SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Amendment No. 1
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-5007
TAMPA ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
FLORIDA 59-0475140
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
702 North Franklin Street, Tampa, Florida 33602
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (813) 228-4111
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
Number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date (October 31, 1999):
Common Stock, Without Par Value 10
The registrant meets the conditions set forth in General Instruction
(H)(1)(a) and (b) of Form 10-Q and is therefore filing this form with the
reduced disclosure format.
FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
In the opinion of management, the unaudited condensed financial
statements include all adjustments necessary to present fairly the
results for the three- and nine-month periods ended Sept. 30, 1999 and
1998. Reference should be made to the explanatory notes affecting the
income and balance sheet accounts contained in Tampa Electric
Company's Annual Report on Form 10-K for the year ended Dec. 31, 1998
and to the notes on pages 7 through 11 of this report.
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FORM 10-Q
BALANCE SHEETS
(in millions)
Sept. 30, Dec. 31,
1999 1998
unaudited Audited
Assets
Property, plant and equipment,
at original cost
Utility plant in service
Electric $3,783.7 $3,742.6
Gas 571.4 518.5
Construction work in progress 139.1 71.5
4,494.2 4,332.6
Accumulated depreciation (1,796.7) (1,722.2)
2,697.5 2,610.4
Other property 7.8 8.1
2,705.3 2,618.5
Current assets
Cash and cash equivalents (1.3) .8
Receivables, less allowance
for uncollectibles 174.0 142.8
Inventories, at average cost
Fuel 69.8 87.3
Materials and supplies 49.1 45.5
Prepayments 10.4 8.4
302.0 284.8
Deferred debits
Unamortized debt expense 14.7 16.1
Deferred income taxes 119.8 116.1
Regulatory asset - tax related 37.2 39.0
Other 74.7 72.0
246.4 243.2
$3,253.7 $3,146.5
Liabilities and Capital
Capital
Common stock $1,038.1 $1,026.1
Retained earnings 312.6 288.5
1,350.7 1,314.6
Long-term debt, less amount due
within one year 770.3 774.5
2,121.0 2,089.1
Current liabilities
Long-term debt due within one year 4.8 4.6
Notes payable 123.1 79.7
Accounts payable 161.9 189.1
Customer deposits 78.9 77.5
Interest accrued 22.4 8.8
Taxes accrued 75.9 8.8
467.0 368.5
Deferred credits
Deferred income taxes 444.2 447.6
Investment tax credits 41.6 45.1
Regulatory liability - tax related 70.1 73.0
Other 109.8 123.2
665.7 688.9
$3,253.7 $3,146.5
The accompanying notes are an integral part of the financial statements.
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FORM 10-Q
STATEMENTS OF INCOME
unaudited
(in millions)
For the three months ended Sept. 30, 1999 1998
Operating revenues
Electric $366.2 $353.7
Gas 57.2 49.6
423.4 403.3
Operating expenses
Operation
Fuel - electric generation 89.7 100.7
Purchased power 48.2 29.5
Natural gas sold 26.3 21.9
Other 54.2 58.7
Maintenance 21.3 22.0
Depreciation 42.7 42.3
Taxes, federal and state income 28.1 31.1
Taxes, other than income 30.0 30.4
340.5 336.6
Operating income 82.9 66.7
Other income (expense) (9.3) .3
Income before interest charges 73.6 67.0
Interest charges
Interest on long-term debt 12.8 12.7
Other interest 15.4 2.5
28.2 15.2
Net Income-balance applicable to
common stock $ 45.4 $ 51.8
The accompanying notes are an integral part of the financial statements.
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FORM 10-Q
STATEMENTS OF INCOME
unaudited
(in millions)
For the nine months ended Sept. 30, 1999 1998
Operating revenues
Electric $ 931.2 $ 948.0
Gas 185.1 188.2
1,116.3 1,136.2
Operating expenses
Operation
Fuel - electric generation 227.2 284.5
Purchased power 109.8 63.8
Natural gas sold 79.0 86.2
Other 159.7 164.0
Maintenance 65.3 68.4
Non-recurring charge -- 9.6
Depreciation 127.2 125.3
Taxes, federal and state income 70.9 72.3
Taxes, other than income 90.5 89.7
929.6 963.8
Operating income 186.7 172.4
Other income (expense) (8.8) (2.3)
Income before interest charges 177.9 170.1
Interest charges
Interest on long-term debt 38.5 37.4
Other interest 21.2 10.7
59.7 48.1
Net Income-balance applicable to
common stock $ 118.2 $ 122.0
The accompanying notes are an integral part of the financial statements.
