Tampa Electric 10-Q 2020 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No	Exact name of each registrant as specified in its charter, state of incorporation, address of principal executive offices, telephone number	I.R.S. Employer Identification Number
1-5007	TAMPA ELECTRIC COMPANY	59-0475140
	(a Florida corporation) TECO Plaza 702 N. Franklin Street Tampa, Florida 33602 (813) 228-1111

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
None.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     YES  ☒    NO  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     YES  ☒    NO  ☐

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark whether Tampa Electric Company has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ☐

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

As of August 10, 2020, 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 specified in General Instruction H(2) of Form 10-Q.

ACRONYMS

Acronyms used in this and other filings with the U.S. Securities and Exchange Commission in 2020 include the following:

Term	Meaning
AFUDC	allowance for funds used during construction
AFUDC-debt	debt component of allowance for funds used during construction
AFUDC-equity	equity component of allowance for funds used during construction
APBO	accumulated postretirement benefit obligation
ARO	asset retirement obligation
ASC	Accounting Standards Codification
CAD	Canadian dollars
CAIR	Clean Air Interstate Rule
CCRs	coal combustion residuals
CMO	collateralized mortgage obligation
CNG	compressed natural gas
CO2	carbon dioxide
COVID-19	coronavirus disease 2019
CPI	consumer price index
CSAPR	Cross State Air Pollution Rule
CT	combustion turbine
ECRC	environmental cost recovery clause
Emera	Emera Inc., a geographically diverse energy and services company headquartered in Nova Scotia, Canada
EPA	U.S. Environmental Protection Agency
ERISA	Employee Retirement Income Security Act
EROA	expected return on plan assets
EUSHI	Emera US Holdings Inc., a wholly owned subsidiary of Emera, which is the sole shareholder of TECO Energy’s common stock
FASB	Financial Accounting Standards Board
FDEP	Florida Department of Environmental Protection
FERC	Federal Energy Regulatory Commission
FPSC	Florida Public Service Commission
IGCC	integrated gasification combined-cycle
IOU	investor owned utility
IRS	Internal Revenue Service
ITCs	investment tax credits
kWac	kilowatt on an alternating current basis
LNG	liquefied natural gas
MBS	mortgage-backed securities
MD&A	the section of this report entitled Management’s Discussion and Analysis of Financial Condition and Results of Operations
Merger	Merger of Emera US Inc. with and into TECO Energy, with TECO Energy as the surviving corporation
MGP	manufactured gas plant
MMBTU	one million British Thermal Units
MRV	market-related value
MW	megawatt(s)
MWH	megawatt-hour(s)
NAV	net asset value
Note	Note to consolidated financial statements
NPNS	normal purchase normal sale
O&M expenses	operations and maintenance expenses
OCI	other comprehensive income
OPC	Office of Public Counsel
OPEB	other postemployment benefits
Parent	TECO Energy, Inc., the direct parent company of Tampa Electric Company
PBGC	Pension Benefit Guarantee Corporation
PBO	projected benefit obligation
PGA	purchased gas adjustment
PGS	Peoples Gas System, the gas division of Tampa Electric Company
PPA	power purchase agreement
PRP	potentially responsible party

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Term	Meaning
R&D	research and development
REIT	real estate investment trust
RFP	request for proposal
ROE	return on common equity
Regulatory ROE	return on common equity as determined for regulatory purposes
S&P	Standard and Poor’s
SCR	selective catalytic reduction
SEC	U.S. Securities and Exchange Commission
SoBRAs	solar base rate adjustments
SERP	Supplemental Executive Retirement Plan
STIF	short-term investment fund
Tampa Electric	Tampa Electric, the electric division of Tampa Electric Company
TEC	Tampa Electric Company
TECO Energy	TECO Energy, Inc., the direct parent company of Tampa Electric Company
TSI	TECO Services, Inc.
U.S. GAAP	generally accepted accounting principles in the United States
VIE	variable interest entity

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TAMPA ELECTRIC COMPANY

Consolidated Condensed Balance Sheets

Unaudited

Assets	June 30,			December 31,
(millions)	2020			2019
Property, plant and equipment
Utility plant
Electric	$	10,992		$	10,578
Gas		2,151			2,012
Utility plant, at original costs		13,143			12,590
Accumulated depreciation		(3,579	)		(3,472	)
Utility plant, net		9,564			9,118
Other property		14			13
Total property, plant and equipment, net		9,578			9,131
Current assets
Cash and cash equivalents		10			14
Receivables, less allowance for uncollectibles of $6 and $2 at June 30, 2020 and December 31, 2019, respectively		231			206
Due from affiliates		25			14
Inventories, at average cost
Fuel		35			36
Materials and supplies		107			104
Regulatory assets		39			41
Prepayments and other current assets		19			10
Total current assets		466			425
Deferred debits
Regulatory assets		389			396
Other		56			55
Total deferred debits		445			451
Total assets	$	10,489		$	10,007

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

Liabilities and Capitalization	June 30,			December 31,
(millions)	2020			2019
Capitalization
Common stock	$	3,650		$	3,385
Accumulated other comprehensive loss		(1	)		(1	)
Retained earnings		354			311
Total capital		4,003			3,695
Long-term debt		2,592			2,869
Total capitalization		6,595			6,564
Current liabilities
Long-term debt due within one year		278			0
Notes payable		494			348
Accounts payable		245			296
Due to affiliates		17			20
Customer deposits		131			132
Regulatory liabilities		110			93
Accrued interest		15			13
Accrued taxes		52			14
Other		40			44
Total current liabilities		1,382			960
Long-term liabilities
Deferred income taxes		760			758
Regulatory liabilities		1,207			1,210
Investment tax credits		218			164
Deferred credits and other liabilities		327			351
Total long-term liabilities		2,512			2,483
Commitments and Contingencies (see Note 8)
Total liabilities and capitalization	$	10,489		$	10,007

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

	Three months ended June 30,
(millions)	2020			2019
Revenues
Electric	$	453		$	520
Gas		96			107
Total revenues		549			627
Expenses
Fuel		67			139
Purchased power		25			13
Cost of natural gas sold		25			38
Operations and maintenance		126			132
Depreciation and amortization		92			94
Taxes, other than income		50			52
Total expenses		385			468
Income from operations		164			159
Other income
Allowance for equity funds used during construction		7			2
Other income, net		2			3
Total other income		9			5
Interest charges
Interest expense		35			34
Allowance for borrowed funds used during construction		(3	)		(1	)
Total interest charges		32			33
Income before provision for income taxes		141			131
Provision for income taxes		24			24
Net income	$	117		$	107
Comprehensive income	$	117		$	107

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

	Six months ended June 30,
(millions)	2020			2019
Revenues
Electric	$	873		$	931
Gas		223			235
Total revenues		1,096			1,166
Expenses
Fuel		168			246
Purchased power		27			17
Cost of natural gas sold		67			85
Operations and maintenance		260			262
Depreciation and amortization		189			186
Taxes, other than income		101			102
Total expenses		812			898
Income from operations		284			268
Other income
Allowance for equity funds used during construction		13			4
Other income, net		3			5
Total other income		16			9
Interest charges
Interest expense		72			68
Allowance for borrowed funds used during construction		(6	)		(2	)
Total interest charges		66			66
Income before provision for income taxes		234			211
Provision for income taxes		40			40
Net income	$	194		$	171
Comprehensive income	$	194		$	171

