TE Teco Energy, Inc. (delisted)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

For the quarterly period ended March 31, 2015

OR

For the transition period from                      to                     

 

 

 

Indicate by check mark whether the registrants (1) have 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) have been subject to such filing requirements for the past 90 days.     YES  x    NO  ¨

Indicate by check mark whether the registrants have submitted electronically and posted on their corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files).     YES  x    NO  ¨

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

 

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

 

Indicate by check mark whether TECO Energy, Inc. is a shell company (as defined in Rule 12b-2 of the Exchange Act).     YES  ¨    NO  x

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

The number of shares of TECO Energy, Inc.’s common stock outstanding as of April 24, 2015 was 235,121,846. As of April 24, 2015, there were 10 shares of Tampa Electric Company’s common stock issued and outstanding, all of which were held, beneficially and of record, by TECO Energy, Inc.

Tampa Electric Company meets the conditions set forth in General Instruction (H) (1) (a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format.

This combined Form 10-Q represents separate filings by TECO Energy, Inc. and Tampa Electric Company. Information contained herein relating to an individual registrant is filed by that registrant on its own behalf. Each registrant makes representations only as to information relating to itself and its subsidiaries.

 

 

 

 

 

 

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DEFINITIONS

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

 

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PART I. FINANCIAL INFORMATION

 

Item 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

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TECO ENERGY, INC.

Consolidated Condensed Balance Sheets

Unaudited

 

 

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

 

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 TECO ENERGY, INC.

Consolidated Condensed Balance Sheets - continued

Unaudited

 

 

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

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TECO ENERGY, INC.

Consolidated Condensed Statements of Income

Unaudited

 

 

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

 

 

 

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TECO ENERGY, INC.

Consolidated Condensed Statements of Comprehensive Income

Unaudited

 

 

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

 

 

 

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TECO ENERGY, INC.

Consolidated Condensed Statements of Cash Flows

Unaudited

 

 

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

 

 

 

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TECO ENERGY, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

UNAUDITED

 

1. Summary of Significant Accounting Policies

See TECO Energy, Inc.’s 2014 Annual Report on Form 10-K for a complete discussion of accounting policies. The significant accounting policies for all utility and diversified operations include:

Principles of Consolidation and Basis of Presentation

Intercompany balances and intercompany transactions have been eliminated in consolidation. In the opinion of management, the unaudited consolidated condensed financial statements include all adjustments that are of a recurring nature and necessary to state fairly the financial position of TECO Energy, Inc. and its subsidiaries as of Mar. 31, 2015 and Dec. 31, 2014, and the results of operations and cash flows for the periods ended Mar. 31, 2015 and 2014. The results of operations for the three months ended Mar. 31, 2015 are not necessarily indicative of the results that can be expected for the entire fiscal year ending Dec. 31, 2015.

The consolidated financial statements include NMGI and NMGC from the acquisition date of Sept. 2, 2014 through Mar. 31, 2015. In addition, all periods have been adjusted to reflect the reclassification of results from operations to discontinued operations for TECO Coal and certain charges at Parent that directly related to TECO Coal (see Note 15).

The use of estimates is inherent in the preparation of financial statements in accordance with U.S. GAAP. Actual results could differ from these estimates. The year-end consolidated condensed balance sheet data was derived from audited financial statements; however, this quarterly report on Form 10-Q does not include all year-end disclosures required for an annual report on Form 10-K by U.S. GAAP.

Revenues

As of Mar. 31, 2015 and Dec. 31, 2014, unbilled revenues of $63.8 million and $86.6 million, respectively, are included in the “Receivables” line item on the Consolidated Condensed Balance Sheets.

Accounting for Excise Taxes, Franchise Fees and Gross Receipts

TECO Coal incurs most of TECO Energy’s total excise taxes, which are accrued as an expense and reconciled to the actual cash payment of excise taxes. As general expenses, they are not specifically recovered through revenues. Excise taxes paid by the regulated utilities are not material and are expensed when incurred.

Tampa Electric and PGS are allowed to recover certain costs from customers on a dollar-per-dollar basis through prices approved by the FPSC. The amounts included in customers’ bills for franchise fees and gross receipt taxes are included as revenues on the Consolidated Condensed Statements of Income. Franchise fees and gross receipt taxes payable by Tampa Electric and PGS are included as an expense on the Consolidated Condensed Statements of Income in “Taxes, other than income”. These amounts totaled $27.4 million and $27.2 million for the three months ended Mar. 31, 2015 and 2014, respectively.

NMGC is an agent in the collection and payment of franchise fees and gross receipt taxes and is not required by a tariff to present the amounts on a gross basis. Therefore, NMGC’s franchise fees and gross receipt taxes are presented net with no line-item impact on the Consolidated Condensed Statements of Income.

 

2. New Accounting Pronouncements

Revenue from Contracts with Customers

In May 2014, the FASB issued guidance regarding the accounting for revenue from contracts with customers. The standard is principle-based and provides a five-step model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This guidance is effective for the company beginning in 2017 and allows for either full retrospective adoption or modified retrospective adoption. The company is currently evaluating the impact of the adoption of this guidance on its financial statements but does not expect the impact to be significant.

Presentation of Debt Issuance Costs

In April 2015, the FASB issued guidance regarding the presentation of debt issuance costs on the balance sheet. Under the new guidance, an entity is required to present debt issuance costs as a direct deduction from the carrying amount of the related debt liability rather than as a deferred charge (i.e., as an asset) under current guidance. This guidance is effective for the company beginning in 2016 and is required to be applied on a retrospective basis for all periods presented.

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3. Regulatory

Tampa Electric’s retail business and PGS are regulated by the FPSC. Tampa Electric is also subject to regulation by the FERC under PUHCA 2005. The operations of PGS are regulated by the FPSC separately from the operations of Tampa Electric. The FPSC has jurisdiction over rates, service, issuance of securities, safety, accounting and depreciation practices and other matters. In general, the FPSC sets rates at a level that allows utilities such as Tampa Electric and PGS to collect total revenues (revenue requirements) equal to their cost of providing service, plus a reasonable return on invested capital.

NMGC is subject to regulation by the NMPRC. The NMPRC has jurisdiction over the regulatory matters related, directly and indirectly, to NMGC providing service to its customers, including, among other things, rates, accounting procedures, securities issuances, and standards of service. NMGC must follow certain accounting guidance that pertains specifically to entities that are subject to such regulation. Comparable to the FPSC, the NMPRC sets rates at a level that allows utilities such as NMGC to collect total revenues (revenue requirement) equal to their cost of providing service, plus a reasonable return on invested capital.

 

Regulatory Assets and Liabilities

Tampa Electric, PGS and NMGC apply the accounting standards for regulated operations. Areas of applicability include: deferral of revenues under approved regulatory agreements; revenue recognition resulting from cost-recovery clauses that provide for monthly billing charges to reflect increases or decreases in fuel, purchased power, conservation and environmental costs; the deferral of costs as regulatory assets to the period in which the regulatory agency recognizes them when cost recovery is ordered over a period longer than a fiscal year; and the advance recovery of expenditures for approved costs such as future storm damage or the future removal of property.

Details of the regulatory assets and liabilities as of Mar. 31, 2015 and Dec. 31, 2014 are presented in the following table:

 

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All regulatory assets are recovered through the regulatory process. The following table further details the regulatory assets and the related recovery periods:

 

 

4. Income Taxes

The effective tax rate increased to 38.48% for the three months ended Mar. 31, 2015 from 37.55% for the same period in 2014.

The company’s U.S. subsidiaries join in the filing of a U.S. federal consolidated income tax return. The IRS concluded its examination of the company’s 2013 consolidated federal income tax return in January 2015. The U.S. federal statute of limitations remains open for the year 2011 and forward. Years 2014 and 2015 are currently under examination by the IRS under its Compliance Assurance Program. TECO Energy does not expect the results of current IRS examinations to significantly change the total amount of unrecognized tax benefits by the end of 2015. U.S. state jurisdictions have statutes of limitations generally ranging from three to four years from the filing of an income tax return. Additionally, any state net operating losses that were generated in prior years and are still being utilized are subject to examination by state jurisdictions. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. Years still open to examination by taxing authorities in major state jurisdictions and foreign jurisdictions include 2005 and forward.    

 

 

5. Employee Postretirement Benefits

Included in the table below is the periodic expense for pension and other postretirement benefits offered by the company.

 

For the fiscal 2015 plan year, TECO Energy is using an assumed long-term EROA of 7.00% and a discount rate of 4.256% for pension benefits under its qualified pension plan. For the Jan. 1, 2015 measurement of TECO Energy’s other postretirement benefits, TECO Energy assumed a discount rate of 4.206%. Additionally, TECO Energy made contributions of $14.9 million and $16.0 million to its pension plan for the three months ended Mar. 31, 2015 and 2014, respectively.

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For the three months ended Mar. 31, 2015 and 2014, TECO Energy and its subsidiaries reclassified $0.8 million and $0.6 million, respectively, of pretax unamortized prior service benefit and actuarial losses from AOCI to net income as part of periodic benefit expense. In addition, during the three months ended Mar. 31, 2015 and 2014, the regulated companies reclassified $2.2 million and $2.5 million, respectively, of unamortized prior service benefit and actuarial losses from regulatory assets to net income as part of periodic benefit expense.

 

Black Lung Liability

TECO Coal is required by federal and state statutes to provide benefits to terminated, retired or (under state statutes) qualifying active employees for benefits related to black lung disease. TECO Coal is self-insured for black lung related claims. TECO Coal applies the accounting guidance of ASC 715, Compensation – Retirement Benefits, and annual expense is recorded for black lung obligations as determined by an independent actuary at the present value of the actuarially-computed liability for such benefits over the employee’s applicable term of service. At Mar. 31, 2015 and Dec. 31, 2014, TECO Coal had an actuarially-determined black lung liability of $24.8 million and $24.7 million, respectively. Expense related to the black lung liability recognized during the three months ended Mar. 31, 2015 and 2014 was not material.

As discussed in Note 15, TECO Coal was classified as an asset held for sale at Mar. 31, 2015. In accordance with ASC 715, an after-tax settlement charge of approximately $7.7 million related to the unfunded black lung obligations recorded in AOCI will be recognized as a loss from discontinued operations upon completion of the sale of TECO Coal, which is expected to occur in 2015.

 

 

6. Short-Term Debt

At Mar. 31, 2015 and Dec. 31, 2014, the following credit facilities and related borrowings existed:

 

 

At Mar. 31, 2015, these credit facilities required commitment fees ranging from 12.5 to 30.0 basis points. The weighted-average interest rate on outstanding amounts payable under the credit facilities at Mar. 31, 2015 and Dec. 31, 2014 was 1.12% and 1.16%, respectively.  

Tampa Electric Company Accounts Receivable Facility

On Mar. 24, 2015, TEC and TRC amended and restated their $150 million accounts receivable collateralized borrowing facility in order to (i) appoint The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch (BTMU), as Program Agent, replacing the previous Program Agent, Citibank, N.A., (ii) add new lenders, and (iii) extend the scheduled termination date from Apr. 14, 2015 to Mar. 23, 2018, by entering into (a) an Amended and Restated Purchase and Contribution Agreement dated as of Mar. 24, 2015 between TEC and TRC and (b) a Loan and Servicing Agreement dated as of Mar. 24, 2015, among TEC as Servicer, TRC as Borrower, certain lenders named therein and BTMU, as Program Agent.

 

7. Long-Term Debt

Fair Value of Long-Term Debt

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At Mar. 31, 2015, total long-term debt had a carrying amount of $3,627.7 million and an estimated fair market value of $4,035.8 million. At Dec. 31, 2014, total long-term debt had a carrying amount of $3,628.5 million and an estimated fair market value of $3,987.8 million. The company uses the market approach in determining fair value. The majority of the outstanding debt is valued using real-time financial market data obtained from Bloomberg Professional Service. The remaining securities are valued using prices obtained from the Municipal Securities Rulemaking Board and by applying estimated credit spreads obtained from a third party to the par value of the security. All debt securities are Level 2 instruments.  

 

Issuance of TECO Finance Floating Rate Notes due 2018

On Apr. 10, 2015, TECO Finance completed an offering of $250 million aggregate principal amount of floating rate notes due 2018, which are guaranteed by TECO Energy. See Note 16 for additional information.

 

 

8. Other Comprehensive Income

TECO Energy reported the following OCI for the three months ended Mar. 31, 2015 and 2014, related to changes in the fair value of cash flow hedges and amortization of unrecognized benefit costs associated with the company’s postretirement plans:

 

 

 

 

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9. Earnings Per Share

 

 

 

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10. Commitments and Contingencies

Legal Contingencies

From time to time, TECO Energy and its subsidiaries are involved in various legal, tax and regulatory proceedings before various courts, regulatory commissions and governmental agencies in the ordinary course of its business. Where appropriate, accruals are made in accordance with accounting standards for contingencies to provide for matters that are probable of resulting in an estimable loss. The company believes the claims in the pending actions described below are without merit and intends to defend the matters vigorously. The company is unable at this time to estimate the possible loss or range of loss with respect to these matters. While the outcome of such proceedings is uncertain, management does not believe that their ultimate resolution will have a material adverse effect on the company’s results of operations, financial condition or cash flows.

Tampa Electric Legal Proceedings

A thirty-six year old man died from mesothelioma in March 2014. His estate and his family are suing Tampa Electric as a result. The man allegedly suffered exposure to asbestos dust brought home by his father and grandfather, both of whom had been employed as insulators and worked at various job sites throughout the Tampa area. Plaintiff’s case against Tampa Electric and nineteen other defendants alleges, among other things, negligence, strict liability, household exposure, loss of consortium, and wrongful death.

In September 2014, a man was electrocuted when allegedly two energized, downed primary conductors fell during a heavy storm, leading to his death. Plaintiff's wrongful death complaint against Tampa Electric alleged, among other things, negligence and code violations. In March 2015, Tampa Electric entered into a confidential settlement in connection with this matter.

Peoples Gas Legal Proceedings

In November 2010, heavy equipment operated at a road construction site being conducted by Posen Construction, Inc. struck a natural gas line causing a rupture and ignition of the gas and an outage in the natural gas service to Lee and Collier counties, Florida.  PGS filed suit in April 2011 against Posen Construction, Inc. in Federal Court for the Middle District of Florida to recover damages for repair and restoration relating to the incident and Posen Construction, Inc. counter-claimed against PGS alleging negligence. In the first quarter of 2014, the parties entered into a settlement agreement that resolves the claims of the parties. In addition, the suit filed in November 2011 by the Posen Construction, Inc. employee operating the heavy equipment involved in the incident in Lee County Circuit Court against PGS and a PGS contractor involved in the project, seeking damages for his injuries, remains pending.

New Mexico Gas Company Legal Proceedings

In February 2011, NMGC experienced gas shortages due to weather-related interruptions of electric service, weather-related problems on the systems of various interstate pipelines and in gas fields that are the sources of gas supplied to NMGC, and high weather-driven usage. This gas supply disruption and high usage resulted in the declaration of system emergencies by NMGC causing involuntary curtailments of gas utility service to approximately 28,700 customers (residential and business).  

 

In March 2011, a customer purporting to represent a class consisting of all “32,000 [sic] customers” who had their gas utility service curtailed during the early-February system emergencies filed a putative class action lawsuit against NMGC. In March 2011, the Town of Bernalillo, New Mexico, purporting to represent a class consisting of all “New Mexico municipalities and governmental entities who have suffered damages as a result of the natural gas utility shut off” also filed a putative class action lawsuit against NMGC, four of its officers, and John and Jane Does at NMGC. In July 2011, the plaintiff in the Bernalillo class action filed an amended complaint to add an additional plaintiff purporting to represent a class of all “similarly situated New Mexico private businesses and enterprises.”  

The two purported class action suits (three purported classes) were consolidated. The court dismissed the class actions in their entirety with prejudice in October 2014 and appeals from the dismissal were taken by the plaintiffs in November 2014 and are pending.  

Two lawsuits representing 18 insurance carriers have filed subrogation lawsuits for monies paid to their insureds as a result of the curtailment of natural gas service in February 2011. These subrogation matters are pending and discovery is proceeding. NMGC anticipates filing motions to dismiss similar to those filed in the class actions.  

TECO Guatemala Holdings, LLC v. The Republic of Guatemala

On Dec. 19, 2013, the ICSID Tribunal hearing the arbitration claim of TGH, a wholly owned subsidiary of TECO Energy, Inc., against the Republic of Guatemala (Guatemala) under the DR – CAFTA, issued an award in the case (the Award). The ICSID Tribunal unanimously found in favor of TGH and awarded damages to TGH of approximately U.S. $21.1 million, plus interest from Oct. 21, 2010 at a rate equal to the U.S. prime rate plus 2%. In addition, the ICSID Tribunal ruled that Guatemala must reimburse TGH for approximately U.S. $7.5 million of the costs that it incurred in pursuing the arbitration.

