Tampa Electric 10-Q 2021 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, 2021  

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, 2021, 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 2021 and 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

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Term	Meaning
PRP	potentially responsible party
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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CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

This Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. The factors that could cause actual results to differ materially from the forward-looking statements made by TEC include those factors discussed herein, including those factors discussed with respect to TEC in (1) TEC’s 2020 Annual Report on Form 10-K in (a) Part I, Item 1A. Risk Factors, (b) Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and (c) Part II, Item 8. Financial Statements: Note 8, Commitments and Contingencies; (2) this Quarterly Report on Form 10-Q in (a) Part 1, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations and (b) Part 1, Item 1. Financial Statements: Note 8, Commitments and Contingencies, and (3) other factors discussed in filings with the SEC by TEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this Report. TEC does not undertake any obligation to publicly release any revision to its forward-looking statements to reflect events or circumstances after the date of this Form 10-Q.

All references to “dollars” and “$” in this and other filings with the U.S. Securities and Exchange Commission are references to U.S. dollars, unless specifically indicated otherwise.

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TAMPA ELECTRIC COMPANY

Consolidated Condensed Balance Sheets

Unaudited

Assets	June 30,			December 31,
(millions)	2021			2020
Property, plant and equipment
Utility plant
Electric	$	11,876		$	11,486
Gas		2,470			2,332
Utility plant, at original costs		14,346			13,818
Accumulated depreciation		(3,897	)		(3,712	)
Utility plant, net		10,449			10,106
Other property		14			14
Total property, plant and equipment, net		10,463			10,120
Current assets
Cash and cash equivalents		24			10
Receivables, less allowance for credit losses of $8 and $7 at June 30, 2021 and December 31, 2020, respectively		265			219
Due from affiliates		10			11
Inventories, at average cost
Fuel		21			26
Materials and supplies		114			107
Regulatory assets		68			79
Prepayments and other current assets		22			10
Total current assets		524			462
Deferred debits
Regulatory assets		413			406
Other		59			60
Total deferred debits		472			466
Total assets	$	11,459		$	11,048

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)	2021			2020
Capitalization
Common stock	$	4,180		$	3,890
Accumulated other comprehensive loss		(1	)		(1	)
Retained earnings		359			327
Total capital		4,538			4,216
Long-term debt		3,385			2,594
Total capitalization		7,923			6,810
Current liabilities
Long-term debt due within one year		0			278
Notes payable		410			775
Accounts payable		264			321
Due to affiliates		22			46
Customer deposits		130			130
Regulatory liabilities		57			67
Accrued interest		20			13
Accrued taxes		63			22
Other		43			57
Total current liabilities		1,009			1,709
Long-term liabilities
Deferred income taxes		815			783
Regulatory liabilities		1,156			1,194
Investment tax credits		233			216
Deferred credits and other liabilities		323			336
Total long-term liabilities		2,527			2,529
Commitments and Contingencies (see Note 8)
Total liabilities and capitalization	$	11,459		$	11,048

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)	2021			2020
Revenues
Electric	$	531		$	453
Gas		123			96
Total revenues		654			549
Expenses
Fuel		129			67
Purchased power		26			25
Cost of natural gas sold		33			25
Operations and maintenance		139			126
Depreciation and amortization		107			92
Taxes, other than income		56			50
Total expenses		490			385
Income from operations		164			164
Other income
Allowance for equity funds used during construction		10			7
Other income, net		2			2
Total other income		12			9
Interest charges
Interest expense		39			35
Allowance for borrowed funds used during construction		(5	)		(3	)
Total interest charges		34			32
Income before provision for income taxes		142			141
Provision for income taxes		21			24
Net income	$	121		$	117
Comprehensive income	$	121		$	117