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

	Six months ended June 30,
(millions)	2020			2019
Cash flows from operating activities
Net income	$	194		$	171
Adjustments to reconcile net income to cash from operating activities:
Depreciation and amortization		189			186
Deferred income taxes and investment tax credits		43			31
Deferred recovery clauses		37			1
Receivables, less allowance for uncollectibles		(22	)		1
Prepayments and other deposits		(9	)		(6	)
Taxes accrued		20			25
Accounts payable		(41	)		(54	)
Regulatory assets and liabilities		(12	)		5
Other		(17	)		(29	)
Cash flows from operating activities		382			331
Cash flows used in investing activities
Capital expenditures		(653	)		(581	)
Net proceeds from sale of assets		6			0
Cash flows used in investing activities		(647	)		(581	)
Cash flows from financing activities
Equity contributions from Parent		265			220
Net increase (decrease) in short-term debt (maturities of 90 days or less)		(154	)		165
Proceeds from other short-term debt (maturities over 90 days)		300			0
Dividends to Parent		(150	)		(140	)
Cash flows from financing activities		261			245
Net decrease in cash and cash equivalents		(4	)		(5	)
Cash and cash equivalents at beginning of period		14			15
Cash and cash equivalents at end of period	$	10		$	10
Supplemental disclosure of non-cash activities
Change in accrued capital expenditures	$	(12	)	$	(4	)

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

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TAMPA ELECTRIC COMPANY

Consolidated Condensed Statements of Capital

Unaudited

								Accumulated
								Other
			Common		Retained			Comprehensive			Total
(millions, except share amounts)	Shares		Stock		Earnings			Loss			Capital
Three months ended June 30, 2020
Balance, March 31, 2020		10		3,530	$	316		$	(1	)	$	3,845
Net income						117						117
Equity contributions from Parent			120									120
Dividends to Parent						(77	)					(77	)
Other						(2	)					(2	)
Balance, June 30, 2020		10	$	3,650	$	354		$	(1	)	$	4,003
Three months ended June 30, 2019
Balance, March 31, 2019		10		3,100	$	302		$	(1	)	$	3,401
Net income						107						107
Equity contributions from Parent			110									110
Dividends to Parent						(64	)					(64	)
Balance, June 30, 2019		10	$	3,210	$	345		$	(1	)	$	3,554
Six months ended June 30, 2020
Balance, December 31, 2019		10		3,385	$	311		$	(1	)	$	3,695
Net income						194						194
Equity contributions from Parent			265									265
Dividends to Parent						(150	)					(150	)
Other						(1	)					(1	)
Balance, June 30, 2020	$	10	$	3,650	$	354		$	(1	)	$	4,003
Six months ended June 30, 2019
Balance, December 31, 2018		10		2,990	$	314		$	(1	)	$	3,303
Net income						171						171
Equity contributions from Parent			220									220
Dividends to Parent						(140	)					(140	)
Balance, June 30, 2019		10	$	3,210	$	345		$	(1	)	$	3,554

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 Annual Report on Form 10-K for the year ended December 31, 2019 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, which is an indirect, wholly owned subsidiary of Emera. TEC is comprised of the electric division, referred to as Tampa Electric, and the natural gas division, referred to as PGS.

Intercompany balances and transactions within the divisions 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 June 30, 2020 and December 31, 2019, and the results of operations and cash flows for the periods ended June 30, 2020 and June 30, 2019. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results that can be expected for the entire fiscal year ending December 31, 2020.

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 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.

Since December 31, 2019, the outbreak of the novel strain of coronavirus, specifically identified as COVID-19, has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. While management considered the impact of COVID-19 in TEC’s estimates and results, the financial statements as of and for the three and six months ended June 30, 2020 were not significantly impacted by COVID-19. However, it is not possible to reliably estimate the length and severity of the COVID-19 pandemic and the impact on the financial results and condition of TEC in future periods. See Note 5 for further information regarding potential future impacts to TEC’s employee postretirement benefits.

Receivables and Allowance for Uncollectible Accounts

Receivables from contracts with customers, which consist of services to residential, commercial, industrial and other customers, were $230 million and $205 million as of June 30, 2020 and December 31, 2019, respectively. An allowance for uncollectible accounts is established based on TEC’s collection experience and reasonable and supportable forecasts that affect the collectibility of the reported amount. Circumstances that could affect Tampa Electric’s and PGS’s estimates of uncollectible receivables include, but are not limited to, customer credit issues, fuel prices, customer deposits and general economic conditions, including the impacts of the COVID-19 pandemic. Accounts are reserved in the allowance or written off once they are deemed to be uncollectible.

As of June 30, 2020 and December 31, 2019, unbilled revenues of $84 million and $61 million, respectively, are included in the “Receivables” line item on the Consolidated Condensed Balance Sheets.

Accounting for Franchise Fees and Gross Receipts

Tampa Electric and PGS are allowed to recover certain costs from customers on a dollar-for-dollar basis through rates 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 $26 million and $29 million for the three months ended June 30, 2020 and 2019, respectively, and $53 million and $56 million for the six months ended June 30, 2020 and 2019, respectively.

2. New Accounting Pronouncements

Change in Accounting Policy

The new U.S. GAAP accounting policies that are applicable to and adopted by TEC in 2020 are described as follows:

Measurement of Credit Losses on Financial Instruments

TEC adopted Accounting Standard Update (ASU) 2016-13, Measurement of Credit Losses on Financial Instruments effective January 1, 2020. The standard provides guidance regarding the measurement of credit losses for financial assets and certain other instruments that are not accounted for at fair value through net income, including trade and other receivables, debt securities, net investment in leases, and off-balance sheet credit exposures. The new guidance requires companies to replace the current incurred loss impairment methodology with a methodology that measures all expected credit losses for financial assets

10

based on historical experience, current conditions, and reasonable and supportable forecasts. There was no material impact on the condensed consolidated financial statements as a result of the adoption of this standard.

Future Accounting Pronouncements

TEC considers the applicability and impact of all ASUs issued by the FASB. The ASUs that have been issued, but that are not yet effective, are consistent with those disclosed in TEC’s Annual Report on Form 10-K for the year ended December 31, 2019, with updates noted below.

Facilitation of the Effects of Reference Rate Reform on Financial Reporting

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The standard provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships that reference LIBOR or another rate that is expected to be discontinued. The guidance was effective as of the date of issuance and entities may elect to apply the guidance prospectively through December 31, 2022. TEC is currently evaluating the impact of adoption of the standard, if elected, on its consolidated financial statements.

3. Regulatory

Tampa Electric Base Rates

On September 27, 2017, Tampa Electric filed with the FPSC an amended and restated settlement agreement that replaced the existing 2013 base rate settlement agreement and extended it another four years through December 31, 2021. The FPSC approved the agreement on November 6, 2017.

The amended agreement provides for SoBRAs for TEC’s investments in up to 600 MW of cost-effective solar generation. Tampa Electric is investing approximately $850 million during 2017 through 2021 related to 600 MW of solar projects recoverable under the SoBRAs.  

On December 12, 2017, TEC filed its first petition regarding the SoBRAs along with supporting tariffs demonstrating the cost-effectiveness of the September 1, 2018 tranche representing 145 MW and $24 million annually in estimated revenue requirements. The FPSC approved the tariffs on the first SoBRA filing on May 8, 2018 and TEC began receiving these revenues in September 2018. On June 29, 2018, TEC filed its second SoBRA petition along with supporting tariffs demonstrating the cost-effectiveness of the January 1, 2019 tranche representing 260 MW and $46 million annually in estimated revenue requirements. The FPSC approved the tariffs on the second SoBRA filing on October 29, 2018 and TEC began receiving these revenues in January 2019. On June 28, 2019, TEC filed its third SoBRA petition along with supporting tariffs demonstrating the cost-effectiveness of the January 1, 2020 tranche representing 149 MW and $26 million annually in estimated revenue requirements. On December 10, 2019, the FPSC approved the tariffs on this SoBRA filing, including an adjustment to reflect the reduction in the state corporate income tax discussed below, and TEC began receiving these revenues in January 2020. The 2017 settlement agreement provides for a potential revenue adjustment of an additional $10 million for 50 MWs effective on January 1, 2021. TEC expects to file its final SoBRA petition for the January 1, 2021 tranche in 2020.