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On Apr. 18, 2014, Guatemala filed an application for annulment of the entire Award (or, alternatively, certain parts of the Award) pursuant to applicable ICSID rules.

Also on Apr. 18, 2014, TGH separately filed an application for partial annulment of the Award on the basis of certain deficiencies in the ICSID Tribunal’s determination of the amount of TGH’s damages. If TGH’s application is successful, TGH will be able to seek additional damages from Guatemala in a new arbitration proceeding.

While the duration of the annulment proceedings is uncertain, a hearing is scheduled in October 2015 and the proceedings as a whole are expected to take approximately two years to conclude, with a decision by the ad hoc committee in mid- to late-2016. Pending the outcome of annulment proceedings, results to date do not reflect any benefit of this decision.

Superfund and Former Manufactured Gas Plant Sites

TEC, through its Tampa Electric and Peoples Gas divisions, is a PRP for certain superfund sites and, through its Peoples Gas 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, as of Mar. 31, 2015, TEC has estimated its ultimate financial liability to be $33.3 million, primarily at PGS. This amount has been accrued and is primarily reflected in the long-term liability section under “Other” on the Consolidated Condensed Balance Sheets. The environmental remediation costs associated with these sites, which are expected to be paid over many years, are not expected to have a significant impact on customer rates.

The estimated amounts represent only the portion of the cleanup costs attributable to TEC. The estimates to perform the work are based on TEC’s experience with similar work, adjusted for site-specific conditions and agreements with the respective governmental agencies. The estimates are made in current dollars, are not discounted and do not assume any insurance recoveries.

In instances where other PRPs are involved, most of those PRPs are creditworthy and are likely to continue to be creditworthy for the duration of the remediation work. However, in those instances that they are not, TEC could be liable for more than TEC’s actual percentage of the remediation costs.

Factors that could impact these estimates include the ability of other PRPs to pay their pro-rata portion of the cleanup costs, additional testing and investigation which could expand the scope of the cleanup activities, additional liability that might arise from the cleanup activities themselves or changes in laws or regulations that could require additional remediation. Under current regulations, these costs are recoverable through customer rates established in subsequent base rate proceedings.

Guarantees and Letters of Credit

A summary of the face amount or maximum theoretical obligation and the year of expiration under letters of credit and guarantees as of Mar. 31, 2015 is as follows:

 

 

Financial Covenants

In order to utilize their respective bank facilities, TECO Energy and its subsidiaries must meet certain financial tests, including a debt to capital ratio, as defined in the applicable agreements. In addition, TECO Energy and its subsidiaries have certain restrictive covenants in specific agreements and debt instruments. At Mar. 31, 2015, TECO Energy and its subsidiaries were in compliance with all applicable financial covenants.

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11. Segment Information

TECO Energy is an electric and gas utility holding company with diversified activities. Segments are determined based on how management evaluates, measures and makes decisions with respect to the operations of the entity. The management of TECO Energy reports segments based on each subsidiary’s contribution of revenues, net income and total assets as required by the accounting guidance for disclosures about segments of an enterprise and related information. Intercompany transactions are eliminated in the Consolidated Condensed Financial Statements of TECO Energy, but are included in determining reportable segments.

 

 

 

 

 

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12. Accounting for Derivative Instruments and Hedging Activities

From time to time, TECO Energy and its affiliates enter into futures, forwards, swaps and option contracts for the following purposes:

TECO Energy and its affiliates use derivatives only to reduce normal operating and market risks, not for speculative purposes. The regulated utilities’ primary objective in using derivative instruments for regulated operations is to reduce the impact of market price volatility on ratepayers.

The risk management policies adopted by TECO Energy provide a framework through which management monitors various risk exposures. Daily and periodic reporting of positions and other relevant metrics are performed by a centralized risk management group, which is independent of all operating companies.

The company applies the accounting standards for derivative instruments and hedging activities. These standards require companies 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 the fair value of those instruments as either components of OCI or in net income, depending on the designation of those instruments (see Note 13). The changes in fair value that are recorded in OCI are not immediately recognized in current net income. As the underlying hedged transaction matures or the physical commodity is delivered, the deferred gain or loss on the related hedging instrument must be reclassified from OCI to earnings based on its value at the time of the instrument’s settlement. For effective hedge transactions, the amount reclassified from OCI to earnings is offset in net income by the market change of the amount paid or received on the underlying physical transaction.

The company applies the accounting standards for regulated operations to financial instruments used to hedge the purchase of natural gas for its regulated companies. These standards, in accordance with the FPSC and NMPRC, permit the changes in fair value of natural gas derivatives to be recorded as regulatory assets or liabilities reflecting the impact of hedging activities on the fuel recovery clause. As a result, these changes are not recorded in OCI (see Note 3).

The company’s physical contracts qualify for the NPNS exception to derivative accounting rules, provided they meet certain criteria. Generally, NPNS applies if the company deems the counterparty creditworthy, if the counterparty owns or controls resources within the proximity to allow for physical delivery of the commodity, if the company intends to receive physical delivery and if the transaction is reasonable in relation to the company’s business needs. As of Mar. 31, 2015, all of the company’s physical contracts qualify for the NPNS exception.

The derivatives that are designated as cash flow hedges at Mar. 31, 2015 and Dec. 31, 2014 are reflected on the company’s Consolidated Condensed Balance Sheets and classified accordingly as current and long-term assets and liabilities on a net basis as permitted by their respective master netting agreements. Derivative assets totaled $0.3 million and $0 as of Mar. 31, 2015 and Dec. 31, 2014, respectively, and derivative liabilities totaled $40.8 million and $42.7 million as of Mar. 31, 2015 and Dec. 31, 2014, respectively. There are minor offset amount differences between the gross derivative assets and liabilities and the net amounts presented on the Consolidated Condensed Balance Sheets. There was no cash collateral posted with or received from any counterparties.

All of the derivative assets and liabilities at Mar. 31, 2015 and Dec. 31, 2014 are designated as hedging instruments, which primarily are derivative hedges of natural gas contracts to limit the exposure to changes in market price for natural gas used to produce energy and natural gas purchased for resale to customers. The corresponding effect of these natural gas related derivatives on the regulated utilities’ fuel recovery clause mechanism is reflected on the Consolidated Condensed Balance Sheets as current and long-term regulatory assets and liabilities. Based on the fair value of the instruments at Mar. 31, 2015, net pretax losses of $35.2 million are expected to be reclassified from regulatory assets or liabilities to the Consolidated Condensed Statements of Income within the next twelve months.

The Mar. 31, 2015 and Dec. 31, 2014 balance in AOCI related to the cash flow hedges and interest rate swaps (unsettled and previously settled) is presented in Note 8.

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For derivative instruments that meet cash flow hedge criteria, the effective portion of the gain or loss on the derivative is reported as a component of OCI and reclassified into earnings in the same period or period during which the hedged transaction affects earnings. Gains and losses on the derivatives representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. For the three months ended Mar. 31, 2015 and 2014, all hedges were effective. The derivative after-tax effect on OCI and the amount of after-tax gain or loss reclassified from AOCI into earnings for the three months ended Mar. 31, 2015 and 2014 is presented in Note 8. These gains and losses were the result of interest rate contracts for TEC and diesel fuel derivatives related to TECO Coal operations. The locations of the reclassifications to income were reflected in Interest expense for TEC and Income (loss) from discontinued operations for TECO Coal.

The maximum length of time over which the company is hedging its exposure to the variability in future cash flows extends to Mar. 31, 2017 for financial natural gas contracts. The following table presents the company’s derivative volumes that, as of Mar. 31, 2015, are expected to settle during the 2015, 2016 and 2017 fiscal years:

 

The company is exposed to credit risk primarily through entering into derivative instruments with counterparties to limit its exposure to the commodity price fluctuations associated with natural gas. Credit risk is the potential loss resulting from a counterparty’s nonperformance under an agreement. The company manages credit risk with policies and procedures for, among other things, counterparty analysis, exposure measurement and exposure monitoring and mitigation.

It is possible that volatility in commodity prices could cause the company to have material credit risk exposures with one or more counterparties. If such counterparties fail to perform their obligations under one or more agreements, the company could suffer a material financial loss. However, as of Mar. 31, 2015, substantially all of the counterparties with transaction amounts outstanding in the company’s energy portfolio were rated investment grade by the major rating agencies. The company assesses credit risk internally for counterparties that are not rated.

The company has entered into commodity master arrangements with its counterparties to mitigate credit exposure to those counterparties. The company generally enters into the following master arrangements: (1) EEI agreements—standardized power sales contracts in the electric industry; (2) ISDA agreements—standardized financial gas and electric contracts; and (3) NAESB agreements—standardized physical gas contracts. The company believes that entering into such agreements reduces the risk from default by creating contractual rights relating to creditworthiness, collateral and termination.

The company has implemented procedures to monitor the creditworthiness of its counterparties and to consider nonperformance risk in determining the fair value of counterparty positions. Net liability positions generally do not require a nonperformance risk adjustment as the company uses derivative transactions as hedges and has the ability and intent to perform under each of these contracts. In the instance of net asset positions, the company considers general market conditions and the observable financial health and outlook of specific counterparties in evaluating the potential impact of nonperformance risk to derivative positions.

Certain TECO Energy derivative instruments contain provisions that require the company’s debt, or in the case of derivative instruments where TEC is the counterparty, TEC’s debt, to maintain an investment grade credit rating from any or all of the major credit rating agencies. If debt ratings, including TEC’s, were to fall below investment grade, it could trigger these provisions, and the counterparties to the derivative instruments could demand immediate and ongoing full overnight collateralization on derivative instruments in net liability positions. The company has no other contingent risk features associated with any derivative instruments.

 

13. Fair Value Measurements

Items Measured at Fair Value on a Recurring Basis

 

Accounting guidance governing fair value measurements and disclosures provides that fair value represents the amount that would be received in selling an asset or the amount that would be paid in transferring a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based upon assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, accounting guidance also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

 

Level 1:  Observable inputs, such as quoted prices in active markets;

Level 2:  Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

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Level 3:  Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

Assets and liabilities are measured at fair value based on one or more of the following three valuation techniques noted under accounting guidance:

 

(A)  Market approach:  Prices and other relevant information generated by market transactions involving

identical or comparable assets or liabilities;

(B)  Cost approach:  Amount that would be required to replace the service capacity of an asset (replacement

cost); and

(C)  Income approach:  Techniques to convert future amounts to a single present amount based upon market

expectations (including present value techniques, option-pricing and excess earnings models).  

 

The fair value of financial instruments is determined by using various market data and other valuation techniques.  

The following tables set forth by level within the fair value hierarchy, the company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of Mar. 31, 2015 and Dec. 31, 2014. As required by accounting standards for fair value measurements, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.     

 

 

Natural gas swaps are OTC swap instruments. The market approach is used in determining the fair value of natural gas swaps and the primary pricing inputs are the NYMEX quoted closing prices of exchange-traded instruments. These prices are applied to the notional amounts of active positions to determine the reported fair value (see Note 12).

Interest rate swaps are also OTC swap instruments. The income approach is used in determining the fair value of interest rate swaps and the primary pricing inputs are LIBOR swap rates. For each instrument, the projected forward swap rate is used to determine the stream of cash flows over the life of the contract. The cash flows are then discounted using a spot discount rate to determine fair value.

The company considered the impact of nonperformance risk in determining the fair value of derivatives. The company considered the net position with each counterparty, past performance of both parties, the intent of the parties, indications of credit deterioration and whether the markets in which the company transacts have experienced dislocation. At Mar. 31, 2015, the fair value of derivatives was not materially affected by nonperformance risk. There were no Level 3 assets or liabilities for the periods presented.

 

14. Variable Interest Entities

In the determination of a VIE’s primary beneficiary, the primary beneficiary is the enterprise that has both 1) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and 2) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE.

TEC has entered into multiple PPAs with wholesale energy providers in Florida to ensure the ability to meet customer energy demand and to provide lower cost options in the meeting of this demand. These agreements range in size from 117 MW to 160 MW of

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available capacity, are with similar entities and contain similar provisions. Because some of these provisions provide for the transfer or sharing of a number of risks inherent in the generation of energy, these agreements meet the definition of being variable interests. These risks include: operating and maintenance, regulatory, credit, commodity/fuel and energy market risk. TEC has reviewed these risks and has determined that the owners of these entities have retained the majority of these risks over the expected life of the underlying generating assets, have the power to direct the most significant activities, and have the obligation or right to absorb losses or benefits and hence remain the primary beneficiaries. As a result, TEC is not required to consolidate any of these entities. TEC purchased $5.4 million and $5.9 million of capacity pursuant to PPAs for the three months ended Mar. 31, 2015 and 2014, respectively.

The company does not provide any material financial or other support to any of the VIEs it is involved with, nor is the company under any obligation to absorb losses associated with these VIEs. In the normal course of business, the company’s involvement with these VIEs does not affect its Consolidated Condensed Balance Sheets, Statements of Income or Cash Flows.

 

15. Discontinued Operations, Assets Held for Sale and Asset Impairments

TECO Coal

In September 2014, the Board of Directors of TECO Energy authorized management to enter into negotiations for the sale of TECO Coal. As a result of this and other factors, the TECO Coal segment was accounted for as an asset held for sale and reported as a discontinued operation beginning in the third quarter of 2014.

On Oct. 17, 2014, TECO Diversified entered into an SPA to sell all of its ownership interest in TECO Coal to Cambrian Coal Corporation (“Cambrian”). On Feb. 5, 2015, the SPA was amended to extend the closing date to Mar. 13, 2015 and modify the purchase price to $80 million, subject to working capital adjustments, plus contingent payments of up to $60 million that may be paid between 2015 and 2019 depending on specified coal benchmark prices. As a result, in 2014 the company recorded impairment charges totaling $115.9 million pretax to write down the held-for-sale TECO Coal assets to their implied fair value based on the binding offer less estimated costs to sell. On Mar. 12, 2015, the SPA was further amended to extend the closing date to Apr. 24, 2015. On Apr. 17, 2015, the SPA was amended again to further extend the closing date to June 5, 2015, in order to allow for Cambrian’s financing arrangements to be completed (see Note 16).  No additional asset impairments were recorded in the first quarter of 2015.

The SPA contains customary representations, warranties, covenants, and closing conditions, including the purchaser’s obtaining debt financing in order to pay a portion of the purchase prices. The SPA also contains indemnification provisions subject to specified limitations as to time and amount. In addition, the SPA, as amended, is subject to termination by either party if specified closing conditions are not met by June 5, 2015. After closing of the sale, TECO Energy will not have influence over operations of TECO Coal, therefore the contingent payments and indemnification provisions are not considered to meet the definition of direct cash flows under the applicable discontinued operations FASB guidance.

All periods have been adjusted to reflect the reclassification of results from operations to discontinued operations for TECO Coal and certain charges at Parent that directly relate to the sale of TECO Coal.

 

The following table provides a summary of the carrying amounts of the significant assets and liabilities reported in the combined current and non-current “Assets held for sale” and “Liabilities associated with assets held for sale” line items:

 

TECO Guatemala

In 2012, TECO Guatemala completed the sale of its interests in the Alborada and San José power stations, and related solid fuel handling and port facilities in Guatemala. All periods presented reflect the classification of results from operations for TECO Guatemala and certain charges at Parent that directly relate to TECO Guatemala as discontinued operations. While TECO Energy and

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its subsidiaries no longer have assets or operations in Guatemala, its subsidiary, TECO Guatemala Holdings, LLC, has retained its rights under its arbitration claim filed against the Republic of Guatemala (see Note 10). The first quarter 2015 charges shown in the table below are legal costs associated with that claim.  Additionally, in March 2014, an indemnification provision for an uncertain tax position at TCAE that was provided for in the 2012 purchase agreement was reversed due to a favorable final decision by the highest court in Guatemala, resulting in the income from operations amount shown in the table below.

Combined Components of Discontinued Operations

The following table provides selected components of discontinued operations related to the sales of TECO Coal and TECO Guatemala:

 

 

 

    

16. Subsequent Events

Issuance of TECO Finance Floating Rate Notes due 2018

On Apr. 10, 2015, TECO Finance completed an offering of $250 million aggregate principal amount of floating rate notes due 2018 (the 2018 Notes), which are guaranteed by TECO Energy. The 2018 Notes were sold at par and mature on Apr. 10, 2018. The 2018 Notes will bear interest at a floating rate that is reset quarterly based on the three-month LIBOR plus 60 basis points, which is payable quarterly on Jan. 10, Apr. 10, July 10 and Oct. 10 of each year, beginning July 10, 2015. Interest on the 2018 Notes will be computed on the basis of the actual number of days elapsed over a 360-day year. The 2018 Notes will not be subject to redemption prior to maturity. The 2018 Notes are effectively subordinated to existing and future liabilities of TECO Energy’s subsidiaries to their respective creditors, and also are effectively subordinated to any secured debt that TECO Finance and TECO Energy incur to the extent of the value of the assets securing that indebtedness. TECO Finance is a wholly owned subsidiary of TECO Energy whose business activities consist solely of providing funds to TECO Energy.

