations, including the original gain and this write-off, was $6.1 million in
1998.
In March 1999, TECO Oil & Gas sold the ARO Note to a third party for
$500,000 in cash, and in a separate transaction ARO agreed to assume disputed
joint billing payments of approximately $425,000. A $0.6 million after-tax gain
from these transactions was recognized in 1999 as a gain on disposal of
discontinued operations.
There were no significant revenues from the discontinued oil and gas
operations in 1999 or 1998. Total revenues from the discontinued oil and gas
operations in 1997 were $9.6 million.
A summary of the net assets of TECO Oil & Gas is as follows:
<TABLE>
<CAPTION>
(millions) DEC. 31, DEC. 31,
1999 1998
------- -------
<S> <C> <C>
Current assets $ 0.1 $ 0.2
Net property, plant and equipment -- --
Other assets -- --
Taxes current receivable -- 9.5
Deferred taxes 1.6 2.0
Total liabilities (0.2) (0.8)
----- ------
Net assets $ 1.5 $ 10.9
===== ======
</TABLE>
J. EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued FAS 128,
Earnings per Share, which requires disclosure of basic and diluted earnings per
share and a reconciliation (where different) of the numerator and denominator
from basic to diluted earnings per share. The reconciliation of basic and
diluted earnings per share is shown below:
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31,
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Numerator (Basic and Diluted)
Net income from continuing operations $ 200.9 $ 204.2 $ 211.5
Net income $186.1 $206.5 $201.9
Denominator
Average number of shares outstanding - basic 131.0 131.7 130.8
Plus: incremental shares for assumed
conversions: Stock options at end of period 2.3 3.0 2.6
Less: Treasury shares which could be purchased (2.1) (2.5) (2.2)
-------- -------- -------
Average number of shares outstanding - diluted 131.2 132.2 131.2
======= ======== =======
EARNINGS PER SHARE FROM CONTINUING OPERATIONS
Basic $ 1.53 $ 1.55 $ 1.62
Diluted $ 1.53 $ 1.54 $ 1.61
EARNINGS PER SHARE
Basic $ 1.42 $ 1.57 $ 1.54
Diluted $ 1.42 $ 1.56 $ 1.54
</TABLE>
62
<PAGE> 63
K. SEGMENT INFORMATION
TECO Energy is an electric and gas utility holding company with
significant diversified activities. The management of TECO Energy determined its
reportable segments based on each subsidiaries' contribution of revenues,
operating income and total assets. All significant intercompany transactions
are eliminated in the consolidated financial statements of TECO Energy but are
included in determining reportable segments in accordance with FAS 131,
Disclosures about Segments of an Enterprise and Related Information. In
November 1999, TECO Energy sold the assets of TeCom, the company's advanced
energy management technology subsidiary. All prior years presented here have
been restated to exclude TeCom's results, which are now reflected in the
consolidated financial statements as discontinued operations.
<TABLE>
<CAPTION>
Income Capital
From Net Assets Expenditures
(millions) Revenues(1) Operations(1) Income Depreciation(1) at Dec. 31, for the Year
-------------- ----------------- ------------- -------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
1999
Tampa Electric $1,199.8(2)(3)(7) $263.9(7) $138.8(15) $147.6 $2,827.3 $228.7
Peoples Gas System 251.7 43.2 19.8 23.1 433.1 84.5
TECO Transport 251.9(4) 46.8 26.2 21.9 312.0 18.6
TECO Coal 237.3(5) 21.5 16.0 16.1 193.2 23.4
TECO Power Services 109.5(6) 17.3(10) 14.6 9.3 700.4(12) 68.5
Other diversified
businesses 109.8 33.0(11) 27.3 14.2 222.5 3.1
-------- ------ ------ ------ -------- ------
2,160.0 425.7 242.7 232.2 4,688.5 426.8
Other and eliminations (177.0)(13) (2.1)(13) (41.8)(16) 0.0 1.6 (0.7)
-------- ------ ------ ------ -------- ------
TECO Energy consolidated $1,983.0 $423.6 $200.9 $232.2 $4,690.1 $426.1
======== ====== ====== ====== ======== ======
1998
Tampa Electric $1,234.6 (2)(3) $279.7(8) $141.2(15) $146.1 $2,705.0 $176.2
Peoples Gas System 252.8 35.8 15.5 21.0 375.6 55.9
TECO Transport 230.0(4) 43.2 23.8 26.6 309.7 45.6
TECO Coal 232.4(5) 23.5(9) 17.5(17) 15.4 180.0 11.2
TECO Power Services 98.7(6) 13.0(10) 9.7 9.2 412.9(12) 0.4
Other diversified
businesses 110.6 37.8(11) 30.8(18) 14.7 222.2 5.4
-------- ------ ------ ------ -------- ------
2,159.1 433.0 238.5 233.0 4,205.4 294.7
Other and eliminations (203.4) (31.7)(14) (34.3)(16) 0.0 (26.1) 1.4
-------- ------ ------ ------ -------- ------
TECO Energy consolidated $1,955.7 $401.3 $204.2 $233.0 $4,179.3 $296.1
======== ====== ====== ====== ======== ======
1997
Tampa Electric $1,189.2 (2)(3) $271.5 $135.2(15) $141.4 $2,678.4 $125.1
Peoples Gas System 249.6 33.6 14.3(19) 19.8 348.9 30.2
TECO Transport 218.7(4) 42.1 24.5 27.3 266.8 28.9
TECO Coal 215.6(5) 19.9 14.9 17.9 191.4 12.3
TECO Power Services 93.0(6) 15.2(10) 9.6 8.9 273.3(12) 2.1
Other diversified
businesses 103.7 38.1(11) 31.6(18) 16.4 220.5 6.1
-------- ------ ------ ------ -------- ------
2,069.8 420.4 230.1 231.7 3,979.3 204.7
Other and eliminations (209.0) (7.7) (18.6)(16) -- (18.9) 7.9
-------- ------ ------ ------ -------- ------
TECO Energy consolidated $1,860.8 $412.7 $211.5 $231.7 $3,960.4 $212.6
======== ====== ====== ====== ======== ======
</TABLE>
63
<PAGE> 64
(1) From continuing operations
(2) Revenues from sales to affiliates were $24.8 million, $23.2 million and
$22.3 million in 1999, 1998 and 1997, respectively.
(3) Revenues shown in 1999 are after the revenue deferral of $11.9 million.
Revenues shown in 1998 and 1997 include the recognition of previously
deferred revenue of $38.3 million and $30.5 million, respectively.
(4) Revenues from sales to affiliates were $101.0 million, $112.8 million and
$114.7 million in 1999, 1998 and 1997, respectively.
(5) Revenues from sales to affiliates were $23.1 million, $33.8 million and
$44.3 million in 1999, 1998 and 1997, respectively.
(6) Revenues from sales to affiliates were $35.5 million, $32.7 million and
$26.7 million in 1999, 1998 and 1997, respectively. Revenues include
income from unconsolidated equity investments of $2.6 million and $1.8
million in 1999 and 1998, respectively. There were no revenues from
unconsolidated equity investments in 1997.
(7) Revenues and operating income as shown for 1999 exclude a $7.9 million
credit resulting from a charge. See Note L.
(8) Operating income excludes a pretax charge of $9.6 million in 1998. See
Note L.
(9) Operating income excludes a pretax charge of $13.6 million in 1998. See
Note L.
(10) Operating income includes interest cost on the non-recourse debt related
to independent power operations of $10.3 million, $13.4 million and $14.1
million in 1999, 1998 and 1997, respectively.
(11) Operating income includes a non-conventional fuels tax credit of $17.2
million, $18.9 million and $20.2 million in 1999, 1998 and 1997,
respectively.
(12) Total assets include investment in unconsolidated affiliates of $103.3
million, $124.5 million and $5.8 million in 1999, 1998 and 1997,
respectively.
(13) Revenues and operating income include a pretax credit of $7.9 million in
1999 See Note L.
(14) Operating income includes pretax charges totaling $23.2 million in 1998.
See Note L.
(15) Net income excludes after-tax charges totaling $13.7 million, $10.4
million and $0.3 million in 1999, 1998 and 1997, respectively. See Note L.
(16) Net income includes after-tax charges totaling $19.6 million, $19.6
million and $2.2 million in 1999, 1998 and 1997, respectively. See Note L.
(17) Net income excludes an after-tax charge of $8.9 million in 1998. See Note
L.
(18) Net income excludes after-tax charges of $0.3 million and $0.8 million in
1998 and 1997, respectively. See Note L.
(19) Net income excludes an after-tax charge of $1.1 million in 1997. See Note
L.
Tampa Electric Company provides retail electric utility services to
more than 552,000 customers in West Central Florida. Its Peoples Gas System
division is engaged in the purchase, distribution and marketing of natural gas
for more than 253,000 residential, commercial, industrial and electric power
generation customers in the state of Florida.
TECO Transport Corporation, through its wholly owned subsidiaries,
transports, stores and transfers coal and other dry bulk commodities for third
parties and Tampa Electric. TECO Transport's subsidiaries operate on the
Mississippi, Ohio and Illinois rivers, in the Gulf of Mexico and worldwide.
TECO Coal Corporation, through its wholly owned subsidiaries, owns
mineral rights, and owns or operates surface and underground mines and coal
processing and loading facilities in Kentucky, Tennessee and Virginia. TECO
Coal's subsidiaries sell its coal production to third parties and to Tampa
Electric. The contract with Tampa Electric expired at the end of 1999 and was
not renewed.
TECO Power Services Corporation (TPS) has subsidiaries that have
interests in independent power projects and transmission and distribution
facilities in Florida, Virginia, Hawaii and Guatemala, and has investments in
unconsolidated affiliates that participate in independent power projects in
other parts of the U.S. and the world.
TECO Energy's other diversified operating businesses are engaged in
natural gas production from coalbeds, the sale of propane, the marketing of
natural gas, and energy services and engineering.
FOREIGN OPERATIONS
TPS has independent power operations and investments in Guatemala.
TPS, through its subsidiaries, owns and operates a 78-megawatt power
station that supplies energy to Empresa Electrica de Guatemala, S.A.(EEGSA), an
electric utility in Guatemala, under a U.S. dollar-denominated power sales
agreement.
At Dec. 31, 1999, TPS, through a wholly owned subsidiary, had a 67
percent ownership interest in an entity that was completing construction of a
120-megawatt power station and transmission facilities in Guatemala. During
January 2000, construction was completed and the project went into commercial
operation, providing capacity under a U.S. dollar-denominated power sales
agreement to EEGSA. TPS, through a buy-out of its partner, increased its
ownership interest to 100 percent in this project in January 2000.
64
<PAGE> 65
TPS, through a subsidiary, owns a 30 percent interest in a consortium
that includes Iberdrola, an electric utility in Spain, and Electricidade de
Portugal, an electric utility in Portugal. The consortium owns an 80 percent
interest in EEGSA.
Total assets at Dec. 31, 1999, 1998 and 1997 included $379.4 million,
$154.1 million and $34.7 million, respectively, related to these Guatemalan
investments. Revenues included $19.5 million, $16.9 million and $15.8 million
for the years ended Dec. 31, 1999, 1998 and 1997, respectively, and operating
income included $10.1 million, $7.9 million and $6.5 million for the years
ended Dec. 31, 1999, 1998 and 1997, respectively, from these Guatemalan
operations and investments.
L. CHARGES TO EARNINGS
In 1999 and 1998 TECO Energy recognized certain charges that were
unusual and nonrecurring in nature.
1999 CHARGES
The charges in 1999 totaled $21.1 million pretax ($19.6 million after
tax) and consisted of the following:
Tampa Electric recorded a charge of $10.5 million ($6.4 million after
tax) based on FPSC audits of its 1997 and 1998 earnings, which among other
things, limited its regulatory equity ratio to 58.7 percent, a decrease of 91
basis points and 224 basis points from 1997's and 1998's ratios, respectively.
Tampa Electric also recorded a charge of $3.5 million after tax,
representing management's estimate of additional expense to resolve the
litigation filed by the United States Environmental Protection Agency.
After-tax charges totaling $6.1 million were also recognized
reflecting corporate income tax provisions and settlements related to prior
years' tax returns. These charges were recorded at Tampa Electric (a
$3.8-million net after-tax charge, after recovery under the then current
regulatory agreement), at TECO Investments (a $4.3-million after-tax charge)
and at the TECO Energy corporate level (a $2.0-million after-tax benefit).
A charge of $6.0 million ($3.6 million after tax) was recorded to
adjust the carrying value of certain investments in leveraged aircraft leases
to reflect lower anticipated residual values.
1998 CHARGES
In 1998, TECO Energy recognized charges totaling $31.1 million, pretax
($19.6 million, after tax). These charges consisted of the following:
TECO Coal recorded a charge of $13.6 million ($8.9 million after tax)
to adjust the asset values of certain mining facilities, primarily at its
Gatliff mine, to reflect their expected value after the Tampa Electric contract
expires in 1999. TECO Coal expects no further asset adjustments related to the
expiration of the Tampa Electric contract.
The FPSC in September 1997 ruled that under the regulatory agreements
effective through 1999 the costs associated with two long-term wholesale power
sales contracts should be assigned to the wholesale jurisdiction and that for
retail rate making purposes the costs transferred from retail to wholesale
should reflect average costs rather than the lower incremental costs on which
the two contracts are based. As a result of this decision and the related
reduction of the retail rate base upon which Tampa Electric is allowed to earn
a return, these contracts became uneconomic. One contract was terminated in
1997. As to the other contract, which expires in 2001, Tampa Electric entered
into firm power purchase contracts with third parties to provide replacement
power through 1999 and is no longer separating the associated generation assets
from the retail jurisdiction. The cost of purchased power under these contracts
exceeded the revenues expected through 1999. To reflect this difference, Tampa
Electric recorded a $9.6 million charge ($5.9 million after tax) in 1998. In
November 1999, the FPSC approved a company-proposed treatment for the remaining
14 1/2 months of the contract that flows 100 percent of the revenues from the
contract back to retail customers.
Tampa Electric also recorded a charge of $7.3 million ($4.4 million
after tax) in other expense for an FPSC decision in 1998 denying recovery of
certain BTU coal quality price adjustments for coal purchases since 1993.
TECO Energy recorded $0.4 million, after tax, of merger related costs
in 1998 in connection with the Griffis, Inc. merger.
M. COMMITMENTS AND CONTINGENCIES
TECO Energy has made certain commitments in connection with its
continuing capital improvements program. TECO Energy estimates that capital
investments for ongoing businesses during 2000 will be about $615 million and
approximately $1.6 billion for the years 2001 through 2004.
Tampa Electric's capital investments are estimated to be $141 million
in 2000 and $540 million for 2001 through 2004 for equipment and facilities to
meet customer growth and generation reliability programs. Additionally, Tampa
Electric is also expecting to spend $51 million in 2000 and $554 million during
2001-2004 to repower the Gannon Power Station and is
65
<PAGE> 66
forecasting $42 million in 2000 and $114 million during 2001-2004 to construct
additional generation expansion. At the end of 1999, Tampa Electric had
outstanding commitments of about $66 million to repower the Gannon Power
Station.
Peoples Gas System's capital investments are estimated to be $66
million for 2000 and $211 million for 2001 through 2004 for infrastructure
expansion to grow the customer base and normal asset replacement.
At the diversified companies, capital investments are estimated at
$315 million for 2000 and $206 million for the years 2001 through 2004,
primarily for asset replacement and refurbishment at TECO Transport and TECO
Coal, TECO Coal's acquisition of synthetic fuel production facilities, the
construction of the Commonwealth Chesapeake Power Station and the Hamakua
Energy Project and the Hardee Power Station expansion. This includes
commitments of $158 million at the end of 1999, mainly for the construction of
the Commonwealth Chesapeake Power Station in Virginia and for the acquisition
of the remaining interest in the San Jose Power Station in early 2000.
Tampa Electric Company is a potentially responsible party for certain
superfund sites and, through its Peoples Gas System division, for certain
former manufactured gas plant sites. While the joint and several liability
associated with these sites presents the potential for significant response
costs, Tampa Electric Company estimates its ultimate financial liability at
approximately $20 million over the next 10 years. The environmental remediation
costs associated with these sites are not expected to have a significant impact
on customer prices.
TECO Energy has commitments under long-term operating leases,
primarily for building space, office equipment and heavy equipment. Total
rental expense for these operating leases, included in the Consolidated
Statements of Income for the years ended Dec. 31, 1999, 1998 and 1997 was $12.8
million, $9.4 million and $11.7 million, respectively. The following is a
schedule of future minimum lease payments at Dec. 31, 1999 for all operating
leases with noncancelable lease terms in excess of one year:
<TABLE>
<CAPTION>
Amount
Year ended Dec. 31, (millions)
- ------------------- ---------
<S> <C>
2000 $11.6
2001 8.3
2002 8.2
2003 8.1
2004 8.1
Later Years 51.2
-----
Total minimum lease payments $95.5
</TABLE>
The company has outstanding letters of credit of $18.1 million at Dec.