The true-up filing for SoBRA tranche 1 and 2 revenue requirement estimates that were included in base rates as of September 2018 and January 2019, respectively, was submitted on April 30, 2020. Once approved, the final net true-up amount is expected to be a refund of $5 million, which will be returned to customers in 2020.

On November 13, 2019, as required by the 2017 settlement agreement, TEC filed its petition to reduce base rates and charges to reflect the impact of the temporary reduction of the state corporate income tax from 5.5% to 4.5%. The tax rate reduction was issued on September 12, 2019 and is effective retroactive from January 1, 2019 through December 31, 2021. The estimated base rate reduction due to customers of $5 million is subject to true-up, and the actual rate reduction may vary from year to year. The base rate reduction was approved on December 10, 2019 for rates effective January 2020.

Tampa Electric Big Bend Modernization Project

Tampa Electric expects to invest approximately $850 million during 2018 through 2023 to modernize the Big Bend Power Station, of which approximately $414 million has been invested through June 30, 2020. The Big Bend modernization project will repower Big Bend Unit 1 with natural gas combined-cycle technology and eliminate coal as this unit’s fuel. As part of the Big Bend modernization project, on June 1, 2020, Tampa Electric retired the Unit 1 components that will not be used in the modernized plant. At June 1, 2020, Tampa Electric’s balance sheet included $223 million and $90 million in electric utility plant and accumulated depreciation, respectively, related to Unit 1 components. In accordance with Tampa Electric’s 2017 settlement agreement approved by the FPSC, Tampa Electric will continue to account for its existing investment in Unit 1 in electric utility plant and depreciate the assets using the current depreciation rates until the FPSC approves Tampa Electric’s next depreciation and dismantlement study. In addition, Tampa Electric plans to retire Big Bend Unit 2 in 2021 early as part of the Big Bend modernization project.

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Tampa Electric Storm Protection Cost Recovery Clause and Settlement Agreement

On October 3, 2019, the FPSC issued a rule to implement a Storm Protection Plan (SPP) Cost Recovery Clause. This new clause provides a process for Florida investor-owned utilities, including Tampa Electric, to recover transmission and distribution storm hardening costs for incremental activities not already included in base rates. Tampa Electric submitted its storm protection plan with the FPSC on April 10, 2020. On April 27, 2020, Tampa Electric submitted a settlement agreement with the FPSC which specified a $15 million base rate reduction for costs previously recovered in base rates related to SPP programs beginning January 1, 2021. On June 9, 2020, the FPSC approved this settlement agreement. On August 3, 2020, Tampa Electric submitted another settlement agreement to the FPSC for approval, including cost recovery of approximately $39 million in proposed storm protection project costs for 2020 and 2021. This cost recovery includes the $15 million of costs reduced from base rates. This settlement agreement was approved on August 10, 2020 and Tampa Electric’s cost recovery will begin in January 2021. Tampa Electric will file a new plan in 2022 to determine cost recovery in 2023, 2024, and 2025.

The June 9, 2020 settlement agreement approved by the FPSC disclosed above also included approval of Tampa Electric’s petition to eliminate its $16 million accumulated amortization reserve surplus for intangible software assets through a credit to amortization expense in 2020. As stipulated in the settlement, $8 million of this credit was recognized in the second quarter of 2020 with the remaining $8 million to be recognized over the remainder of 2020.  

Tampa Electric Mid-Course Adjustment to Fuel Recovery

In March 2020, Tampa Electric requested a mid-course adjustment to its fuel and capacity charges, effective with June 2020 customer bills, due to a decline in expected fuel commodity and capacity costs in 2020. The FPSC approved the request on April 28, 2020. This will result in lower fuel and capacity clause rates to customers for the remainder of 2020, including an acceleration of the return of these savings in the three months starting June 2020 through customer bill credits.

Tampa Electric Storm Restoration Cost Recovery

As a result of Tampa Electric’s 2013 rate case settlement, in the event of a named storm that results in damage to its system, Tampa Electric can petition the FPSC to seek recovery of those costs over a 12-month period or longer as determined by the FPSC, as well as replenish its reserve to $56 million, the level of the reserve as of October 31, 2013.

In the third quarter of 2017, Tampa Electric was impacted by Hurricane Irma and incurred storm restoration costs of approximately $102 million. Tampa Electric petitioned the FPSC on December 28, 2017 for recovery of estimated storm costs and to replenish the balance in the reserve to the level that existed as of October 31, 2013. On March 1, 2018, the FPSC approved a settlement agreement filed by Tampa Electric that addressed both the recovery of storm costs and the return of U.S. tax reform benefits to customers while keeping customer rates stable in 2018. Beginning on April 1, 2018, the agreement authorized Tampa Electric to net the estimated amount of storm cost recovery against Tampa Electric’s estimated 2018 tax reform benefits of $103 million. On August 20, 2018, the FPSC approved lowering base rates by $103 million annually beginning on January 1, 2019 as a result of lower tax expense. On April 9, 2019, Tampa Electric reached a settlement agreement with consumer parties regarding eligible storm costs, which was approved by the FPSC on May 21, 2019. As a result, Tampa Electric refunded $12 million to customers in January 2020, resulting in minimal impact to the Consolidated Condensed Statements of Income.

In 2019, Tampa Electric incurred storm restoration preparation costs for Hurricane Dorian estimated to be approximately $8 million, which was charged to the storm reserve regulatory liability.

PGS Base Rates

PGS’s base rates were established in 2009. In accordance with its 2018 settlement agreement, PGS reduced its base rates by $12 million for the impact of tax reform and reduced depreciation rates by $10 million on an annual basis beginning in January 2019.

PGS is permitted to initiate a general base rate proceeding during 2020 regardless of its earned ROE at the time, provided the new rates do not become effective before January 1, 2021. As a result of increased forecasted revenue requirements, on June 8, 2020, PGS filed a petition for an increase in rates and service charges effective January 2021. The new rates would be expected to result in an increase in revenue of approximately $62 million annually.

Regulatory Assets and Liabilities

Tampa Electric and PGS apply the FASB’s accounting standards for regulated operations. Regulatory assets generally represent incurred costs that have been deferred, as their future recovery in customer rates is probable. Regulatory liabilities generally represent obligations to make refunds to customers from previous collections for costs that are not likely to be incurred or the advance recovery of expenditures for approved costs.

Details of the regulatory assets and liabilities are presented in the following table:

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Regulatory Assets and Liabilities
(millions)	June 30, 2020		December 31, 2019
Regulatory assets:
Regulatory tax asset (1)	$	87	$	74
Cost-recovery clauses (2)		7		12
Environmental remediation (3)		21		20
Postretirement benefits (4)		287		295
Asset retirement obligation (5)		16		25
Other		10		11
Total regulatory assets		428		437
Less: Current portion		39		41
Long-term regulatory assets	$	389	$	396
Regulatory liabilities:
Regulatory tax liability (6)	$	698	$	699
Cost-recovery clauses (2)		70		37
Accumulated reserve - cost of removal (7)		500		506
Storm reserve (8)		48		48
Other		1		13
Total regulatory liabilities		1,317		1,303
Less: Current portion		110		93
Long-term regulatory liabilities	$	1,207	$	1,210

(1) The regulatory tax asset is primarily associated with the depreciation and recovery of AFUDC-equity. This asset does not earn a return but rather is included in the capital structure, which is used in the calculation of the weighted cost of capital used to determine revenue requirements. It will be recovered over the expected life of the related assets. The regulatory tax asset balance reflects the impact of the federal tax rate reduction.  