5
FORM 10-Q
STATEMENTS OF CASH FLOWS
unaudited
(in millions)
For the nine months ended Sept. 30, 1999 1998
Cash flows from operating activities
Net income $ 118.2 $ 122.0
Adjustments to reconcile net income
to net cash:
Depreciation 127.2 125.3
Deferred income taxes (8.3) 19.3
Investment tax credits, net (3.4) (3.5)
Allowance for funds used
during construction (.8) (.2)
Deferred recovery clause (29.7) 13.4
Deferred revenue 9.0 (31.7)
Non-recurring charge, pretax 14.8 9.6
Receivables, less allowance
for uncollectibles (31.2) (7.8)
Inventories 13.9 (1.3)
Taxes accrued 67.1 45.6
Accounts payable (37.2) 2.3
Other 14.8 26.5
254.4 319.5
Cash flows from investing activities
Capital expenditures (214.8) (141.6)
Allowance for funds used during construction .8 .2
(214.0) (141.4)
Cash flows from financing activities
Proceeds from contributed capital from parent 12.0 44.0
Proceeds from long-term debt -- 51.2
Repayment of long-term debt (3.8) (3.4)
Net increase (decrease) in short-term debt 43.4 (181.7)
Dividends (94.1) (90.1)
(42.5) (180.0)
Net increase (decrease) in cash
and cash equivalents (2.1) (1.9)
Cash and cash equivalents at
beginning of period .8 2.8
Cash and cash equivalents at end of period $ (1.3) $ .9
The accompanying notes are an integral part of the financial statements.
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FORM 10-Q
NOTES TO FINANCIAL STATEMENTS
A. Tampa Electric Company is a wholly owned subsidiary of TECO
Energy, Inc.
B. The company has made certain commitments in connection with its
continuing construction program. Total construction expenditures
during 1999 are estimated to be $228 million for its electric division
(referred to as Tampa Electric) and $75 million for its gas division
(referred to as Peoples Gas System).
C. Revenues reflected the reversal of $2.8 million of revenues
previously deferred for future refund to customers in the three-month
period ended Sept. 30, 1999, and the deferral for refund to customers
of $1.1 million in the nine-month period ended Sept. 30, 1999 at Tampa
Electric under its current regulatory agreement. Revenues for the
t h r ee- and nine-month periods ended Sept. 30, 1998 included
recognition of $11.8 million and $31.7 million, respectively, of
previously deferred revenues, which were partially offset by a
stipulated temporary base rate reduction totaling $6.1 million and
$15.6 million, in the same three-and nine-month periods ended in 1998.
In accordance with the agreement, the temporary base rate reduction
and recognition of previously deferred revenues ended in December
1998.
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FORM 10-Q
D. In the third quarter of 1999, the company recognized $10.2
million of after-tax one-time charges at the electric division. A
$6.4 million after-tax charge was recorded based on recent regulatory
decisions by the Florida Public Service Commission (FPSC) for audits
of the company s 1997 and 1998 earnings which, among other things
limited its equity ratio to 58.7 percent, a decrease of 91 basis
points and 224 basis points from 1997 s and 1998 s ratios,
respectively. The Florida Industrial Power Users Group (FIPUG) has
filed a petition with the FPSC protesting the decisions for both 1997
and 1998. Tampa Electric responded to FIPUG s protest by filing its
own protest of the FPSC s equity ratio decision. The company expects
the FPSC staff to provide a schedule for hearing dates for the
protests soon. The company also recorded a one-time after-tax charge
of $3.8 million reflecting corporate income tax provisions and
settlements related to prior years tax returns.
As discussed in its Annual Report on Form 10-K for the year ended
Dec. 31, 1998, in the first quarter of 1998, the company recognized a
$5.9-million after-tax charge at the electric division associated with
ongoing actions to mitigate the effects of a 1997 FPSC ruling.