31, 1999, which guarantee performance to third parties related to debt service,
major maintenance requirements and various trade activities. The company also
guarantees up to $71.2 million of debt, of which $38.7 million was outstanding
at Dec. 31, 1999, related to projects in which TECO Power Services is a
participant.
N. MERGERS
In June 1997, TECO Energy completed its merger with Lykes Energy, Inc.
(the Peoples companies) and issued approximately 12.1 million shares of its
common stock. Also in June 1997, TECO Energy completed its merger with West
Florida Gas Inc. (West Florida) and issued approximately .8 million shares of
its common stock. Concurrent with these mergers, Lyke's regulated gas
distribution utility, Peoples Gas System, Inc., and West Florida's regulated
gas distribution utility, West Florida Natural Gas Company, were merged into
Tampa Electric Company and now operate as the Peoples Gas System division of
Tampa Electric Company.
These mergers were accounted for as poolings of interests and,
accordingly, the company's Consolidated Statements of Income and Cash Flows for
the year ended Dec. 31, 1997 include the results of the Peoples companies and
West Florida for the entire year.
In January 1998, the company acquired an unregulated Florida propane
business, Griffis, Inc. (Griffis) and its affiliate, U.S. Propane, Inc., in a
merger transaction accounted for as a pooling of interest and issued
approximately .6 million shares of its common stock. These acquired businesses
were then merged into and now operate as part of Peoples Gas Company. Prior
period financial statements have not been restated to reflect the operations
and financial position of these businesses due to their size.
O. SUBSEQUENT EVENTS
On Jan. 25, 2000, TM Power Ventures acquired an additional
13.35-percent ownership interest in the Czech Republic project from one of its
partners, increasing TMPV's ownership interest in this project to 26.7 percent.
On Feb. 11, 2000, TECO Power Services, through a wholly owned
subsidiary, completed the transactions to acquire the remaining 33 percent
ownership interest in the San Jose Power Station from its partner for $52.6
million, increasing TPS' ownership interest to 100 percent.
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<PAGE> 67
P. QUARTERLY DATA (UNAUDITED)
Financial data by quarter is as follows: (unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
1999
Revenues(1) $ 445.7 $ 491.4 $ 555.9 $ 490.0
Income from operations(1) $ 96.1 $ 100.9 $ 138.8 $ 87.8
Net income(1)
Net income from continuing operations $ 49.5 $ 52.8 $ 55.9 $ 42.7
Net income $ 49.2 $ 51.9 $ 42.3 $ 42.7
Earnings per share (EPS)-basic
EPS from continuing operations (2) $ 0.38 $ 0.40 $ 0.42 $ 0.33
EPS $ 0.38 $ 0.39 $ 0.32 $ 0.33
Earnings per share (EPS)-diluted
EPS from continuing operations $ 0.38 $ 0.40 $ 0.42 $ 0.33
EPS $ 0.38 $ 0.39 $ 0.32 $ 0.33
Dividends paid per common share (3) $ 0.31 $ .325 $ .325 $ .325
Stock price per common share(4)
High $ 28 $ 23 13/16 $ 23 1/8 $ 22 1/2
Low $ 19 7/8 $ 19 3/4 $ 19 5/8 $ 18 3/8
Close $ 19 7/8 $ 22 3/4 $ 21 1/8 $ 18 9/16
1998
Revenues(1) $ 466.2 $ 490.3 $ 525.3 $ 473.9
Income from operations(1) $ 72.6 $ 110.5 $ 128.9 $ 89.3
Net income(1)
Net income from continuing operations $ 32.5 $ 58.0 $ 71.3 $ 42.4
Net income $ 53.0 $ 57.9 $ 70.8 $ 24.8
Earnings per share (EPS)-basic
EPS from continuing operations (2) $ 0.25 $ 0.44 $ 0.54 $ 0.32
EPS $ 0.40 $ 0.44 $ 0.54 $ 0.19
Earnings per share (EPS)-diluted
EPS from continuing operations $ 0.25 $ 0.44 $ 0.53 $ 0.32
EPS $ 0.40 $ 0.44 $ 0.53 $ 0.19
Dividends paid per common share (3) $ .295 $ 0.31 $ 0.31 $ 0.31
Stock price per common share(4)
High $ 28 1/2 $ 28 5/16 $ 28 7/8 $ 30 5/8
Low $ 25 9/16 $ 25 3/16 $ 24 3/4 $ 26 3/4
Close $ 28 1/4 $ 26 13/16 $ 28 9/16 $ 28 3/16
</TABLE>
(1) Millions.
(2) Basic EPS from continuing operations before the charges discussed in Note
L were $0.38, $0.40, $0.54 and $0.36 for the four quarters in 1999 and
$0.36, $0.44, $0.54 and $0.36 for the four quartrs ins 1998.
(3) Dividends paid for TECO Energy common stock (not restated for Peoples
Companies merger).
(4) Trading prices for common shares.
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<PAGE> 68
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
During the period Jan. 1, 1998 to the date of this report, TECO Energy
has not had and has not filed with the Commission a report as to any changes in
or disagreements with accountants on accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) The information required by Item 10 with respect to the
directors of the registrant is included under the caption "Election of
Directors" on pages 1 through 3 of TECO Energy's definitive proxy statement,
dated March 6, 2000, for its Annual Meeting of Shareholders to be held on April
19, 2000 (Proxy Statement) and is incorporated herein by reference.
(b) The information required by Item 10 concerning executive
officers of the registrant is included under the caption "Executive Officers of
the Registrant" on page 16 of this report.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is included in the Proxy Statement
beginning on page 9 and ending on page 13, and under the caption "Compensation
of Directors" on page 4, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 is included under the caption
"Share Ownership" on pages 4 and 5 of the Proxy Statement and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 is included under the caption
"Election of Directors" on page 3 of the Proxy Statement and is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements - See index on page 38
2. Financial Statement Schedules - See index on page 38
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<PAGE> 69
SCHEDULE II
TECO ENERGY, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DEC. 31, 1999, 1998 AND 1997
(millions)
<TABLE>
<CAPTION>
Additions
Balance at ------------------------------------------- Balance at
Beginning Charged to Other End of
of Period Income Charges Deductions(1) Period
--------- ---------- ------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for Uncollectible Accounts:
1999 $ 2.6 $ 6.2 $ 0.4(2) $ 5.7 $ 3.5
1998 2.6 4.9 -- 4.9 2.6
1997 2.9 3.8 -- 4.1 2.6
</TABLE>
- ----------------------
(1) Write-off of individual bad debt accounts
(2) Includes $0.3 million in Discontinued Operations for TeCom
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<PAGE> 70
<TABLE>
<S> <C>
3. Exhibits
*3.1 Articles of Incorporation, as amended on April 20, 1993 (Exhibit 3, Form 10-Q for the quarter ended March 31, 1993 of
TECO Energy, Inc.).
*3.2 Bylaws, as amended effective May 1, 1998 (Exhibit 3, Form 10-Q for the quarter ended June 30, 1998 of TECO Energy, Inc.).
*4.1 Indenture of Mortgage among Tampa Electric Company, State Street Trust Company and First Savings & Trust Company of
Tampa, dated as of Aug. 1, 1946 (Exhibit 7-A to Registration Statement No. 2-6693).
*4.2 Thirteenth Supplemental Indenture dated as of Jan. 1, 1974, to Exhibit 4.1 (Exhibit 2-g-1, Registration Statement No.
2-51204).
*4.3 Sixteenth Supplemental Indenture, dated as of Oct. 30, 1992, to Exhibit 4.1 (Exhibit 4.1, Form 10-Q for the quarter ended
Sept. 30, 1992 of TECO Energy, Inc.).
*4.4 Eighteenth Supplemental Indenture, dated as of May 1, 1993, to Exhibit 4.1 (Exhibit 4.1, Form 10-Q for the quarter ended
June 30, 1993 of TECO Energy, Inc.).
*4.5 Installment Purchase and Security Contract between the Hillsborough County Industrial Development Authority and Tampa
Electric Company, dated as of March 1, 1972 (Exhibit 4.9, Form 10-K for 1986 of TECO Energy, Inc.).
*4.6 First Supplemental Installment Purchase and Security Contract, dated as of Dec. 1, 1974 (Exhibit 4.10, Form 10-K for 1986
of TECO Energy, Inc.).
*4.7 Third Supplemental Installment Purchase Contract, dated as of May 1, 1976 (Exhibit 4.12, Form 10-K for 1986 of TECO
Energy, Inc.).
*4.8 Installment Purchase Contract between the Hillsborough County Industrial Development Authority and Tampa Electric
Company, dated as of Aug. 1, 1981 (Exhibit 4.13, Form 10-K for 1986 of TECO Energy, Inc.).
*4.9 Amendment to Exhibit A of Installment Purchase Contract, dated April 7, 1983 (Exhibit 4.14, Form 10-K for 1989 of TECO
Energy, Inc.).
*4.10 Second Supplemental Installment Purchase Contract, dated as of June 1, 1983 (Exhibit 4.11, Form 10-K for 1994 of TECO
Energy, Inc.).
*4.11 Third Supplemental Installment Purchase Contract, dated as of Aug. 1, 1989 (Exhibit 4.16, Form 10-K for 1989 of TECO
Energy, Inc.).
*4.12 Installment Purchase Contract between the Hillsborough County Industrial Development Authority and Tampa Electric
Company, dated as of Jan. 31, 1984 (Exhibit 4.13, Form 10-K for 1993 of TECO Energy, Inc.).
*4.13 First Supplemental Installment Purchase Contract, dated as of Aug. 2, 1984 (Exhibit 4.14, Form 10-K for 1994 of TECO
Energy, Inc.).
*4.14 Second Supplemental Installment Purchase Contract, dated as of July 1, 1993 (Exhibit 4.3, Form 10-Q for the quarter ended
June 30, 1993 of TECO Energy, Inc.).
*4.15 Loan and Trust Agreement among the Hillsborough County Industrial Development Authority, Tampa Electric Company and NCNB
National Bank of Florida, as trustee, dated as of Sept. 24, 1990 (Exhibit 4.1, Form 10-Q for the quarter ended Sept. 30,
1990 for TECO Energy, Inc.).
*4.16 Loan and Trust Agreement, dated as of Oct. 26, 1992 among the Hillsborough County Industrial Development Authority, Tampa
Electric Company and NationsBank of Florida, N.A., as trustee (Exhibit 4.2, Form 10-Q for the quarter ended Sept. 30,
1992 of TECO Energy, Inc.).
*4.17 Loan and Trust Agreement, dated as of June 23, 1993, among the Hillsborough County Industrial Development Authority,
Tampa Electric Company and NationsBank of Florida, N.A., as trustee (Exhibit 4.2, Form 10-Q for the quarter ended June
30, 1993 of TECO Energy, Inc.).
*4.18 Installment Sales Agreement between the Plaquemines Port, Harbor and Terminal District (Louisiana) and Electro-Coal
Transfer Corporation, dated as of Sept. 1, 1985 (Exhibit 4.19, Form 10-K for 1986 of TECO Energy, Inc.).
*4.19 Reimbursement Agreement between TECO Energy, Inc. and Electro-Coal Transfer Corporation, dated as of March 22, 1989
(Exhibit 4.19, Form 10-K for 1988 of TECO Energy, Inc.).
*4.20 Renewed Rights Agreement between TECO Energy, Inc. and BankBoston, N.A. as Rights Agent, dated as of Oct. 21, 1998
(Exhibit 4, Form 8-K, dated as of Oct. 21, 1998 of TECO Energy, Inc.).
*4.21 Loan and Trust Agreement, dated as of Dec. 1, 1996, among the Polk County Industrial Development Authority, Tampa
Electric Company and the Bank of New York, as trustee. (Exhibit 4.22, Form 10-K for 1996 of TECO Energy, Inc.).
*4.22 First Supplemental Indenture dated as of July 15, 1998 between Tampa Electric Company and the Bank of New York, as
trustee (Exhibit 4.1, Form 10-Q for the quarter ended June 30, 1998 of TECO Energy, Inc.).
</TABLE>
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<TABLE>
<S> <C>
*4.23 First Supplemental Indenture dated as of Sept. 1, 1998 between TECO Energy, Inc. and The Bank of New York, as trustee
(Exhibit 4.1, Form 8-K dated Sept. 11, 1998 of TECO Energy, Inc.).
*10.1 Supplemental Executive Retirement Plan for H. L. Culbreath, as amended on April 27, 1989 (Exhibit 10.14, Form 10-K for
1989 of TECO Energy, Inc.).
*10.2 Supplemental Executive Retirement Plan for R. H. Kessel, as amended and restated as of Jan. 15, 1997 (Exhibit 10.5, Form
10-K for 1996 of TECO Energy, Inc.).
*10.3 TECO Energy Group Supplemental Executive Retirement Plan, as amended and restated as of Oct. 16, 1996 (Exhibit 10.6, Form
10-K for 1996 of TECO Energy, Inc.).
*10.4 TECO Energy Group Supplemental Retirement Benefits Trust Agreement as amended and restated as of Jan. 15, 1997 (Exhibit
10.7, Form 10-K for 1996 of TECO Energy, Inc.).
*10.5 Annual Incentive Compensation Plan for TECO Energy and subsidiaries, as revised Jan. 20, 1999. (Exhibit 10.6, Form 10-K
for 1998 of TECO Energy, Inc.).
*10.6 TECO Energy Group Supplemental Disability Income Plan, dated as of March 20, 1989 (Exhibit 10.22, Form 10-K for 1988 of
TECO Energy, Inc.).
10.7 Forms of Severance Agreement between TECO Energy, Inc. and certain senior executives, as amended and restated as of Oct.
22, 1999.
*10.8 Severance Agreement between TECO Energy, Inc. and H.L. Culbreath, dated as of April 28, 1989 (Exhibit 10.24, Form 10-K
for 1989 of TECO Energy, Inc.).
*10.9 Loan and Stock Purchase Agreement between TECO Energy, Inc. and Barnett Banks Trust Company, N.A., as trustee of the TECO
Energy Group Savings Plan Trust Agreement (Exhibit 10.3, Form 10-Q for the quarter ended March 31, 1990 for TECO Energy,
Inc.).
*10.10 Supplemental Executive Retirement Plan for G. F. Anderson, as amended and restated effective as of Oct. 16, 1996 (Exhibit
10.17, Form 10-K for 1996 of TECO Energy, Inc.).
*10.11 TECO Energy Directors' Deferred Compensation Plan, as amended and restated effective as of April 1, 1994 (Exhibit 10.1,
Form 10-Q for the quarter ended March 31, 1994 for TECO Energy, Inc.).
*10.12 TECO Energy Group Retirement Savings Excess Benefit Plan, as amended and restated effective as of July 15, 1998. (Exhibit
10.14, Form 10-K for 1999 of TECO Energy, Inc.).
*10.13 Supplemental Executive Retirement Plan for R. A. Dunn, as amended and restated effective as of Jan. 15, 1997 (Exhibit
10.20, Form 10-K for 1996 of TECO Energy, Inc.).
*10.14 TECO Energy, Inc. 1996 Equity Incentive Plan (Exhibit 10.1, Form 10-Q for the quarter ended March 31, 1996 of TECO
Energy, Inc.).
*10.15 Form of Nonstatutory Stock Option under the TECO Energy, Inc. 1996 Equity Incentive Plan (Exhibit 10.1, Form 10.20 for
the quarter ended June 30, 1996 of TECO Energy, Inc.).
*10.16 Form of Amendment to Nonstatutory Stock Option, dated as of July 15, 1998, under the TECO Energy, Inc. 1996 Equity
Incentive Plan (Exhibit 10.3, Form 10-Q for the quarter ended Sept. 30, 1998 of TECO Energy, Inc.).
*10.17 Form of Nonstatutory Stock Option under the TECO Energy, Inc. 1996 Equity Incentive Plan (Exhibit 10.5, Form 10-Q for the
quarter ended June 30, 1999 of TECO Energy, Inc.).
*10.18 Form of Restricted Stock Agreement between TECO Energy, Inc. and certain executives under the TECO Energy, Inc. 1996
Equity Incentive Plan (Exhibit 10.1, Form 10-Q for the quarter ended June 30, 1998 of TECO Energy, Inc.).
*10.19 Form of Amendment to Restricted Stock Agreements, dated as of July 15, 1998, between TECO Energy, Inc. and certain senior
executives under the TECO Energy, Inc. 1996 Equity Incentive Plan (Exhibit 10.2, Form 10-Q for the quarter ended Sept.
30, 1998 of TECO Energy, Inc.).
*10.20 Form of Restricted Stock Agreement between TECO Energy, Inc. and G. F. Anderson under the TECO Energy, Inc. 1996 Equity
Incentive Plan (Exhibit 10.2, Form 10-Q for the quarter ended June 30, 1998 of TECO Energy, Inc.).
*10.21 TECO Energy, Inc. 1997 Director Equity Plan (Exhibit 10.1, Form 8-K dated April 16, 1997 of TECO Energy, Inc.).