The offering resulted in net proceeds to TECO Finance (after deducting underwriting discounts and commissions and estimated offering expenses) of approximately $248.6 million. TECO Finance will use these net proceeds to repay borrowings under the TECO Finance credit facility and to fund a portion of the redemption of $191 million of TECO Finance notes due in May 2015.  

Amendment to TECO Coal SPA

On Apr. 17, 2015, TECO Diversified entered into an amendment (the Amendment) to the SPA dated as of Oct. 17, 2014, as amended, with Cambrian. As disclosed in Note 15, the SPA related to the sale of all of the ownership interest in TECO Coal to Cambrian, and was subject to termination by either party if specified closing conditions, including the purchaser’s obtaining financing in order to pay a portion of the purchase price, were not met by Apr. 24, 2015. The Amendment extends this date and provides that the SPA, as amended, is subject to termination by either party if the specified closing conditions are not met by June 5, 2015.

 

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TAMPA ELECTRIC COMPANY

Consolidated Condensed Balance Sheets

Unaudited

 

 

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

 

 

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 TAMPA ELECTRIC COMPANY

Consolidated Condensed Balance Sheets - continued

Unaudited

 

 

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

 

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TAMPA ELECTRIC COMPANY

Consolidated Condensed Statements of Income and Comprehensive Income

Unaudited

 

 

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

 

 

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TAMPA ELECTRIC COMPANY

Consolidated Condensed Statements of Cash Flows

Unaudited

 

 

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

 

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TAMPA ELECTRIC COMPANY

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

UNAUDITED

 

1. Summary of Significant Accounting Policies

See TEC’s 2014 Annual Report on Form 10-K for a complete discussion of accounting policies. The significant accounting policies for TEC include:

Principles of Consolidation and Basis of Presentation

TEC is a wholly owned subsidiary of TECO Energy, Inc. For the purposes of its consolidated financial reporting, TEC is comprised of the electric division, generally referred to as Tampa Electric, the natural gas division, generally referred to as PGS, and potentially the accounts of VIEs for which it is the primary beneficiary. For the periods presented, no VIEs have been consolidated (see Note 13).

Intercompany balances and intercompany transactions have been eliminated in consolidation. In the opinion of management, the unaudited consolidated condensed financial statements include all adjustments that are of a recurring nature and necessary to state fairly the financial position of TEC as of Mar. 31, 2015 and Dec. 31, 2014, and the results of operations and cash flows for the periods ended Mar. 31, 2015 and 2014. The results of operations for the three months ended Mar. 31, 2015 are not necessarily indicative of the results that can be expected for the entire fiscal year ending Dec. 31, 2015.

The use of estimates is inherent in the preparation of financial statements in accordance with U.S. GAAP. Actual results could differ from these estimates. The year-end consolidated condensed balance sheet data was derived from audited financial statements; however, this quarterly report on Form 10-Q does not include all year-end disclosures required for an annual report on Form 10-K by U.S. GAAP.

Revenues

As of Mar. 31, 2015 and Dec. 31, 2014, unbilled revenues of $52.5 million and $49.3 million, respectively, are included in the “Receivables” line item on the Consolidated Condensed Balance Sheets.

Accounting for Excise Taxes, Franchise Fees and Gross Receipts

Tampa Electric and PGS are allowed to recover certain costs from customers on a dollar-per-dollar basis through prices approved by the FPSC. The amounts included in customers’ bills for franchise fees and gross receipt taxes are included as revenues on the Consolidated Condensed Statements of Income. Franchise fees and gross receipt taxes payable by Tampa Electric and PGS are included as an expense on the Consolidated Condensed Statements of Income in “Taxes, other than income”. These amounts totaled $27.4 million and $27.2 million for the three months ended Mar. 31, 2015 and 2014, respectively.

 

2. New Accounting Pronouncements

Revenue from Contracts with Customers

In May 2014, the FASB issued guidance regarding the accounting for revenue from contracts with customers. The standard is principle-based and provides a five-step model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This guidance is effective for TEC beginning in 2017 and allows for either full retrospective adoption or modified retrospective adoption. TEC is currently evaluating the impact of the adoption of this guidance on its financial statements but does not expect the impact to be significant.

Presentation of Debt Issuance Costs

In April 2015, the FASB issued guidance regarding the presentation of debt issuance costs on the balance sheet. Under the new guidance, an entity is required to present debt issuance costs as a direct deduction from the carrying amount of the related debt liability rather than as a deferred charge (i.e., as an asset) under current guidance. This guidance is effective for TEC beginning in 2016 and is required to be applied on a retrospective basis for all periods presented.

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3. Regulatory

Tampa Electric’s and PGS’s retail businesses are regulated by the FPSC. Tampa Electric is also subject to regulation by the FERC under PUHCA 2005. The operations of PGS are regulated by the FPSC separately from the operations of Tampa Electric. The FPSC has jurisdiction over rates, service, issuance of securities, safety, accounting and depreciation practices and other matters. In general, the FPSC sets rates at a level that allows utilities such as Tampa Electric and PGS to collect total revenues (revenue requirements) equal to their cost of providing service, plus a reasonable return on invested capital.

Regulatory Assets and Liabilities

Tampa Electric and PGS apply the accounting standards for regulated operations. Areas of applicability include: deferral of revenues under approved regulatory agreements; revenue recognition resulting from cost-recovery clauses that provide for monthly billing charges to reflect increases or decreases in fuel, purchased power, conservation and environmental costs; the deferral of costs as regulatory assets to the period in which the regulatory agency recognizes them when cost recovery is ordered over a period longer than a fiscal year; and the advance recovery of expenditures for approved costs such as future storm damage or the future removal of property.

Details of the regulatory assets and liabilities as of Mar. 31, 2015 and Dec. 31, 2014 are presented in the following table:

 

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All regulatory assets are recovered through the regulatory process. The following table further details the regulatory assets and the related recovery periods:

 

 

4. Income Taxes

 

TEC is included in the filing of a consolidated federal income tax return with TECO Energy and its affiliates. TEC’s income tax expense is based upon a separate return computation. TEC’s effective tax rates for the three months ended Mar. 31, 2015 and 2014 differ from the statutory rate principally due to state income taxes, the domestic activity production deduction and the AFUDC-equity.

The IRS concluded its examination of TECO Energy’s 2013 consolidated federal income tax return in January 2015. The U.S. federal statute of limitations remains open for the year 2010 and forward. Years 2014 and 2015 are currently under examination by the IRS under its Compliance Assurance Program. TECO Energy does not expect the results of current IRS examinations to significantly change the total amount of unrecognized tax benefits by the end of 2015. Florida’s statute of limitations is three years from the filing of an income tax return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. Years still open to examination by Florida’s tax authorities include 2005 and forward as a result of TECO Energy’s consolidated Florida net operating loss still being utilized.

 

5. Employee Postretirement Benefits

TEC is a participant in the comprehensive retirement plans of TECO Energy. Amounts allocable to all participants of the TECO Energy retirement plans are found in Note 5, Employee Postretirement Benefits, in the TECO Energy, Inc. Notes to Consolidated Condensed Financial Statements. TEC’s portion of the net pension expense for the three months ended Mar. 31, 2015 and 2014, respectively, was $2.6 million and $3.8 million for pension benefits, and $1.4 million and $2.6 million for other postretirement benefits.

For the fiscal 2015 plan year, TECO Energy assumed a long-term EROA of 7.00% and a discount rate of 4.256%. For the Jan. 1, 2015 measurement of TECO Energy’s other postretirement benefits, TECO Energy used a discount rate of 4.206%. Additionally, TECO Energy made contributions of $14.9 million and $16.0 million to its pension plan in the three months ended Mar. 31, 2015 and 2014, respectively. TEC’s portion of the contributions was $11.0 million and $13.0 million, respectively.

Included in the benefit expenses discussed above, for the three months ended Mar. 31, 2015 and 2014, TEC reclassified $1.9 million and $2.5 million, respectively, of unamortized transition obligation, prior service cost and actuarial losses from regulatory assets to net income.

 

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6. Short-Term Debt

At Mar. 31, 2015 and Dec. 31, 2014, the following credit facilities and related borrowings existed:

 

At Mar. 31, 2015, these credit facilities required commitment fees ranging from 12.5 to 30.0 basis points. The weighted-average interest rate on outstanding amounts payable under the credit facilities at Mar. 31, 2015 and Dec. 31, 2014 was 0.87% and 0.7%, respectively.

Tampa Electric Company Accounts Receivable Facility

On Mar. 24, 2015, TEC and TRC amended and restated their $150 million accounts receivable collateralized borrowing facility in order to (i) appoint The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch (BTMU), as Program Agent, replacing the previous Program Agent, Citibank, N.A., (ii) add new lenders, and (iii) extend the scheduled termination date from Apr. 14, 2015 to Mar. 23, 2018, by entering into (a) an Amended and Restated Purchase and Contribution Agreement dated as of Mar. 24, 2015 between TEC and TRC and (b) a Loan and Servicing Agreement dated as of Mar. 24, 2015, among TEC as Servicer, TRC as Borrower, certain lenders named therein and BTMU, as Program Agent.

 

 

7. Long-Term Debt

Fair Value of Long-Term Debt

At Mar. 31, 2015, TEC’s total long-term debt had a carrying amount of $2,097.1 million and an estimated fair market value of $2,414.8 million. At Dec. 31, 2014, TEC’s total long-term debt had a carrying amount of $2,097.1 million and an estimated fair market value of $2,372.2 million. TEC uses the market approach in determining fair value. The majority of the outstanding debt is valued using real-time financial market data obtained from Bloomberg Professional Service. The remaining securities are valued using prices obtained from the Municipal Securities Rulemaking Board and by applying estimated credit spreads obtained from a third party to the par value of the security. All debt securities are Level 2 instruments.

 

8. Commitments and Contingencies

Legal Contingencies

From time to time, TEC and its subsidiaries are involved in various legal, tax and regulatory proceedings before various courts, regulatory commissions and governmental agencies in the ordinary course of its business. Where appropriate, accruals are made in accordance with accounting standards for contingencies to provide for matters that are probable of resulting in an estimable loss. The company believes the claims in the pending actions described below are without merit and intends to defend the matters vigorously. The company is unable at this time to estimate the possible loss or range of loss with respect to these matters. While the outcome of such proceedings is uncertain, management does not believe that their ultimate resolution will have a material adverse effect on the company’s results of operations, financial condition or cash flows.

Tampa Electric Legal Proceedings

A thirty-six year old man died from mesothelioma in March 2014. His estate and his family are suing Tampa Electric as a result. The man allegedly suffered exposure to asbestos dust brought home by his father and grandfather, both of whom had been employed as insulators and worked at various job sites throughout the Tampa area. Plaintiff’s case against Tampa Electric and nineteen other defendants alleges, among other things, negligence, strict liability, household exposure, loss of consortium, and wrongful death.

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In September 2014, a man was electrocuted when allegedly two energized, downed primary conductors fell during a heavy storm, leading to his death. Plaintiff's wrongful death complaint against Tampa Electric alleged, among other things, negligence and code violations. In March 2015, Tampa Electric entered into a confidential settlement in connection with this matter.

Peoples Gas Legal Proceedings

In November 2010, heavy equipment operated at a road construction site being conducted by Posen Construction, Inc. struck a natural gas line causing a rupture and ignition of the gas and an outage in the natural gas service to Lee and Collier counties, Florida.  PGS filed suit in April 2011 against Posen Construction, Inc. in Federal Court for the Middle District of Florida to recover damages for repair and restoration relating to the incident and Posen Construction, Inc. counter-claimed against PGS alleging negligence. In the first quarter of 2014, the parties entered into a settlement agreement that resolves the claims of the parties. In addition, the suit filed in November 2011 by the Posen Construction, Inc. employee operating the heavy equipment involved in the incident in Lee County Circuit Court against PGS and a PGS contractor involved in the project, seeking damages for his injuries, remains pending.

Superfund and Former Manufactured Gas Plant Sites

TEC, through its Tampa Electric and Peoples Gas divisions, is a PRP for certain superfund sites and, through its Peoples Gas 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, as of Mar. 31, 2015, TEC has estimated its ultimate financial liability to be $33.3 million, primarily at PGS. This amount has been accrued and is primarily reflected in the long-term liability section under “Other” on the Consolidated Condensed Balance Sheets. The environmental remediation costs associated with these sites, which are expected to be paid over many years, are not expected to have a significant impact on customer rates.

The estimated amounts represent only the portion of the cleanup costs attributable to TEC. The estimates to perform the work are based on TEC’s experience with similar work, adjusted for site-specific conditions and agreements with the respective governmental agencies. The estimates are made in current dollars, are not discounted and do not assume any insurance recoveries.

In instances where other PRPs are involved, most of those PRPs are creditworthy and are likely to continue to be creditworthy for the duration of the remediation work. However, in those instances that they are not, TEC could be liable for more than TEC’s actual percentage of the remediation costs.

Factors that could impact these estimates include the ability of other PRPs to pay their pro-rata portion of the cleanup costs, additional testing and investigation which could expand the scope of the cleanup activities, additional liability that might arise from the cleanup activities themselves or changes in laws or regulations that could require additional remediation. Under current regulations, these costs are recoverable through customer rates established in subsequent base rate proceedings.

Guarantees and Letters of Credit

A summary of the face amount or maximum theoretical obligation under TEC’s letters of credit as of Mar. 31, 2015 is as follows:

 

Financial Covenants

In order to utilize its bank credit facilities, TEC must meet certain financial tests, including a debt to capital ratio, as defined in the applicable agreements. In addition, TEC has certain restrictive covenants in specific agreements and debt instruments. At Mar. 31, 2015, TEC was in compliance with all applicable financial covenants.

 

 

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9. Segment Information

 

 

 

 

10. Accounting for Derivative Instruments and Hedging Activities

From time to time, TEC enters into futures, forwards, swaps and option contracts for the following purposes:

TEC uses derivatives only to reduce normal operating and market risks, not for speculative purposes. TEC’s primary objective in using derivative instruments for regulated operations is to reduce the impact of market price volatility on ratepayers.

The risk management policies adopted by TEC provide a framework through which management monitors various risk exposures. Daily and periodic reporting of positions and other relevant metrics are performed by a centralized risk management group, which is independent of all operating companies.

TEC applies the accounting standards for derivative instruments and hedging activities. These standards require companies 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 the fair value of those instruments as either components of OCI or in net income, depending on the designation of those instruments (see Note 11). The changes in fair value that are recorded in OCI are not immediately recognized in current net income. As the underlying hedged transaction matures or the physical commodity is delivered, the deferred gain or loss on the related hedging instrument must be reclassified from OCI to earnings based on its value at the time of the instrument’s settlement. For effective hedge transactions, the amount reclassified from OCI to earnings is offset in net income by the market change of the amount paid or received on the underlying physical transaction.

TEC applies the accounting standards for regulated operations to financial instruments used to hedge the purchase of natural gas for its regulated companies. These standards, in accordance with the FPSC, permit the changes in fair value of natural gas derivatives to be recorded as regulatory assets or liabilities reflecting the impact of hedging activities on the fuel recovery clause. As a result, these changes are not recorded in OCI (see Note 3).

TEC’s physical contracts qualify for the NPNS exception to derivative accounting rules, provided they meet certain criteria. Generally, NPNS applies if TEC deems the counterparty creditworthy, if the counterparty owns or controls resources within the proximity to allow for physical delivery of the commodity, if TEC intends to receive physical delivery and if the transaction is reasonable in relation to TEC’s business needs. As of Mar. 31, 2015, all of TEC’s physical contracts qualify for the NPNS exception.

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The derivatives that are designated as cash flow hedges at Mar. 31, 2015 and Dec. 31, 2014 are reflected on TEC’s Consolidated Condensed Balance Sheets and classified accordingly as current and long-term assets and liabilities on a net basis as permitted by their respective master netting agreements. Derivative assets totaled $0.3 million and $0 as of Mar. 31, 2015 and Dec. 31, 2014, respectively, and derivative liabilities totaled $40.8 million and $42.7 million as of Mar. 31, 2015 and Dec. 31, 2014, respectively. There are minor offset amount differences between the gross derivative assets and liabilities and the net amounts presented on the Consolidated Condensed Balance Sheets. There was no cash collateral posted with or received from any counterparties.

All of the derivative assets and liabilities at Mar. 31, 2015 and Dec. 31, 2014 are designated as hedging instruments, which primarily are derivative hedges of natural gas contracts to limit the exposure to changes in market price for natural gas used to produce energy and natural gas purchased for resale to customers. The corresponding effect of these natural gas related derivatives on the regulated utilities’ fuel recovery clause mechanism is reflected on the Consolidated Condensed Balance Sheets as current and long-term regulatory assets and liabilities. Based on the fair value of the instruments at Mar. 31, 2015, net pretax losses of $35.2 million are expected to be reclassified from regulatory assets or liabilities to the Consolidated Condensed Statements of Income within the next twelve months.