(2) These assets and liabilities are related to FPSC clauses and riders. They are recovered or refunded through cost-recovery mechanisms approved by the FPSC on a dollar-for-dollar basis in the next year.

(3) This asset is related to costs associated with environmental remediation primarily at MGP sites. The balance is included in rate base, partially offsetting the related liability, and earns a rate of return as permitted by the FPSC. The timing of recovery is based on a settlement agreement approved by the FPSC.

(4) This asset is related to the deferred costs of postretirement benefits and it is amortized over the remaining service life of plan participants. Deferred costs of postretirement benefits that are included in expense are recognized as cost of service for rate-making purposes as permitted by the FPSC.

(5) This asset is related to costs associated with an asset retirement obligation, which is a legal obligation for the future retirement of certain tangible, long-lived assets. This regulatory asset does not earn a return because it is offset with related assets and liabilities within rate base. It is recovered and removed as the obligation is settled and removed as the activities for the retirement of the related assets have been completed.

(6) The regulatory tax liability is primarily related to the revaluation of TEC’s deferred income tax balances recorded on December 31, 2017 at the lower income tax rate due to U.S. tax reform. The liability related to the revaluation of the deferred income tax balances is amortized and returned to customers through rate reductions or other revenue offsets based on IRS regulations and the settlement agreement for tax reform benefits approved by the FPSC.

(7) This item represents the non-ARO cost of removal in the accumulated reserve for depreciation. AROs are costs for legally required removal of property, plant and equipment. Non-ARO cost of removal represents estimated funds received from customers through depreciation rates to cover future non-legally required cost of removal of property, plant and equipment, net of salvage value upon retirement, which reduces rate base for ratemaking purposes. This liability is reduced as costs of removal are incurred.

(8) See “Tampa Electric Storm Restoration Cost Recovery” discussion above for information regarding this reserve.

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4. Income Taxes

CARES Act

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act (the Act) was signed into legislation.  The Act includes several business provisions including deferral in employer payroll taxes and an employee retention payroll tax credit. TEC is continuing to evaluate the impact of the Act but does not expect any material impacts.

Income Tax Expense

TEC is included in a consolidated U.S. federal income tax return with EUSHI and its subsidiaries. TEC’s income tax expense is based upon a separate return method, modified for the benefits-for-loss allocation in accordance with respective tax sharing agreements with TECO Energy and EUSHI. To the extent that TEC’s cash tax positions are settled differently than the amount reported as realized under the tax sharing agreement, the difference is reflected in common stock.

TEC’s effective tax rates for the six months ended June 30, 2020 and 2019 were 17.1% and 19.0%, respectively. The June 30, 2020 and 2019 effective tax rates are an estimate of the annual effective income tax rate. TEC’s effective tax rate for the six months ended June 30, 2020 and 2019 differed from the statutory rate principally due to the amortization of the regulatory tax liability resulting from tax reform. See Note 3 for further information regarding the regulatory tax liability.

Unrecognized Tax Benefits

As of June 30, 2020 and December 31, 2019, the amount of unrecognized tax benefits was $9 million, all of which was recorded as a reduction of deferred income tax assets for tax credit carryforwards. TEC believes that it is reasonably possible the total unrecognized tax benefits could decrease and be recognized within the next twelve months due to the ongoing audit examination of TECO Energy’s consolidated federal income tax return for the short tax year ending June 30, 2016. However, the impact of the COVID-19 pandemic on the timing of audit examinations cannot be reliably predicted at this time. TEC had $9 million of unrecognized tax benefits at June 30, 2020 and December 31, 2019, that, if recognized, would reduce TEC’s effective tax rate.

5. Employee Postretirement Benefits

TEC is a participant in the comprehensive retirement plans of TECO Energy. The following table presents detail related to TECO Energy’s periodic benefit cost for pension and other postretirement benefits. Amounts disclosed for TECO Energy’s pension benefits include the amounts related to its qualified pension plan and non-qualified, non-contributory SERP and Restoration Plan.

TECO Energy Benefit Cost
(millions)	Pension Benefits							Other Postretirement Benefits
Three months ended June 30,	2020			2019				2020		2019
Components of net periodic benefit cost
Service cost	$	5		$	5			$	0	$	0
Interest cost		6			8				2		1
Expected return on assets		(12	)		(14	)			0		0
Amortization of:
Actuarial loss		5			5				0		0
Net periodic benefit cost	$	4		$	4			$	2	$	1
Six months ended June 30,
Components of net periodic benefit cost
Service cost	$	10		$	10			$	0	$	0
Interest cost		13			16				3		3
Expected return on assets		(25	)		(26	)			0		0
Amortization of:
Actuarial loss		10			8				0		0
Settlement cost		0			1		(1)		0		0
Net periodic benefit cost	$	8		$	9			$	3	$	3

 (1)Represents TECO Energy’s SERP and Restoration Plan settlement charges as a result of the prior retirements of certain executives.

TEC’s portion of the net periodic benefit cost for the three months ended June 30, 2020 and 2019, respectively, was $3 million and $3 million for pension benefits, and $1 million and $1 million for other postretirement benefits. TEC’s portion of the net periodic

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benefit cost for the six months ended June 30, 2020 and 2019, respectively, was $6 million and $7 million for pension benefits, and $3 million and $3 million for other postretirement benefits.   

TECO Energy assumed a long-term EROA of 7.00% and a discount rate of 3.22% for pension benefits under its qualified pension plan for 2020. For TECO Energy’s other postretirement benefits, TECO Energy used a discount rate of 3.32% for 2020.

TECO Energy made contributions of $10 million and $7 million to its qualified pension plan in the six months ended June 30, 2020 and 2019, respectively. TEC’s portion of these contributions was $8 million and $5 million, respectively. TECO Energy expects to make contributions to the pension plan of $10 million for the remainder of 2020, of which TEC estimates its portion to be $8 million.

Included in the benefit cost discussed above, for the three and six months ended June 30, 2020, $4 million and $9 million of unamortized prior service benefits and costs and actuarial gains and losses were reclassified by TEC from regulatory assets to the Consolidated Condensed Statement of Income, compared with $3 million and $6 million for the three and six months ended June 30, 2019.

The COVID-19 pandemic could impact key actuarial assumptions used to account for employee post-retirement benefits including the anticipated rates of return on plan assets and discount rates used in determining the accrued benefit obligation, benefit costs and annual pension funding requirements. Fluctuations in actual equity market returns and changes in interest rates as a result of the COVID-19 pandemic may also result in changes to pension costs and funding in future periods. The extent of the future impact of COVID-19 on TEC’s financial results and business operations cannot be predicted at this time and will depend on future developments, including the duration and severity of the pandemic, further potential government actions, future economic activity and energy usage. Actual results may differ significantly from these estimates.

6. Short-Term Debt

Details of TEC’s credit facilities and related borrowings are presented in the following table:

	June 30, 2020						December 31, 2019
					Letters						Letters
	Credit		Borrowings		of Credit		Credit		Borrowings		of Credit
(millions)	Facilities		Outstanding (1)		Outstanding		Facilities		Outstanding (1)		Outstanding
5-year facility (2)	$	400	$	194	$	1	$	400	$	295	$	1
3-year accounts    receivable facility (3)		150		0		0		150		53		0
1-year term facility (4)		300		300		0		0		0		0
Total	$	850	$	494	$	1	$	550	$	348	$	1

(1) Borrowings outstanding are reported as notes payable.

(2) This 5-year facility matures March 22, 2022.

(3) This 3-year facility matures March 22, 2021.

(4) This 1-year term facility matures on February 4, 2021.