*10.22 Form of Nonstatutory Stock Option under the TECO Energy, Inc. 1997 Director Equity Plan (Exhibit 10, Form 10-Q for the
quarter ended June 30, 1997 of TECO Energy, Inc.).
*10.23 Supplemental Executive Retirement Plan for R. K. Eustace as of Jan. 15, 1997 (Exhibit 10.24, Form 10-K for 1997 of TECO
Energy, Inc.).
*10.24 Supplemental Executive Retirement Plan for R. D. Fagan as of May 24, 1999 (Exhibit 10.1, Form 10-Q for the quarter ended
June 30, 1999 of TECO Energy, Inc.).
*10.25 Terms of R. D. Fagan's employment, dated as of May 24, 1999 (Exhibit 10.2, Form 10-Q for the quarter ended June 30, 1999
of TECO Energy, Inc.).
*10.26 Nonstatutory Stock Option granted to R. D. Fagan, dated as of May 24, 1999 (Exhibit 10.3, Form 10-Q for the quarter ended
June 30, 1999 of TECO Energy, Inc.).
</TABLE>
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<TABLE>
<S> <C>
*10.27 Restricted Stock Agreement between TECO Energy, Inc. and R. D. Fagan, dated as of May 24, 1999 (Exhibit 10.4, Form 10-Q
for the quarter ended June 30, 1999 of TECO Energy, Inc.).
*10.28 Form of Performance Shares Agreement between TECO Energy, Inc. and certain senior executives under the TECO Energy, Inc.
1996 Equity Incentive Plan. (Exhibit 10.6, Form 10-Q for the quarter ended June 30, 1999 of TECO Energy, Inc.).
12. Ratio of Earnings to Fixed Charges.
21. Subsidiaries of the Registrant.
23. Consent of Independent Certified Public Accountants.
24.1 Power of Attorney.
24.2 Certified copy of resolution authorizing Power of Attorney.
27 Financial Data Schedule (EDGAR filing only).
- -------------
* Indicates exhibit previously filed with the Securities and Exchange Commission and incorporated herein by reference. Exhibits
filed with periodic reports of TECO Energy, Inc. were filed under Commission File No. 1-8180.
</TABLE>
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
Exhibits 10.1 through 10.8 and 10.10 through 10.28 above are
management contracts or compensatory plans or arrangements in which executive
officers or directors of TECO Energy, Inc. participate.
Certain instruments defining the rights of holders of long-term debt
of TECO Energy, Inc. and its consolidated subsidiaries authorizing in each case
a total amount of securities not exceeding 10 percent of total assets on a
consolidated basis are not filed herewith. TECO Energy, Inc. will furnish
copies of such instruments to the Securities and Exchange Commission upon
request.
(b) REPORTS ON FORM 8-K
TECO Energy, Inc. filed the following reports on Form 8-K during the
last quarter of 1999.
The registrant filed a Current Report on Form 8-K dated Dec. 7, 1999
reporting under "Item 5. Other Events" announcing Tampa Electric
Company's 10-year environmental program.
TECO Energy, Inc. filed the following reports on Form 8-K subsequent
to Dec. 31, 1999.
The registrant filed a Current Report on Form 8-K dated Feb. 16, 2000,
reporting under "Item 5. Other Events" announcing TECO Energy, Inc.'s
agreement to form a joint venture to combine its People's Gas Company
propane operations with that of three other companies.
The registrant filed a Current Report on Form 8-K dated Feb. 29, 2000,
reporting under "Item 5. Other Events" announcing Tampa Electric
Company's agreement with the U.S. Environmental Protection Agency and
the U.S. Department of Justice to resolve the federal agencies'
pending enforcement actions against the Company.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on the 29th day of
March, 2000.
TECO ENERGY, INC.
By R. D. FAGAN*
--------------------------------------
R. D. FAGAN, Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities indicated on March 29, 2000:
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C> <C> <C>
R. D. FAGAN* Chairman of the Board, President,
- --------------------------- Director and Chief Executive Officer
R. D. FAGAN (Principal Executive Officer)
/s/ G. L. GILLETTE Vice President-Finance
- --------------------------- and Chief Financial Officer
G. L. GILLETTE (Principal Financial Officer)
W. L. GRIFFIN* Vice President-Controller
- --------------------------- (Principal Accounting Officer)
W. L. GRIFFIN
Signature Title Signature Title
--------- ----- --------- -----
C. D. AUSLEY* Director T. L. RANKIN* Director
------------------ ---------------
C. D. AUSLEY T. L. RANKIN
S. L. BALDWIN* Director W. P. SOVEY* Director
------------------ ---------------
S. L. BALDWIN W. P. SOVEY
H. L. CULBREATH* Director J. T. TOUCHTON* Director
------------------ ---------------
H. L. CULBREATH J. T. TOUCHTON
J. L. FERMAN, JR.* Director J. A. URQUHART* Director
------------------ ---------------
J. L. FERMAN, JR. J. A. URQUHART
E. L. FLOM* Director J. O. WELCH, JR.* Director
------------------ ---------------
E. L. FLOM J. O. WELCH, JR.
L. GUINOT, JR.* Director
------------------
L. GUINOT, JR.
*By: /s/ G. L. GILLETTE
------------------------------------
G. L. GILLETTE, Attorney-in-fact
</TABLE>
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<TABLE>
<CAPTION>
INDEX TO EXHIBITS
Exhibit Page
No. Description No.
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3.1 Articles of Incorporation, as amended on April 20, 1993 (Exhibit 3, *
Form 10-Q for the quarter ended March 31, 1993 of TECO
Energy, Inc.).
3.2 Bylaws, as amended effective May 1, 1998 (Exhibit 3, *
Form 10-Q for the quarter ended June 30, 1998 of TECO Energy, Inc.).
4.1 Indenture of Mortgage among Tampa Electric Company, State Street Trust *
Company and First Savings & Trust Company of Tampa, dated as of Aug. 1,
1946 (Exhibit 7-A to Registration Statement No. 2-6693).
4.2 Thirteenth Supplemental Indenture dated as of Jan. 1, 1974, to Exhibit 4.1 *
(Exhibit 2-g-1, Registration Statement No. 2-51204).
4.3 Sixteenth Supplemental Indenture, dated as of Oct. 30, 1992, to Exhibit 4.1 *
(Exhibit 4.1, Form 10-Q for the quarter ended Sept. 30, 1992 of TECO Energy,
Inc.).
4.4 Eighteenth Supplemental Indenture, dated as of May 1, 1993, to Exhibit 4.1 *
(Exhibit 4.1, Form 10-Q for the quarter ended June 30, 1993 of TECO Energy,
Inc.).
4.5 Installment Purchase and Security Contract between the Hillsborough County *
Industrial Development Authority and Tampa Electric Company, dated as of
March 1, 1972 (Exhibit 4.9, Form 10-K for 1986 of TECO Energy, Inc.).
4.6 First Supplemental Installment Purchase and Security Contract, dated as of *
Dec. 1, 1974 (Exhibit 4.10, Form 10-K for 1986 of TECO Energy, Inc.).
4.7 Third Supplemental Installment Purchase Contract, dated as of May 1, 1976 *
(Exhibit 4.12, Form 10-K for 1986 of TECO Energy, Inc.).
4.8 Installment Purchase Contract between the Hillsborough County Industrial *
Development Authority and Tampa Electric Company, dated as of Aug. 1, 1981
(Exhibit 4.13, Form 10-K for 1986 of TECO Energy, Inc.).
4.9 Amendment to Exhibit A of Installment Purchase Contract, dated April 7, 1983 *
(Exhibit 4.14, Form 10-K for 1989 of TECO Energy, Inc.).
4.10 Second Supplemental Installment Purchase Contract, dated as of June 1, 1983 *
(Exhibit 4.11, Form 10-K for 1994 of TECO Energy, Inc.).
4.11 Third Supplemental Installment Purchase Contract, dated as of Aug. 1, 1989 *
(Exhibit 4.16, Form 10-K for 1989 of TECO Energy, Inc.).
4.12 Installment Purchase Contract between the Hillsborough County Industrial *
Development Authority and Tampa Electric Company, dated as of Jan. 31, 1984
(Exhibit 4.13, Form 10-K for 1993 of TECO Energy, Inc.).
4.13 First Supplemental Installment Purchase Contract, dated as of Aug. 2, 1984 *
(Exhibit 4.14, Form 10-K for 1994 of TECO Energy, Inc.).
4.14 Second Supplemental Installment Purchase Contract, dated as of July 1, 1983 *
(Exhibit 4.3, Form 10-Q for the quarter ended June 30, 1993 of TECO Energy,
Inc.).
4.15 Loan and Trust Agreement among the Hillsborough County Industrial *
Development Authority, Tampa Electric Company and NCNB National Bank of
Florida, as trustee, dated as of Sept. 24, 1990 (Exhibit 4.1, Form 10-Q for the
quarter ended Sept. 30, 1990 for TECO Energy, Inc.).
4.16 Loan and Trust Agreement, dated as of Oct. 26, 1992 among the Hillsborough *
County Industrial Development Authority, Tampa Electric Company and
NationsBank of Florida, N.A., as trustee (Exhibit 4.2, Form 10-Q for the quarter
ended Sept. 30, 1992 of TECO Energy, Inc.).
4.17 Loan and Trust Agreement, dated as of June 23, 1993, among the Hillsborough *
County Industrial Development Authority, Tampa Electric Company and
NationsBank of Florida, N.A., as trustee (Exhibit 4.2, Form 10-Q for the quarter
ended June 30, 1993 of TECO Energy, Inc.).
4.18 Installment Sales Agreement between the Plaquemines Port, Harbor and Terminal *
District (Louisiana) and Electro-Coal Transfer Corporation, dated as of Sept. 1,
1985 (Exhibit 4.19, Form 10-K for 1986 of TECO Energy, Inc.).
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4.19 Reimbursement Agreement between TECO Energy, Inc. and Electro-Coal *
Transfer Corporation, dated as of March 22, 1989 (Exhibit 4.19, Form 10-K for
1988 of TECO Energy, Inc.).
4.20 Renewed Rights Agreement between TECO Energy, Inc. BankBoston, N.A. as *
as Rights Agent, dated as of Oct. 21, 1998 (Exhibit 4, Form 8-K, dated as of Oct.
21, 1998 of TECO Energy, Inc.).
4.21 Loan and Trust Agreement, dated as of Dec. 1, 1996, among the Polk County *
Industrial Development Authority, Tampa Electric Company and the Bank of
New York, as trustee(Exhibit 4.22, Form 10-K for 1996 of TECO Energy, Inc.).
4.22 First Supplemental Indenture dated as of July 15, 1998 between Tampa Electric *
Company and the Bank of New York, as trustee (Exhibit 4.1, Form 10-Q for the
quarter ended June 30, 1998 of TECO Energy, Inc.).
4.23 First Supplemental Indenture dated as of Sept. 1, 1998
between TECO Energy, * Inc. and The Bank of New York, as
trustee (Exhibit 4.1, Form 8-K dated Sept.
11, 1998 of TECO Energy, Inc.).
10.1 Supplemental Executive Retirement Plan for H. L. Culbreath, as amended on *
April 27, 1989 (Exhibit 10.14, Form 10-K for 1989 of TECO Energy, Inc.).
10.2 Supplemental Executive Retirement Plan for R. H. Kessel, as amended and restated *
as of Jan. 15, 1997 (Exhibit 10.5, Form 10-K for 1996 of TECO Energy, Inc.).
10.3 TECO Energy Group Supplemental Executive Retirement Plan, as amended and *
restated as of Oct. 16, 1996 (Exhibit 10.6, Form 10-K for 1996 of TECO Energy,
Inc.)
10.4 TECO Energy Group Supplemental Retirement Benefits Trust Agreement, as *
amended and restated as of Jan. 15, 1997 (Exhibit 10.7, Form 10-K for 1996 of
TECO Energy, Inc.).
10.5 Annual Incentive Compensation Plan for TECO Energy and
subsidiaries, as revised * Jan. 20, 1999. (Exhibit 10.6, Form
10-K for 1998 of TECO Energy, Inc.).
10.6 TECO Energy Group Supplemental Disability Income Plan, dated as of March 20, 1998 *
(Exhibit 10.22, Form 10-K for 1988 of TECO Energy, Inc.).
10.7 Forms of Severance Agreement between TECO Energy, Inc. And certain senior 73
executives, as amended and restated as of Oct. 22, 1999
10.8 Severance Agreement between TECO Energy, Inc. and H. L. Culbreath, dated as of *
April 28, 1989 (Exhibit 10.24, Form 10-K for 1989 of TECO Energy, Inc.).
10.9 Loan and Stock Purchase Agreement between TECO Energy, Inc. And Barnett Banks *
Trust Company, N.A., as trustee of the TECO Energy Group Savings Plan Trust
Agreement (Exhibit 10.3, Form 10-Q for the quarter ended March 31, 1990 for
TECO Energy, Inc.).
10.10 Supplemental Executive Retirement Plan for G. F. Anderson, as amended and *
restated effective as of Oct. 16, 1996 (Exhibit 10.17, Form 10-K for 1996 of
TECO Energy, Inc.).
10.11 TECO Energy Directors' Deferred Compensation Plan, as amended and restated *
effective as of April 1, 1994 (Exhibit 10.1, Form 10-Q for the quarter ended
March 31, 1994 for TECO Energy, Inc.).
10.12 TECO Energy Group Retirement Savings Excess Benefit Plan, as amended and restated *
effective as of July 15, 1998. (Exhibit 10.14, Form 10-K for 1998 of TECO Energy, Inc.).
10.13 Supplemental Executive Retirement Plan for R. A. Dunn, as amended and restated *
effective as of Jan. 15, 1997 (Exhibit 10.20, Form 10-K for 1996 of TECO Energy, Inc.).
10.14 TECO Energy, Inc. 1996 Equity Incentive Plan (Exhibit 10.1, Form 10-Q for the *
quarter ended March 31, 1996 of TECO Energy, Inc.).
10.15 Form of Nonstatutory Stock Option under the TECO Energy, Inc. 1996 Equity *
Equity Incentive Plan (Exhibit 10.1, Form 10-Q for the quarter ended June 30, 1996 of
TECO Energy, Inc.).
10.16 Form of Amendment to Nonstatutory Stock Option, dated as of July 15, 1998, under the *
TECO Energy, Inc. 1996 Equity Incentive Plan (Exhibit 10.3, Form 10-Q for the
quarter ended Sept. 30, 1998 of TECO Energy, Inc.).
10.17 Form of Nonstatutory Stock Option under the TECO Energy, Inc. 1996 Equity *
Incentive Plan (Exhibit 10.5,Form 10-Q for the quarter ended June 30, 1999 of TECO
Energy, Inc.).
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10.18 Form of Restricted Stock Agreement between TECO Energy, Inc. and certain executives *
under the TECO Energy, Inc. 1996 Equity Incentive Plan (Exhibit 10.1, Form
10-Q for the quarter ended June 30, 1998 of TECO Energy, Inc.).
10.19 Form of Amendment to Restricted Stock Agreements, dated as of July 15, 1998, *
TECO Energy, Inc. and certain senior executives under the TECO Energy, Inc.
between 1996 Equity Incentive Plan (Exhibit 10.2, Form 10-Q for the quarter
ended Sept. 30, 1998 of TECO Energy, Inc.).
10.20 Form of Restricted Stock Agreement between TECO Energy, Inc. and G. F. Anderson *
under the TECO Energy, Inc. 1996 Equity Incentive Plan (Exhibit 10.2, Form 10-
Q for the quarter ended June 30, 1998 of TECO Energy, Inc.).
10.21 TECO Energy, Inc. 1997 Director Equity Plan (Exhibit 10.1, Form 8-K dated *
April 16, 1997 of TECO Energy, Inc.).
10.22 Form of Nonstatutory Stock Option under the TECO Energy, Inc. 1997 Director *
Equity Plan (Exhibit 10, Form 10-Q for the quarter ended June 30, 1997 of
TECO Energy, Inc.).
10.23 Supplemental Executive Retirement Plan for R. K. Eustace as of Jan. 15, 1997 *
(Exhibit 10.24, Form 10-K for 1997 of TECO Energy, Inc.).
10.24 Supplemental Executive Retirement Plan for R. D. Fagan as of May 24, 1999 *
(Exhibit 10.1, Form 10-Q for the quarter ended June 30, 1999 of TECO
Energy,Inc.).
10.25 Terms of R. D. Fagan's employment dated as of May 24, 1999
(Exhibit 10.2, * Form 10-Q for the quarter ended June 30,
1999 of TECO Energy, Inc.).
10.26 Nonstatutory Stock Option granted to R. D. Fagan, dated as of May 24, 1999 *
(Exhibit 10.3, Form 10-Q for the quarter ended June 30, 1999 of TECO Energy,
Inc.).
10.27 Restricted Stock Option granted to R. D. Fagan, dated as of May 24, 1999 *
(Exhibit 10.4, Form 10-Q for the quarter ended June 30, 1999 of TECO Energy,
Inc.).