The Mar. 31, 2015 and Dec. 31, 2014 balance in AOCI related to the cash flow hedges and interest rate swaps (unsettled and previously settled) is presented in Note 12.

For derivative instruments that meet cash flow hedge criteria, the effective portion of the gain or loss on the derivative is reported as a component of OCI and reclassified into earnings in the same period or period during which the hedged transaction affects earnings. Gains and losses on the derivatives representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. For the three months ended Mar. 31, 2015 and 2014, all hedges were effective. The derivative after-tax effect on OCI and the amount of after-tax gain or loss reclassified from AOCI into earnings for the three months ended Mar. 31, 2015 and 2014 is presented in Note 12. Gains and losses were the result of interest rate contracts and the reclassifications to income were reflected in Interest expense.

The maximum length of time over which TEC is hedging its exposure to the variability in future cash flows extends to Mar. 31, 2017 for financial natural gas contracts. The following table presents TEC’s derivative volumes that, as of Mar. 31, 2015, are expected to settle during the 2015, 2016 and 2017 fiscal years:

 

TEC is exposed to credit risk primarily through entering into derivative instruments with counterparties to limit its exposure to the commodity price fluctuations associated with natural gas. Credit risk is the potential loss resulting from a counterparty’s nonperformance under an agreement. TEC manages credit risk with policies and procedures for, among other things, counterparty analysis, exposure measurement and exposure monitoring and mitigation.

It is possible that volatility in commodity prices could cause TEC to have material credit risk exposures with one or more counterparties. If such counterparties fail to perform their obligations under one or more agreements, TEC could suffer a material financial loss. However, as of Mar. 31, 2015, substantially all of the counterparties with transaction amounts outstanding in TEC’s energy portfolio were rated investment grade by the major rating agencies. TEC assesses credit risk internally for counterparties that are not rated.

TEC has entered into commodity master arrangements with its counterparties to mitigate credit exposure to those counterparties. TEC generally enters into the following master arrangements: (1) EEI agreements—standardized power sales contracts in the electric industry; (2) ISDA agreements—standardized financial gas and electric contracts; and (3) NAESB agreements—standardized physical gas contracts. TEC believes that entering into such agreements reduces the risk from default by creating contractual rights relating to creditworthiness, collateral and termination.

TEC has implemented procedures to monitor the creditworthiness of its counterparties and to consider nonperformance risk in determining the fair value of counterparty positions. Net liability positions generally do not require a nonperformance risk adjustment as TEC uses derivative transactions as hedges and has the ability and intent to perform under each of these contracts. In the instance of net asset positions, TEC considers general market conditions and the observable financial health and outlook of specific counterparties in evaluating the potential impact of nonperformance risk to derivative positions.

Certain TEC derivative instruments contain provisions that require TEC’s debt to maintain an investment grade credit rating from any or all of the major credit rating agencies. If debt ratings were to fall below investment grade, it could trigger these

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provisions, and the counterparties to the derivative instruments could demand immediate and ongoing full overnight collateralization on derivative instruments in net liability positions. TEC has no other contingent risk features associated with any derivative instruments.

 

11. Fair Value Measurements

Items Measured at Fair Value on a Recurring Basis

 

Accounting guidance governing fair value measurements and disclosures provides that fair value represents the amount that would be received in selling an asset or the amount that would be paid in transferring a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based upon assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, accounting guidance also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

 

Level 1:  Observable inputs, such as quoted prices in active markets;

Level 2:  Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

Level 3:  Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

Assets and liabilities are measured at fair value based on one or more of the following three valuation techniques noted under accounting guidance:

 

(A)  Market approach:  Prices and other relevant information generated by market transactions involving

identical or comparable assets or liabilities;

(B)  Cost approach:  Amount that would be required to replace the service capacity of an asset (replacement

cost); and

(C)  Income approach:  Techniques to convert future amounts to a single present amount based upon market

expectations (including present value techniques, option-pricing and excess earnings models).

  

The fair value of financial instruments is determined by using various market data and other valuation techniques.  

The following tables set forth by level within the fair value hierarchy, TEC’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of Mar. 31, 2015 and Dec. 31, 2014. As required by accounting standards for fair value measurements, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. TEC’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.  

Natural gas swaps are OTC swap instruments. The market approach is used in determining the fair value of natural gas swaps and the primary pricing inputs are the NYMEX quoted closing prices of exchange-traded instruments. These prices are applied to the notional amounts of active positions to determine the reported fair value (see Note 10).

Interest rate swaps are also OTC swap instruments. The income approach is used in determining the fair value of interest rate swaps and the primary pricing inputs are LIBOR swap rates. For each instrument, the projected forward swap rate is used to determine

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the stream of cash flows over the life of the contract. The cash flows are then discounted using a spot discount rate to determine fair value.

TEC considered the impact of nonperformance risk in determining the fair value of derivatives. TEC considered the net position with each counterparty, past performance of both parties, the intent of the parties, indications of credit deterioration and whether the markets in which TEC transacts have experienced dislocation. At Mar. 31, 2015, the fair value of derivatives was not materially affected by nonperformance risk. There were no Level 3 assets or liabilities for the periods presented.

 

12. Other Comprehensive Income

 

 

 

 

 

13. Variable Interest Entities

In the determination of a VIE’s primary beneficiary, the primary beneficiary is the enterprise that has both 1) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and 2) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE.

TEC has entered into multiple PPAs with wholesale energy providers in Florida to ensure the ability to meet customer energy demand and to provide lower cost options in the meeting of this demand. These agreements range in size from 117 MW to 160 MW of available capacity, are with similar entities and contain similar provisions. Because some of these provisions provide for the transfer or sharing of a number of risks inherent in the generation of energy, these agreements meet the definition of being variable interests. These risks include: operating and maintenance, regulatory, credit, commodity/fuel and energy market risk. TEC has reviewed these risks and has determined that the owners of these entities have retained the majority of these risks over the expected life of the underlying generating assets, have the power to direct the most significant activities, and have the obligation or right to absorb losses or benefits and hence remain the primary beneficiaries. As a result, TEC is not required to consolidate any of these entities. TEC purchased $5.4 million and $5.9 million of capacity pursuant to PPAs for the three months ended Mar. 31, 2015 and 2014, respectively.

TEC does not provide any material financial or other support to any of the VIEs it is involved with, nor is TEC under any obligation to absorb losses associated with these VIEs. In the normal course of business, TEC’s involvement with these VIEs does not affect its Consolidated Condensed Balance Sheets, Statements of Income or Cash Flows.

 

 

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This Management’s Discussion & Analysis contains forward-looking statements, which are subject to the inherent uncertainties in predicting future results and conditions. Actual results may differ materially from those forecasted. The forecasted results are based on the company's current expectations and assumptions, and the company does not undertake to update that information or any other  information contained in this Management’s Discussion & Analysis, except as may be required by law. Factors that could impact actual results include: regulatory actions by federal, state or local authorities; the ability to successfully implement the integration plans for NMGC and generate the financial results to make the acquisition accretive; unexpected capital needs or unanticipated reductions in cash flow that affect liquidity; the ability to access the capital and credit markets when required; general economic conditions affecting customer growth and energy sales at the utility companies; economic conditions affecting the Florida and New Mexico economies; weather variations and customer energy usage patterns affecting sales and operating costs at the utilities and the effect of weather conditions on energy consumption; the effect of extreme weather conditions or hurricanes; general operating conditions; input commodity prices  affecting cost at all of the operating companies; natural gas demand at the utilities; and the ability of TECO Energy's subsidiaries to operate equipment without undue accidents, breakdowns or failures; the ability of the purchaser of TECO Coal to obtain suitable financing and for TECO Energy to successfully close the pending sale transaction, or otherwise exit the coal business. Additional information is contained under "Risk Factors" in TECO Energy, Inc.'s Annual Report on Form 10-K for the period ended Dec. 31, 2014.

 

 

Operating Results

Three Months Ended Mar. 31, 2015

TECO Energy, Inc. reported first-quarter 2015 net income of $58.0 million, or $0.25 per share, compared with $50.1 million, or $0.23 per share, in the first quarter of 2014. Net income from continuing operations was $63.8 million, or $0.27 per share, in the 2015 first quarter, compared with $48.4 million, or $0.22 per share, for the same period in 2014. Net income from continuing operations included $0.7 million of integration costs associated with the acquisition of NMGC.

As a result of the previously announced agreement to sell TECO Coal, those operations were classified as discontinued operations effective in the third quarter of 2014 (see Note 15 to the TECO Energy Consolidated Financial Statements and the Discontinued Operations section later in this MD&A).

Operating Company Results

All amounts included in the operating company discussions below are after tax, unless otherwise noted.

Tampa Electric Company – Electric Division

Tampa Electric’s net income for the first quarter of 2015 was $48.2 million, compared with $45.2 million for the same period in 2014. First-quarter results in 2015 reflect customer growth and higher energy sales due to warm March weather. Results reflected

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operations and maintenance expenses essentially unchanged from 2014 and higher interest expense from higher long-term debt balances.  First-quarter net income in 2015 included $3.8 million of AFUDC-equity, which represents allowed equity cost capitalized to construction costs, compared with $2.4 million in the 2014 quarter.

 

Total degree days in Tampa Electric's service area in the first quarter of 2015 were 6% above normal and 11% above the 2014 period, driven by much warmer than normal weather in March. Total net energy for load, which is a calendar measurement of retail energy sales rather than a billing-cycle measurement, increased 1.4% in the first quarter of 2015 compared with the same period in 2014. Customer growth in the quarter was 1.7%.  In the 2015 period, pretax base revenues increased $3.8 million due to higher energy sales and the pro rata portion of $7.5 million of higher annual pretax base revenue effective November 2014. Sales to the weather-sensitive residential customers increased primarily from the warmer than normal March weather, while sales to non-phosphate industrial customers increased due to the improving economy. Sales to lower-margin industrial-phosphate customers were lower as self-generation by those customers increased. (The quarterly energy sales in the following table reflect the energy sales based on the timing of billing cycles, which can vary period to period.)

Operations and maintenance expense, excluding all FPSC-approved cost-recovery clauses, was essentially unchanged from the 2014 quarter. These results reflect higher payroll costs offset by lower other benefit costs and lower costs to reliably serve customers and operate and maintain the system, due to cost efficiencies and the benefit of synergies from shared services among all three utilities. Depreciation and amortization expense increased approximately $0.5 million as higher depreciation on normal additions to facilities to reliably serve customers was partially offset by the reduction in depreciation expense associated with the retirement of assets that were either obsolete or no longer required to serve customers.

A summary of Tampa Electric’s regulated operating statistics for the three months ended Mar. 31, 2015 and 2014 follows:

 

Tampa Electric Company – Natural Gas Division

Peoples Gas System reported net income of $14.6 million for the first quarter, unchanged from 2014. Therm sales to the weather-sensitive residential customers increased as a result of average customer growth of 2.0% in the quarter and colder February winter weather, which more than offset mild March weather.  Sales to commercial and industrial customers increased as a result of the stronger Florida economy and conversions of vehicle fleets to compressed natural gas. Sales to power-generation customers increased due to higher utilization of gas-fired power generators versus coal-fired generation by a single customer. Non-fuel operations and maintenance expense was $0.8 million higher than the 2014 period, which included a $1.6 million benefit from the recovery of costs from a 2010 contractor damage incident.  Depreciation and amortization increased slightly due to normal additions to facilities to serve customers.

A summary of PGS’s regulated operating statistics for the three months ended Mar. 31, 2015 and 2014 follows:

 

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New Mexico Gas Company

NMGC reported first quarter net income of $13.9 million. First-quarter heating degree days in New Mexico were 9% below normal and 1% below 2014, reflecting one of the mildest winters in recent years.  First quarter 2015 customer growth was 0.6%. On a per-share basis, the NMGC acquisition was approximately $0.04 accretive to first-quarter results. Due to the seasonal nature of the local gas distribution business driven by the use of natural gas for heating in New Mexico, NMGC is expected to be dilutive to earnings in the second and third quarters, but accretive in the fourth quarter and for the full-year period.

A summary of NMGC’s regulated operating statistics for the three months ended Mar. 31, 2015 and 2014 follows:

 

(1)     Information presented for 2014 is for comparative purposes only, as this was before the date of acquisition (Sept. 2, 2014).

Discontinued Operations – TECO Coal

The first quarter 2015 loss in discontinued operations of $5.8 million consisted of the TECO Coal loss from operations and a favorable tax adjustment recorded in the Other (net) segment. The first-quarter loss from operations was driven by sales of 0.9 million tons, compared with 1.3 million tons sold in the same period in 2014. The lower tons reflect the harsh winter weather, which reduced production and caused rail service interruptions. In 2015, first-quarter results also reflect selling prices and costs associated with reductions in personnel and steps taken in advance of closing the sale of the company.

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Other (net)

The cost from continuing operations for Other (net) in the first quarter of 2015 was $12.9 million, compared with a cost of $11.4 million in the same period in 2014. Net income in 2015 included $0.7 million of costs associated with the integration of NMGC, compared with $2.1 million of NMGC-related costs in 2014. The costs in 2015 reflect $1.1 million of interest expense related to notes at NMGI, the parent of NMGC, and $1.0 million of interest expense previously allocated to TECO Coal.

The segment data in Note 11 to the TECO Energy Consolidated Condensed Financial Statements presents Other and Eliminations as separate segments. The discussion above nets the two segments.

2015 Guidance from Continuing Operations

TECO Energy is maintaining its previously provided 2015 earnings-per-share guidance from continuing operations, excluding charges or gains, in a range between $1.08 and $1.11 in 2015, driven by the factors discussed below.

Tampa Electric expects to earn in the upper half of its allowed Return on Equity (ROE) range of 9.25% to 11.25%, driven by $7.5 million of higher base revenues that were effective Nov. 1, 2014 as a result of its September 2013 rate case settlement agreement, average customer growth trends in line with those experienced in 2014, and higher AFUDC.  Retail energy sales to residential, commercial and non-phosphate industrial customers are expected to grow by almost 1.0%. Total retail sales are expected to be about 0.3% higher, as sales to lower-margin interruptible Industrial-Phosphate customers are expected to decline due to increased self-generation. These sales forecasts reflect the impact of improved lighting and appliance efficiency and customer energy conservation. Full-year operations and maintenance expenses are expected to be lower than 2014 as lower employee-related costs and the impact of synergies in Florida as a result of the NMGC integration more than offset higher costs to operate the system and reliably serve customers. Depreciation expense is expected to be higher due to normal additions to facilities to serve customers.

Peoples Gas expects to continue to earn in the upper half of its allowed ROE range of 9.75% to 11.75% from customer growth trends in line with those experienced in 2015, and continued interest from customers utilizing petroleum and other fuel sources to convert to natural gas.  Operations and maintenance expense and depreciation trends are expected to be similar to Tampa Electric.

NMGC expects 2015 customer growth of more than 0.5%, volume growth at about the same level, and lower operations and maintenance expense from integration synergies.  NMGC will credit $2.0 million to customer bills in the first 12 months post-closing and $4.0 million in each subsequent 12-month period until new base rates are established. NMGC is expected to be accretive to TECO Energy’s earnings per share in 2015.  

The forecasts for all utilities assume normal weather for the remainder of 2015.

Other (net) cost is expected to increase in 2015.  The benefit of refinancing the $191 million of TECO Finance 6.75% notes due in May 2015 with $250 million of floating rate notes completed in early April will more than offset the impact of no longer allocating interest expense to TECO Coal. The non-utility interest cost in 2015 will reflect a full year of interest on debt at NMGI.  

Discontinued operations will include the operating results for TECO Coal through the closing of the sale as well as the accounting for the completion of the sale.  

Environmental

Tampa Electric produces ash and other by-products, collectively known as CCRs. The CCRs produced at Big Bend include fly ash, FGD gypsum, boiler slag, bottom ash and economizer ash. The CCRs produced at the Polk Power Station include gasifier slag and sulfuric acid. Overall, over 97% of all CCRs produced at these facilities were marketed to customers for beneficial use in commercial and industrial products. The remaining 3% were either disposed of onsite or shipped offsite to nearby industrial waste landfills in Central Florida.

The U.S. EPA published its CCR rule in the Federal Register on April 17, starting a 90-day period for legal challenges. This publication finalizes a rule setting federal standards for how companies may dispose of CCRs. It is expected that the litigation could have a material impact on both the content and the timing of the implementation of the rules.  Accordingly, the outcome of this rule-making process and its impact on our businesses cannot be determined at this time. While certain costs related to environmental compliance are currently recoverable from customers under Florida’s ECRC, we cannot be assured that any increased costs associated with complying with those regulations will be eligible for such treatment.