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)	2021			2020
Revenues
Electric	$	977		$	873
Gas		276			223
Total revenues		1,253			1,096
Expenses
Fuel		238			168
Purchased power		44			27
Cost of natural gas sold		83			67
Operations and maintenance		267			260
Depreciation and amortization		213			189
Taxes, other than income		110			101
Total expenses		955			812
Income from operations		298			284
Other income
Allowance for equity funds used during construction		20			13
Other income, net		3			3
Total other income		23			16
Interest charges
Interest expense		77			72
Allowance for borrowed funds used during construction		(10	)		(6	)
Total interest charges		67			66
Income before provision for income taxes		254			234
Provision for income taxes		41			40
Net income	$	213		$	194
Comprehensive income	$	213		$	194

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)	2021			2020
Cash flows from operating activities
Net income	$	213		$	194
Adjustments to reconcile net income to cash from operating activities:
Depreciation and amortization		213			189
Deferred income taxes and investment tax credits		27			43
Allowance for equity funds used during construction		(20	)		(13	)
Deferred recovery clauses		(10	)		37
Receivables, less allowance for credit losses		(43	)		(22	)
Prepayments and other deposits		(11	)		(9	)
Taxes accrued		20			20
Accounts payable		(45	)		(41	)
Regulatory assets and liabilities		(2	)		(12	)
Other		4			(4	)
Cash flows from operating activities		346			382
Cash flows used in investing activities
Capital expenditures		(588	)		(653	)
Net proceeds from sale of assets		0			6
Cash flows used in investing activities		(588	)		(647	)
Cash flows from financing activities
Equity contributions from Parent		290			265
Proceeds from long-term debt issuance		790			0
Repayment of long-term debt		(278	)		0
Net decrease in short-term debt (maturities of 90 days or less)		(65	)		(154	)
Proceeds from other short-term debt (maturities over 90 days)		0			300
Repayment of other short-term debt (maturities over 90 days)		(300	)		0
Dividends to Parent		(181	)		(150	)
Cash flows from financing activities		256			261
Net increase (decrease) in cash and cash equivalents		14			(4	)
Cash and cash equivalents at beginning of period		10			14
Cash and cash equivalents at end of period	$	24		$	10
Supplemental disclosure of non-cash activities
Change in accrued capital expenditures	$	(20	)	$	(12	)

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, 2021
Balance, March 31, 2021		10		4,045	$	331		$	(1	)	$	4,375
Net income						121						121
Equity contributions from Parent				135								135
Dividends to Parent						(93	)					(93	)
Balance, June 30, 2021		10	$	4,180	$	359		$	(1	)	$	4,538
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
Six months ended June 30, 2021
Balance, December 31, 2020		10		3,890	$	327		$	(1	)	$	4,216
Net income						213						213
Equity contributions from Parent			290									290
Dividends to Parent						(181	)					(181	)
Balance, June 30, 2021		10	$	4,180	$	359		$	(1	)	$	4,538
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

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, 2020 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, 2021 and December 31, 2020, and the results of operations and cash flows for the periods ended June 30, 2021 and 2020. The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results that can be expected for the entire fiscal year ending December 31, 2021.

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 2020, the outbreak of COVID-19 has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. While management considered the impact of the COVID-19 pandemic in TEC’s estimates and results, the financial statements as of June 30, 2021 and December 31, 2020 and for the three and six months ended June 30, 2021 and 2020 were not materially impacted by the COVID-19 pandemic.

Receivables and Allowance for Credit Losses

Receivables from contracts with customers, which consist of services to residential, commercial, industrial and other customers, were $258 million and $214 million as of June 30, 2021 and December 31, 2020, respectively. An allowance for credit losses 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 credit losses include, but are not limited to, customer credit issues, generating 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, 2021 and December 31, 2020, unbilled revenues of $83 million and $73 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 $31 million and $26 million for the three months ended June 30, 2021 and 2020, respectively, and totaled $60 million and $53 million for the six months ended June 30, 2021 and 2020, respectively.

2. New 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, 2020.

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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 has invested approximately $850 million during 2017 through 2021 related to 600 MW of solar projects recoverable under the SoBRAs, and AFUDC was accrued during construction.