10.28 Form of Performance Shares Agreement between TECO Energy, Inc. and certain senior *
executives under the TECO Energy, Inc. 1996 Equity Incentive Plan. (Exhibit
10.6, Form 10-Q for the quarter ended June 30, 1999 of TECO Energy, Inc.).
12. Ratio of Earnings to Fixed Charges. 111
21. Subsidiaries of the Registrant. 112
23. Consent of Independent Certified Public Accountants. 113
24.1 Power of Attorney. 114
24.2 Certified copy of resolution authorizing Power of Attorney. 116
27 Financial Data Schedule (EDGAR filing only).
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* Indicates exhibit previously filed with the Securities and Exchange
Commission and incorporated herein by reference. Exhibits filed with
periodic reports of TECO Energy, Inc. were filed under Commission File No.
1-8180.
76
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Exhibit 10.7
TECO ENERGY, INC.
FORMS OF SEVERANCE AGREEMENTS BETWEEN TECO ENERGY, INC. AND
CERTAIN SENIOR EXECUTIVES
AMENDED AND RESTATED AS OF OCT. 22, 1999
<PAGE> 2
Exhibit 10.7
PRIVILEGED AND CONFIDENTIAL
Date
Name
Address
Address 2
Dear First Name:
TECO Energy, Inc. (the "Company") considers it essential to the best
interests of its stockholders to foster the continuous employment of key
management personnel. In this connection, the Board of Directors of the Company
(the "Board") recognizes that, as is the case with many publicly held
corporations, the possibility of a change in control may exist and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of key management
personnel to the detriment of the Company and its stockholders.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of the
Company's management, including yourself, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from the
possibility of a change in control of the Company.
In order to induce you to remain in the employ of the Company and in
consideration of your agreement set forth in Subsection 2(iii) hereof, the
Company agrees that you shall receive the severance benefits set forth in this
letter agreement (the "Agreement") in the event your employment with the Company
is terminated subsequent to a "change in control of the Company" (as defined in
Section 2(i) hereof) (or is deemed to be terminated subsequent to a change in
control of the Company in accordance with the second sentence of Section 3
hereof) under the circumstances described below. Amd Date
1. Term of Agreement. Subject to the provisions of Section 13 hereof,
this Agreement shall commence on the date hereof and shall continue in effect
through June 30, 2001; provided, however, that commencing on July 1, 2000 and
each July 1 thereafter, the term of this Agreement shall automatically be
extended for one additional year unless, not later than March 31 of such year,
the Company shall have given notice that it does not wish to extend this
Agreement (provided that no such notice may be given during the pendency of or
within two years following a potential change in control of the Company, as
defined in Section 2(ii) hereof);
<PAGE> 3
provided, further, if a change in control of the Company shall have occurred
during the original or extended term of this Agreement, this Agreement shall
continue in effect for a period of thirty-six (36) months beyond the month in
which such change in control occurred.
2. Change in Control; Potential Change in Control. (i) Except as
provided in the second sentence of Section 3 hereof, no benefits shall be
payable hereunder unless there shall have been a change in control of the
Company, as set forth below. For purposes of this Agreement, a "change in
control of the Company" shall mean a change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), whether or not the Company is in fact required to comply
therewith; provided, that, without limitation, such a change in control shall be
deemed to have occurred if:
(A) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than the Company, any trustee or
other fiduciary holding securities under an employee benefit plan of
the Company or a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 30% or more of
the combined voting power of the Company's then outstanding securities;
(B) during any period of twenty-four (24) consecutive months
(not including any period prior to the date of this Agreement),
individuals who at the beginning of such period constitute the Board
and any new director (other than a director designated by a person who
has entered into an agreement with the Company to effect a transaction
described in paragraphs (A), (C) or (D) of this Section 2(i)) whose
election by the Board or nomination for election by the stockholders of
the Company was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the
beginning of such period or whose election or nomination for election
was previously so approved, cease for any reason to constitute a
majority thereof; or
(C) there is consummated a merger or consolidation of the
Company or any direct or indirect subsidiary of the Company with any
other corporation, other than (i) a merger or consolidation resulting
in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at
least 65% of the combined voting securities of the Company or such
surviving entity or any parent thereof outstanding immediately after
such merger or consolidation or (ii) a merger or consolidation effected
to implement a recapitalization of the Company (or similar transaction)
in which no "person" (as hereinabove defined) acquires 30% or more of
the combined voting power of the Company's then outstanding securities;
or
<PAGE> 4
(D) the stockholders of the Company approve a plan of complete
liquidation of the Company or there is consummated the sale or
disposition by the Company of all or substantially all of the Company's
assets.
(ii) For purposes of this Agreement, a "potential
change in control of the Company" shall be deemed to have
occurred if:
(A) the Company enters into an agreement, the consummation of
which would result in the occurrence of a change in control of the
Company;
(B) any person (as hereinabove defined), including the
Company, publicly announces an intention to take or consider taking
actions which if consummated would constitute a change in control of
the Company;
(C) any person (as hereinabove defined), other than the
Company, any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or a corporation owned, directly
or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company (a) is or
becomes the beneficial owner, (b) discloses directly or indirectly to
the Company or publicly a plan or intention to become the beneficial
owner, or (c) makes a filing under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, with respect to securities to
become the beneficial owner, directly or indirectly, of securities
representing 9.9% or more of the combined voting power of the
outstanding voting securities of the Company; or
(D) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a potential change in control of the
Company has occurred.
(iii) You agree that, subject to the terms and
conditions of this Agreement, in the event of a potential
change in control of the Company, you will remain in the
employ of the Company until the earliest of (a) a date which
is one (1) year from the occurrence of such potential change
in control of the Company, (b) the termination by you of your
employment after you attain "normal retirement age" under the
provisions of the TECO Energy Group Retirement Plan or any
successor thereto (the "Retirement Plan") or by reason of
Disability as defined in Section 3(i), or (c) the date of the
occurrence of a change in control of the Company.
3. Termination Following Change in Control. If (i) your employment is
terminated following a change in control of the Company and during the term of
this Agreement (as determined under Section 1 hereof), other than (A) by the
Company for Cause, (B) by reason of death or Disability, or (C) by you without
Good Reason, or (ii) you voluntarily terminate your employment for any reason
during the one-month period commencing on the first anniversary of the change in
control of the Company, then, in either such case, the Company shall pay you the
amounts, and provide you the benefits, described in Section 4(iii) hereof. For
purposes of this Agreement, your
<PAGE> 5
employment shall be deemed to have been terminated following a change in control
of the Company by the Company without Cause or by you with Good Reason, if (i)
your employment is terminated by the Company without Cause prior to a change in
control of the Company (whether or not such a change in control ever occurs) and
such termination was at the request or direction of a "person" (as hereinabove
defined) who has entered into an agreement with the Company the consummation of
which would constitute a change in control of the Company, (ii) you terminate
your employment for Good Reason prior to a change in control of the Company
(whether or not such a change in control ever occurs) and the circumstance or
event which constitutes Good Reason occurs at the request or direction of such
person, or (iii) your employment is terminated by the Company without Cause or
by you for Good Reason and such termination or the circumstance or event which
constitutes Good Reason is otherwise in connection with or in anticipation of a
change in control of the Company (whether or not such a change in control ever
occurs).
(i) Disability. If, as a result of your incapacity
due to physical or mental illness, you shall have been absent
from the full-time performance of your duties with the Company
for six (6) consecutive months, and within thirty (30) days
after written notice of termination is given you shall not
have returned to the full-time performance of your duties,
your employment may be terminated for "Disability".
(ii) Cause. Termination by the Company of your
employment for "Cause" shall mean termination upon (A) the
willful and continued failure by you to substantially perform
your duties with the Company (other than any such failure
resulting from your incapacity due to physical or mental
illness or any such actual or anticipated failure after the
issuance of a Notice of Termination by you for Good Reason, as
defined in Subsections 3(iv) and 3(iii), respectively) after a
written demand for substantial performance is delivered to you
by the Board, which demand specifically identifies the manner
in which the Board believes that you have not substantially
performed your duties, or (B) the willful engaging by you in
conduct which is demonstrably and materially injurious to the
Company, monetarily or otherwise. For purposes of this
Subsection, no act, or failure to act, on your part shall be
deemed "willful" unless done, or omitted to be done, by you
not in good faith and without reasonable belief that your
action or omission was in the best interest of the Company.
Notwithstanding the foregoing, you shall not be deemed to have
been terminated for Cause unless and until there shall have
been delivered to you a copy of a resolution duly adopted by
the affirmative vote of not less than three-quarters (3/4) of
the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice to
you and an opportunity for you, together with your counsel, to
be heard before the Board), finding that in the good faith
opinion of the Board you were guilty of conduct set forth
above in this Subsection and specifying the particulars
thereof in detail.
(iii) Good Reason. "Good Reason" for termination by
you of your employment shall mean the occurrence (without your
express written consent) after any change in control of the
Company, or prior to a change in control of the Company under
the circumstances described in the second sentence of Section
3 hereof (treating all references in paragraphs (A) through
(H) below to a "change in control of the Company" as
references to a "potential change in control of the
<PAGE> 6
Company"), of any one of the following acts by the Company, or
failures by the Company to act:
(A) the assignment to you of any duties inconsistent (except
in the nature of a promotion) with the position in the Company that you
held immediately prior to the change in control of the Company or a
substantial adverse alteration in the nature or status of your position
or responsibilities or the conditions of your employment from those in
effect immediately prior to the change in control of the Company;
(B) a reduction by the Company in your annual base salary as
in effect on the date hereof or as the same may be increased from time
to time;
(C) the Company's requiring you to be based more than
twenty-five (25) miles from the Company's offices at which you were
principally employed immediately prior to the date of the change in
control of the Company except for required travel on the Company's
business to an extent substantially consistent with your present
business travel obligations;
(D) the failure by the Company to pay to you any portion of
your current compensation or compensation under any deferred
compensation program of the Company, within seven (7) days of the date
such compensation is due;
(E) the failure by the Company to continue in effect any
material compensation or benefit plan in which you participate
immediately prior to the change in control of the Company unless an
equitable arrangement (embodied in an ongoing substitute or alternative
plan) has been made with respect to such plan, or the failure by the
Company to continue your participation therein (or in such substitute
or alternative plan) on a basis not materially less favorable, both in
terms of the amount of benefits provided and the level of your
participation relative to other participants, than existed at the time
of the change in control;
(F) the failure by the Company to continue to provide you with
benefits substantially similar to those enjoyed by you under any of the
Company's pension, life insurance, medical, health and accident, or
disability plans in which you were participating at the time of the
change in control of the Company, the taking of any action by the
Company which would directly or indirectly materially reduce any of
such benefits or deprive you of any material fringe benefit enjoyed by
you at the time of the change in control of the Company, or the failure
by the Company to provide you with the number of paid vacation days to
which you are entitled on the basis of your years of service with the
Company in accordance with the Company's normal vacation policy in
effect at the time of the change in control of the Company;
(G) the failure of the Company to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 6
<PAGE> 7
hereof; or
(H) any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the
requirements of Subsection (iv) below (and, if applicable, the
requirements of Subsection (ii) above), which purported termination
shall not be effective for purposes of this Agreement.
Your right to terminate your employment pursuant to this Subsection shall not be
affected by your incapacity due to physical or mental illness. Your continued
employment shall not constitute consent to, or a waiver of rights with respect
to, any circumstance constituting Good Reason hereunder.
(iv) Notice of Termination. Any purported termination
of your employment by the Company or by you shall be
communicated by written Notice of Termination to the other
party hereto in accordance with Section 7 hereof. For purposes
of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision
in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to
provide a basis for termination of your employment under the
provision so indicated.
(v) Date of Termination, Etc. "Date of Termination"
shall mean (A) if your employment is terminated for
Disability, thirty (30) days after Notice of Termination is
given (provided that you shall not have returned to the
full-time performance of your duties during such thirty (30)
day period), and (B) if your employment is terminated pursuant
to Subsection (ii) or (iii) above or for any other reason
(other than Disability), the date specified in the Notice of
Termination (which, in the case of a termination pursuant to
Subsection (ii) above shall not be less than thirty (30) days,
and in the case of a termination pursuant to Subsection (iii)
above shall not be less than fifteen (15) nor more than sixty
(60) days, respectively, from the date such Notice of
Termination is given); provided that if within fifteen (15)
days after any Notice of Termination is given, or, if later,
prior to the Date of Termination (as determined without regard
to this proviso), the party receiving such Notice of
Termination notifies the other party that a dispute exists
concerning the termination, the Date of Termination shall be
the date on which the dispute is finally determined, either by
mutual written agreement of the parties or by a binding
arbitration award; and provided further that the Date of
Termination shall be extended by a notice of dispute only if
such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable
diligence. Notwithstanding the pendency of any such dispute,
the Company will continue to pay you your full compensation in
effect when the notice giving rise to the dispute was given
(including, but not limited to, base salary) and continue you
as a participant in all compensation, benefit and insurance
plans in which you were participating when the notice giving
rise to the dispute was given, until the dispute is finally
resolved in accordance with this Subsection. Amounts paid
under this Subsection are in addition to all other amounts due
under this Agreement and shall not be offset against or reduce
any other amounts due under this Agreement.
<PAGE> 8
4. Compensation Upon Termination or During Disability. Following a
change in control of the Company, as defined by Subsection 2(i), or prior to a
change in control of the Company under the circumstances described in the second
sentence of Section 3 hereof, upon termination of your employment or during a
period of disability you shall be entitled to the following benefits:
(i) During any period that you fail to perform your
full-time duties with the Company as a result of incapacity
due to physical or mental illness, you shall continue to
receive your base salary at the rate in effect at the
commencement of any such period, together with all
compensation payable to you under the Company's disability
plan or program or other similar plan during such period,
until this Agreement is terminated pursuant to Section 3(i)
hereof. Thereafter, or in the event your employment shall be
terminated by reason of your death, your benefits shall be
determined under the Company's retirement, insurance and other
compensation programs then in effect in accordance with the
terms of such programs.
(ii) If your employment shall be terminated by the
Company for Cause or by you other than for Good Reason, the
Company shall pay you your full base salary through the Date
of Termination at the rate in effect at the time Notice of
Termination is given, plus all other amounts to which you are
entitled under any compensation plan of the Company at the
time such payments are due, and the Company shall have no
further obligations to you under this Agreement.
(iii) If your employment by the Company terminates in
a manner entitling you to benefits under this Section pursuant
to Section 3 hereof, then you shall be entitled to the
benefits provided below:
(A) the Company shall pay you your full base salary through
the Date of Termination at the rate in effect at the time Notice of
Termination is given, plus all other amounts to which you are entitled
under any compensation plan of the Company, at the time such payments
are due, except as otherwise provided below;
(B) in lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Company shall pay as
severance pay to you a lump sum severance payment (together with the
payments provided in paragraphs (D), (E) and (F) below, the "Severance
Payments") equal to three (3) times the sum of (1) the greater of (a)
your annual rate of base salary in effect on the Date of Termination or
(b) your annual rate of base salary in effect immediately prior to the
change in control of the Company and (2) the greatest of (a) the
average of the last two annual bonuses (annualized in the case of any
bonus paid with respect to a partial year) paid to you preceding the
Date of Termination, (b) the average of the last two annual bonuses
(annualized in the case of any bonus paid with respect to a partial
year) paid to you preceding such change in control, (c) the most recent
annual bonus (annualized in the case of any bonus paid with respect to
a partial year) paid to you preceding the Date of Termination, or (d)
the most recent annual
<PAGE> 9
bonus (annualized in the case of any bonus paid with respect to a
partial year) paid to you preceding such change in control, or (e) in
the event that on the date of the change in control of the the Company
you have been employed by the Company for less than two years and have
not yet been considered for receipt of an annual bonus, your annual
incentive target award in effect immediately prior to such change in
control;
(C) the Company shall also pay to you, within five (5) days
after any such fees or expenses are incurred, all legal fees and
expenses incurred by you as a result of or in connection with such
termination, including all such fees and expenses, if any, incurred in
contesting or disputing any such termination or in seeking to obtain or
enforce any right or benefit provided by this Agreement (other than any
such fees or expenses incurred in connection with any such claim which
is determined by arbitration, in accordance with Section 11 of this
Agreement, to be frivolous) or in connection with any tax audit or
proceeding to the extent attributable to the application of section
4999 of the Code to any payment or benefit provided hereunder;
(D) for a thirty-six (36) month period after such termination,
the Company shall arrange to provide you with life, disability,
accident and health insurance benefits substantially similar to those
which you are receiving immediately prior to the Notice of Termination.