At June 30, 2020, these credit facilities required commitment fees ranging from 12.5 to 35.0 basis points. The weighted-average interest rate on outstanding amounts payable under the credit facilities at June 30, 2020 and December 31, 2019 was 0.83% and 2.56%, respectively.

Tampa Electric Company Accounts Receivable Facility

On July 14, 2020, TEC amended its $150 million accounts receivable collateralized borrowing facility (Loan Agreement) in order to change certain performance ratios. The amended Loan Agreement was effective as of June 30, 2020. TEC was in compliance with the requirements of the Loan Agreement at June 30, 2020. There were no other changes made to the Loan Agreement. There were no amounts outstanding on this facility at June 30, 2020.

Tampa Electric Company Non Revolving Term Loan

On February 6, 2020, TEC entered into a 364-day, $300 million credit agreement with a group of banks. The credit agreement has a maturity date of February 4, 2021; contains customary representations and warranties, events of default, and financial and other covenants; and provides for interest to accrue at variable rates based on either the London interbank deposit rate, Wells Fargo Bank’s prime rate, or the federal funds rate, plus a margin.

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7. Long-Term Debt

Fair Value of Long-Term Debt

At June 30, 2020, TEC’s long-term debt had a carrying amount of $2,870 million and an estimated fair market value of $3,482 million. At December 31, 2019, TEC’s total long-term debt had a carrying amount of $2,869 million and an estimated fair market value of $3,335 million. The fair value of the debt securities is determined using Level 2 measurements(see Note 11 for information regarding the fair value hierarchy).

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 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.

Superfund and Former Manufactured Gas Plant Sites

TEC, through its Tampa Electric and PGS divisions, is a PRP for certain superfund sites and, through its PGS division, for certain former MGP sites. While the joint and several liability associated with these sites presents the potential for significant response costs, as of June 30, 2020, TEC has estimated its ultimate financial liability to be $21 million, primarily at PGS. This amount has been accrued and is primarily reflected in the long-term liability section under “Deferred credits and other liabilities” on the Consolidated Condensed Balance Sheets. The environmental remediation costs associated with these sites are expected to be paid over many years.

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 currently assessed 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. See Note 3 for information regarding the related regulatory asset.

Long-Term Commitments

TEC has commitments for various purchases as disclosed below, including payment obligations under contractual agreements for fuel, fuel transportation and power purchases that are recovered from customers under regulatory clauses. The following is a schedule of future payments under PPAs, minimum lease payments with non-cancelable lease terms in excess of one year, and other net purchase obligations/commitments at June 30, 2020:

									Long-term				Demand
	Purchased				Capital		Fuel and		Service		Operating		Side
(millions)	Power		Transportation		Projects		Gas Supply		Agreements		Leases		Management		Total
2020	$	31	$	108	$	118	$	101	$	30	$	1	$	2	$	391
2021		3		234		84		52		6		3		3		385
2022		0		236		79		2		9		3		3		332
2023		0		208		68		1		12		3		0		292
2024		0		197		0		0		19		3		0		219
Thereafter		0		1,915		0		0		41		51		0		2,007
Total future minimum payments	$	34	$	2,898	$	349	$	156	$	117	$	64	$	8	$	3,626

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Debt Covenants

TEC must meet certain financial tests, including a debt to capital ratio, as defined in the applicable debt agreements and has certain restrictive covenants in specific agreements and debt instruments. At June 30, 2020, TEC was in compliance with all required covenants.

9. Segment Information

(millions)	Tampa								Tampa Electric
Three months ended June 30,	Electric		PGS		Eliminations				Company
2020
Revenues - external	$	453	$	96	$	0			$	549
Intracompany sales		1		1		(2	)			0
Total revenues		454		97		(2	)			549
Total interest charges		28		4		0				32
Net income	$	106	$	11	$	0			$	117
2019
Revenues - external	$	520	$	107	$	0			$	627
Intracompany sales		1		4		(5	)			0
Total revenues		521		111		(5	)			627
Total interest charges		29		4		0				33
Net income	$	93	$	14	$	0			$	107
Six months ended June 30,
2020
Revenues - external	$	873	$	223	$	0			$	1,096
Intracompany sales		2		4		(6	)			0
Total revenues		875		227		(6	)			1,096
Total interest charges		58		8		0				66
Net income	$	165	$	29	$	0			$	194
2019
Revenues - external	$	931	$	235	$	0			$	1,166
Intracompany sales		2		8		(10	)			0
Total revenues		933		243		(10	)			1,166
Total interest charges		58		8		0				66
Net income	$	139	$	32	$	0			$	171
Total assets at June 30, 2020	$	9,409	$	1,710	$	(630	)	(1)	$	10,489
Total assets at December 31, 2019	$	9,007	$	1,593	$	(593	)	(1)	$	10,007

(1) Amounts primarily relate to consolidated deferred tax reclassifications. Deferred tax assets are reclassified and netted with deferred tax liabilities upon consolidation.

10. Revenue

The following disaggregates TEC’s revenue by major source:

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(millions)	Tampa								Tampa Electric
Three months ended June 30, 2020	Electric			PGS		Eliminations			Company
Electric revenue
Residential	$	254		$	0	$	0		$	254
Commercial		121			0		0			121
Industrial		32			0		0			32
Regulatory deferrals and unbilled revenue		(3	)		0		0			(3	)
Other (1)		50			0		(1	)		49
Total electric revenue		454			0		(1	)		453
Gas revenue
Residential		0			36		0			36
Commercial		0			28		0			28
Industrial (2)		0			5		0			5
Other (3)		0			28		(1	)		27
Total gas revenue		0			97		(1	)		96
Total revenue	$	454		$	97	$	(2	)	$	549
Three months ended June 30, 2019
Electric revenue
Residential	$	261		$	0	$	0		$	261
Commercial		141			0		0			141
Industrial		42			0		0			42
Regulatory deferrals and unbilled revenue		17			0		0			17
Other (1)		60			0		(1	)		59
Total electric revenue		521			0		(1	)		520
Gas revenue
Residential		0			36		0			36
Commercial		0			35		0			35
Industrial (2)		0			6		0			6
Other (3)		0			34		(4	)		30
Total gas revenue		0			111		(4	)		107
Total revenue	$	521		$	111	$	(5	)	$	627
(millions)	Tampa								Tampa Electric
Six months ended June 30, 2020	Electric			PGS		Eliminations			Company
Electric revenue
Residential	$	459		$	0	$	0		$	459
Commercial		246			0		0			246
Industrial		69			0		0			69
Regulatory deferrals and unbilled revenue		(5	)		0		0			(5	)
Other (1)		106			0		(2	)		104
Total electric revenue		875			0		(2	)		873
Gas revenue
Residential		0			84		0			84
Commercial		0			69		0			69
Industrial (2)		0			11		0			11
Other (3)		0			63		(4	)		59
Total gas revenue		0			227		(4	)		223
Total revenue	$	875		$	227	$	(6	)	$	1,096

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Six months ended June 30, 2019
Electric revenue
Residential	$	467	$	0	$	0		$	467
Commercial		261		0		0			261
Industrial		76		0		0			76
Regulatory deferrals and unbilled revenue		10		0		0			10
Other (1)		119		0		(2	)		117
Total electric revenue		933		0		(2	)		931
Gas revenue
Residential		0		86		0			86
Commercial		0		77		0			77
Industrial (2)		0		11		0			11
Other (3)		0		69		(8	)		61
Total gas revenue		0		243		(8	)		235
Total revenue	$	933	$	243	$	(10	)	$	1,166

(1)    Other electric revenue includes sales to public authorities, off-system sales to other utilities and various other items.

(2)    Industrial gas revenue includes sales to power generation customers.