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FORM 10-Q
E. Contributions by operating division
(millions)
Operating Net
Revenues Income Income
Three months ended Sept. 30, 1999
Electric division(1)(2)(4) $ 358.3 $ 65.5 $ 53.0
Peoples Gas System(3) 57.2 4.9 2.6
415.5 70.4 55.6
One-time charges (5) 7.9 12.5 (10.2)
Tampa Electric Company $ 423.4 $ 82.9 $ 45.4
Three months ended Sept. 30, 1998
Electric division(1)(2) $ 353.7 $ 63.8 $ 51.3
Peoples Gas System(3) 49.6 2.9 .5
Tampa Electric Company $ 403.3 $ 66.7 $ 51.8
Nine months ended Sept. 30, 1999
Electric division(1)(2)(4) $ 923.3 $ 153.1 $ 115.1
Peoples Gas System(3) 185.1 21.1 13.3
1,108.4 174.2 128.4
One-time charges (5) 7.9 12.5 (10.2)
Tampa Electric Company $1,116.3 $ 186.7 $ 118.2
Nine months ended Sept. 30, 1998
Electric division(1)(2)(4) $ 948.0 $ 161.1 $ 118.5
Peoples Gas System(3) 188.2 17.2 9.4
1,136.2 178.3 127.9
One-time charges (5) -- (5.9) (5.9)
Tampa Electric Company $1,136.2 $ 172.4 $ 122.0
(1) Operating income is net of income tax expense of $26.7 million and
$62.3 million, respectively, for the three- and nine-months ended
Sept. 30, 1999, and $30.8 million and $66.2 million, respectively,
for the three- and nine-months ended Sept. 30, 1998.
(2) The electric division revenues reflect the reversal of $2.8 million
of previous deferrals for refund to customers for the three-month
period ended Sept. 30, 1999, and deferral of $1.1 million for the
nine-months ended Sept. 30, 1999. The electric division recognized
revenues previously deferred of $11.8 million and $31.7 million,
respectively, for the three- and nine-months ended Sept. 30, 1998.
See Note C on page 7.
(3) Operating income is net of income tax expense of $1.5 million and
$8.6 million, respectively, for the three- and nine-months ended
Sept. 30, 1999, and $.3 million and $6.1 million, respectively, for
the three- and nine-months ended Sept. 30, 1998.
(4) Operating income and net income exclude the after-tax impact of
one-time charges discussed in Note D on pages 7 and 8.
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FORM 10-Q
(5) After-tax one-time charges for the three- and nine- months ended
Sept. 30, 1999 totaled $10.2 million as discussed in Note D on
pages 7 and 8. The $3.8 million of corporate income tax
settlements and provisions included a $7.9 million benefit to
revenues.
F. A s p reviously reported, the United States Environmental
Protection Agency (EPA) has been conducting an investigation under the
Clean Air Act of coal-fired electric power generators to determine
compliance with environmental permitting requirements associated with
repairs, maintenance, modifications and changes in operation made to
facilities that were in commercial operation prior to 1977 and were
"grandfathered" with respect to such requirements. The investigation
has focused on whether new source review and performance standards
should be applied to the modifications and changes and whether the
best available control technology was or should have been used. On
Nov. 3, 1999, the EPA issued a notice of violation to Tampa Electric
Company and several other electric utilities around the country and
caused a civil action to be filed against each of these utilities in
federal court. The notice of violation and the complaint in the civil
action both allege 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. The complaint seeks (i) to require Tampa Electric to install
additional control technology at the Big Bend and Gannon plants, (ii)
reimbursement of legal fees and (iii) penalties of up to $27,500 per
day for each alleged violation. The installation of such control
technology would involve significant capital expenditures.
Notwithstanding the EPA's allegations, Tampa Electric continues
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FORM 10-Q
to believe that it has repaired, maintained, modified and operated its
facilities in compliance with all applicable environmental
requirements. Tampa Electric has been in discussions with the EPA for
several months and expects to continue these discussions in an effort
to resolve the matter. The outcome of the civil and administrative
actions and the discussions with the EPA and the approach to
addressing the issues raised by the EPA are uncertain at this time.