Benefits otherwise receivable by you pursuant to this Subsection
4(iii)(D) shall be reduced to the extent comparable benefits are
actually received by you from a subsequent employer during the
thirty-six (36) month period following your termination, and any such
benefits actually received by you shall be reported to the Company;
(E) in addition to the retirement benefits to which you are
entitled under the Retirement Plan, any supplemental retirement or
excess benefit plan maintained by TECO or any of its subsidiaries or
any successor plans thereto (hereinafter collectively referred to as
the "Pension Plans"), the Company shall pay you in cash a lump sum
equal to the excess of (a) the actuarial equivalent (computed at your
date of termination) of the retirement pension (taking into account any
early retirement subsidies and post-retirement surviving spouse
benefits associated therewith and determined as an annuity payable in
the normal form under the Pension Plans commencing at your normal
retirement age under the Retirement Plan or any earlier date, but in no
event earlier than the third anniversary of the Date of Termination,
whichever annuity the actuarial equivalent of which is greatest) which
you would have accrued under the terms of the Pension Plans (without
regard to the limitations imposed by Section 401(a)(17) of the Internal
Revenue Code of 1986, as amended (the "Code"), or any amendment to the
Pension Plans made subsequent to a change in control of the Company and
on or prior to the Date of Termination, which amendment adversely
affects in any manner the computation of retirement benefits
thereunder), determined as if you were fully vested thereunder and had
continued to be a participant in each of the Pension Plans for
thirty-six (36) additional months and as if you had accumulated
thirty-six (36) additional months of compensation (for purposes of
determining your pension benefits thereunder), each in an amount equal
to the sum of the
<PAGE> 10
amounts determined under clauses (1) and (2) of Section 4(iii)(B)
hereof over (b) the actuarial equivalent (computed at your date of
termination) of the vested retirement pension (taking into account any
early retirement subsidies and post-retirement surviving spouse
benefits associated therewith and determined as an annuity payable in
the normal form under the Pension Plans commencing at your normal
retirement age under the Retirement Plan or any earlier date, but in no
event earlier than the Date of Termination, whichever annuity the
actuarial equivalent of which is greatest) which you had then accrued
pursuant to the provisions of the Pension Plans. For purposes of this
Subsection, "actuarial equivalent" shall be determined using the same
actuarial assumptions utilized in determining the amount of alternate
forms of benefits under the Retirement Plan immediately prior to the
change in control of the Company; and
(F) should you move your residence in order to pursue other
business opportunities within one (1) year of the Date of Termination,
the Company will pay you, within five (5) days after any such expenses
are incurred, an amount equal to the expenses incurred by you in
connection with such relocation (including expenses incurred in selling
your home to the extent such expenses were customarily reimbursed by
the Company to transferred executives prior to the change in control of
the Company) and which are not reimbursed by another employer.
(iv) Except as otherwise specifically provided in
paragraph (C) and (F) thereof, the payments provided for in
Subsection (iii) shall be made not later than the fifth day
following the Date of Termination; provided, however, that if
the amounts of such payments cannot be finally determined on
or before such day, the Company shall pay to you on such day
an estimate, as determined in good faith by the Company, of
the minimum amount of such payments and shall pay the
remainder of such payments (together with interest at the rate
provided in section 1274(b)(2)(B) of the Code) as soon as the
amount thereof can be determined but in no event later than
the thirtieth day after the Date of Termination. In the event
that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall
constitute a loan by the Company to you payable on the fifth
day after demand therefor by the Company (together with
interest at the rate provided in section 1274(b)(2)(B) of the
Code).
(v) You shall not be required to mitigate the amount
of any payment provided for in this Section 4 or Section 5
hereof by seeking other employment or otherwise, nor, except
as specifically provided in Sections 4(iii)(D) and (F) above,
shall the amount of any payment or benefit provided for in
this Section 4 or Section 5 hereof be reduced by any
compensation earned by you as the result of employment by
another employer, by retirement benefits, by offset against
any amount claimed to be owed by you to the Company, or
otherwise.
5. Certain Additional Payments by the Company.
(i) Whether or not you become entitled to payments
under this Agreement, if any of
<PAGE> 11
the payments or benefits received or to be received by you in
connection with a change in control of the Company or the
termination of your employment (whether pursuant to the terms
of this Agreement or any other plan, arrangement or agreement
with the Company, any person whose actions result in a change
in control of the Company or any person affiliated with the
Company or such person) (such payments or benefits, including
the Severance Payments but excluding the Gross-Up Payment,
being hereinafter referred to as the "Total Payments") will be
subject to the excise tax imposed by section 4999 of the Code
or any interest or penalties are incurred by you with respect
to such excise tax (such excise tax, together with any such
interest and penalties, being hereinafter referred to as the
"Excise Tax"), the Company shall pay to you an additional
amount (the "Gross-Up Payment") such that the net amount
retained by you, after paying any Excise Tax on the Total
Payments and any federal, state and local income and
employment taxes and Excise Tax on the Gross-Up Payment, shall
be equal to the Total Payments.
(ii) For purposes of determining whether any of the
Total Payments will be subject to the Excise Tax and the
amount of such Excise Tax, (A) all of the Total Payments shall
be treated as "parachute payments" (within the meaning of
section 280G(b)(2) of the Code) unless, in the opinion of tax
counsel ("Tax Counsel") acceptable to you and selected by the
accounting firm which was, immediately prior to the change in
control of the Company, the Company's independent auditor (the
"Auditor"), such payments or benefits (in whole or in part) do
not constitute parachute payments, including by reason of
section 280G(b)(4)(A) of the Code, (B) all "excess parachute
payments" (within the meaning of section 280G(b)(1) of the
Code) shall be treated as subject to the Excise Tax unless, in
the opinion of Tax Counsel, such excess parachute payments (in
whole or in part) represent reasonable compensation for
services actually rendered (within the meaning of section
280G(b)(4)(B) of the Code) in excess of the "base amount"
(within the meaning of section 280G(b)(3) of the Code)
allocable to such reasonable compensation, or are otherwise
not subject to the Excise Tax, and (C) the value of any
noncash benefits or any deferred payment or benefit shall be
determined by the Auditor in accordance with the principles of
sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, you shall be
deemed to pay federal income tax at the highest marginal rate
of federal income taxation in the calendar year in which the
Gross-Up Payment is to be made and state and local income
taxes at the highest marginal rate of taxation in the state
and locality of your residence on the Date of Termination, net
of the maximum reduction in federal income taxes which could
be obtained from deduction of such state and local taxes.
(iii) In the event that the Excise Tax is
subsequently determined to be less than the amount taken into
account hereunder at the time of the termination of your
employment, you shall repay to the Company, at the time that
the amount of such reduction in Excise Tax is finally
determined, the portion of the Gross-Up Payment attributable
to such reduction (plus that portion of the Gross-Up Payment
attributable to the Excise Tax and federal, state and local
income and employment taxes imposed on the Gross-Up Payment
being repaid by you to the extent that such repayment results
in a reduction in Excise Tax and/or a federal, state or local
income or employment tax deduction) plus interest on the
amount of such repayment at 120% of the rate provided in
section 1274(b)(2)(B) of the Code. In the event that the
Excise Tax is determined to
<PAGE> 12
exceed the amount taken into account hereunder at the time of
the termination of your employment (including by reason of any
payment the existence or amount of which cannot be determined
at the time of the Gross-Up Payment), the Company shall make
an additional Gross-Up Payment in respect of such excess (plus
any interest, penalties or additions payable by you with
respect to such excess) at the time that the amount of such
excess is finally determined. You and the Company shall each
reasonably cooperate with the other in connection with any
administrative or judicial proceedings concerning the
existence or amount of liability for Excise Tax with respect
to the Total Payments.
6. Successors; Binding Agreement. (iv) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle you to compensation from the
Company in the same amount and on the same terms as you would be entitled to
hereunder if you terminate your employment for Good Reason following a change in
control of the Company, except that for purposes of implementing the foregoing,
the date on which any such succession becomes effective shall be deemed the Date
of Termination. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
(ii) This Agreement shall inure to the benefit of and
be enforceable by your personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued
to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement
to your devisee, legatee or other designee or, if there is no
such designee, to your estate.
7. Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Board
with a copy to the Secretary of the Company, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notices of change of address shall be effective only upon receipt.
8. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by you and such officer as may be specifically designated
by the Board. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or
<PAGE> 13
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Florida, without giving effect to the conflicts of
law principles thereof. All references to sections of the Exchange Act or the
Code shall be deemed also to refer to any successor provisions to such sections.
Any payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law. The obligations of the
Company under Sections 4 and 5 shall survive the expiration of the term of this
Agreement.
9. Validity. The invalidity or unenforceability or any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
10. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
11. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration
conducted before a panel of three arbitrators in the State of Florida in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that you shall be entitled to seek specific
performance of your right to be paid until the Date of Termination during the
pendency of any dispute or controversy arising under or in connection with this
Agreement.
12. Entire Agreement. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and during
the term of the Agreement supersedes the provisions of all prior agreements,
promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or representative
of any party hereto with respect to the subject matter hereof.
13. Effective Date; Pooling. This Agreement shall become effective as
of the date set forth above. In the event that the Company is party to an
agreement with respect to a transaction that is intended to qualify for "pooling
of interests" accounting treatment, then (A) this Agreement shall, to the extent
practicable, be interpreted so as to permit such accounting treatment, and (B)
to the extent that the application of clause (A) of this Section 13 does not
preserve the availability of such accounting treatment, then the Company shall
have the unilateral right to amend this Agreement to the extent necessary to
enable the Company's accountants to issue a "pooling" opinion with respect to
such transaction, and any such amendment shall be effective as of the date
hereof.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our agreement on this subject.
<PAGE> 14
Sincerely,
TECO Energy, Inc.
By /s/
-------------------------------------
Name: Roger A. Dunn
Title: Vice President-Human Resources
Agreed to this _______ day
of __________________, 2000.
____________________________
Signature
<PAGE> 15
PRIVILEGED AND CONFIDENTIAL
Date
Name
Address 1
Address 2
Dear First Name:
TECO Energy, Inc. (the "Company") considers it essential to the best
interests of its stockholders to foster the continuous employment of key
management personnel. In this connection, the Board of Directors of the Company
(the "Board") recognizes that, as is the case with many publicly held
corporations, the possibility of a change in control may exist and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of key management
personnel to the detriment of the Company and its stockholders.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of the
Company's management, including yourself, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from the
possibility of a change in control of the Company.
In order to induce you to remain in the employ of the Company and in
consideration of your agreement set forth in Subsection 2(iii) hereof, the
Company agrees that you shall receive the severance benefits set forth in this
letter agreement (the "Agreement") in the event your employment with the Company
is terminated subsequent to a "change in control of the Company" (as defined in
Section 2(i) hereof) (or is deemed to be terminated subsequent to a change in
control of the Company in accordance with the second sentence of Section 3
hereof) under the circumstances described below. Amd Date
1. Term of Agreement. Subject to the provisions of Section 13 hereof,
this Agreement shall commence on the date hereof and shall continue in effect
through June 30, 2001; provided, however, that commencing on July 1, 2000 and
each July 1 thereafter, the term of this Agreement shall automatically be
extended for one additional year unless, not later than March 31 of such year,
the Company shall have given notice that it does not wish to extend this
Agreement (provided that no such notice may be given during the pendency of or
within two years following a potential change in control of the Company, as
defined in Section 2(ii) hereof); provided, further, if a change in control of
the Company shall have occurred during the original or extended
<PAGE> 16
term of this Agreement, this Agreement shall continue in effect for a period of
twenty-four (24) months beyond the month in which such change in control
occurred.
2. Change in Control; Potential Change in Control. (i) Except as
provided in the second sentence of Section 3 hereof, no benefits shall be
payable hereunder unless there shall have been a change in control of the
Company, as set forth below. For purposes of this Agreement, a "change in
control of the Company" shall mean a change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), whether or not the Company is in fact required to comply
therewith; provided, that, without limitation, such a change in control shall be
deemed to have occurred if:
(A) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than the Company, any trustee or
other fiduciary holding securities under an employee benefit plan of
the Company or a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 30% or more of
the combined voting power of the Company's then outstanding securities;
(B) during any period of twenty-four (24) consecutive months
(not including any period prior to the date of this Agreement),
individuals who at the beginning of such period constitute the Board
and any new director (other than a director designated by a person who
has entered into an agreement with the Company to effect a transaction
described in paragraphs (A), (C) or (D) of this Section 2(i)) whose
election by the Board or nomination for election by the stockholders of
the Company was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the
beginning of such period or whose election or nomination for election
was previously so approved, cease for any reason to constitute a
majority thereof; or
(C) there is consummated a merger or consolidation of the
Company or any direct or indirect subsidiary of the Company with any
other corporation, other than (i) a merger or consolidation resulting
in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at
least 65% of the combined voting securities of the Company or such
surviving entity or any parent thereof outstanding immediately after
such merger or consolidation or (ii) a merger or consolidation effected
to implement a recapitalization of the Company (or similar transaction)
in which no "person" (as hereinabove defined) acquires 30% or more of
the combined voting power of the Company's then outstanding securities;
or
(D) the stockholders of the Company approve a plan of complete
liquidation of
<PAGE> 17
the Company or there is consummated the sale or disposition by the
Company of all or substantially all of the Company's assets.
(ii) For purposes of this Agreement, a "potential
change in control of the Company" shall be deemed to have
occurred if:
(A) the Company enters into an agreement, the consummation of
which would result in the occurrence of a change in control of the
Company;
(B) any person (as hereinabove defined), including the
Company, publicly announces an intention to take or consider taking
actions which if consummated would constitute a change in control of
the Company;
(C) any person (as hereinabove defined), other than the
Company, any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or a corporation owned, directly
or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company (a) is or
becomes the beneficial owner, (b) discloses directly or indirectly to
the Company or publicly a plan or intention to become the beneficial
owner, or (c) makes a filing under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, with respect to securities to
become the beneficial owner, directly or indirectly, of securities
representing 9.9% or more of the combined voting power of the
outstanding voting securities of the Company; or
(D) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a potential change in control of the
Company has occurred.
(iii) You agree that, subject to the terms and
conditions of this Agreement, in the event of a potential
change in control of the Company, you will remain in the
employ of the Company until the earliest of (a) a date which
is one (1) year from the occurrence of such potential change
in control of the Company, (b) the termination by you of your
employment after you attain "normal retirement age" under the
provisions of the TECO Energy Group Retirement Plan or any
successor thereto (the "Retirement Plan") or by reason of
Disability as defined in Section 3(i), or (c) the date of the
occurrence of a change in control of the Company.
3. Termination Following Change in Control. If your employment is
terminated following a change in control of the Company and during the term of
this Agreement (as determined under Section 1 hereof), other than (A) by the
Company for Cause, (B) by reason of death or Disability, or (C) by you without
Good Reason, then the Company shall pay you the amounts, and provide you the
benefits, described in Section 4(iii) hereof. For purposes of this Agreement,
your employment shall be deemed to have been terminated following a change in
control of the Company by the Company without Cause or by you with Good Reason,
if (i) your employment is terminated by the Company without Cause prior to a
change in control of the Company (whether or not such a
<PAGE> 18
change in control ever occurs) and such termination was at the request or
direction of a "person" (as hereinabove defined) who has entered into an
agreement with the Company the consummation of which would constitute a change
in control of the Company, (ii) you terminate your employment for Good Reason
prior to a change in control of the Company (whether or not such a change in
control ever occurs) and the circumstance or event which constitutes Good Reason
occurs at the request or direction of such person, or (iii) your employment is
terminated by the Company without Cause or by you for Good Reason and such
termination or the circumstance or event which constitutes Good Reason is
otherwise in connection with or in anticipation of a change in control of the
Company (whether or not such a change in control ever occurs).
(i) Disability. If, as a result of your incapacity
due to physical or mental illness, you shall have been absent
from the full-time performance of your duties with the Company
for six (6) consecutive months, and within thirty (30) days
after written notice of termination is given you shall not
have returned to the full-time performance of your duties,
your employment may be terminated for "Disability".
(ii) Cause. Termination by the Company of your
employment for "Cause" shall mean termination upon (A) the
willful and continued failure by you to substantially perform
your duties with the Company (other than any such failure
resulting from your incapacity due to physical or mental
illness or any such actual or anticipated failure after the
issuance of a Notice of Termination by you for Good Reason, as
defined in Subsections 3(iv) and 3(iii), respectively) after a
written demand for substantial performance is delivered to you
by the Board, which demand specifically identifies the manner
in which the Board believes that you have not substantially
performed your duties, or (B) the willful engaging by you in
conduct which is demonstrably and materially injurious to the
Company, monetarily or otherwise. For purposes of this
Subsection, no act, or failure to act, on your part shall be
deemed "willful" unless done, or omitted to be done, by you
not in good faith and without reasonable belief that your
action or omission was in the best interest of the Company.
Notwithstanding the foregoing, you shall not be deemed to have
been terminated for Cause unless and until there shall have
been delivered to you a copy of a resolution duly adopted by
the affirmative vote of not less than three-quarters (3/4) of
the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice to
you and an opportunity for you, together with your counsel, to
be heard before the Board), finding that in the good faith
opinion of the Board you were guilty of conduct set forth
above in this Subsection and specifying the particulars
thereof in detail.