Income Taxes

The provisions for income taxes from continuing operations for the three month periods ended Mar. 31, 2015 and 2014 were $39.9 million and $29.1 million, respectively. The provision for income taxes for the three months ended Mar. 31, 2015 was impacted by higher operating income.

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Liquidity and Capital Resources

The table below sets forth the Mar. 31, 2015 consolidated liquidity and cash balances, the cash balances at the operating companies and TECO Energy parent, and amounts available under the TECO Energy/TECO Finance, TEC and NMGC credit facilities.

 

Covenants in Financing Agreements

In order to utilize their respective bank credit facilities, TECO Energy and its subsidiaries must meet certain financial tests as defined in the applicable agreements. In addition, TECO Energy and its subsidiaries have certain restrictive covenants in specific agreements and debt instruments. At Mar. 31, 2015, TECO Energy and its subsidiaries were in compliance with all required financial covenants. The table that follows lists the significant financial covenants and the performance relative to them at Mar. 31, 2015. Reference is made to the specific agreements and instruments for more details.

 

Significant Financial Covenants

 

 

 

Credit Ratings of Senior Unsecured Debt at Mar. 31, 2015

 

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On Oct. 27, 2014, S&P placed the issuer credit rating of TECO Energy and the senior unsecured debt rating of its subsidiaries, TECO Finance, TEC and NMGC on credit watch with positive implications, following the announcement of the agreement to sell TECO Coal.

S&P, Moody’s and Fitch describe credit ratings in the BBB or Baa category as representing adequate capacity for payment of financial obligations. The lowest investment grade credit ratings for S&P is BBB-, for Moody’s is Baa3 and for Fitch is BBB-; thus, the credit rating agencies assign TECO Energy, TECO Finance, TEC and NMGC’s senior unsecured debt investment-grade credit ratings.  

A credit rating agency rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency. Our access to capital markets and cost of financing, including the applicability of restrictive financial covenants, are influenced by the ratings of our securities. In addition, certain of TEC’s derivative instruments contain provisions that require TEC’s debt to maintain investment grade credit ratings (see Note 12 to the TECO Energy Consolidated Financial Statements). The credit ratings listed above are included in this report in order to provide information that may be relevant to these matters and because downgrades, if any, in credit ratings may affect our ability to borrow and may increase financing costs, which may decrease earnings (see the Risk Factors section of TECO Energy’s 2014 Annual Report on Form 10-K). These credit ratings are not necessarily applicable to any particular security that we may offer and therefore should not be relied upon for making a decision to buy, sell or hold any of our securities.

Fair Value Measurements

All natural gas derivatives were entered into by the regulated utilities to manage the impact of natural gas prices on customers. As a result of applying accounting standards for regulated operations, the changes in value of natural gas derivatives of Tampa Electric, PGS and NMGC are recorded as regulatory assets or liabilities to reflect the impact of the risks of hedging activities in the fuel recovery clause. Because the amounts are deferred and ultimately collected through the fuel clause, the unrealized gains and losses associated with the valuation of these assets and liabilities do not impact our results of operations.

The valuation methods used to determine fair value are described in Notes 7 and 13 to the TECO Energy Consolidated Condensed Financial Statements. In addition, the company considered the impact of nonperformance risk in determining the fair value of derivatives. The company considered the net position with each counterparty, past performance of both parties and the intent of the parties, indications of credit deterioration and whether the markets in which the company transacts have experienced dislocation. At Mar. 31, 2015, the fair value of derivatives was not materially affected by nonperformance risk.

Critical Accounting Policies and Estimates

The company’s critical accounting policies relate to deferred income taxes, employee postretirement benefits, long-lived assets, goodwill, purchase accounting and regulatory accounting. For further discussion of critical accounting policies, see TECO Energy’s Annual Report on Form 10-K for the year ended Dec. 31, 2014.

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Changes in Fair Value of Derivatives

The change in fair value of derivatives is largely due to the decrease in the average market price component of the company’s outstanding natural gas swaps of approximately 9% from Dec. 31, 2014 to Mar. 31, 2015. For natural gas, the company maintained a similar volume hedged as of Mar. 31, 2015 from Dec. 31, 2014.

The following tables summarize the changes in and the fair value balances of derivative assets (liabilities) for the three month period ended Mar. 31, 2015:

 

Change in Fair Value of Derivatives (millions)

 

Roll-Forward of Derivative Net Assets (Liabilities) (millions)

 

Below is a summary table of sources of fair value, by maturity period, for derivative contracts at Mar. 31, 2015:

For all unrealized derivative contracts, the valuation is an estimate based on the best available information. Actual cash flows could be materially different from the estimated value upon maturity.

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TECO Energy, Inc.

On Sept. 2, 2014, TECO Energy completed the acquisition of the privately-held NMGI and its wholly owned subsidiary, NMGC. NMGI and NMGC’s business combined constitute 14.7% and 15.1% of total assets of TECO Energy at Mar. 31, 2015 and Dec. 31, 2014, respectively, and 17.2% of TECO Energy’s revenues for the three months ended Mar. 31, 2015. As permitted by SEC guidance for newly acquired businesses, because it was not possible to complete an effective assessment of the acquired companies’ controls by Mar. 31, 2015, TECO Energy’s management has excluded NMGI and NMGC from its evaluation of disclosure controls and procedures from the date of such acquisition through Mar. 31, 2015. TECO Energy’s management is in the process of reviewing the operations of NMGI and NMGC and implementing TECO Energy’s internal control structure over the acquired operations.

Tampa Electric Company

 

 

 

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PART II. OTHER INFORMATION

 

Item 1. LEGAL PROCEEDINGS

From time to time, TECO Energy and its subsidiaries are involved in legal, tax and regulatory proceedings before various courts, regulatory commissions and governmental agencies in the ordinary course of its business. Where appropriate, accruals are made in accordance with accounting standards for contingencies to provide for matters that are probable of resulting in an estimable loss. While the outcome of such proceedings is uncertain, management does not believe that their ultimate resolution will have a material adverse effect on the company’s results of operations, financial condition, or cash flows.

For a discussion of certain legal proceedings and environmental matters, including an update of previously disclosed legal proceedings and environmental matters, see Notes 10 and 8, Commitments and Contingencies, of the TECO Energy and Tampa Electric Company Consolidated Financial Statements, respectively.

 

 

The following table shows the number of shares of TECO Energy common stock deemed to have been repurchased by TECO Energy:

 

 

 

TECO Coal is subject to regulation by the Federal MSHA under the Federal Mine Safety and Health Act of 1977. Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104) is included in Exhibit 95 to this quarterly report.

 

Exhibits - See index on pages 48 and 49.

 

 

 

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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.

 

 

 

 

 

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INDEX TO EXHIBITS

 

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49

Exhibit 2.1

 

AMENDMENT #2 TO securities PURCHASE AGREEMENT

THIS AMENDMENT #2 (this “Amendment #2”) to the Securities Purchase Agreement (the “Agreement”), dated as of October 17, 2014, (as amended by that certain Amendment dated as of December 24, 2014) by and among TECO Diversified, Inc., a Florida corporation (“Seller”), and Cambrian Coal Corporation, a Kentucky corporation (“Purchaser”), is made and entered into as of February 5, 2015, by and between Seller and Purchaser.  All capitalized terms used but not defined herein shall have the meaning assigned to them in the Agreement.

WITNESSETH THAT:

WHEREAS, the parties desire to amend the Agreement to reflect certain items described herein; and

WHEREAS, Section 9.10 of the Agreement provides, among other things, that the Agreement may be amended by a written mutual agreement executed and delivered by Seller and Purchaser.

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth below, and for other good and valuable consideration, Seller and Purchaser hereby agree as follows:

A new definition of “Debt Financing” shall be added to the Agreement and shall read as follows:  “means the debt financing that, along with the Equity Commitment, is required to consummate the transactions contemplated hereby, including to pay all, or a portion, as the case may be, of the Closing Consideration, to pay fees and expenses of Purchaser relating to the transactions contemplated hereby, to obtain substitute letters of credit in accordance with Section 5.9, to obtain a substitute guaranty or similar instrument for each Guarantee or assume all obligations under each Guarantee in accordance with Section 5.9, and to provide working capital for the operation of the Company and its Subsidiaries.”

A new definition of “Equity Commitment” shall be added to the Agreement and shall read as follows:  “shall have the meaning set forth in Section 4.10.”

A new definition of “Equity Commitment Letter” shall be added to the Agreement and shall read as follows:  “shall have the meaning set forth in Section 4.10.”

A new definition of “Investor” shall be added to the Agreement and shall read as follows:  “shall have the meaning set forth in Section 4.10.”

The definition of “Financing” shall be amended and restated in its entirety to read as follows:  “means collectively, the Debt Financing and the Equity Commitment.”

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Exhibit 2.1

 

“4.10Equity Commitment.

(a) Concurrently with the execution of Amendment #2, Purchaser and James H. Booth (the “Investor”) delivered to Seller a true, correct and complete copy of the executed equity commitment letter in the form attached as Annex B hereto, dated as of the date of Amendment #2 (the “Equity Commitment Letter”) pursuant to which the Investor has committed to invest the amount set forth therein on the terms set forth therein (the “Equity Commitment”).

(b)As of the date of Amendment #2, (i) the Equity Commitment Letter is in full force and effect against Purchaser and has not been withdrawn, rescinded, repudiated or terminated or otherwise amended, supplemented or modified in any respect by Purchaser, (ii) the Equity Commitment Letter, in the form so delivered, is a legal, valid, binding and enforceable obligation of Purchaser, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar Laws of general application affecting enforcement of creditors’ rights generally, (iii) there are no side letters or other agreements, Contracts or arrangements to which Purchaser is a party relating to the Equity Commitment Letter or commitments contemplated thereby, (iv) no event has occurred which, with or without notice, lapse of time or both, would or would reasonably be expected to constitute a default or breach on the part of Purchaser under any term of the Equity Commitment Letter, (v) Purchaser has not received any written notice or other written communication from the Investor (A)

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Exhibit 2.1

 

alleging any actual or potential breach or default on the part of Purchaser or any other party to the Equity Commitment Letter or (B) stating the Investor’s intention to terminate the Equity Commitment Letter or to not provide all or any portion of the Equity Commitment, (vi) Purchaser knows of no fact, occurrence, circumstance or condition that would reasonably be expected to cause the Equity Commitment Letter to terminate, to be withdrawn, repudiated, rescinded or modified or to be or become unenforceable, in each case, except in accordance with its terms, or otherwise cause the full amount (or any portion) of the funds contemplated to be available under the Equity Commitment Letter to not be available to Purchaser on a timely basis (and in any event as of the Closing).  There are no conditions precedent to the funding of the full amount of the Equity Commitment, other than as expressly set forth in the Equity Commitment Letter.”

“Purchaser shall use commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to arrange and obtain the Debt Financing, including using commercially reasonable efforts to (i) negotiate and enter into definitive agreements with respect thereto, and (ii) satisfy (or seek a waiver of) on a timely basis all conditions within the control of Purchaser and required to be satisfied by it, and otherwise comply with all terms applicable to Purchaser, in such definitive agreements.

“Purchaser shall cooperate in good faith with Deutsche Bank in connection with the prompt marketing of the Debt Financing and shall request that Deutsche Bank begin marketing the Debt Financing to a reasonable number of investors by February 5, 2015.”

“In the event of termination of this Agreement by a party pursuant to Section 7.1, written notice thereof shall forthwith be given by the terminating party to the other party, and this Agreement shall thereupon terminate and become void and have no effect, and the transactions contemplated by this Agreement shall be abandoned without further action by the parties, except that the provisions of Section 5.4(a), this Section 7.2 and Article IX shall survive the termination of this Agreement; provided, however, that, if such termination shall have been caused by, or shall have resulted from, the willful and material breach by a party of any of its representations, warranties, covenants or

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Exhibit 2.1

 

agreements set forth in this Agreement, Seller, on the one hand, or Purchaser, on the other hand, as the case may be, shall be fully liable for any and all Losses of the other party as a result of such breach or failure; provided further, however, that, if, at the time of the termination of this Agreement by either party, all conditions to Seller’s and Buyer’s obligation to consummate the transactions contemplated by this Agreement have been satisfied or waived (other than (a) delivery of items to be delivered at the Closing, (b) those conditions that by their nature are to be satisfied at the Closing, and (c) Section 6.2(e)) (a “Debt Failure Termination”), then Purchaser shall pay, or cause to be paid, to Seller an amount equal to $1,000,000 by wire transfer of immediately available funds to the account or accounts designated by Seller promptly, but in no event later than two (2) Business Days after the date of such termination, which payment shall be, in the event of a Debt Failure Termination, Seller’s sole and exclusive remedy.”

 

[Remainder of page intentionally left blank]

 

 

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IN WITNESS WHEREOF, the parties have executed and delivered this Amendment #2 as of the date set forth above.

 

 

 

 

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Annex A

 

Exhibit 2.2(b)(ii)

 

Consents

Leases

 

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Exhibit 2.1

 

 

Coal Supply Agreements

 

ArcelorMittal USA LLC

 

 

 

 

 

DOFASCO

 

 

 

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Exhibit 2.1

 

 

 

 

 

Waivers

 

 

1.Premier Elkhorn Coal Company – Dwelling Distance Waivers

 

·Permit No. 898-8098 Michael Brown

(Robinson Creek Impoundment)

2.Clintwood Elkhorn Mining Company – Dwelling Distance Waivers

 

·Permit No. 1301714Multiple Dwellings (waivers or VER demonstration)

(CE #3 Plant)

 

 

3.Whitaker Coal Corporation – Dwelling Distance Waivers

 

·Permit No. 897-9005Johnny Vanover

(Fourseam Impoundment)

 

 

 

 

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Annex B

 

Equity Commitment Letter

 

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EQUITY COMMITMENT LETTER

February 5, 2015

 

Cambrian Coal Corporation

P.O. Box 2100

Pikeville, Kentucky 41501

Attention: President

 

and

 

TECO Diversified, Inc.
TECO Plaza

702 North Franklin Street

Tampa, Florida 33602

Attention: General Counsel

 

Ladies and Gentlemen:

 

This letter agreement sets forth the commitment of James H. Booth (the “Investor”), subject to the terms and conditions contained herein, to provide, directly or indirectly, certain funds to Cambrian Coal Corporation, a Kentucky corporation (“Purchaser”) for Purchaser to fund a portion of the Closing Consideration or certain other payment obligations.  It is contemplated that, pursuant to that certain Securities Purchase Agreement, dated as of October 17, 2014 (as amended, restated, supplemented or otherwise modified from time to time, the “SPA”), by and between TECO Diversified, Inc., a Florida corporation (“Seller”), and Purchaser, Seller will sell to Purchaser, and Purchaser will buy from Seller, all of the membership interests of TECO Coal LLC, a Kentucky limited liability company (the “Transaction”).   Capitalized terms used in this letter agreement and not otherwise defined herein have the meanings ascribed to such terms in the SPA.

13.Equity Commitment for the Closing Consideration.

(a)This letter agreement confirms the commitment of the Investor to, at or immediately prior to the Closing, subject to the terms and conditions set forth herein, pay, or cause to be paid, to Purchaser in immediately available funds an aggregate amount of Ten Million Dollars ($10,000,000.00) (the “Equity Commitment”), in the form of equity capital (whether by a capital contribution, a purchase of common stock or preferred stock or such other form of equity capital as determined by the Investor), which will be used by Purchaser solely for the purpose of funding, to the extent necessary to fund, a portion of the Closing Consideration required to be paid by Purchaser to consummate the Transaction pursuant to and in accordance with the SPA, together with related fees and expenses incurred by Purchaser in connection with the Transaction; provided, however, that the Investor shall not, under any circumstances, be obligated to contribute to, purchase equity or debt of, or otherwise provide funds to Purchaser in any amount in excess of the Equity Commitment.  The Investor may affect the Equity Commitment directly or indirectly through one or more affiliated entities but the Investor will

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not be relieved from any liability hereunder in the event such entities do not satisfy the obligations under this letter agreement.

(b)In the event Purchaser does not require an amount equal to the Equity Commitment in order to consummate the Transaction, the amount of the Equity Commitment to be funded under this letter agreement shall be reduced to the level sufficient, in combination with the other financing arrangements contemplated by the SPA or otherwise arranged by or for Purchaser, for Purchaser to pay the Closing Consideration pursuant to and in accordance with the SPA, together with related fees and expenses incurred by the Purchaser in connection with the Transaction.

14.Conditions of Equity Commitment.  The obligation to fund the Equity Commitment shall be subject to (a) the satisfaction in full (or waiver, if permissible, by Purchaser), at or prior to the Closing, of each of the conditions set forth in Section 6.1 and Section 6.2 of the SPA (other than Section 6.2(e) and any conditions that by their nature are to be satisfied at the Closing but subject to the prior or substantially concurrent satisfaction of such conditions), (b) the Debt Financing having been funded or being funded at the Closing in accordance with the terms thereof if the Equity Commitment is funded at the Closing, (c) the proceeds from the Equity Commitment being used as described in Section 1(a), and (d) the contemporaneous consummation of the Transaction.