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FORM 10-Q
Item 2. Management's Narrative Analysis of Results of Operations
This Quarterly Report on Form 10-Q 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 include the following: general
economic conditions, particularly those in Tampa Electric's service
area affecting energy sales; weather variations affecting energy sales
and operating costs; potential competitive changes in the electric and
gas industries, particularly in the area of retail competition;
regulatory actions affecting Tampa Electric and Peoples Gas System;
commodity price changes affecting the competitive positions of Tampa
Electric and Peoples Gas System; and changes in and compliance with
environmental regulations that may impose additional costs or curtail
some activities, including possible mitigation actions relating to
pending EPA proceedings. These factors are discussed more fully under
"Investment Considerations" in TECO Energy's Annual Report on Form 10-
K for the year ended Dec. 31, 1998, and reference is made thereto.
Results of Operations
Three months ended Sept. 30, 1999:
Tampa Electric Company's third quarter net income was $45.4
million, or $55.6 million excluding the impact of one-time charges,
compared to $51.8 million for the same period in 1998. Operating
income was $82.9 million, or $70.4 million excluding the impact of
one-time charges, compared to $66.7 million for the same period in
1998. One-time after-tax charges totaling $10.2 million were recorded
in the third quarter of 1999 and are discussed in Note D on page 8.
Electric division operating results
Tampa Electric reported third quarter operating income,
excluding one-time charges, of $65.5 million on revenues of $358.3
m i l l i o n, compared with $63.8 million with $353.7 million,
respectively, for the same period last year. The company showed
improved results as a result of base revenue growth and effective cost
control. In addition, as discussed in Note C on page 7, quarterly
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FORM 10-Q
revenue comparisons reflect recognition of $11.8 million of previously
deferred revenues in 1998 (partially offset by a temporary base rate
reduction of $6.1 million) that were not available in 1999 under the
current regulatory agreement. The current year revenues reflect the
reversal of $2.8 million of previous deferrals for refund to customer
for the three-months ended Sept. 30, and deferral of $1.1 million for
the nine-months ended Sept. 30, 1999. Customer growth remained strong
at 2.4 percent for the quarter, enabling revenues to increase from
last year despite the recognition of deferred revenues in 1998.
Peoples Gas System operating results
Peoples Gas System reported operating income of $4.9 million and
revenues of $57.2 million for the quarter compared with operating
income of $2.9 million and revenues of $49.6 million for the same
period last year. Quarterly results reflect increased sales volumes
and strong customer growth of 3.9 percent. Operations and maintenance
expenses were lower in 1999 due to cost reductions from last year's
restructuring.
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FORM 10-Q
Other Income (Expense)
In the third quarter of 1999, Tampa Electric recorded a $6.4
million after-tax charge ($10.0 million to Other Income and Expense)
related to its 1997 and 1998 earnings as previously discussed in Note
D on page 8. This charge was the result of an FPSC audit of those
years which limited the electric utility s equity ratio to 58.7
percent. No such charges were recognized in the 1998 period. The
Florida Industrial Power Users Group (FIPUG) has filed a petition with
the FPSC protesting the decisions for both 1997 and 1998. Tampa
Electric responded to FIPUG s protest by filing its own protest of the
FPSC s equity ratio decision. The company expects the FPSC staff to
provide a schedule for hearing dates for the protests soon.
Interest Charges
As discussed in Note D on pages 7 and 8, Tampa Electric recorded
in the third quarter of 1999, a one-time charge for corporate income
tax provisions and settlements. This charge included $12.2 million of
interest expense.
Nine months ended Sept. 30, 1999:
Tampa Electric Company's year-to-date net income, excluding one-
time charges, of $128.4 million for the first nine months of 1999
improved slightly over 1998 s results of $127.9 million excluding one-
time charges. The results reflect improvements at Peoples Gas System
partially offset by the lack of previously deferred revenues available
for recognition in 1999 under the current regulatory agreement and
lower off system sales at Tampa Electric.
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FORM 10-Q
Operating income of $174.2 million was up 1 percent from that of
the same period in 1998 excluding the impact of one-time charges
reflecting the same factors described above.