(iii) Good Reason. "Good Reason" for termination by
you of your employment shall mean the occurrence (without your
express written consent) after any change in control of the
Company, or prior to a change in control of the Company under
the circumstances described in the second sentence of Section
3 hereof (treating all references in paragraphs (A) through
(H) below to a "change in control of the Company" as
references to a "potential change in control of the Company"),
of any one of the following acts by the Company, or failures
by the Company to act:
(A) the assignment to you of any duties inconsistent (except
in the nature of a
<PAGE> 19
promotion) with the position in the Company that you held immediately
prior to the change in control of the Company or a substantial adverse
alteration in the nature or status of your position or responsibilities
or the conditions of your employment from those in effect immediately
prior to the change in control of the Company;
(B) a reduction by the Company in your annual base salary as
in effect on the date hereof or as the same may be increased from time
to time;
(C) the Company's requiring you to be based more than
twenty-five (25) miles from the Company's offices at which you were
principally employed immediately prior to the date of the change in
control of the Company except for required travel on the Company's
business to an extent substantially consistent with your present
business travel obligations;
(D) the failure by the Company to pay to you any portion of
your current compensation or compensation under any deferred
compensation program of the Company, within seven (7) days of the date
such compensation is due;
(E) the failure by the Company to continue in effect any
material compensation or benefit plan in which you participate
immediately prior to the change in control of the Company unless an
equitable arrangement (embodied in an ongoing substitute or alternative
plan) has been made with respect to such plan, or the failure by the
Company to continue your participation therein (or in such substitute
or alternative plan) on a basis not materially less favorable, both in
terms of the amount of benefits provided and the level of your
participation relative to other participants, than existed at the time
of the change in control;
(F) the failure by the Company to continue to provide you with
benefits substantially similar to those enjoyed by you under any of the
Company's pension, life insurance, medical, health and accident, or
disability plans in which you were participating at the time of the
change in control of the Company, the taking of any action by the
Company which would directly or indirectly materially reduce any of
such benefits or deprive you of any material fringe benefit enjoyed by
you at the time of the change in control of the Company, or the failure
by the Company to provide you with the number of paid vacation days to
which you are entitled on the basis of your years of service with the
Company in accordance with the Company's normal vacation policy in
effect at the time of the change in control of the Company;
(G) the failure of the Company to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 6 hereof; or
(H) any purported termination of your employment which is not
effected
<PAGE> 20
pursuant to a Notice of Termination satisfying the requirements of
Subsection (iv) below (and, if applicable, the requirements of
Subsection (ii) above), which purported termination shall not be
effective for purposes of this Agreement.
Your right to terminate your employment pursuant to this Subsection shall not be
affected by your incapacity due to physical or mental illness. Your continued
employment shall not constitute consent to, or a waiver of rights with respect
to, any circumstance constituting Good Reason hereunder.
(iv) Notice of Termination. Any purported termination
of your employment by the Company or by you shall be
communicated by written Notice of Termination to the other
party hereto in accordance with Section 7 hereof. For purposes
of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision
in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to
provide a basis for termination of your employment under the
provision so indicated.
(v) Date of Termination, Etc. "Date of Termination"
shall mean (A) if your employment is terminated for
Disability, thirty (30) days after Notice of Termination is
given (provided that you shall not have returned to the
full-time performance of your duties during such thirty (30)
day period), and (B) if your employment is terminated pursuant
to Subsection (ii) or (iii) above or for any other reason
(other than Disability), the date specified in the Notice of
Termination (which, in the case of a termination pursuant to
Subsection (ii) above shall not be less than thirty (30) days,
and in the case of a termination pursuant to Subsection (iii)
above shall not be less than fifteen (15) nor more than sixty
(60) days, respectively, from the date such Notice of
Termination is given); provided that if within fifteen (15)
days after any Notice of Termination is given, or, if later,
prior to the Date of Termination (as determined without regard
to this proviso), the party receiving such Notice of
Termination notifies the other party that a dispute exists
concerning the termination, the Date of Termination shall be
the date on which the dispute is finally determined, either by
mutual written agreement of the parties or by a binding
arbitration award; and provided further that the Date of
Termination shall be extended by a notice of dispute only if
such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable
diligence. Notwithstanding the pendency of any such dispute,
the Company will continue to pay you your full compensation in
effect when the notice giving rise to the dispute was given
(including, but not limited to, base salary) and continue you
as a participant in all compensation, benefit and insurance
plans in which you were participating when the notice giving
rise to the dispute was given, until the dispute is finally
resolved in accordance with this Subsection. Amounts paid
under this Subsection are in addition to all other amounts due
under this Agreement and shall not be offset against or reduce
any other amounts due under this Agreement.
4. Compensation Upon Termination or During Disability. Following a
change in control of the Company, as defined by Subsection 2(i), or prior to a
change in control of the Company under the circumstances described in the second
sentence of Section 3 hereof, upon
<PAGE> 21
termination of your employment or during a period of disability you shall be
entitled to the following benefits:
(i) During any period that you fail to perform your
full-time duties with the Company as a result of incapacity
due to physical or mental illness, you shall continue to
receive your base salary at the rate in effect at the
commencement of any such period, together with all
compensation payable to you under the Company's disability
plan or program or other similar plan during such period,
until this Agreement is terminated pursuant to Section 3(i)
hereof. Thereafter, or in the event your employment shall be
terminated by reason of your death, your benefits shall be
determined under the Company's retirement, insurance and other
compensation programs then in effect in accordance with the
terms of such programs.
(ii) If your employment shall be terminated by the
Company for Cause or by you other than for Good Reason, the
Company shall pay you your full base salary through the Date
of Termination at the rate in effect at the time Notice of
Termination is given, plus all other amounts to which you are
entitled under any compensation plan of the Company at the
time such payments are due, and the Company shall have no
further obligations to you under this Agreement.
(iii) If your employment by the Company terminates in
a manner entitling you to benefits under this Section pursuant
to Section 3 hereof, then you shall be entitled to the
benefits provided below:
(A) the Company shall pay you your full base salary through
the Date of Termination at the rate in effect at the time Notice of
Termination is given, plus all other amounts to which you are entitled
under any compensation plan of the Company, at the time such payments
are due, except as otherwise provided below;
(B) in lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Company shall pay as
severance pay to you a lump sum severance payment (together with the
payments provided in paragraphs (D), (E) and (F) below, the "Severance
Payments") equal to two (2) times the sum of (1) the greater of (a)
your annual rate of base salary in effect on the Date of Termination or
(b) your annual rate of base salary in effect immediately prior to the
change in control of the Company and (2) the greatest of (a) the
average of the last two annual bonuses (annualized in the case of any
bonus paid with respect to a partial year) paid to you preceding the
Date of Termination, (b) the average of the last two annual bonuses
(annualized in the case of any bonus paid with respect to a partial
year) paid to you preceding such change in control, (c) the most recent
annual bonus (annualized in the case of any bonus paid with respect to
a partial year) paid to you preceding the Date of Termination, or (d)
the most recent annual bonus (annualized in the case of any bonus paid
with respect to a partial year) paid to you preceding such change in
control, or (e) in the event that on the date of the change in control
of the the Company you have been employed by the Company for less than
two
<PAGE> 22
years and have not yet been considered for receipt of an annual bonus,
your annual incentive target award in effect immediately prior to such
change in control;
(C) the Company shall also pay to you, within five (5) days
after any such fees or expenses are incurred, all legal fees and
expenses incurred by you as a result of or in connection with such
termination, including all such fees and expenses, if any, incurred in
contesting or disputing any such termination or in seeking to obtain or
enforce any right or benefit provided by this Agreement (other than any
such fees or expenses incurred in connection with any such claim which
is determined by arbitration, in accordance with Section 11 of this
Agreement, to be frivolous) or in connection with any tax audit or
proceeding to the extent attributable to the application of section
4999 of the Code to any payment or benefit provided hereunder;
(D) for a twenty-four (24) month period after such
termination, the Company shall arrange to provide you with life,
disability, accident and health insurance benefits substantially
similar to those which you are receiving immediately prior to the
Notice of Termination. Benefits otherwise receivable by you pursuant to
this Subsection 4(iii)(D) shall be reduced to the extent comparable
benefits are actually received by you from a subsequent employer during
the twenty-four (24) month period following your termination, and any
such benefits actually received by you shall be reported to the
Company;
(E) in addition to the retirement benefits to which you are
entitled under the Retirement Plan, any supplemental retirement or
excess benefit plan maintained by TECO or any of its subsidiaries or
any successor plans thereto (hereinafter collectively referred to as
the "Pension Plans"), the Company shall pay you in cash a lump sum
equal to the excess of (a) the actuarial equivalent (computed at your
date of termination) of the retirement pension (taking into account any
early retirement subsidies and post-retirement surviving spouse
benefits associated therewith and determined as an annuity payable in
the normal form under the Pension Plans commencing at your normal
retirement age under the Retirement Plan or any earlier date, but in no
event earlier than the second anniversary of the Date of Termination,
whichever annuity the actuarial equivalent of which is greatest) which
you would have accrued under the terms of the Pension Plans (without
regard to the limitations imposed by Section 401(a)(17) of the Internal
Revenue Code of 1986, as amended (the "Code"), or any amendment to the
Pension Plans made subsequent to a change in control of the Company and
on or prior to the Date of Termination, which amendment adversely
affects in any manner the computation of retirement benefits
thereunder), determined as if you were fully vested thereunder and had
continued to be a participant in each of the Pension Plans for
twenty-four (24) additional months and as if you had accumulated
twenty-four (24) additional months of compensation (for purposes of
determining your pension benefits thereunder), each in an amount equal
to the sum of the amounts determined under clauses (1) and (2) of
Section 4(iii)(B) hereof over (b) the actuarial equivalent (computed at
your date of termination) of the vested retirement pension (taking into
account any early retirement subsidies and post-retirement surviving
<PAGE> 23
spouse benefits associated therewith and determined as an annuity
payable in the normal form under the Pension Plans commencing at your
normal retirement age under the Retirement Plan or any earlier date,
but in no event earlier than the Date of Termination, whichever annuity
the actuarial equivalent of which is greatest) which you had then
accrued pursuant to the provisions of the Pension Plans. For purposes
of this Subsection, "actuarial equivalent" shall be determined using
the same actuarial assumptions utilized in determining the amount of
alternate forms of benefits under the Retirement Plan immediately prior
to the change in control of the Company; and
(F) should you move your residence in order to pursue other
business opportunities within one (1) year of the Date of Termination,
the Company will pay you, within five (5) days after any such expenses
are incurred, an amount equal to the expenses incurred by you in
connection with such relocation (including expenses incurred in selling
your home to the extent such expenses were customarily reimbursed by
the Company to transferred executives prior to the change in control of
the Company) and which are not reimbursed by another employer.
(iv) Except as otherwise specifically provided in
paragraph (C) and (F) thereof, the payments provided for in
Subsection (iii) shall be made not later than the fifth day
following the Date of Termination; provided, however, that if
the amounts of such payments cannot be finally determined on
or before such day, the Company shall pay to you on such day
an estimate, as determined in good faith by the Company, of
the minimum amount of such payments and shall pay the
remainder of such payments (together with interest at the rate
provided in section 1274(b)(2)(B) of the Code) as soon as the
amount thereof can be determined but in no event later than
the thirtieth day after the Date of Termination. In the event
that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall
constitute a loan by the Company to you payable on the fifth
day after demand therefor by the Company (together with
interest at the rate provided in section 1274(b)(2)(B) of the
Code).
(v) You shall not be required to mitigate the amount
of any payment provided for in this Section 4 by seeking other
employment or otherwise, nor, except as specifically provided
in Sections 4 (iii)(D) and (F) above, shall the amount of any
payment or benefit provided for in this Section 4 be reduced
by any compensation earned by you as the result of employment
by another employer, by retirement benefits, by offset against
any amount claimed to be owed by you to the Company, or
otherwise.
5. Limit on Severance Payments. In the event that (i) any payment or
benefit received or to be received by you in connection with a change in control
of the Company or the termination of your employment (whether pursuant to the
terms of this Agreement or any other plan, arrangement or agreement with the
Company, any person whose actions result in a change in control or any person
affiliated with the Company or such person) (collectively with the Severance
Payments, "Total Payments") would not be deductible (in whole or part) as a
result of section 280G of the Code by the Company, an affiliate or other person
making such payment or providing
<PAGE> 24
such benefit and (ii) the net amount retained by you, after paying the excise
tax imposed by section 4999 of the Code and any federal, state and local income
and employment taxes on the Total Payments, would not exceed the net amount that
would have been retained by you after the reduction of the Severance Payments as
set forth below and the payment of any federal, state and local income and
employment taxes on the Total Payments as so reduced, the Severance Payments
shall be reduced until no portion of the Total Payments is not deductible, or
the Severance Payments are reduced to zero. For purposes of this limitation (a)
no portion of the Total Payments the receipt or enjoyment of which you shall
have effectively waived in writing prior to the date of payment of the Severance
Payments shall be taken into account, (b) no portion of the Total Payments shall
be taken into account which in the opinion of tax counsel selected by the
Company's independent auditors and acceptable to you does not constitute a
"parachute payment" within the meaning of section 280G(b)(2) of the Code, (c)
the Severance Payments shall be reduced only to the extent necessary so that the
Total Payments (other than those referred to in clauses (a) or (b)) in their
entirety constitute reasonable compensation for services actually rendered
within the meaning of section 280G(b)(4) of the Code or are otherwise not
subject to disallowance as deductions, in the opinion of the tax counsel
referred to in clause (b); and (d) the value of any non-cash benefit or any
deferred payment or benefit included in the Total Payments shall be determined
by the Company's independent auditors in accordance with the principles of
sections 280G(d)(3) and (4) of the Code. For purposes of determining the income
taxes on the Total Payments, you shall be deemed to pay federal income tax at
the highest marginal rate of federal income taxation in the calendar year in
which the Total Payments are to be made and local income taxes at the highest
marginal rate of taxation in the state and locality of your residence on the
Date of Termination, net of the maximum reduction in federal income taxes which
could be obtained from deduction of such state and local taxes.
6. Successors; Binding Agreement. (i) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle you to compensation from the
Company in the same amount and on the same terms as you would be entitled to
hereunder if you terminate your employment for Good Reason following a change in
control of the Company, except that for purposes of implementing the foregoing,
the date on which any such succession becomes effective shall be deemed the Date
of Termination. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
(ii) This Agreement shall inure to the benefit of and
be enforceable by your personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued
to live, all such amounts, unless otherwise provided herein,
shall be paid in
<PAGE> 25
accordance with the terms of this Agreement to your devisee,
legatee or other designee or, if there is no such designee, to
your estate.
7. Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Board
with a copy to the Secretary of the Company, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notices of change of address shall be effective only upon receipt.
8. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by you and such officer as may be specifically designated
by the Board. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Florida, without giving effect to the conflicts of
law principles thereof. All references to sections of the Exchange Act or the
Code shall be deemed also to refer to any successor provisions to such sections.
Any payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law. The obligations of the
Company under Section 4 shall survive the expiration of the term of this
Agreement.
9. Validity. The invalidity or unenforceability or any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
10. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
11. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration
conducted before a panel of three arbitrators in the State of Florida in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that you shall be entitled to seek specific
performance of your right to be paid until the Date of Termination during the
pendency of any dispute or controversy arising under or in connection with this
Agreement.
<PAGE> 26
12. Entire Agreement. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and during
the term of the Agreement supersedes the provisions of all prior agreements,
promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or representative
of any party hereto with respect to the subject matter hereof.
13. Effective Date; Pooling. This Agreement shall become effective as
of the date set forth above. In the event that the Company is party to an
agreement with respect to a transaction that is intended to qualify for "pooling
of interests" accounting treatment, then (A) this Agreement shall, to the extent
practicable, be interpreted so as to permit such accounting treatment, and (B)
to the extent that the application of clause (A) of this Section 13 does not
preserve the availability of such accounting treatment, then the Company shall
have the unilateral right to amend this Agreement to the extent necessary to
enable the Company's accountants to issue a "pooling" opinion with respect to
such transaction, and any such amendment shall be effective as of the date
hereof.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our agreement on this subject.
Sincerely,
TECO Energy, Inc.
By /s/
-------------------------------------
Name: Roger A. Dunn
Title: Vice President-Human Resources
Agreed to this _______ day
of __________________, 2000.
____________________________
Signature
<PAGE> 27
PRIVILEGED AND CONFIDENTIAL
Date
Name
Address 1
Address 2
Dear First Name:
TECO Energy, Inc. (the "Company") considers it essential to the best
interests of its stockholders to foster the continuous employment of key
management personnel. In this connection, the Board of Directors of the Company
(the "Board") recognizes that, as is the case with many publicly held
corporations, the possibility of a change in control may exist and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of key management
personnel to the detriment of the Company and its stockholders.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of the
Company's management, including yourself, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from the
possibility of a change in control of the Company.