(3)    Other gas revenue includes off-system sales to other utilities and various other items.

Remaining Performance Obligations

Remaining performance obligations primarily represent lighting contracts and gas transportation contracts with fixed contract terms. As of June 30, 2020 and December 31, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $140 million. As allowed under ASC 606, this amount excludes contracts with an original expected length of one year or less and variable amounts for which TEC recognizes revenue at the amount to which it has the right to invoice for services performed. TEC expects to recognize revenue for the remaining performance obligations through 2033. 

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 a basis for considering assumptions that market participants would use in pricing an asset or liability, 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.

There were no Level 3 assets or liabilities for the periods presented.

As of June 30, 2020 and December 31, 2019, the carrying value of TEC’s short-term debt was not materially different from the fair value due to the short-term nature of the instruments and because the stated rates approximate market rates. The fair value of TEC’s short-term debt is determined using Level 2 measurements. See Note 7 for information regarding the fair value of long-term debt.

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Item 2. MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS

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 TEC's current expectations and assumptions, and TEC 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 or legislation by federal, state or local authorities; 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; economic conditions affecting the Florida economy; weather variations and customer energy usage patterns affecting sales and operating costs 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; natural gas demand; and the ability of TEC to operate equipment without undue accidents, breakdowns or failures. Additional information is contained under "Risk Factors" in Part II, Item 1A below and TEC’s Annual Report on Form 10-K for the year ended December 31, 2019.

Earnings Summary - Unaudited

		Three months ended June 30,						Six months ended June 30,
(millions)		2020			2019			2020			2019
Revenues
	Tampa Electric	$	454		$	521		$	875		$	933
	PGS		97			111			227			243
	Eliminations		(2	)		(5	)		(6	)		(10	)
	TEC	$	549		$	627		$	1,096		$	1,166
Net income
	Tampa Electric	$	106		$	93		$	165		$	139
	PGS		11			14			29			32
	TEC	$	117		$	107		$	194		$	171

Operating Results

Second quarter 2020 net income was $117 million, compared to $107 million in the second quarter of 2019. Second quarter 2020 results were impacted by higher AFUDC, lower O&M expense and lower depreciation and amortization expense as a result of a regulatory settlement agreement. Year-to-date 2020 net income was $194 million, compared to $171 million in the 2019 year-to-date period. Year-to-date 2020 results were impacted by higher base revenues and higher AFUDC, partially offset by lower other operating revenues and higher interest expense. See Operating Company Results below for further detail.

COVID-19 Pandemic

During 2020, the ongoing COVID-19 pandemic has affected the service territories in which TEC operates. To date, COVID-19 has not had a material financial impact on TEC. TEC provides essential services and continues to operate and meet customer demand. TEC’s top priority continues to be the health and safety of its customers and employees. Management continues to closely monitor developments related to COVID-19.

In March 2020, TEC activated its company-wide pandemic and business continuity plans, including travel restrictions, directing employees to work remotely whenever possible, restricting access to operating facilities, physical distancing and implementing additional protocols (including the expanded use of personal protective equipment) for work within customers’ premises. TEC is monitoring recommendations by local and national public health authorities related to COVID-19 and is adjusting operational requirements as needed.

Tampa Electric currently anticipates earning within its allowed ROE range in 2020 and expects rate base to be higher than 2019. An increase in residential sales and favorable weather in the six months ended June 30, 2020 have more than offset the impacts of a decrease in other revenue classes as a result of COVID-19. The number of customers increased 2% from June 30, 2019. Tampa Electric’s volumes could be negatively impacted by potential declines in future economic activity in Florida due to COVID-19 impacts, resulting in overall sales volumes for the year being similar or slightly lower than in 2019. Expected outcomes and actual results may differ given the many uncertainties related to the pandemic and its economic impact.

PGS anticipates earning below its allowed ROE range in 2020. Prior to the impact of COVID-19, PGS anticipated it would earn below its allowed ROE range in 2020 primarily due to significant capital investments and related growth in rate base. In addition, PGS

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sales volumes are expected to be lower than in 2019 as a result of the economic impact of COVID-19 in Florida. Beginning mid-March, PGS sales volumes decreased as a result of the impact of government measures on commercial customers and reduced tourism. Therefore, as a result of forecasted revenue requirements being higher than what is in current rates, on June 8, 2020, PGS filed a petition for an increase in rates and service charges effective January 2021. The new rates would be expected to result in an increase in revenue of approximately $62 million annually.

TEC is working with customers on relief initiatives in response to the effect of the pandemic on customers’ ability to make payments and the need for continued service. To date, these initiatives include the temporary suspension of disconnection for non-payment of bills and the development of payment arrangements where necessary. In the second quarter of 2020, TEC experienced an increase in the aging of customer receivables resulting from the suspension of disconnections. To date, there have been no significant customer defaults as a result of bankruptcies with many customer accounts secured by deposits. As of and for the three and six months ended June 30, 2020, adjustments to the allowance for uncollectible accounts have not had a significant impact on net income, and the allowance for uncollectible accounts has increased slightly to less than 3% of total accounts receivables. The ultimate effect of potential credit losses due to customer non-payment is not be known at this time. TEC is continuing to monitor customer accounts and to work with customers on payment arrangements. TEC expects to end its temporary suspension of disconnections for non-payment in the third quarter of 2020.

The extent of the future impact of COVID-19 on TEC’s financial results and business operations is uncertain at this time and will depend on future developments, including the duration and severity of the pandemic, further potential government actions, future economic activity and energy usage. Please see Risk Factors for further information. TEC plans to complete its capital investments that were in progress prior to COVID-19 and continue to reliably and safely serve its customers. Depending on the duration of the COVID-19 pandemic, forecasted capital expenditures may be delayed due to supply chain disruptions, travel restrictions for contractors or the deferral of non-essential capital work. Capital project delays and supply chain disruptions have been immaterial to date. TEC currently expects to continue to have adequate liquidity given its cash position, existing bank facilities, and access to capital but will continue to monitor the impact of COVID-19 on future cash flows. Refer to Liquidity and Capital Resources for further details.  

Operating Company Results

Amounts included in the operating company discussions below are pre-tax, except net income and income taxes.

Electric Division

Tampa Electric’s net income for the second quarter of 2020 was $106 million, compared with $93 million for the same period in 2019. Results primarily reflected higher AFUDC, higher base revenues, lower O&M expense, and lower depreciation and amortization expense.

Revenues were $67 million lower than in the same period in 2019 primarily driven by lower clause revenues, partially offset by increased base revenues from customer growth, a greater mix of residential sales and the in-service of additional solar generation projects. Results reflect a 2% increase in number of customers at June 30, 2020 compared to June 30, 2019. Total degree days (a measure of heating and cooling demand) in Tampa Electric's service area in the second quarter of 2020 were 5% above normal and 5% below the 2019 period. Total retail net energy for load, which is a calendar measurement of energy output, in the second quarter of 2020 was 3% lower than the same period in 2019, reflecting milder weather in the second quarter of 2020 compared to 2019. Base revenues are energy sales excluding revenues from clauses, gross receipts taxes and franchise fees. Clauses, gross receipts taxes and franchise fees do not have a material effect on net income as these revenues substantially represent a dollar-for-dollar recovery of clauses and other pass-through costs.

O&M expense, excluding all FPSC-approved cost-recovery clause, was $3 million lower than in the same period of 2019 primarily due to the timing of generation outage costs from 2019.  Depreciation and amortization expense decreased $4 million in the second quarter of 2020 compared to the second quarter of 2019 primarily due to a regulatory agreement approved by the FPSC which eliminates Tampa Electric’s accumulated amortization reserve surplus for intangible software assets through a credit to amortization expense in 2020 (see Note 3 to the TEC Consolidated Condensed Financial Statements for further information), partially offset by an increase related to normal capital additions.