Electric division operating results
Tampa Electric's year-to-date operating income, excluding one-
time charges discussed in Note D on page 8, was $153.1 million,
compared with $161.1 million last year. Revenues were $923.3 million
compared with $948.0 million last year; 1998 revenues included
r e cognition of previously deferred revenues of $31.7 million,
partially offset by a temporary base rate reduction of $15.6 million.
Off-system sales were lower this year, primarily as a result of warmer
winter weather in the first quarter compared to 1998. Wholesale and
contract sales volumes were down from last year due to the scheduled
expiration of some contract sales.
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 Unit Six, the 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 have returned to service.
Total replacement purchased power and fuel expenses at a cost
estimated at $5 million are expected to be recovered through Tampa
Electric s fuel and purchased power clause, with little impact on
customer rates. Although the financial impact to Tampa Electric has
not been fully determined, the costs resulting from the accident are
expected to be substantially covered by insurance. The impact on
current year operation and maintenance expenses is estimated to be $1-
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FORM 10-Q
2 million. The U.S. Occupational Safety and Health Administration
(OSHA) recently concluded its safety investigation at the Gannon
Station. OSHA found no willful violations, and the company agreed not
to contest OSHA s citations. The company 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
Year-to-date results at Peoples Gas System were 23 percent higher
with operating income of $21.1 million compared with $17.2 million
last year. Mild winter weather partially offset by customer growth of
3.2 percent led to lower year-to-date revenues of $185.1 million in
1999 compared with $188.2 million last year. Operating expenses were
lower in 1999, the result of last year's restructuring.
Other Income (Expense)
During 1999, Tampa Electric recorded a one-time after-tax charge
of $6.4 million ($10.0 million to Other Income and Expense) related to
its 1997 and 1998 earnings. This charge was the result of an FPSC
audit and decisions of those years which limited its equity ratio to
58.7 percent. During 1998, Tampa Electric recorded $1.1 million of
after-tax charges in Other Income (Expense). These 1998 charges
related to an FPSC decision on 1996 earnings.
Interest Charges
As discussed in Note D on page 8, Tampa Electric recorded a one-
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FORM 10-Q
time charge for corporate income tax provisions and settlements. This
charge included $12.2 million of interest expenses in the nine-months
ended Sept. 30, 1999.
Liquidity, Capital Resources and Changes in Financial Condition Recent
Developments
A s p reviously reported, the United States Environmental
Protection Agency (EPA) has been conducting an investigation under the
Clean Air Act of coal-fired electric power generators to determine
compliance with environmental permitting requirements associated with
repairs, maintenance, modifications and changes in operation made to
facilities that were in commercial operation prior to 1977 and were
"grandfathered" with respect to such requirements. The investigation
has focused on whether new source review and performance standards
should be applied to the modifications and changes and whether the
best available control technology was or should have been used. On
Nov. 3, 1999, the EPA issued a notice of violation to Tampa Electric
Company and several other electric utilities around the country and
caused a civil action to be filed against each of these utilities in
federal court. The notice of violation and the complaint in the civil
action both allege 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. The complaint seeks (i) to require Tampa Electric to install
additional control technology at the Big Bend and Gannon plants, (ii)
reimbursement of legal fees and (iii) penalties of up to $27,500 per
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FORM 10-Q
day for each alleged violation. The installation of such control
technology would involve significant capital expenditures.
Notwithstanding the EPA's allegations, Tampa Electric continues
to believe that it has repaired, maintained, modified and operated its
facilities in compliance with all applicable environmental
requirements. Tampa Electric has been in discussions with the EPA for
several months and expects to continue these discussions in an effort
to resolve the matter. The outcome of the civil and administrative
actions and the discussions with the EPA and the approach to
addressing the issues raised by the EPA are uncertain at this time.
Year 2000 Computer Systems Readiness:
Background
There is a global awareness that many computer programs use only
two digits to refer to a year and, therefore, may not correctly
recognize and process date information beyond the year 1999. This is
referred to as the "Year 2000" issue.
The Year 2000 issue relates to two primary areas of Tampa
Electric's operations: the critical business systems (such as the
financial reporting, procurement, payroll and customer information and
billing systems) and the control systems (such as those used in the
operation of electric generation and transmission facilities and gas
and electric distribution facilities).