15.Specific Performance. The parties hereto acknowledge and agree that irreparable damage would occur in the event that the Investor failed to fund the Equity Commitment in accordance with the terms of this letter agreement and further agree that Seller shall be entitled to enforce specifically the Investor’s obligation to fund the Equity Commitment in accordance with the terms hereof and shall not be required to provide any bond or other security in connection with its exercise of such right of specific performance.  The Investor further agrees not to oppose the granting of any such specific performance on the basis that (a) Seller has an adequate remedy at law or (b) an award of specific performance is not an appropriate remedy for any reason at law or in equity.  Seller’s exercise of the right of specific performance set forth in this Section 3 shall be Seller’s sole and exclusive remedy at law or in equity for any breach of this letter agreement by the Investor.

16.Changes in Payment Obligation; Certain Waivers.  Each party hereto hereby covenants and agrees that it shall not institute, and shall cause its respective Affiliates not to institute, any proceeding asserting that this letter agreement is illegal, invalid or unenforceable in accordance with its terms, subject to (a) the effects of insolvency, bankruptcy, reorganization or other similar proceedings and (b) general equitable principles (whether considered in a proceeding in equity or at law).

To the extent Purchaser is relieved of all or any portion of its payment obligations under the SPA, the Investor shall be similarly relieved of its corresponding obligations under this letter agreement.

17.No Waiver; Cumulative Rights.  No failure on the part of any party hereto to exercise, and no delay in exercising, any right, remedy or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by any party hereto of any right, remedy

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or power hereunder preclude any other or future exercise of any right, remedy or power hereunder.

18.Representations and Warranties.  The Investor hereby represents and warrants to Purchaser and Seller that:

(a)the execution, delivery and performance of this letter agreement do not contravene any law, regulation, rule, decree, order, judgment or contractual restriction binding on the Investor or his assets;

(b)all consents, approvals, authorizations and permits of, filings with and notifications to, any Governmental Entity necessary for the due execution, delivery and performance of this letter agreement by the Investor have been obtained or made and all conditions thereof have been duly complied with, and no other action by, and no notice to or filing with, any Governmental Entity is required from the Investor in connection with the execution, delivery or performance of this letter agreement;

(c)this letter agreement constitutes a legal, valid and binding obligation of the Investor enforceable against the Investor in accordance with its terms, subject to (i) the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws affecting creditors’ rights generally and (ii) general equitable principles (whether considered in a proceeding in equity or at law);

(d)the Investor is solvent and shall not be rendered insolvent as a result of his execution and delivery of this letter agreement or the performance of his obligations hereunder;

(e)this letter agreement is in full force and effect against the Investor and has not been withdrawn, rescinded, repudiated or terminated or otherwise amended, supplement or modified in any respect by the Investor;

(f)there are no side letters or other agreements, contracts or arrangements to which the Investor is a party relating to this letter agreement or commitments contemplated hereby; and

(g)no event has occurred which, with or without notice, lapse of time or both, would or would reasonably be expected to constitute a default or breach on the part of the Investor under any term of this letter agreement or otherwise result in any portion of the Equity Commitment to be unavailable.

19.No Third-Party Beneficiaries; Enforceability of Equity Commitment.  The parties hereto hereby agree that their respective representations, warranties and covenants set forth herein are solely for the benefit of the other parties hereto, in accordance with, and subject to, the terms of this letter agreement, and this letter agreement is not intended to, and does not, confer upon any Person other than the parties hereto any rights or remedies hereunder, including the right to rely upon the representations and warranties set forth herein.  None of Purchaser’s or Seller’s creditors shall have the right to enforce this letter agreement or to cause Purchaser or Seller to enforce this letter agreement against the Investor.  

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20.No Modification; Entire Agreement.  This letter agreement may not be amended or otherwise modified without the prior written consent of each party hereto.  This letter agreement constitutes the sole agreement, and supersedes all prior agreements, understandings and statements, written or oral, among the Investor or any of its Affiliates, Purchaser or any of its Affiliates, and Seller or any of its Affiliates with respect to the transactions contemplated hereby.  Each of the parties acknowledges that each party and its respective counsel have reviewed this letter agreement and that any rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this letter agreement.

21.Governing Law and Jurisdiction.  

(a)This letter agreement shall be governed by and interpreted and enforced in accordance with the internal Laws of the State of Delaware without regard to the conflicts of laws rules thereof.

(b)All judicial Actions brought against the parties arising out of or relating to this letter agreement, or any obligations hereunder, shall be brought in the Delaware Court of Chancery located in Wilmington, Delaware, to the extent such court can assert jurisdiction over such judicial Action and otherwise in any state court located in Wilmington, Delaware or the courts of the United States located in Wilmington, Delaware.  By executing and delivering this letter agreement, the parties hereto irrevocably: (i) accept generally and unconditionally the exclusive jurisdiction and venue of any state court located in Wilmington, Delaware or the courts of the United States located in Wilmington, Delaware; (ii) waive any objections that such party may now or hereafter have to the laying of venue of any of the aforesaid Actions arising out of or in connection with this letter agreement brought in the courts referred to in clause (i) above and hereby further irrevocably waive and agree not to plead or claim in any such court that such Action brought in any such court has been brought in an inconvenient forum; (iii) agree that service of all process in any such Action in any such court may be made by registered or certified mail, return receipt requested, to such party at their respective addresses provided in accordance with Section 11; and (iv) agree that service as provided in clause (iii) above is sufficient to confer personal jurisdiction over such party in any such Action in any such court, and otherwise constitutes effective and binding service in every respect.

22.Waiver of Jury Trial.  EACH OF THE PARTIES HERETO HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS LETTER AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.

23.Notices.  All notices, requests, demands and other communications under this letter agreement shall be in writing and shall be deemed to have been duly given (a) when received if delivered personally, (b) when sent by facsimile or e-mail (which is confirmed by the intended recipient), and (c) when received by the addressee when sent by overnight courier service or when mailed by certified or registered mail, return receipt requested, with postage prepaid to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):

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If to the Investor, to:

 

James H. Booth

P.O. Box 190

Lovely, KY 41231

Fax: (606) 395-6842

 

If to Purchaser, to:

Cambrian Coal Corporation

P.O Box 2100
Pikeville, Kentucky 41501
Attn: President
Fax: 606-754-0963

 

with copies, in the case of notice to Purchaser, to:

Cambrian Coal Corporation

Legal Department

2408 Sir Barton Way, Suite 325
Lexington, Kentucky 40509
Attn: General Counsel
Fax: 859-422-6760

and

Frost Brown Todd LLC

Lexington Financial Center
250 West Main Street
Suite 2800
Lexington, Kentucky 40507
Attn: Paul Sullivan

Jeffrey Hallos
Fax: 859-231-0011

 

If to Seller, to:

TECO Diversified, Inc.
TECO Plaza
702 North Franklin Street
Tampa, Florida 33602
Attn:General Counsel
Fax:(813) 228-4811

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with copies, in the case of notice to Seller, to:

Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
Attn:Sheldon S. Adler, Esq.
Fax:(212) 735-2000

and

Skadden, Arps, Slate, Meagher & Flom LLP
155 N. Wacker Drive
Chicago, Illinois 60606
Attn:Peter C. Krupp, Esq.
            Steven H. Forbes, Esq.
Fax:(312) 407-0411

24.Counterparts.  This letter agreement may be executed in any number of counterparts (including by e-mail of PDF or scanned versions or by facsimile), each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement

25.Termination.  The obligation of the Investor to fund the Equity Commitment will terminate automatically and immediately upon the earliest to occur of (a) the valid termination of the SPA in accordance with its terms and (b) the Closing, at which time such obligation will be discharged but subject to the performance of such obligation.

26.No Assignment.  Neither this letter agreement nor any of the rights, interests or obligations under this letter agreement may be assigned, in whole or in part, to any other Person (whether by operation of law, merger, consolidation or otherwise) by any party hereto without the prior written consent of the other parties hereto, except as contemplated by Section 1 with respect to the Investor.  Any purported transfer or assignment in violation of this section shall be null and void and of no force and effect.  Any assignment shall not relieve the Investor from any liability hereunder.

27.Severability. The provisions of this letter agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.  If any term or other provision of this letter agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this letter agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party.  No party hereto shall assert that this letter agreement or any part hereof is invalid, illegal or unenforceable.  Upon a determination that any term or provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this letter agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible.

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28.Interpretation.  Headings are used for reference purposes only and do not affect the meaning or interpretation of this letter agreement.  When a reference is made in this letter agreement to a Section, such reference shall be to a Section of this letter agreement unless otherwise indicated.  The word “including” and words of similar import when used in this letter agreement will mean “including, without limitation,” unless otherwise specified.

29.Confidentiality. This letter agreement shall be treated as confidential and is being provided by the Investor solely in connection with the Transaction. This letter agreement may not be used, circulated, quoted or otherwise referred to in any document, except with the written consent of the Investor and Purchaser. The foregoing notwithstanding, each of the undersigned may disclose the existence of this letter agreement (a) to its Affiliates and representatives, (b) to the extent required by law or the applicable rules of any national securities exchange, and (c) in connection with any required securities regulatory agency filings relating to the Transaction.

[Remainder of page intentionally left blank]

 

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[SIGNATURE PAGE TO COMMITMENT LETTER]Sincerely,

 

 

___________________________

James H. Booth

 

 

 

Agreed to and accepted:

CAMBRIAN COAL CORPORATION

 

 

By:   ___________________________

Name:  

Title:  

 

TECO DIVERSIFIED, INC.

 

 

By:   ___________________________

Name:  

Title:

 

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Exhibit 2.2

 

AMENDMENT #3 TO securities PURCHASE AGREEMENT

THIS AMENDMENT #3 (this “Amendment #3”) to the Securities Purchase Agreement, dated as of October 17, 2014, (as amended by that certain Amendment dated as of December 24, 2014 and that certain Amendment dated as of February 5, 2015, the “Agreement”) by and among TECO Diversified, Inc., a Florida corporation (“Seller”), and Cambrian Coal Corporation, a Kentucky corporation (“Purchaser”), is made and entered into as of March 12, 2015, by and between Seller and Purchaser.  All capitalized terms used but not defined herein shall have the meaning assigned to them in the Agreement.

WITNESSETH THAT:

WHEREAS, the parties desire to amend the Agreement to reflect certain items described herein; and

WHEREAS, Section 9.10 of the Agreement provides, among other things, that the Agreement may be amended by a written mutual agreement executed and delivered by Seller and Purchaser.

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth below, and for other good and valuable consideration, Seller and Purchaser hereby agree as follows:

(a)Exclusion of the Kentucky River Concession Amount.  The definition of “Current Assets” shall be amended by adding the following clause (ix) thereto at the end of clause (viii):  “and (ix) any recoupable balance, prepaid royalty or other amount arising from or relating to the $2,000,000 “concession fee” (any such amount being referred to as the “Kentucky River Recoupable Amount”) paid by the Company or Seller or any of its Affiliates to Kentucky River Properties LLC or any of its Affiliates in connection with the Lease Amendment and Modification Agreement, dated March 2, 2015, to those certain Agreements of Lease (and amendments and supplements thereto) between Kentucky River Properties LLC or its predecessor in interest and Perry Country Coal Corporation or its predecessor in interest, to wit: Lease dated March 21, 1975; Lease dated September 12, 1997; Supplement dated January 17, 2007; and Supplement dated December 15, 2010 (collectively, the “Kentucky River Properties Leases”).”

(b)Kentucky River Production Records.  For the 5-year period during which the Kentucky River Recoupable Amount is recoupable (the “Recoupment Period”), within thirty (30) days after the end of each calendar year during the Recoupment Period, Purchaser shall provide Seller with a schedule setting forth the production of coal during the prior calendar year from the property that is the subject of the Kentucky River Properties Leases.

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Exhibit 2.2

 

(c)Kentucky River Recoupable Amount Payments.  If Purchaser or any of its Affiliates recoups any recoupable balance, prepaid royalty or other similar type amount pursuant to the Kentucky River Properties Leases (including any of the Kentucky River Recoupable Amount) during the Recoupment Period, Purchaser shall be entitled to the first $1,300,000 of any such amounts and thereafter, Purchaser shall pay any such amounts to Seller within five (5) Business Days of receiving such amounts until payments to Seller equal $2,000,000.

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Exhibit 2.2

 

“by Seller if Purchaser fails to deliver to Seller by 5:00 pm EDT on April 17, 2015, fully executed copies of such equity commitment letters, debt commitment letters and other documents that evidence an obligation of any current or contemplated shareholder of Purchaser or any lender or other Person that, if taken together and funded in accordance with their terms, would allow Purchaser to fund its obligations to Seller pursuant to the Agreement.  If Seller terminates this Agreement pursuant to this Section 7.1 (f), such termination shall be, and shall be deemed to be, a “Debt Failure Termination” as that term is defined in Section 7.2 and the Purchaser shall pay, or cause to be paid, to Seller an amount equal to $1,000,000 by wire transfer of immediately available funds to the account or accounts designated by Seller promptly, but in no event later than two (2) Business Days after the date of such termination, which payment shall be Seller’s sole and exclusive remedy.”     

“For purposes of clarification, Purchaser and Seller acknowledge and agree that, if Purchaser makes the $1,000,000 payment contemplated by Section 7.1(f), Purchaser shall not be required to make the $1,000,000 payment contemplated by this Section.”

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Exhibit 2.2

 

 

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IN WITNESS WHEREOF, the parties have executed and delivered this Amendment #3 as of the date set forth above.

 

 

 

 

 

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Schedule 4

 

Corbin Delayed Termination Employees

 

Intentionally omitted

 

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Exhibit 2.2

 

Schedule 5

 

Premier Elkhorn Delayed Employee

 

Intentionally omitted

 

 

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913845.03-CHISR01A - MSW

Exhibit 10.1

TECO ENERGY, INC.
2010 EQUITY INCENTIVE PLAN
Performance Shares Agreement

 

TECO Energy, Inc. (the "Company") and ___________________ (the "Grantee") have entered into this Performance Shares Agreement (the "Agreement") dated _______ under the Company's 2010 Equity Incentive Plan (the "Plan").  Capitalized terms not otherwise defined herein have the meanings given to them in the Plan.

 

1.Grant of Performance Shares.  Pursuant to the Plan and subject to the terms and conditions set forth in this Agreement, the Company hereby grants, issues and delivers to the Grantee ________________ shares of its Common Stock (the “Target Performance Shares”) as of the date of this Agreement.  The Target Performance Shares, if not previously forfeited, will vest based on the achievement of the Performance Measurement determined pursuant to Section 2 hereof, or pursuant to Section 7 in the event of a Change in Control.  In addition to the Target Performance Shares, after the end of the Performance Period (defined below), the Grantee may receive additional shares of the Company’s Common Stock based on the achievement of the Performance Measurement determined pursuant to Section 2 hereof. These additional shares of Common Stock are referred to in this Agreement as the “Additional Performance Shares”, and together with the Target Performance Shares, are referred to as the “Performance Shares”.  Provided, however, no Performance Shares shall vest unless the “Executive Officer Performance Goal” set forth in Schedule A has been satisfied.

 

2.Vesting of Performance Shares.  Upon the Vesting Date (as defined in Section 5), the restrictions on the Performance Shares will terminate.  Any Target Performance Shares that do not vest in accordance with this Agreement will be forfeited and returned to the Company as of the Vesting Date.  The Additional Performance Shares, if any, will be issued, granted and delivered to the Grantee no later than 30 days after the Vesting Date.  At the end of the Performance Period, the number of Performance Shares, if any, that will vest on the Vesting Date, will be determined in accordance with the following formula:

 

(a) The Performance Reward Percentage multiplied by the Target Performance Shares

Plus

(b) If the TSR Bonus Multiplier is achieved, the product of (a) above multiplied by one-third

The "Performance Reward Percentage" is the percentage shown in column B corresponding to the Performance Measurement in column A in the table below.  The Performance Reward Percentage will be interpolated in proportion to the corresponding placement in column A.  

 

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The "Performance Period" is the period beginning January 1, 20___ and ending on December 31, 20___, unless terminated earlier pursuant to Section 6, in which case the Performance Period will end on the last business day of the year in which employment was terminated, or if terminated earlier pursuant to Section 7, in which case the Performance Period will end on the last day of the year prior to the Change in Control.