Tampa Electric’s net income year-to-date 2020 was $165 million, compared with $139 million for the same period in 2019. Results primarily reflected higher base revenues and higher AFUDC earnings, partially offset by lower other operating revenues and higher interest expense.

Revenues were $58 million lower than year-to-date 2019 driven by lower clause revenue, partially offset by increased base revenues from in-service of solar generation projects, customer growth, a greater mix of residential sales and favorable weather. Results reflect a 2% increase in number of customers at June 30, 2020 compared to June 30, 2019. Total degree days in Tampa Electric's service area in the year-to-date period of 2020 were 10% above normal and 4% above the 2019 period. Total net energy for

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load increased 0.4% in the year-to-date period of 2020 compared with the same period in 2019. Other operating revenues were lower than year-to-date 2019 primarily due to lower reconnect fees, as Tampa Electric suspended disconnections for non-payment of bills.

In the 2020 year-to-date period, operations and maintenance expense was consistent with the 2019 year-to-date period.  Depreciation and amortization expense remained similar to 2019 from normal additions to facilities to reliably serve customers and the in-service of solar generation projects offset by a software amortization settlement.

Tampa Electric’s regulated operating statistics for the three and six months ended June 30, 2020 and 2019 were as follows:

(millions, except customers and total degree days)	Operating Revenues								Kilowatt-Hours Billed
Three months ended June 30,	2020			2019		% Change			2020		2019		% Change
By Customer Type
Residential (1)	$	254		$	261		(3	)		2,518		2,366		6
Commercial (1)		121			141		(14	)		1,431		1,543		(7	)
Industrial (1)		32			42		(24	)		452		539		(16	)
Other (1)		39			45		(13	)		439		476		(8	)
Regulatory deferrals and unbilled revenue (2)		(3	)		17		(118	)
Total retail sales of electricity		443			506		(12	)		4,840		4,924		(2	)
Off system sales of electricity		0			1		(100	)		11		30		(63	)
Other operating revenue		11			14		(21	)
Total revenues	$	454		$	521		(13	)		4,851		4,954		(2	)
Customers at June 30, (thousands)		786			771		2
Retail net energy for load (kilowatt hours)		5,388			5,581		(3	)
Total degree days		1,311			1,376		(5	)
Six months ended June 30,
By Customer Type
Residential (1)	$	459		$	467		(2	)		4,398		4,305		2
Commercial (1)		246			261		(6	)		2,804		2,913		(4	)
Industrial (1)		69			76		(9	)		949		1,001		(5	)
Other (1)		81			86		(6	)		883		922		(4	)
Regulatory deferrals and unbilled revenue (2)		(5	)		10		(150	)
Total retail sales of electricity		850			900		(6	)		9,034		9,141		(1	)
Off system sales of electricity		1			2		(50	)		33		45		(27	)
Other operating revenue		24			31		(23	)
Total revenues	$	875		$	933		(6	)		9,067		9,186		(1	)
Customers at June 30, (thousands)		786			771		2
Retail net energy for load (kilowatt-hours)		9,939			9,902		0
Total degree days		2,034			1,962		4

(1) Reflects a billing cycle measurement.

(2) Primarily reflects unbilled revenue, which incorporates a calendar measurement, and postings for clause recovery deferrals.

Natural Gas Division

PGS had net income of $11 million for the second quarter, compared with $14 million in the second quarter of 2019. Results reflect a 4.2% higher number of customers in the second quarter of 2020 compared to the second quarter of 2019. Revenues were $14 million lower than the prior year quarter primarily due to lower PGA clause-related revenues and lower off-system sales. Base revenues were $3 million lower than 2019 primarily due to COVID-19 impacts lowering commercial sales, which was partially offset by customer growth. Cast iron and bare steel replacement rider revenue increased $2 million.  Operations and maintenance expense, excluding all FPSC-approved cost-recovery clauses, was $1 million higher than in the 2019 quarter primarily due to higher bad debt expense and personal protection equipment purchases. Depreciation and amortization increased $1 million due to normal asset growth. Return on investment in cast iron and bare steel replacement rider was $1 million higher in the 2020 period. 

PGS had net income of $29 million for the 2020 year-to-date period, compared with $32 million in the 2019 period. Revenues were $16 million lower than the prior period primarily due to lower PGA clause-related revenues and lower off-system sales. Base revenues were $2 million lower than 2019 primarily due to COVID-19 impacts lowering commercial sales and warmer weather in 2020, which was

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partially offset by customer growth.  Operations and maintenance expense, excluding all FPSC-approved cost-recovery clauses and the impact of deferring tax reform benefits in 2018, was $2 million higher than in 2019 primarily due to higher bad debt expense, increased personal protection equipment purchases, and higher labor and contractor costs to safely and reliably operate and maintain the growing distribution system. Depreciation and amortization increased $2 million due to normal asset growth.  Return on investment in cast iron and bare steel replacement rider was $2 million higher in the 2020 period. 

PGS’s regulated operating statistics for the three and six months ended June 30, 2020 and 2019 were as follows:

(millions, except customers)	Operating Revenues							Therms
Three months ended June 30,	2020		2019		% Change			2020		2019		% Change
By Customer Type
Residential	$	36	$	36		0			19		18		6
Commercial		28		35		(20	)		99		122		(19	)
Industrial		4		4		0			118		105		12
Power generation		1		2		(50	)		238		229		4
Off system sales		8		14		(43	)		38		50		(24	)
Other operating revenues		17		16		6
Total	$	94	$	107		(12	)		512		524		(2	)
By Sales Type
System supply	$	50	$	60		(17	)		62		73		(15	)
Transportation		27		31		(13	)		450		451		(0	)
Other operating revenues		17		16		6
Total	$	94	$	107		(12	)		512		524		(2	)
Customers at June 30, (thousands)		414		397		4
Six months ended June 30,
By Customer Type
Residential	$	84	$	86		(2	)		52		51		2
Commercial		69		77		(10	)		244		268		(9	)
Industrial		8		8		0			230		210		10
Power generation		3		3		0			472		417		13
Off system sales		17		27		(37	)		80		87		(8	)
Other operating revenues		39		36		8
Total	$	220	$	237		(7	)		1,078		1,033		4
By Sales Type
System supply	$	118	$	134		(12	)		144		149		(3	)
Transportation		63		67		(6	)		934		884		6
Other operating revenues		39		36		8
Total	$	220	$	237		(7	)		1,078		1,033		4
Customers at June 30, (thousands)		414		397		4

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Other Income

For the second quarter of 2020 and 2019, TEC’s other income was $9 million and $5 million, respectively, and included AFUDC-equity of $7 million and $2 million, respectively. For the year-to-date periods in 2020 and 2019, TEC’s other income was $16 million and $9 million, respectively, and included AFUDC-equity of $13 million and $4 million, respectively. The increase in AFUDC-equity is primarily due to the timing of Tampa Electric’s solar projects and the modernization of its Big Bend Power Station.

Interest Expense

For the second quarter of 2020 and 2019, TEC’s interest expense, excluding AFUDC-debt, was $35 million and $34 million, respectively. For the year-to-date periods in 2020 and 2019, TEC’s interest expense, excluding AFUDC-debt, was $72 million and $68 million, respectively. The increase is due to an increase in long-term borrowings to support TEC’s ongoing capital investments program.

Income Taxes

The provisions for income taxes were $40 million for the six months ended June 30, 2020 and 2019. Compared to the 2019 period, the provision for income taxes for the six months ended June 30, 2020 was the result of higher pre-tax income, offset by higher tax benefits due to AFUDC, higher amortization of the regulatory liability related to tax reform and higher investment tax credits related to solar projects.