The company began work on Year 2000 readiness in August 1995. The
project has been segmented into the following phases: awareness,
inventory, assessment, renovation, testing and contingency planning.
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FORM 10-Q
Readiness
The company has completed its assessment of all hardware,
software and embedded systems and has substantially completed its
renovation, testing and contingency planning efforts. The company s
critical systems, (those required for reliable operations) are now
believed to be ready for the Year 2000, i.e. renovated and tested to
the extent necessary. Set forth below is a description of readiness
by functional area.
Critical Business Systems
Critical business systems, including mainframe hardware which was
replaced in 1998, have been renovated and tested and are believed to
be ready for the Year 2000. To assist in assuring readiness, the
renovation work and the integrated system testing were handled by
separate outside consulting firms.
Control Systems
T h e c ompany believes that its electric generation and
transmission systems, and the electric and gas distribution systems,
including energy management and control and related embedded systems,
are now ready for the Year 2000. The company retained industry
specialty firms to assist in identifying areas where renovations were
needed in the embedded systems associated with generator unit controls
and with making these renovations. A number of tests have been
successfully completed on these systems, including future date
scenarios.
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FORM 10-Q
Coordination with Others
The company has surveyed its largest suppliers and customers with
respect to their Year 2000 readiness, including all providers of
technology supplies and services. As part of its Year 2000 project,
the company is coordinating with its suppliers and customers based on
their responses to these surveys. At the request of the U. S.
Department of Energy (DOE), the North American Electric Reliability
Council (NERC) coordinated monthly readiness monitoring and reporting,
information sharing and contingency planning for the industry. The
NERC activity addresses all aspects of the interconnected electric
grid. The aggregated results are being reported to the DOE and other
regulatory bodies in the U.S., Canada and Mexico. The Natural Gas
Council, through the American Gas Association, coordinated similar
processes within the gas industry, reporting to the Federal Energy
Regulatory Commission (FERC). Tampa Electric and Peoples Gas System
are active participants in these industry groups.
Costs
The total cost of Year 2000 remediation is expected to be
a p proximately $9 million, which includes contracted resources,
purchases and internal labor. An estimated breakdown of project costs
is as follows: Tampa Electric - $6.5 million and Peoples Gas System -
$2.5 million. Approximately 40 percent of these costs are attributable
t o testing expenses, and the remainder consists primarily of
renovation or replacement costs. Through September 30, 1999,
approximately $8.5 million had been spent.
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FORM 10-Q
Risks
The company believes the most reasonably likely worst case
scenario would be the occurrence of isolated outages of limited
duration for customers. The company has assessed the risk of this
scenario, and believes that its contingency efforts, primarily the
ability to bypass automated controls, would mitigate the effect of
such a scenario.
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FORM 10-Q
Contingency Plans
Tampa Electric and Peoples Gas System have prepared contingency
plans for critical functions. These plans have been filed with the
F P SC and are being coordinated with local emergency planning
organizations. The plans provide for an incident management center;
designated on-site and on-call response teams for critical systems and
customer communication functions; appropriate inventory of critical
materials and supplies; verification of computer-generated utility
service orders; adjusted maintenance schedules; and alternate means of
communications, both internally and with other industry participants.
On Sept. 9, 1999, NERC facilitated a nationwide contingency plan
drill which Tampa Electric participated in as part of the Florida
Reliability Coordinating Council. The drill provided an opportunity
to test the company s ability to plan, equip and deploy personnel to
critical locations; test various means of communication and establish
manual data gathering and analysis procedures. No significant
problems were encountered. The company will continue to test less
critical systems and refine contingency plans throughout the remainder
of this year.
Forward-Looking Statements
The status of Tampa Electric's Year 2000 efforts are based upon
management's best estimates. There can be no assurance that these
estimates will prove to be accurate, and actual results could differ
materially from those currently projected. Specific factors that could
cause such differences include, but are not limited to, the failure to
identify, assess, remediate and test all relevant computer codes and
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FORM 10-Q
embedded technology and similar uncertainties.