 

The "Performance Measurement" is a measurement at the end of the Performance Period of the Company’s cumulative earnings per share calculated by adding the Company’s earnings per share for each year in the Performance Period (“Cumulative EPS”).  Cumulative EPS shall be calculated to three decimal places and the Company’s earnings per share for any year shall be the Company’s earnings on a per share basis, which may be adjusted at the discretion of the Committee to exclude the effect of any of the following events that impact such calculation: (i) any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, extraordinary dividend or divestiture (including a spin-off) or any other change in corporate structure or shares; (ii) any purchase, acquisition, sale, disposition or write-down of a significant amount of assets or a significant business; (iii) any change in accounting principles or practices, tax laws or other such laws or provisions affecting reported results; (iv) any uninsured catastrophic losses or extraordinary non-recurring items as described in Accounting Principles Board Opinion No. 30, provided that the exclusion of the impact of the foregoing specified events from the calculation shall only be made to the extent permitted by Section 162(m) of the Internal Revenue Code.  If the Performance Period is terminated prior to December 31, 20___ pursuant to Section 6 or 7, the Performance Measurement and Performance Reward Percentage shall be determined as shown on Schedule B attached hereto.

 

The “TSR Bonus Multiplier” is achieved if the Company’s Total Shareholder Return is in the top 25 percent of the companies in the Dow Jones conventional electricity group and multiutility group or the successors to those two groups as may be determined by the Committee (the “Peer Group”).  "Total Shareholder Return" is the amount obtained by dividing (1) the sum of (a) the amount of dividends with respect to the Performance Period, assuming dividend reinvestment, and (b) the difference between the share price at the end and beginning of the Performance Period, by (2) the closing share price at the beginning of the Performance Period, with the share price in each case being determined by using the average closing price during the 20 trading days preceding (and inclusive of) the date of determination.  The share price will be equitably adjusted for stock splits and other similar corporate actions affecting the stock.  If the Company’s Total Shareholder Return is not in the top 25 percent of the Peer Group, then the TSR Bonus Multiplier has not been achieved and it shall be omitted from the formula set forth above.

 

3.Dividends. Each time that the Company declares a dividend on its shares of common stock, an amount equal to the declared dividend multiplied by the number of Target Performance Shares outstanding on the record date associated with such dividend will be accrued on Grantee’s behalf on the payment date of such dividend, subject to forfeiture as set forth in the last sentence of this paragraph.   If the Performance Shares vest in accordance with Section 2, Grantee will also receive a cash payment equal to the amount of any dividends accrued over the Performance Period multiplied by the same Performance Reward Percentage used to determine the amount of the Performance Shares that vest.  Any dividends earned pursuant to this Section will be paid in cash to the Grantee when the vested Performance Shares are delivered or as soon as

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practicable thereafter. Any dividends accrued with respect to the Performance Shares will be forfeited if the related Performance Shares are forfeited.  

 

4.Restrictions on Performance Shares; Forfeiture.  Prior to vesting, unless otherwise determined by the Committee:

(a)the Performance Shares may not be sold, assigned, pledged or transferred by the Grantee; and

(b)all Performance Shares and accrued dividends will be forfeited and returned to the Company and the Grantee will cease to have any right to receive any Performance Shares or dividends pursuant to this Agreement, if the Grantee ceases to be an employee of the Company or any business entity in which the Company owns directly or indirectly 50% or more of the total voting power or has a significant financial interest as determined by the Committee (an "Affiliate"), other than terminations of employment covered by Sections 6(b), (c) or 7 hereunder.

 

5.Certification and Vesting Date. Promptly after the end of the Performance Period, the Company will calculate the number of Performance Shares that will vest and the amount of dividends payable to Grantee pursuant to this Agreement.  If the Performance Period ends on December 31, 20___ (that is, if the Performance Period was not terminated earlier pursuant to Section 6 or 7, below), the Company will submit its calculation regarding the Performance Measurement and the corresponding Total Performance Reward Percentage to the Compensation Committee of the Board for certification. Subject to any restrictions on distributions of shares under the Plan, and subject to Section 13 of this Agreement, the Performance Shares, if any, will vest on the date of the Compensation Committee’s certification.  If pursuant to Section 6 or 7, below, the Performance Period ends with respect to the Grantee prior to December 31, 20___, then the Performance Shares earned under the Award, if any, will vest as soon as practicable after the end of the Performance Period, or on the Compensation Committee certification date, if such certification is required under Section 162(m) of the Internal Revenue Code.  In no event will the Vesting Date be more than 45 days after the end of the Performance Period.  The “Vesting Date” is the date of the Compensation Committee’s certification, if applicable, or if no certification is required, it is the date on which the shares vest, which shall be as soon as practicable after the end of the Performance Period.     

6.Termination of Employment.  

 

(a)Voluntary Termination or Termination with Cause.  If before December 31, 20___, Grantee terminates his or her employment with the Company or any Affiliate and Section 6(c) does not apply to such termination, or the Company or any Affiliate terminates Grantee’s employment for Cause (defined below), all of Grantee’s Target Performance Shares will be cancelled as of the date of such termination and any dividends accrued with respect to Grantee’s Target Performance Shares will be forfeited.  The Grantee will not be entitled to any Additional Performance Shares.  For purposes of this Section 6, “Cause” means any termination effected through the Company’s Positive Discipline program (or any successor thereto).  (Provided, however, if termination occurs within 24 months following a Change in Control (as defined in Section 7), or prior to a Change in Control under circumstances described in Section 7, then “Cause” shall be defined as provided in that Section.)

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(b)Termination Other than for Cause.  If the Company or any Affiliate terminates Grantee's employment other than for Cause before December 31, 20___, Grantee’s Target Performance Shares will be prorated based on the number of months Grantee was employed (with partial months rounded up to the nearest whole month) beginning on the date of this Agreement to the date of termination, divided by 36 (the “Section 6(b) Prorated Target Performance Shares”). On the last business day of the year in which the termination occurred, the Performance Period will end and the number of Performance Shares that vest pursuant to this Agreement, if any, will be determined based on the application of the formula defined in Section 2, with the Section 6(b) Prorated Target Performance Shares substituted for the Target Performance Shares in such formula.  All other outstanding Target Performance Shares that do not vest pursuant to that formula will be cancelled and forfeited, and any associated accrued dividends will be forfeited and retained by the Company.  

 

(c)Death, Disability or Retirement.  If Grantee’s employment with the Company or any Affiliate is terminated at any time prior to December 31, 20___ due to death, a disability that would entitle the Grantee to benefits under the long-term disability benefits program of the Company for which the Grantee is eligible, or retirement at or after attainment of the age that is three years before the Grantee’s Social Security Normal Retirement Age, or any earlier date that the Committee determines will constitute a normal retirement for purposes of this Agreement, Grantee will be entitled to receive a prorated award as calculated under this Section.  Grantee’s Target Performance Shares will be prorated based on the number of months Grantee was employed (with partial months rounded up to the nearest whole month) beginning on the date of this Agreement to the date Grantee’s employment terminated, divided by 36 (the “Section 6(c) Prorated Target Performance Shares”).  On the last business day of the year in which the termination occurred, the Performance Period will end and the number of Performance Shares that vest pursuant to this Agreement, if any, will be determined based on the application of the formula defined in Section 2, with the Section 6(c) Prorated Target Performance Shares substituted for the Target Performance Shares in such formula.  All other outstanding Target Performance Shares that do not vest pursuant to that formula will be cancelled and forfeited, and any associated accrued dividends will be forfeited and retained by the Company.

 

7.Change in Control.  If, prior to December 31, 20___, Grantee's employment is terminated other than by the Company for Cause or by Grantee without Good Reason within 36 months following a Change in Control (as defined below), or prior to a Change in Control under circumstances described in the next sentence, then (i) if the Change in Control occurs after December 31, 20__, the Performance Period will end on the last day of the year prior to the year in which the Change in Control occurred and Grantee’s Performance Shares will vest as determined under Section 2 of this Agreement, or (ii) if the Change in Control occurs before December 31, 20__, then Grantee’s Target Performance Shares will vest.  For purposes of this Agreement, Grantee’s employment will be deemed to have been terminated following a Change in Control of the Company by the Company without Cause or by Grantee with Good Reason, if (i) Grantee’s 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 defined below) who has entered into an agreement with the Company the consummation of which would constitute a Change in Control of the Company, (ii) Grantee terminates Grantee’s employment for Good Reason prior to a Change in Control of the

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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) Grantee’s employment is terminated by the Company without Cause or by Grantee 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).  If a Change in Control occurs prior to December 31, 20__, and Grantee remains continuously employed through that date by the Company’s successor or any business entity in which such successor owns directly or indirectly 50% or more of the total voting power or has a significant financial interest as determined by the Committee, then Grantee’s Target Performance Shares shall vest as soon as practicable after December 31, 20__.

 

(i)A "Change in Control" means a Change in Control of the Company 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 will 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 shareholders 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)the following individuals cease to constitute a majority of the number of directors then serving:  individuals who on the date hereof constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose election by the Board or nomination for election by the shareholders 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 on the date hereof or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof;

 

(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 50% 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 shareholders of the Company approve a plan of complete

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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)  "Good Reason" for termination by Grantee of Grantee’s employment will mean the occurrence (without Grantee’s 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 7 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 Grantee of any duties inconsistent (except in the nature of a promotion) with the position in the Company that Grantee held immediately prior to the Change in Control of the Company or a substantial adverse alteration in the nature or status of Grantee’s position or responsibilities or the conditions of Grantee’s employment from those in effect immediately prior to the Change in Control of the Company;

 

(b)a reduction by the Company in Grantee’s 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 Grantee to be based more than fifty (50) miles from the Company's offices at which Grantee 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 Grantee’s present business travel obligations;

 

(d)the failure by the Company to pay to Grantee any portion of Grantee’s 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 Grantee participated 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 Grantee’s 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 Grantee’s 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 Grantee with benefits substantially similar to those enjoyed by Grantee under any of the Company's pension, life insurance, medical, health and accident, or disability plans in which Grantee was 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 Grantee of any material fringe benefit enjoyed by Grantee at the time of the Change in Control of the Company, or the failure by the Company to provide Grantee with the number of paid vacation

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days to which Grantee is entitled on the basis of Grantee’s 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 Grantee’s employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection (iii) below (and, if applicable, the requirements of Subsection 6(c) above), which purported termination will not be effective for purposes of this Agreement.

 

Grantee’s right to terminate Grantee’s employment pursuant to this Subsection will not be affected by Grantee’s incapacity due to physical or mental illness.  Grantee’s continued employment will not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder.

 

(iii)A "Notice of Termination" will mean a notice which will indicate the specific termination provision in this Agreement relied upon and will set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Grantee’s employment under the provision so indicated.

 

(iv)For purposes of this Section 7, “Cause” means

 

(a) the willful and continued failure by Grantee to substantially perform Grantee’s duties with the Company (other than any such failure resulting from Grantee’s incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination by Grantee for Good Reason, each as defined in Section 7 after a written demand for substantial performance is delivered to Grantee by the Board, which demand specifically identifies the manner in which the Board believes that Grantee has not substantially performed Grantee’s duties; or

 

(b) the willful engaging by Grantee 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 Grantee’s part will be deemed "willful" unless done, or omitted to be done, by Grantee not in good faith and without reasonable belief that Grantee’s action or omission was in the best interest of the Company.  

 

Notwithstanding the foregoing, Grantee will not be deemed to have been terminated for Cause unless and until there will have been delivered to Grantee 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 Grantee and an opportunity for Grantee, together with Grantee’s counsel, to be heard before the Board), finding that in the good faith opinion of the Board Grantee was guilty of conduct set forth above in this Subsection and specifying the particulars thereof in detail.

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8.Minimum Performance Period.  If any event specified under Section 6 or 7 above occurs on a date that would cause the Performance Period to be shorter than four times as long as the period between the beginning of the Performance Period and the date of this Agreement, then the Performance Period will end on the first date after that period of time has elapsed.

9.Rights as Shareholder.  Subject to the restrictions and other limitations and conditions provided in this Agreement, the Grantee as owner of the Target Performance Shares will have all the rights of a shareholder, including but not limited to the right to vote the Target Performance Shares and the right to receive dividends and other distributions, except as otherwise specifically provided in this Agreement; and provided that dividends and other distributions paid on shares of Performance Shares shall be held by the Company on Grantee’s behalf and shall be subject to the same vesting conditions applicable to the Performance Shares, as provided in Section 3 hereof.

10.Book Entry.  The Target Performance Shares will be registered in the name of the Grantee and held by the Company’s transfer agent in uncertificated form in a restricted account.  As soon as practicable after the Vesting Date, the Company will cause unrestricted shares to be transferred electronically to Grantee’s brokerage account (or to the account of such Grantee's legal representative, beneficiary or heir) equal to the number of Target Performance Shares and any Additional Performance Shares that vest pursuant to this Agreement, subject to the tax withholding provision of Section 13.

11.Adjustment of Terms.  In the event of corporate transactions affecting the Company's outstanding Common Stock, the Committee will equitably adjust the number and kind of Performance Shares subject to this Agreement to the extent provided by the Plan.

12.Notice of Election Under Section 83(b).  If the Grantee makes an election under Section 83(b) of the Internal Revenue Code of 1986, as amended, with respect to Performance Shares, he or she will provide a copy thereof to the Company within 30 days of the filing of such election with the Internal Revenue Service.

13.Withholding Taxes.  The Grantee will pay to the Company, or make provision satisfactory to the Committee for payment of, any taxes required by law to be withheld in respect of the Performance Shares no later than the Vesting Date.  Such tax obligations may be paid in whole or in part in vested Performance Shares, valued at fair market value on the Vesting Date (which is defined as the closing price on the New York Stock Exchange on the previous trading day).  The Company and its Affiliates may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to the Grantee.

14.The Committee.  Any determination by the Committee under, or interpretation of the terms of, this Agreement or the Plan will be final and binding on the Grantee.

15.Limitation of Rights.  The Grantee will have no right to continued employment by virtue of this Agreement.

16.Amendment.  The Company may amend, modify or terminate this Agreement, including substituting another Award of the same or a different type and changing the date of

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realization, provided that the Grantee's consent to such action will be required unless the action, taking into account any related action, would not adversely affect the Grantee, and further provided that in no event will the Agreement be amended in any manner that would cause the issuance of Shares under this Agreement to fail to qualify as excluded from the calculation of Internal Revenue Code Section 162(m) covered compensation.

17.Governing Law.  This Agreement will be governed by and interpreted in accordance with the laws of the State of Florida.

 

 

 

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Schedule A – Executive Officer Performance Goal

 

 

The “Executive Officer Performance Period” is the period beginning January 1, 20__ and ending on December 31, 20__, unless one of the events specified in Subsections 6(b), 6(c) or Section 7 (an “Early Termination Event”) occurs, in which case the Executive Officer Performance Period will end on the last day of the quarter following the Early Termination Event, unless the Early Termination Event occurs on a date that would cause the Executive Officer Performance Period to be shorter than four times as long as the period between the beginning of the Performance Period and the date of this Agreement, then the Executive Officer Performance Period will end on the last day of the quarter after that period of time has elapsed.

 

The “Executive Officer Performance Goal” for the Performance Period is earnings before interest, taxes, depreciation and amortization (“EBITDA”) of at least $_____, which shall be adjusted to exclude the effect of any of the following events that impact EBITDA: (i) any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, extraordinary dividend or divestiture (including a spin-off) or any other change in corporate structure or shares; (ii) any purchase, acquisition, sale, disposition or write-down of a significant amount of assets or a significant business; (iii) any change in accounting principles or practices, tax laws or other such laws or provisions affecting reported results; or (iv) any uninsured catastrophic losses or extraordinary non-recurring items as described in Accounting Principles Board Opinion No. 30, provided that the exclusion of the impact of the foregoing specified events from the calculation of the Executive Officer Performance Goal shall only be made to the extent permitted by Section 162(m) of the Code.  If the Executive Officer Performance Period ends prior to December 31, 20__ due to the occurrence of an Early Termination Event, the Executive Officer Performance Goal shall be prorated for the number of quarters that elapsed, beginning on January 1, 20__ and ending on the last day of the quarter following the Early Termination Event.

 

If the Compensation Committee’s certification of achievement of the Executive Officer Performance Goal is required under Section 162(m) of the Internal Revenue Code, promptly after the end of the Executive Officer Performance Period, the Company will submit its calculation regarding the Executive Officer Performance Goal to the Compensation Committee for certification, and the Performance Shares shall vest pursuant to the terms of this Agreement.      

 

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Schedule B – Prorated Performance Measurement

 

1.  The following table shall replace the table provided in Section 2 for calculating the Performance Reward Percentage with respect to a Performance Period that ends on December 31, 20__ pursuant to Section 6 or 7 of this Agreement:

 

 

 

2.  The following table shall replace the table provided in Section 2 for calculating the Performance Reward Percentage with respect to a Performance Period that ends on December 31, 20__ pursuant to Section 6 or 7 of this Agreement:

 

 

 

 

 

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Exhibit 10.2

TECO ENERGY, INC.

2010 EQUITY INCENTIVE PLAN

 

Restricted Stock Agreement

 

TECO Energy, Inc. (the "Company") and ___________________________ (the "Grantee") have entered into this Restricted Stock Agreement (the "Agreement") dated _________ under the Company's 2010 Equity Incentive Plan (the "Plan").  Capitalized terms not otherwise defined herein have the meanings given to them in the Plan.