Liquidity and Capital Resources

In the six months ended June 30, 2020, the impact of the COVID-19 pandemic and resulting government measures to address this pandemic have resulted in economic slowdowns in Florida. To date, COVID-19 has not had a material financial impact on TEC. Refer to the COVID-19 Pandemic section above for further discussion. The impact of COVID-19 may result in decreased cash flow from operations due to the potential of lower sales and slower or less collections of accounts receivable. The extent of the future impact of COVID-19 on TEC’s operating cash flow cannot be reliably predicted at this time and will depend on future developments, including the duration and severity of the pandemic, further potential government actions, future economic activity and energy usage. TEC currently expects to continue to have adequate liquidity given its cash position, existing bank facilities, and access to capital but will continue to monitor the impact of COVID-19 on future cash flows.

The table below sets forth the June 30, 2020 liquidity, cash balances and amounts available under the TEC credit facilities.

(millions)
Credit facilities	$	850
Drawn amounts/letters of credit		495
Available credit facilities		355
Cash and short-term investments		10
Total liquidity	$	365

Cash Impacts Related to Operating Activities  

Cash flows from operating activities for the six months ended June 30, 2020 were $382 million, an increase of $51 million compared to the same period in 2019. The increase is primarily due to higher base revenues due to the in-service of solar generation projects, customer growth and favorable weather, and higher fuel over-recoveries, partially offset by the timing of accounts payable and storm settlement customer refunds. 

Cash Impacts Related to Financing Activities

Cash flows from financing activities for the six months ended June 30, 2020 resulted in net cash inflows of $261 million. TEC received $265 million of equity contributions and $300 million from short-term debt with maturities over 90 days (see Note 6 to the TEC Consolidated Condensed Financial Statements for further information regarding TEC’s short-term debt). These increases in cash flows were partially offset by a net repayment of $154 million of borrowings under credit agreements with maturities of 90 days or less and dividend payments to Parent of $150 million.  

Covenants in Financing Agreements

In order to utilize its bank credit facilities, TEC must meet certain financial tests as defined in the applicable agreements. In addition, TEC has certain restrictive covenants in specific agreements and debt instruments. At June 30, 2020, TEC was in compliance

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with all applicable financial covenants. The table that follows lists the significant financial covenants and the performance relative to them at June 30, 2020. Reference is made to the specific agreements and instruments for more details.

Significant Financial Covenants

			Calculation at
Instrument (1)	Financial Covenant (2)	Requirement/Restriction	June 30, 2020
Credit facility - $400 million	Debt/capital	Cannot exceed 65%	46%
1-year term facility - $300 million	Debt/capital	Cannot exceed 65%	46%
Accounts receivable credit facility - $150 million	Debt/capital	Cannot exceed 65%	46%

(1) See Note 6 to the TEC Consolidated Condensed Financial Statements for details of the credit facilities.

(2) As defined in each applicable instrument.

Credit Ratings of Senior Unsecured Debt at June 30, 2020

	S&P	Moody’s	Fitch
Credit ratings of senior unsecured debt	BBB+	A3	A
Credit ratings outlook	Stable	Stable	Stable

Certain of TEC’s derivative instruments contain provisions that require TEC’s debt to maintain investment grade credit ratings.

Commitments and Contingencies

See Note 8 to the TEC Consolidated Condensed Financial Statements for information regarding TEC’s commitments and contingencies as of June 30, 2020.

Regulatory Matters

See Note 3 to the TEC Consolidated Condensed Financial Statements for information regarding TEC’s regulatory matters as of June 30, 2020.

Fair Value Measurements

The valuation methods used to determine fair value are described in Notes 7 and 11 to the TEC Consolidated Condensed Financial Statements. In addition, 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 and the intent of the parties, indications of credit deterioration and whether the markets in which TEC transacts have experienced dislocation. At June 30, 2020, the fair value of derivatives was not materially affected by nonperformance risk.

Critical Accounting Policies and Estimates

Critical accounting policies and estimates have not materially changed in 2020. For further discussion of critical accounting policies and estimates, see TEC’s Annual Report on Form 10-K for the year ended December 31, 2019.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information required by Item 3 is omitted pursuant to General Instruction H(2) of Form 10-Q.

Item 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. TEC’s management, with the participation of its principal executive officer and principal financial officer, has evaluated the effectiveness of TEC’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2020. Based on such evaluation, TEC’s principal financial officer and principal executive officer have concluded that, as of June 30, 2020, TEC’s disclosure controls and procedures are effective.

(b) Changes in Internal Controls. There was no change in TEC’s internal controls over financial reporting (as defined in Rules 13a–15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of TEC’s internal control over

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financial reporting that occurred during TEC’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, such controls.

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PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

From time to time, TEC is involved in various legal, tax and regulatory proceedings before various courts, regulatory commissions and governmental agencies in the ordinary course of 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. For a discussion of legal proceedings and environmental matters, see Note 8 of the TEC Consolidated Condensed Financial Statements.

Item 1A. RISK FACTORS

TEC is updating the risk factors in its 2019 Annual Report on Form 10-K as described below.

An outbreak of infectious disease, a pandemic or a similar public health threat may adversely affect TEC.

An outbreak of infectious disease, a pandemic or a similar public health threat, such as the COVID-19 pandemic, or a fear of any of the foregoing, could adversely impact TEC, including by causing operating, supply chain and project development delays and disruptions, labor shortages and shutdowns (including as a result of government regulation and prevention measures), and delays in regulation decisions and proceedings, which could have a negative impact on TEC’s operations.

Any adverse changes in general economic and market conditions arising as a result of a public health threat could negatively impact demand for electricity and natural gas, revenue, operating costs, timing and extent of capital expenditures, results of financing efforts, or credit risk and counterparty risk, which could result in a material adverse effect on TEC’s business.

While TEC maintains pandemic and business contingency plans in each of its operations to manage and mitigate the impact of any such public health threat, it cannot be assured that such mitigation efforts will be successful, therefore the extent of the evolving COVID-19 pandemic or other pandemics and their future impact on TEC is uncertain.

Item 6. EXHIBITS

Exhibit
No.	Description
3.1	Restated Articles of Incorporation of Tampa Electric Company, as amended on November 30, 1982 (Exhibit 3 to Registration Statement No. 2-70653 of Tampa Electric Company). (P)	*
3.2	Bylaws of Tampa Electric Company, as amended effective February 2, 2011 (Exhibit 3.4, Form 10-K for 2010 of Tampa Electric Company).	*
10.1	Amendment No. 4 dated as of July 14, 2020 to Loan and Servicing Agreement dated as of March 24, 2015, between Tampa Electric Company, as the Servicer, and TEC Receivables Corp., as the Borrower, certain lenders named therein, and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Program Agent.
31.1	Certification of the Chief Executive Officer of Tampa Electric Company pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer of Tampa Electric Company pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of the Chief Executive Officer and Chief Financial Officer of Tampa Electric Company pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1)
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document

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Exhibit
No.	Description
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

(1) This certification accompanies the Quarterly Report on Form 10-Q and is not filed as part of it.

* Indicates exhibit previously filed with the Securities and Exchange Commission and incorporated herein by reference. Exhibits filed with periodic reports of TECO Energy, Inc. and TEC were filed under Commission File Nos. 1-8180 and 1-5007, respectively.

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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.

	TAMPA ELECTRIC COMPANY
	(Registrant)
Date: August 11, 2020	By:	/s/ Gregory W. Blunden
		Gregory W. Blunden
		Senior Vice President-Finance and Accounting, Treasurer and Chief Financial Officer (Chief Accounting Officer)
		(Principal Financial and Accounting Officer)

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