In order to induce you to remain in the employ of the Company and in
consideration of your agreement set forth in Subsection 2(iii) hereof, the
Company agrees that you shall receive the severance benefits set forth in this
letter agreement (the "Agreement") in the event your employment with the Company
is terminated subsequent to a "change in control of the Company" (as defined in
Section 2(i) hereof) (or is deemed to be terminated subsequent to a change in
control of the Company in accordance with the second sentence of Section 3
hereof) under the circumstances described below. Amd Date
1. Term of Agreement. Subject to the provisions of Section 13 hereof,
this Agreement shall commence on the date hereof and shall continue in effect
through June 30, 2001; provided, however, that commencing on July 1, 2000 and
each July 1 thereafter, the term of this Agreement shall automatically be
extended for one additional year unless, not later than March 31 of such year,
the Company shall have given notice that it does not wish to extend this
Agreement (provided that no such notice may be given during the pendency of or
within two years following a potential change in control of the Company, as
defined in Section 2(ii) hereof); provided, further, if a change in control of
the Company shall have occurred during the original or extended term of this
Agreement, this Agreement shall continue in effect for a period of twenty-four
(24) months beyond the month in which such change in control occurred.
<PAGE> 28
2. Change in Control; Potential Change in Control. (i) Except as
provided in the second sentence of Section 3 hereof, no benefits shall be
payable hereunder unless there shall have been a change in control of the
Company, as set forth below. For purposes of this Agreement, a "change in
control of the Company" shall mean a change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), whether or not the Company is in fact required to comply
therewith; provided, that, without limitation, such a change in control shall be
deemed to have occurred if:
(A) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than the Company, any trustee or
other fiduciary holding securities under an employee benefit plan of
the Company or a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 30% or more of
the combined voting power of the Company's then outstanding securities;
(B) during any period of twenty-four (24) consecutive months
(not including any period prior to the date of this Agreement),
individuals who at the beginning of such period constitute the Board
and any new director (other than a director designated by a person who
has entered into an agreement with the Company to effect a transaction
described in paragraphs (A), (C) or (D) of this Section 2(i)) whose
election by the Board or nomination for election by the stockholders of
the Company was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the
beginning of such period or whose election or nomination for election
was previously so approved, cease for any reason to constitute a
majority thereof; or
(C) there is consummated a merger or consolidation of the
Company or any direct or indirect subsidiary of the Company with any
other corporation, other than (i) a merger or consolidation resulting
in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at
least 65% of the combined voting securities of the Company or such
surviving entity or any parent thereof outstanding immediately after
such merger or consolidation or (ii) a merger or consolidation effected
to implement a recapitalization of the Company (or similar transaction)
in which no "person" (as hereinabove defined) acquires 30% or more of
the combined voting power of the Company's then outstanding securities;
or
(D) the stockholders of the Company approve a plan of complete
liquidation of the Company or there is consummated the sale or
disposition by the Company of all or substantially all of the Company's
assets.
<PAGE> 29
(ii) For purposes of this Agreement, a "potential
change in control of the Company" shall be deemed to have
occurred if:
(A) the Company enters into an agreement, the consummation of
which would result in the occurrence of a change in control of the
Company;
(B) any person (as hereinabove defined), including the
Company, publicly announces an intention to take or consider taking
actions which if consummated would constitute a change in control of
the Company;
(C) any person (as hereinabove defined), other than the
Company, any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or a corporation owned, directly
or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company (a) is or
becomes the beneficial owner, (b) discloses directly or indirectly to
the Company or publicly a plan or intention to become the beneficial
owner, or (c) makes a filing under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, with respect to securities to
become the beneficial owner, directly or indirectly, of securities
representing 9.9% or more of the combined voting power of the
outstanding voting securities of the Company; or
(D) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a potential change in control of the
Company has occurred.
(iii) You agree that, subject to the terms and
conditions of this Agreement, in the event of a potential
change in control of the Company, you will remain in the
employ of the Company until the earliest of (a) a date which
is one (1) year from the occurrence of such potential change
in control of the Company, (b) the termination by you of your
employment after you attain "normal retirement age" under the
provisions of the TECO Energy Group Retirement Plan or any
successor thereto (the " Retirement Plan") or by reason of
Disability as defined in Section 3(i), or (c) the date of the
occurrence of a change in control of the Company.
3. Termination Following Change in Control. If your employment is
terminated following a change in control of the Company and during the term of
this Agreement (as determined under Section 1 hereof), other than (A) by the
Company for Cause, (B) by reason of death or Disability, or (C) by you without
Good Reason, then the Company shall pay you the amounts, and provide you the
benefits, described in Section 4(iii) hereof. For purposes of this Agreement,
your employment shall be deemed to have been terminated following a change in
control of the Company by the Company without Cause or by you with Good Reason,
if (i) your employment is terminated by the Company without Cause prior to a
change in control of the Company (whether or not such a change in control ever
occurs) and such termination was at the request or direction of a "person" (as
hereinabove defined) who has entered into an agreement with the Company the
consummation of which would constitute a change in control of the Company, (ii)
you terminate your employment for
<PAGE> 30
Good Reason prior to a change in control of the Company (whether or not such a
change in control ever occurs) and the circumstance or event which constitutes
Good Reason occurs at the request or direction of such person, or (iii) your
employment is terminated by the Company without Cause or by you for Good Reason
and such termination or the circumstance or event which constitutes Good Reason
is otherwise in connection with or in anticipation of a change in control of the
Company (whether or not such a change in control ever occurs).
(i) Disability. If, as a result of your incapacity
due to physical or mental illness, you shall have been absent
from the full-time performance of your duties with the Company
for six (6) consecutive months, and within thirty (30) days
after written notice of termination is given you shall not
have returned to the full-time performance of your duties,
your employment may be terminated for "Disability".
(ii) Cause. Termination by the Company of your
employment for "Cause" shall mean termination upon (A) the
willful and continued failure by you to substantially perform
your duties with the Company (other than any such failure
resulting from your incapacity due to physical or mental
illness or any such actual or anticipated failure after the
issuance of a Notice of Termination by you for Good Reason, as
defined in Subsections 3(iv) and 3(iii), respectively) after a
written demand for substantial performance is delivered to you
by the Board, which demand specifically identifies the manner
in which the Board believes that you have not substantially
performed your duties, or (B) the willful engaging by you in
conduct which is demonstrably and materially injurious to the
Company, monetarily or otherwise. For purposes of this
Subsection, no act, or failure to act, on your part shall be
deemed "willful" unless done, or omitted to be done, by you
not in good faith and without reasonable belief that your
action or omission was in the best interest of the Company.
Notwithstanding the foregoing, you shall not be deemed to have
been terminated for Cause unless and until there shall have
been delivered to you a copy of a resolution duly adopted by
the affirmative vote of not less than three-quarters (3/4) of
the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice to
you and an opportunity for you, together with your counsel, to
be heard before the Board), finding that in the good faith
opinion of the Board you were guilty of conduct set forth
above in this Subsection and specifying the particulars
thereof in detail.
(iii) Good Reason. "Good Reason" for termination by
you of your employment shall mean the occurrence (without your
express written consent) after any change in control of the
Company, or prior to a change in control of the Company under
the circumstances described in the second sentence of Section
3 hereof (treating all references in paragraphs (A) through
(H) below to a "change in control of the Company" as
references to a "potential change in control of the Company"),
of any one of the following acts by the Company, or failures
by the Company to act:
(A) the assignment to you of any duties inconsistent (except
in the nature of a promotion) with the position in the Company that you
held immediately prior to the change in control of the Company or a
substantial adverse alteration in the nature or status of your position
or responsibilities or the conditions of your employment from those in
effect
<PAGE> 31
immediately prior to the change in control of the Company;
(B) a reduction by the Company in your annual base salary as
in effect on the date hereof or as the same may be increased from time
to time;
(C) the Company's requiring you to be based more than
twenty-five (25) miles from the Company's offices at which you were
principally employed immediately prior to the date of the change in
control of the Company except for required travel on the Company's
business to an extent substantially consistent with your present
business travel obligations;
(D) the failure by the Company to pay to you any portion of
your current compensation or compensation under any deferred
compensation program of the Company, within seven (7) days of the date
such compensation is due;
(E) the failure by the Company to continue in effect any
material compensation or benefit plan in which you participate
immediately prior to the change in control of the Company unless an
equitable arrangement (embodied in an ongoing substitute or alternative
plan) has been made with respect to such plan, or the failure by the
Company to continue your participation therein (or in such substitute
or alternative plan) on a basis not materially less favorable, both in
terms of the amount of benefits provided and the level of your
participation relative to other participants, than existed at the time
of the change in control;
(F) the failure by the Company to continue to provide you with
benefits substantially similar to those enjoyed by you under any of the
Company's pension, life insurance, medical, health and accident, or
disability plans in which you were participating at the time of the
change in control of the Company, the taking of any action by the
Company which would directly or indirectly materially reduce any of
such benefits or deprive you of any material fringe benefit enjoyed by
you at the time of the change in control of the Company, or the failure
by the Company to provide you with the number of paid vacation days to
which you are entitled on the basis of your years of service with the
Company in accordance with the Company's normal vacation policy in
effect at the time of the change in control of the Company;
(G) the failure of the Company to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 6 hereof; or
(H) any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the
requirements of Subsection (iv) below (and, if applicable, the
requirements of Subsection (ii) above), which purported termination
shall not be effective for purposes of this Agreement.
<PAGE> 32
Your right to terminate your employment pursuant to this Subsection shall not be
affected by your incapacity due to physical or mental illness. Your continued
employment shall not constitute consent to, or a waiver of rights with respect
to, any circumstance constituting Good Reason hereunder.
(iv) Notice of Termination. Any purported termination
of your employment by the Company or by you shall be
communicated by written Notice of Termination to the other
party hereto in accordance with Section 7 hereof. For purposes
of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision
in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to
provide a basis for termination of your employment under the
provision so indicated.
(v) Date of Termination, Etc. "Date of Termination"
shall mean (A) if your employment is terminated for
Disability, thirty (30) days after Notice of Termination is
given (provided that you shall not have returned to the
full-time performance of your duties during such thirty (30)
day period), and (B) if your employment is terminated pursuant
to Subsection (ii) or (iii) above or for any other reason
(other than Disability), the date specified in the Notice of
Termination (which, in the case of a termination pursuant to
Subsection (ii) above shall not be less than thirty (30) days,
and in the case of a termination pursuant to Subsection (iii)
above shall not be less than fifteen (15) nor more than sixty
(60) days, respectively, from the date such Notice of
Termination is given); provided that if within fifteen (15)
days after any Notice of Termination is given, or, if later,
prior to the Date of Termination (as determined without regard
to this proviso), the party receiving such Notice of
Termination notifies the other party that a dispute exists
concerning the termination, the Date of Termination shall be
the date on which the dispute is finally determined, either by
mutual written agreement of the parties or by a binding
arbitration award; and provided further that the Date of
Termination shall be extended by a notice of dispute only if
such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable
diligence. Notwithstanding the pendency of any such dispute,
the Company will continue to pay you your full compensation in
effect when the notice giving rise to the dispute was given
(including, but not limited to, base salary) and continue you
as a participant in all compensation, benefit and insurance
plans in which you were participating when the notice giving
rise to the dispute was given, until the dispute is finally
resolved in accordance with this Subsection. Amounts paid
under this Subsection are in addition to all other amounts due
under this Agreement and shall not be offset against or reduce
any other amounts due under this Agreement.
4. Compensation Upon Termination or During Disability. Following a
change in control of the Company, as defined by Subsection 2(i), or prior to a
change in control of the Company under the circumstances described in the second
sentence of Section 3 hereof, upon termination of your employment or during a
period of disability you shall be entitled to the following benefits:
(i) During any period that you fail to perform your
full-time duties with the
<PAGE> 33
Company as a result of incapacity due to physical or mental
illness, you shall continue to receive your base salary at the
rate in effect at the commencement of any such period,
together with all compensation payable to you under the
Company's disability plan or program or other similar plan
during such period, until this Agreement is terminated
pursuant to Section 3(i) hereof. Thereafter, or in the event
your employment shall be terminated by reason of your death,
your benefits shall be determined under the Company's
retirement, insurance and other compensation programs then in
effect in accordance with the terms of such programs.
(ii) If your employment shall be terminated by the
Company for Cause or by you other than for Good Reason, the
Company shall pay you your full base salary through the Date
of Termination at the rate in effect at the time Notice of
Termination is given, plus all other amounts to which you are
entitled under any compensation plan of the Company at the
time such payments are due, and the Company shall have no
further obligations to you under this Agreement.
(iii) If your employment by the Company terminates in
a manner entitling you to benefits under this Section pursuant
to Section 3 hereof, then you shall be entitled to the
benefits provided below:
(A) the Company shall pay you your full base salary through
the Date of Termination at the rate in effect at the time Notice of
Termination is given, plus all other amounts to which you are entitled
under any compensation plan of the Company, at the time such payments
are due, except as otherwise provided below;
(B) in lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Company shall pay as
severance pay to you a lump sum severance payment (together with the
payments provided in paragraphs (D), (E) and (F) below, the "Severance
Payments") equal to two (2) times the sum of (1) the greater of (a)
your annual rate of base salary in effect on the Date of Termination or
(b) your annual rate of base salary in effect immediately prior to the
change in control of the Company and (2) the greatest of (a) the
average of the last two annual bonuses (annualized in the case of any
bonus paid with respect to a partial year) paid to you preceding the
Date of Termination, (b) the average of the last two annual bonuses
(annualized in the case of any bonus paid with respect to a partial
year) paid to you preceding such change in control, (c) the most recent
annual bonus (annualized in the case of any bonus paid with respect to
a partial year) paid to you preceding the Date of Termination, or (d)
the most recent annual bonus (annualized in the case of any bonus paid
with respect to a partial year) paid to you preceding such change in
control, or (e) in the event that on the date of the change in control
of the the Company you have been employed by the Company for less than
two years and have not yet been considered for receipt of an annual
bonus, your annual incentive target award in effect immediately prior
to such change in control;
(C) the Company shall also pay to you, within five (5) days
after any such fees
<PAGE> 34
or expenses are incurred, all legal fees and expenses incurred by you
as a result of or in connection with such termination, including all
such fees and expenses, if any, incurred in contesting or disputing any
such termination or in seeking to obtain or enforce any right or
benefit provided by this Agreement (other than any such fees or
expenses incurred in connection with any such claim which is determined
by arbitration, in accordance with Section 11 of this Agreement, to be
frivolous) or in connection with any tax audit or proceeding to the
extent attributable to the application of section 4999 of the Code to
any payment or benefit provided hereunder;
(D) for a twenty-four (24) month period after such
termination, the Company shall arrange to provide you with life,
disability, accident and health insurance benefits substantially
similar to those which you are receiving immediately prior to the
Notice of Termination. Benefits otherwise receivable by you pursuant to
this Subsection 4(iii)(D) shall be reduced to the extent comparable
benefits are actually received by you from a subsequent employer during
the twenty-four (24) month period following your termination, and any
such benefits actually received by you shall be reported to the
Company;
(E) in addition to the retirement benefits to which you are
entitled under the Retirement Plan, any supplemental retirement or
excess benefit plan maintained by TECO or any of its subsidiaries or
any successor plans thereto (hereinafter collectively referred to as
the "Pension Plans"), the Company shall pay you in cash a lump sum
equal to the excess of (a) the actuarial equivalent (computed at your
date of termination) of the retirement pension (taking into account any
early retirement subsidies and post-retirement surviving spouse
benefits associated therewith and determined as an annuity payable in
the normal form under the Pension Plans commencing at your normal
retirement age under the Retirement Plan or any earlier date, but in no
event earlier than the second anniversary of the Date of Termination,
whichever annuity the actuarial equivalent of which is greatest) which
you would have accrued under the terms of the Pension Plans (without
regard to the limitations imposed by Section 401(a)(17) of the Internal
Revenue Code of 1986, as amended (the "Code"), or any amendment to the
Pension Plans made subsequent to a change in control of the Company and
on or prior to the Date of Termination, which amendment adversely
affects in any manner the computation of retirement benefits
thereunder), determined as if you were fully vested thereunder and had
continued to be a participant in each of the Pension Plans for
twenty-four (24) additional months and as if you had accumulated
twenty-four (24) additional months of compensation (for purposes of
determining your pension benefits thereunder), each in an amount equal
to the sum of the amounts determined under clauses (1) and (2) of
Section 4(iii)(B) hereof over (b) the actuarial equivalent (computed at
your date of termination) of the vested retirement pension (taking into
account any early retirement subsidies and post-retirement surviving
spouse benefits associated therewith and determined as an annuity
payable in the normal form under the Pension Plans commencing at your
normal retirement age under the Retirement Plan or any earlier date,
but in no event earlier than the Date of Termination, whichever annuity
the actuarial equivalent of which is greatest) which you had then
<PAGE> 35
accrued pursuant to the provisions of the Pension Plans. For purposes
of this Subsection, "actuarial equivalent" shall be determined using
the same actuarial assumptions utilized in determining the amount of
alternate forms of benefits under the Retirement Plan immediately prior
to the change in control of the Company; and
(F) should you move your residence in order to pursue other
business opportunities within one (1) year of the Date of Termination,
the Company will pay you, within five (5) days after any such expenses
are incurred, an amount equal to the expenses incurred by you in
connection with such relocation (including expenses incurred in selling
your home to the extent such expenses were customarily reimbursed by
the Company to transferred executives prior to the change in control of
the Company) and which are not reimbursed by another employer.