 

1.  Grant of Restricted Stock; Shareholder Approval.  Pursuant to the Plan and subject to the terms and conditions set forth in this Agreement, the Company hereby grants, issues and delivers to the Grantee ____________ shares of its Common Stock (the "Restricted Stock").  

 

2.Termination of Restrictions; Vesting.  Provided that the Grantee remains in Continuous Service through the applicable Vesting Date (as defined on Schedule A hereto), and further provided that the performance goal set forth in Schedule A has been satisfied, the Restricted Stock will vest on the earliest to occur of the events described below.  “Continuous Service” means remaining in the continuous service as an employee of the Company or any business entity in which the Company owns directly or indirectly 50% or more of the total voting power or has a significant financial interest as determined by the Committee (an "Affiliate").

 

(a)On the Vesting Date following the third anniversary of the date of this Agreement the restrictions on all shares of Restricted Stock will terminate;

 

(b)On the Vesting Date following the termination of Grantee's employment with the Company or any Affiliate because of a disability that would entitle the Grantee to benefits under the long-term disability benefits program of the Company for which the Grantee is eligible, as determined by the Committee, the restrictions on a prorated portion of shares of Restricted Stock will terminate based on the number of months Grantee was employed (with partial months rounded up to the nearest whole month) beginning on the date of this Agreement to the date of termination, divided by 36;

 

(c)On the Vesting Date following the termination by the Company or any Affiliate of Grantee's employment other than for Cause, the restrictions on a prorated portion of shares of Restricted Stock will terminate based on the number of months Grantee was employed (with partial months rounded up to the nearest whole month) beginning on the date of this Agreement to the date of termination, divided by 36.  For purposes of this Subsection 2(c), termination for "Cause" means any termination effected through the Company’s Positive Discipline program (or any successor thereto). (Provided, however, if termination of Grantee's employment occurs within 24 months following a Change in Control (as defined in Subsection 2(f)), or prior to a Change in Control under circumstances described in Subsection 2(f), then “Cause” shall be defined as provided in that Section.);

 

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(d)On the Vesting Date following a termination of Grantee’s employment that the Committee determines will constitute a normal retirement for purposes of this Agreement, the restrictions on a prorated portion of shares of Restricted Stock will terminate based on the number of months Grantee was employed (with partial months rounded up to the nearest whole month) beginning on the date of this Agreement to the date of termination, divided by 36;

 

(e)On the Vesting Date following the Grantee's death, the restrictions on a prorated portion of shares of Restricted Stock will terminate based on the number of months Grantee was employed (with partial months rounded up to the nearest whole month) beginning on the date of this Agreement to the date of Grantee’s death, divided by 36; or

 

(f)On the Vesting Date following the termination of Grantee's employment other than by the Company for Cause or by Grantee without Good Reason within 24 months following a Change in Control, or prior to a Change in Control under circumstances described in the next sentence.  For purposes of this Agreement, Grantee’s employment shall be deemed to have been terminated following a Change in Control of the Company by the Company without Cause or by Grantee with Good Reason, if (i) Grantee’s 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 such term is used in Sections 13(d) and 14(d) of the Exchange Act) who has entered into an agreement with the Company the consummation of which would constitute a Change in Control of the Company, (ii) Grantee terminates Grantee’s 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) Grantee’s employment is terminated by the Company without Cause or by Grantee 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)A "Change in Control" means a Change in Control of the Company 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 shareholders 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)the following individuals cease to constitute a majority of the number of directors then serving:  individuals who on the date hereof constitute the Board

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and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose election by the Board or nomination for election by the shareholders 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 on the date hereof or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof;

 

(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 50% 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 shareholders 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)  "Good Reason" for termination by Grantee of Grantee’s employment shall mean the occurrence (without Grantee’s 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(f) 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 Grantee of any duties inconsistent (except in the nature of a promotion) with the position in the Company that Grantee held immediately prior to the Change in Control of the Company or a substantial adverse alteration in the nature or status of Grantee’s position or responsibilities or the conditions of Grantee’s employment from those in effect immediately prior to the Change in Control of the Company;

 

(b)a reduction by the Company in Grantee’s 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 Grantee to be based more than fifty (50) miles from the Company's offices at which Grantee 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 Grantee’s present business travel obligations;

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(d)the failure by the Company to pay to Grantee any portion of Grantee’s 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 Grantee 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 Grantee’s 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 Grantee’s 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 Grantee with benefits substantially similar to those enjoyed by Grantee under any of the Company's pension, life insurance, medical, health and accident, or disability plans in which Grantee 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 Grantee of any material fringe benefit enjoyed by Grantee at the time of the Change in Control of the Company, or the failure by the Company to provide Grantee with the number of paid vacation days to which Grantee are entitled on the basis of Grantee’s 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 Grantee’s employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection (iii) below (and, if applicable, the requirements of Subsection 3(c) above), which purported termination shall not be effective for purposes of this Agreement.

 

Grantee’s right to terminate Grantee’s employment pursuant to this Subsection shall not be affected by Grantee’s incapacity due to physical or mental illness.  Grantee’s continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder.

 

(iii)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 Grantee’s employment under the provision so indicated.

 

(iv) For purposes of this Subsection 2(f), “Cause” means

 

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(a) the willful and continued failure by Grantee to substantially perform Grantee’s duties with the Company (other than any such failure resulting from Grantee’s incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination by Grantee for Good Reason, each as defined in Subsection 2(f) after a written demand for substantial performance is delivered to Grantee by the Board, which demand specifically identifies the manner in which the Board believes that Grantee has not substantially performed Grantee’s duties; or

 

(b) the willful engaging by Grantee 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 Grantee’s part will be deemed "willful" unless done, or omitted to be done, by Grantee not in good faith and without reasonable belief that Grantee’s action or omission was in the best interest of the Company.  Notwithstanding the foregoing, Grantee will not be deemed to have been terminated for Cause unless and until there will have been delivered to Grantee 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 Grantee and an opportunity for Grantee, together with Grantee’s counsel, to be heard before the Board), finding that in the good faith opinion of the Board Grantee was guilty of conduct set forth above in this Subsection and specifying the particulars thereof in detail.

 

 

3.Restrictions on Stock; Forfeiture.  Subject to any exceptions set forth in this Agreement or the Plan, unless otherwise determined by the Committee, during the period between the date of this agreement and the Vesting Date

 

(a) the Restricted Stock may not be sold, assigned, pledged or transferred by the Grantee; and

 

(b)all shares of Restricted Stock will be forfeited and returned to the Company if Grantee’s Continuous Service terminates for any reason prior to the Vesting Date (other than for reasons specified in Subsections 2(b) through 2(f)) and neither the Company nor any Affiliate shall have any further obligations to the Grantee under this Agreement.

 

4.Rights as Shareholder.  Subject to the restrictions and other limitations and conditions provided in this Agreement, the Grantee as owner of the Restricted Stock will have all the rights of a shareholder, including but not limited to the right to receive all dividends paid on, and the right to vote, such Restricted Stock.

 

5.Book Entry.  The Restricted Stock will be registered in the name of the Grantee and held by the Company’s transfer agent in uncertificated form in a restricted account.   Upon the termination of the restrictions imposed under this Agreement as to any shares of Restricted Stock held by the Company’s transfer agent hereunder, the Company will cause the unrestricted shares to be transferred electronically to Grantee’s brokerage account (or to the account of such

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Grantee's legal representative, beneficiary or heir), subject to the withholding provision of Section 8.

 

6.Adjustment of Terms.  In the event of corporate transactions affecting the Company’s outstanding Common Stock, the Committee will equitably adjust the number and kind of shares subject to this Agreement to the extent provided by the Plan.

 

7.Notice of Election Under Section 83(b).  If the Grantee makes an election under Section 83(b) of the Internal Revenue Code of 1986, as amended, he or she will provide a copy thereof to the Company within thirty days of the filing of such election with the Internal Revenue Service.

 

8.Withholding Taxes.  The Grantee will pay to the Company, or make provision satisfactory to the Committee for payment of, any taxes required by law to be withheld in respect of the Restricted Stock no later than the date of the event creating the tax liability.  In the Committee's discretion, such tax obligations may be paid in whole or in part in shares of Common Stock, including the Restricted Stock, valued at Fair Market Value on the date of delivery (which is defined as the closing price on the New York Stock Exchange on the previous trading day).  Provided, however, that if any of the events in Section 2 occurs on a date that is not a Business Day, the restrictions on the shares of Restricted Stock shall be deemed to have terminated for the purposes of this Section on the Business Day immediately preceding the date of such event. “Business Day” means any day other than a Saturday or Sunday that is not a day on which the New York Stock Exchange is authorized or required by law or regulations to be closed.  The Company and its Affiliates may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to the Grantee.

 

9.The Committee.  Any determination by the Committee under, or interpretation of the terms of, this Agreement or the Plan will be final and binding on the Grantee.

 

10.Limitation of Rights.  The Grantee will have no right to continued employment by virtue of this grant of Restricted Stock.

 

11.Amendment.  The Company may amend, modify or terminate this Agreement, including substituting another Award of the same or a different type and changing the date of realization, provided that the Grantee's consent to such action will be required unless the action, taking into account any related action, would not adversely affect the Grantee.

 

12.Governing Law.  This Agreement will be governed by and interpreted in accordance with the laws of the State of Florida.

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TECO ENERGY, INC.

 

 

Phil L. Barringer

Chief Human Resources Officer

 

 

 

___________________________
Grantee

 

 

 

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SCHEDULE A

 

 

The “Performance Period” is the period beginning January 1, 20___ and ending on December 31, 20___, unless one of the events specified in Subsections 2(b) through 2(f) (an “Early Termination Event”) occurs, in which case the Performance Period will end on the last day of the quarter following the Early Termination Event, unless the Early Termination Event occurs on a date that would cause the Performance Period to be shorter than four times as long as the period between the beginning of the Performance Period and the date of this Agreement, then the Performance Period will end on the last day of the quarter after that period of time has elapsed.

 

The “Performance Goal” for the Performance Period is earnings before interest, taxes, depreciation and amortization (“EBITDA”) of at least $_______, which shall be adjusted to exclude the effect of any of the following events that impact EBITDA: (i) any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, extraordinary dividend or divestiture (including a spin-off) or any other change in corporate structure or shares; (ii) any purchase, acquisition, sale, disposition or write-down of a significant amount of assets or a significant business; (iii) any change in accounting principles or practices, tax laws or other such laws or provisions affecting reported results; or (iv) any uninsured catastrophic losses or extraordinary non-recurring items as described in Accounting Principles Board Opinion No. 30, provided that the exclusion of the impact of the foregoing specified events from the calculation of a Performance Goal shall only be made to the extent permitted by Section 162(m) of the Code.  If the Performance Period ends prior to December 31, 20___ due to the occurrence of an Early Termination Event, the Performance Goal shall be prorated for the number of quarters that elapsed, beginning on January 1, 20__ and ending on the last day of the quarter following the Early Termination Event.

 

If the Performance Period ends on December 31, 20__ (that is, if an Early Termination Event has not occurred prior to that date), the “Vesting Date” is the date of the Compensation Committee’s certification that the Performance Goal has been achieved according to the terms of this paragraph, on which date, if the Performance Goal is achieved, the Restricted Stock will vest, subject to any restrictions on distributions of shares under the Plan and subject to Section 8 of this Agreement.    If an Early Termination Event occurs, the Vesting Date is the date as soon as practicable after the end of the Performance Period on which the shares shall vest, or on the Compensation Committee certification date, if such certification is required under Section 162(m) of the Internal Revenue Code.  If the Compensation Committee’s certification is required under Section 162(m) of the Internal Revenue Code, promptly after the end of the Performance Period, the Company will submit its calculation regarding the Performance Goal to the Compensation Committee for certification.  In no event will the Vesting Date be more than 45 days after the end of the Performance Period.    

 

8

 

Exhibit 12.1

TECO ENERGY, INC.

RATIO OF EARNINGS TO FIXED CHARGES

The following table sets forth TECO Energy’s ratio of earnings to fixed charges for the periods indicated.

 

 

For the purposes of calculating these ratios, earnings consist of income from continuing operations before income taxes, income or loss from equity investments (net of distributions) and fixed charges. Fixed charges consist of interest expense on indebtedness, amortization of debt premium and an estimate of the interest component of rentals. Interest expense includes total interest expense, excluding AFUDC, and an estimate of the interest component of rentals. TECO Energy, Inc. does not have any preferred stock outstanding, and there were no preferred stock dividends paid or accrued during the periods presented.

The sale of TECO Guatemala was completed in December 2012 and is considered a discontinued operation. Prior periods presented have been adjusted to reflect the classification of TECO Guatemala as discontinued operations.

TECO Coal was considered a discontinued operation and asset held for sale at Mar. 31, 2015. Prior periods presented have been adjusted to reflect the classification of TECO Coal as discontinued operations.

 

Exhibit 12.2

TAMPA ELECTRIC COMPANY

RATIO OF EARNINGS TO FIXED CHARGES

The following table sets forth Tampa Electric Company’s ratio of earnings to fixed charges for the periods indicated.

 

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 expense on indebtedness, amortization of debt premium and an estimate of the interest component of rentals.  Interest expense includes total interest expense, excluding AFUDC, and an estimate of the interest component of rentals.

 

Exhibit 31.1

CERTIFICATIONS

 

 

I, John B. Ramil, certify that:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 31.2

CERTIFICATIONS

 

 

I, Sandra W. Callahan, certify that:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 31.3

CERTIFICATIONS

 

 

I, John B. Ramil, certify that:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 31.4

CERTIFICATIONS

 

 

I, Sandra W. Callahan, certify that:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 32.1

TECO ENERGY, INC

 

Certification of Periodic Financial Report

Pursuant to 18 U.S.C. Section 1350

 

Each of the undersigned officers of TECO Energy, Inc. (the “Company”) certifies, under the standards set forth in and solely for the purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge, the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2015 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in that Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

The foregoing certification is being furnished to the Securities and Exchange Commission as an exhibit to the Form 10-Q and shall not be considered filed as part of the Form 10-Q.

Exhibit 32.2

TAMPA ELECTRIC COMPANY

 

Certification of Periodic Financial Report

Pursuant to 18 U.S.C. Section 1350

 

Each of the undersigned officers of Tampa Electric Company (the “Company”) certifies, under the standards set forth in and solely for the purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge, the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2015 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in that Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

The foregoing certification is being furnished to the Securities and Exchange Commission as an exhibit to the Form 10-Q and shall not be considered filed as part of the Form 10-Q.

Exhibit 95

MINE SAFETY DISCLOSURE

 

TECO Coal’s subsidiaries operate mining complexes that are subject to regulation by the Mine Safety and Health Administration (MSHA) under the U.S. Federal Mine Safety and Health Act of 1977 (the Mine Act). MSHA inspects TECO Coal mines on a regular basis and issues various citations and orders when it believes that a violation of the Mine Act, any health or safety standard, or any regulation has occurred. Set forth below is information regarding certain mining safety and health orders and citations issued by MSHA and related assessment and legal actions and mine-related fatalities with respect to TECO Coal’s mining operations. In evaluating this information, consideration should be given to factors such as: (i) the number of citations and orders will vary depending on the size and type (underground or surface) of the coal mine, (ii) the number of citations and orders issued will vary from inspector to inspector, and (iii) citations and orders can be contested and appealed, and as part of that process, may be reduced in severity and amount, and are sometimes dismissed.

 

For purposes of reporting regulatory matters under Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the following table sets forth the total number of specific citations and orders issued by MSHA under the Mine Act, along with the total dollar value of the proposed civil penalty assessment, and the total number of fatalities during the current reporting period for each TECO Coal subsidiary that is acting as a coal mine operator, by individual mine. Information relating to the aggregate number of legal actions pending, initiated and resolved during the reporting period is also reported below for each of the mines.

 

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Exhibit 95

 

              

    

Footnotes:

1. Based on data obtained from MSHA Mine Data Retrieval System as of April 1, 2015 for the 1^st quarter of 2015.

2. No TECO Coal LLC mining entity has received written notice that it meets the requirements of a Pattern of Violations (POV) during the reporting period.

3. All of the Pending Legal Actions identified in this column are based on data contained in the MSHA Mine Data Retrieval System (MDRS) at the time of data retrieval for this report.

4. All of the Legal Actions involve citations or orders referenced in Subpart B of 29 C.F.R. Part 2700 that are being contested by a TECO Coal LLC subsidiary.

5.  YGX is the MSHA "Contractor Identification Number" assigned to Clintwood Elkhorn Mining LLC for contracted engineering work performed at a mine that is operated by an independent contract mining company for Clintwood Elkhorn Mining LLC.

6. A-906  is the MSHA "Contractor Identification Number" assigned to Premier Elkhorn Coal LLC for contracted engineering work performed at a mine that is operated by an independent contract mining company for Premier Elkhorn Coal LLC.

 

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Exhibit 95