Accounting Standards
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 company does not use
derivatives or other financial products for speculative purposes. The
company is in the process of identifying derivative instruments and
hedging activities within its businesses, as defined by the Standard,
to determined to what extent FAS 133 will impact its financial
statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Tampa Electric Company is exposed to changes in interest rates
primarily as a result of its borrowing activities. A hypothetical
increase in interest rates of 10 percent of the company's weighted
average interest rate on its variable rate debt would not have a
significant impact on the company's pretax earnings over the next
fiscal year.
A hypothetical 10-percent decrease in interest rates would not
have a significant impact on the estimated fair value of the company's
long-term debt at Sept. 30, 1999.
23
FORM 10-Q
From time to time, the company enters into futures, swaps and
option contracts to moderate its exposure to interest rate changes.
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. The company does not use derivatives or other
financial products for speculative purposes.
Commodity Price Risk
Currently, at the company's electric division and at Peoples Gas
System, the 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.
From time to time, Peoples Gas System enters into futures, swaps
and options contracts to limit the effects of natural gas price
increases on the prices it charges customers. The benefits of these
financial arrangements are at risk only in the event of non-
performance by the other party to the agreement, which the company
does not anticipate.
The company does not use derivatives or other financial products
for speculative purposes.
24
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On Nov. 3, 1999, a civil action was filed on behalf of the United
States Environmental Protection Agency against Tampa Electric Company
in the United States District Court for the Middle District of
Florida. The suit alleges 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. See the discussion under Liquidity, Capital
Resources and Changes in Financial Condition - Recent Developments
above.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
12 Ratio of earnings to fixed charges.
27 Financial data schedule - nine months ended Sept. 30, 1999.
(EDGAR filing only)
(b) Reports on Form 8-K
The registrant did not file any Current Reports on Form 8-K for the
quarter ended Sept. 30, 1999.
25
FORM 10-Q
FORM 10-Q
SIGNATURES
Pursuant to the requirements 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.
TAMPA ELECTRIC COMPANY
(Registrant)
Dated: November 15, 1999 By: /s/G. L. Gillette
G. L. Gillette
Vice President - Finance
and Chief Financial Officer
(Principal Financial Officer)
26
26
FORM 10-Q
INDEX TO EXHIBITS
Exhibit No. Description of Exhibits Page No.
12 Ratio of earnings to fixed charges 28
27 Financial data schedule - nine months ended
September 30, 1999 (EDGAR filing only)
27
Exhobit 12
TAMPA ELECTRIC COMPANY
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the company's ratio of earnings
to fixed charges for the periods indicated.
Nine Months Twelve Months
Ended Ended Year Ended December 31,
Sept. 30, 1999 Sept. 30, 1999 1998 1997 1996(3) 1995(3) 1994(3)
4.05x(1) 3.93x(2) 4.51x(4) 4.38x 4.40x 4.28x 3.88x(5)
For the purposes of calculating these ratios, earnings consist of
income from 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 a third quarter 1999 $10.5-million pretax
charge at the Electric division associated with a regulatory decision
for audits of the company s 1997 and 1998 earnings which limited its
equity ratio to 58.7, in addition to a $4.3-million pretax charge
reflecting corporate income tax settlements. Had this charge been
excluded from the calculation, the ratio of earnings to fixed charges
would have been 5.14x for the 9-month period ended Sept. 30, 1999.
(2) Includes the effect of a fourth quarter 1998 one-time pretax charge of
$7.3-million at the Electric division. Had this charge been excluded
from the calculation, the ratio of earnings to fixed charges would
have been 4.83x for the 12-month period ended Sept. 30, 1999.
(3) Amounts have been restated to reflect the merger of Peoples Gas
System, Inc., with and into Tampa Electric Company.
(4) Includes the effect of one-time, pretax charges totaling $16.9
million. 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
4.66x for the year ended Dec. 31, 1998.
(5) Includes the effect of a $21.3-million pretax restructuring charge.
The effect of this charge was to reduce the ratio of earnings to fixed
c h a r g e s. Had this non-recurring charge been excluded from
thecalculation, the ratio of earnings to fixed charges would have been
4.23x for the year ended Dec. 31, 1994.
28
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