(iv) Except as otherwise specifically provided in
paragraph (C) and (F) thereof, the payments provided for in
Subsection (iii) shall be made not later than the fifth day
following the Date of Termination; provided, however, that if
the amounts of such payments cannot be finally determined on
or before such day, the Company shall pay to you on such day
an estimate, as determined in good faith by the Company, of
the minimum amount of such payments and shall pay the
remainder of such payments (together with interest at the rate
provided in section 1274(b)(2)(B) of the Code) as soon as the
amount thereof can be determined but in no event later than
the thirtieth day after the Date of Termination. In the event
that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall
constitute a loan by the Company to you payable on the fifth
day after demand therefor by the Company (together with
interest at the rate provided in section 1274(b)(2)(B) of the
Code).
(v) You shall not be required to mitigate the amount
of any payment provided for in this Section 4 by seeking other
employment or otherwise, nor, except as specifically provided
in Sections 4 (iii)(D) and (F) above, shall the amount of any
payment or benefit provided for in this Section 4 be reduced
by any compensation earned by you as the result of employment
by another employer, by retirement benefits, by offset against
any amount claimed to be owed by you to the Company, or
otherwise.
5. Limit on Severance Payments. In the event that any payment or
benefit received or to be received by you in connection with a change in control
of the Company or the termination of your employment (whether pursuant to the
terms of this Agreement or any other plan, arrangement or agreement with the
Company, any person whose actions result in a change in control or any person
affiliated with the Company or such person) (collectively with the Severance
Payments, "Total Payments") would not be deductible (in whole or part) as a
result of section 280G of the Code by the Company, an affiliate or other person
making such payment or providing such benefit the Severance Payments shall be
reduced until no portion of the Total Payments is not deductible, or the
Severance Payments are reduced to zero. For purposes of this limitation (a) no
portion of the Total Payments the receipt or enjoyment of which you shall have
effectively waived in writing prior to the date of payment of the Severance
Payments shall be taken into
<PAGE> 36
account, (b) no portion of the Total Payments shall be taken into account which
in the opinion of tax counsel selected by the Company's independent auditors and
acceptable to you does not constitute a "parachute payment" within the meaning
of section 280G(b)(2) of the Code, (c) the Severance Payments shall be reduced
only to the extent necessary so that the Total Payments (other than those
referred to in clauses (a) or (b)) in their entirety constitute reasonable
compensation for services actually rendered within the meaning of section
280G(b)(4) of the Code or are otherwise not subject to disallowance as
deductions, in the opinion of the tax counsel referred to in clause (b); and (d)
the value of any non-cash benefit or any deferred payment or benefit included in
the Total Payments shall be determined by the Company's independent auditors in
accordance with the principles of sections 280G(d)(3) and (4) of the Code.
6. Successors; Binding Agreement. (i) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle you to compensation from the
Company in the same amount and on the same terms as you would be entitled to
hereunder if you terminate your employment for Good Reason following a change in
control of the Company, except that for purposes of implementing the foregoing,
the date on which any such succession becomes effective shall be deemed the Date
of Termination. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
(ii) This Agreement shall inure to the benefit of and
be enforceable by your personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued
to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement
to your devisee, legatee or other designee or, if there is no
such designee, to your estate.
7. Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Board
with a copy to the Secretary of the Company, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notices of change of address shall be effective only upon receipt.
8. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by you
<PAGE> 37
and such officer as may be specifically designated by the Board. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Florida, without giving effect to the conflicts of law principles thereof. All
references to sections of the Exchange Act or the Code shall be deemed also to
refer to any successor provisions to such sections. Any payments provided for
hereunder shall be paid net of any applicable withholding required under
federal, state or local law. The obligations of the Company under Section 4
shall survive the expiration of the term of this Agreement.
9. Validity. The invalidity or unenforceability or any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
10. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
11. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration
conducted before a panel of three arbitrators in the State of Florida in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that you shall be entitled to seek specific
performance of your right to be paid until the Date of Termination during the
pendency of any dispute or controversy arising under or in connection with this
Agreement.
12. Entire Agreement. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and during
the term of the Agreement supersedes the provisions of all prior agreements,
promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or representative
of any party hereto with respect to the subject matter hereof.
13. Effective Date; Pooling. This Agreement shall become effective as
of the date set forth above. In the event that the Company is party to an
agreement with respect to a transaction that is intended to qualify for "pooling
of interests" accounting treatment, then (A) this Agreement shall, to the extent
practicable, be interpreted so as to permit such accounting treatment, and (B)
to the extent that the application of clause (A) of this Section 13 does not
preserve the availability of such accounting treatment, then the Company shall
have the unilateral right to amend this Agreement to the extent necessary to
enable the Company's accountants to issue a "pooling" opinion with respect to
such transaction, and any such amendment shall be effective as of the date
hereof.
<PAGE> 38
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our agreement on this subject.
Sincerely,
TECO Energy, Inc.
By /s/
-------------------------------------
Name: Roger A. Dunn
Title: Vice President-Human Resources
Agreed to this _______ day
of __________________, 2000.
____________________________
Signature
<PAGE> 1
EXHIBIT 12
TECO ENERGY, INC.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the company's ratio of earnings to fixed
charges for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ----- -----
<S> <C> <C> <C> <C>
3.25x(1) 3.67x(2) 3.77x(3) 3.72x 3.50x
</TABLE>
For the purposes of calculating these ratios, earnings consist of
income from continuing operations before income taxes and fixed charges. Fixed
charges consist of interest on indebtedness, amortization of debt premium, the
interest component of rentals and preferred stock dividend requirements.
(1) Includes the effect of non-recurring pretax charges totaling $21.0 million
recorded at Tampa Electric, TECO Investments and TECO Energy. The effect of
these charges was to reduce the ratio of earnings to fixed charges. Had
these charges been excluded from the calculation, the ratio of earnings to
fixed charges would have been 3.60x for the year ended Dec. 31, 1999.
(2) Includes the effect of non-recurring pretax charges totaling $30.5 million
associated with write-offs at TECO Coal and Tampa Electric, and $.6 million
pretax of merger-related costs. The effect of these charges was to reduce
the ratio of earnings to fixed charges. Had these charges been excluded from
the calculation, the ratio of earnings to fixed charges would have been
3.95x for the year ended Dec. 31, 1998.
(3) Includes a $2.6-million pretax charge for all transactions associated with
the mergers completed in June 1997. The effect of this charge was to reduce
the ratio of earnings to fixed charges. Had this charge been excluded from
the calculation, the ratio of earnings to fixed charges would have been
3.79x for the year ended Dec. 31, 1997.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
All of the following subsidiaries of TECO Energy, Inc., are organized under the
laws of Florida except as indicated. The following list omits certain
subsidiaries pursuant to paragraph (b)(21)(ii) of Regulation S-K Item 601.
Tampa Electric Company
Power Engineering & Construction, Inc.
TECO Diversified, Inc.
TECO Transport Corporation
Electro-Coal Transfer Corporation (a Louisiana corporation)
GC Services Company, Inc.
Gulfcoast Transit Company
Mid-South Towing Company
TECO Towing Company
TECO Coal Corporation (a Kentucky corporation) Gatliff Coal Company (a
Kentucky corporation) Rich Mountain Coal Company (a Tennessee
corporation) Clintwood Elkhorn Mining Company (a Kentucky
corporation) Pike-Letcher Land Company (a Kentucky corporation)
Premier Elkhorn Coal Company (a Kentucky corporation)
TECO Properties Corporation
TECO Coalbed Methane, Inc. (an Alabama corporation)
TECO Finance, Inc.
TECO Investments, Inc.
TECO Power Services Corporation
Hardee Power I, Inc.
Hardee Power II, Inc.
Hardee Power Partners, Ltd.
TPS Guatemala One, Inc.
Tampa Centro Americana de Electricidad, Limitada
(a Guatemalan Limited Liability Company)
TPS Operations Company
TPS Hamakua, Inc.
TPS Hawaii, Inc.
Hamakua Energy Partners, L.P. (a Hawaiian Limited Partnership)
TPS Hamakua Land, Inc.
TPS International Power, Inc.(a Cayman Islands Limited Liability Company)
TPS de Ultramar, Ltd. (a Cayman Islands company)
TPS de Ultramar Guatemala, S.A. (a Guatemalan Company)
TPS San Jose International, Inc. (a Cayman Islands Company)
Bosek, Gibson and Associates, Inc.
Peoples Gas Company
Suwanee Gas Marketing, Inc.
TECO Gas Services, Inc.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (File Nos. 33-43512 and 333-60819) and on Form S-8 (File
Nos. 33-35927, 33-40076, 33-5465, 2-71457, 333-02563 and 333-25563) of TECO
Energy, Inc. of our report dated Jan. 14, 2000, except for the information in
Note O, for which the dates are Jan. 25, 2000 and Feb. 11, 2000 relating to the
financial statements and financial statement schedule, which appears in this
Form 10-K.
PricewaterhouseCoopers LLP
Tampa, Florida
March 29, 2000
<PAGE> 1
Exhibit 24.1
TECO ENERGY, INC.
POWER OF ATTORNEY
WHEREAS, the Board of Directors of TECO Energy, Inc., a Florida
corporation, at a meeting held on January 19, 2000, authorized the officers and
Directors of the Corporation to execute an Annual Report on Form 10-K and
authorized the officers of the Corporation to file said Annual Report with the
Securities and Exchange Commission under the Securities Exchange Act of 1934 as
amended.
NOW, THEREFORE, each of the undersigned in his capacity as a Director
or officer or both, as the case may be, of said Corporation, does hereby appoint
R. D. Fagan, G. L. Gillette, and D. E. Schwartz, and each of them, severally,
his true and lawful attorneys or attorney to execute in his name, place and
stead, in his capacity as Director or officer or both, as the case may be, of
said Corporation, said Annual Report and any and all amendments thereto and all
instruments necessary or incidental in connection therewith, and to file the
same with the Securities and Exchange Commission. Each of said attorneys has the
power to act hereunder with or without the other of said attorneys and shall
have full power of substitution and resubstitution. Each of said attorneys shall
have full power and authority to do and perform in the name and on behalf of
each of the undersigned, in any and all capacities, every act whatsoever
requisite or necessary to be done in the premises, as fully and to all intents
and purposes as each of the undersigned might or could do in person, and each of
the undersigned hereby ratifies and approves the acts of said attorneys and each
of them.
IN TESTIMONY WHEREOF, the undersigned have executed this instrument on
the dates set forth below.
<TABLE>
<S> <C>
/s/ R. D. Fagan January 19, 2000
- -----------------------------------------------
R. D. FAGAN, CHAIRMAN OF THE BOARD,
PRESIDENT, DIRECTOR AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
/s/ G. L. Gillette January 19, 2000
- -----------------------------------------------
G. L. GILLETTE, VICE PRESIDENT-FINANCE
AND CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
/s/ W. L. Griffin January 21, 2000
- -----------------------------------------------
W. L. GRIFFIN, VICE PRESIDENT-CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
/s/ C. D. Ausley January 19, 2000
- -----------------------------------------------
C. D. AUSLEY, DIRECTOR
/s/ S. L. Baldwin January 19, 2000
- -----------------------------------------------
S. L. BALDWIN, DIRECTOR
/s/ H. L. Culbreath January 19, 2000
- -----------------------------------------------
H. L. CULBREATH, DIRECTOR
/s/ J. L. Ferman, Jr. January 19, 2000
- -----------------------------------------------
J. L. FERMAN, JR., DIRECTOR
/s/ E. L. Flom January 19, 2000
- -----------------------------------------------
E. L. FLOM, DIRECTOR
/s/ L. Guinot, Jr. January 19, 2000
- -----------------------------------------------
L. GUINOT, JR., DIRECTOR
/s/ T. L. Rankin January 19, 2000
- -----------------------------------------------
T. L. RANKIN, DIRECTOR
/s/ W. P. Sovey January 19, 2000
- -----------------------------------------------
W. P. SOVEY, DIRECTOR
</TABLE>
<PAGE> 2
Exhibit 24.1
<TABLE>
<S> <C>
/s/ J. T. Touchton January 19,2000
- -----------------------------------------------
J. T. TOUCHTON, DIRECTOR
/s/ J. A. Urquhart January 19,2000
- -----------------------------------------------
J. A. URQUHART, DIRECTOR
/s/ J. O. Welch, Jr. January 19,2000
- -----------------------------------------------
J. O. WELCH, JR., DIRECTOR
</TABLE>
<PAGE> 1
Exhibit 24.2
TECO ENERGY, INC.
TRANSCRIPT FROM RECORDS OF BOARD OF DIRECTORS
JANUARY 19, 2000
********************************************************************************
RESOLVED, that the preparation and filing with the Securities
and Exchange Commission of an Annual Report on Form 10-K pursuant to
the Securities Exchange Act of 1934, as amended, including any required
exhibits and amendments thereto and containing the information required
by such form and any additional information as the officers of the
Corporation, with the advice of counsel, deem necessary, advisable or
appropriate (the "10-K"), are hereby authorized and approved; that the
Chief Executive Officer, the President and any Vice President of the
Corporation be, and each of them acting singly hereby is, authorized
for and in the name and on behalf of the Corporation to execute the
10-K and cause it to be filed with the Securities and Exchange
Commission; and that the officers referred to above be, and each of
them hereby is, authorized to execute the 10-K through or by R. D.
Fagan, G. L. Gillette or D. E. Schwartz, or any of them, as duly
authorized attorneys pursuant to a Power of Attorney in such form as
shall be approved by the Corporation's general counsel.
********************************************************************************
I, D. E. Schwartz, hereby certify that I am Secretary of TECO Energy,
Inc., a Florida corporation (the "Corporation"), and set forth above is a true
and correct copy of a certain resolution from the minutes of the meeting of the
Board of Directors of the Corporation convened and held on January 19, 2000, at
which meeting a quorum for the transaction of business was present and acting
throughout.
I further certify that the resolution set forth above have not been
altered, amended or rescinded and that the same is now in full force and effect.
EXECUTED this 24th day of March, 2000.
/s/ D. E. SCHWARTZ
--------------------------------
SECRETARY
TECO ENERGY, INC.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TECO
ENERGY, INC. CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME AND
CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000350563
<NAME> TECO ENERGY, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,135
<OTHER-PROPERTY-AND-INVEST> 492
<TOTAL-CURRENT-ASSETS> 532
<TOTAL-DEFERRED-CHARGES> 310
<OTHER-ASSETS> 221
<TOTAL-ASSETS> 4,690
<COMMON> 127
<CAPITAL-SURPLUS-PAID-IN> 260
<RETAINED-EARNINGS> 1,086
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,473
0
0
<LONG-TERM-DEBT-NET> 1,178
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 814
<LONG-TERM-DEBT-CURRENT-PORT> 154
0
<CAPITAL-LEASE-OBLIGATIONS> 31
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,040
<TOT-CAPITALIZATION-AND-LIAB> 4,690
<GROSS-OPERATING-REVENUE> 1,983<F1>
<INCOME-TAX-EXPENSE> 87
<OTHER-OPERATING-EXPENSES> 1,559
<TOTAL-OPERATING-EXPENSES> 1,559
<OPERATING-INCOME-LOSS> 424<F2>
<OTHER-INCOME-NET> (12)<F3>
<INCOME-BEFORE-INTEREST-EXPEN> 412
<TOTAL-INTEREST-EXPENSE> 124<F4>
<NET-INCOME> 186<F5>
0
<EARNINGS-AVAILABLE-FOR-COMM> 186<F5>
<COMMON-STOCK-DIVIDENDS> 169
<TOTAL-INTEREST-ON-BONDS> 46
<CASH-FLOW-OPERATIONS> 382
<EPS-BASIC> 1.42<F6>
<EPS-DILUTED> 1.42<F6>
<FN>
<F1>Revenues from continuing operations are after $11.9 million of deferred
revenues at Tampa Electric Company, and include a $7.9 million pretax benefit
of deferred revenues recognized related to the charge for tax settlements under
the then current regulatory agreement. Discontinued operations had no revenues
for the period.
<F2>From continuing operations. Includes a $7.9 million pretax benefit of
deferred revenues recognized related to the charge for tax settlements under the
then current regulatory agreement.
<F3>Other income includes $20 million to recognized certain charges that were
unusual and nonrecurring in nature.
<F4>Interest expense includes $9 million of interest expense related to certain
income tax settlements that were unusual and nonrecurring in nature.
<F5>Net income includes a $2.5 million loss after tax from discontinued
operations, $12.3 million on the disposal of discontinued operations and $21.1
million after tax of certain charges that were unusual and nonrecurring in
nature.
<F6>EPS includes a 2-cent per share loss from discontinued operations, an
11-cent per share loss on the disposal of discontinued operations and a 15-cent
per share charge from charges that were unusual and non-recurring in nature.
</FN>
</TABLE>