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. The FPSC approved the tariffs on this SoBRA filing, including an adjustment to reflect the reduction in the state corporate income tax discussed below, on December 10, 2019 and TEC began receiving these revenues in January 2020. On July 31, 2020, TEC filed its fourth and final SoBRA petition along with supporting tariffs demonstrating the cost-effectiveness of the January 1, 2021 tranche representing 46 MW and $8 million annually in estimated revenues. The FPSC approved the tariffs on this SoBRA filing on November 3, 2020 and TEC began receiving these revenues in January 2021.

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, and the FPSC approved the amount on August 18, 2020. The $5 million true-up was returned to customers in 2020. The true-up filing for SoBRA tranche 3, included in base rates as of January 2020, was submitted to the FPSC on May 27, 2021. An estimated $4 million true-up is being returned to customers during 2021. The true-up for SoBRA tranche 4 will be filed in 2022.

   On August 6, 2021, TEC filed with the FPSC a joint motion for approval of a settlement agreement dated as of August 6, 2021 (the Settlement Agreement) by and among TEC and the intervenors in TEC’s rate case filed with the FPSC in April 2021. The Settlement Agreement agrees to an increase in base rates annually effective with January 2022 bills, to generate a $191 million increase in revenue consisting of $123 million of traditional base rate charges and $68 million in a new charge to recover the costs of retiring assets. The Settlement Agreement further includes two subsequent year adjustments of $90 million and $21 million, effective January 2023 and January 2024, respectively. Under the agreement, the allowed equity in the capital structure will continue to be 54% from investor sources of capital. The Settlement Agreement includes an allowed regulatory ROE range of 9.0% to 11.0% with a 9.95% midpoint. The Settlement Agreement allows a 25 basis point increase in the allowed ROE range and mid-point, and $10 million of additional revenue, if the average 30-year United States Treasury Bond yield rate for any period of six consecutive months is at least 50 basis points greater than the yield rate on the date the FPSC votes to approve the agreement. Under the agreement, base rates will 0t change from January 1, 2022 through December 31, 2024, unless TEC’s earned ROE was to fall below the bottom of the range during that time. The Settlement Agreement contains a provision whereby TEC agrees to quantify the future impact of a decrease or increase in corporate income tax rates on net operating income through a reduction or increase in base revenues within 180 days of when such tax change becomes law or its effective date. The Settlement Agreement further creates a mechanism to recover the costs of retiring coal generation units and meter assets over a period of 15 years which survives the term of this agreement. The Settlement Agreement would not become effective unless and until approved by the FPSC, which is expected to consider the matter by October 2021.

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 $611 million has been invested through June 30, 2021. 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 30, 2021 and December 31, 2020, Tampa Electric’s balance sheet included $200 million in electric utility plant and $91 million and $88 million, respectively, in accumulated depreciation 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 December 31, 2021. In addition, Tampa Electric plans to retire Big Bend Unit 2 in 2021 as part of the Big Bend modernization project.       

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Tampa Electric plans to retire Big Bend Unit 3 in 2023 as it is in the best interest of customers from economic, environmental risk and operational perspectives. Similar to the retirement plan for Unit 1 and Unit 2, Tampa Electric will continue to account for its existing investment in Unit 3 in electric utility plant and depreciate the assets using the current depreciation rates until December 31, 2021.

On December 30, 2020, Tampa Electric filed a depreciation and dismantlement study and request for capital recovery schedule for all three units with the FPSC.

Tampa Electric’s Settlement Agreement provides recovery for the Big Bend Modernization project in two phases. The first phase is a revenue increase to cover the costs of the assets in service during 2022, among other items. The remainder of the project costs will be recovered as part of the 2023 subsequent year adjustment. The Settlement Agreement also includes a new charge to recover the remaining costs of the retiring Big Bend coal generation assets, Units 1 through 3, which will be spread over 15 years and will survive the termination of the Settlement Agreement. The special capital recovery schedule for all 3 units will be applied beginning January 1, 2022.

Tampa Electric Mid-Course Adjustment to Fuel Recovery

In July 2021, Tampa Electric requested a mid-course adjustment to its fuel and capacity charges, effective with September 2021 customer bills, due to an increase in fuel commodity and capacity costs in 2021. On August 3, 2021, the FPSC approved the request to recover $83 million of additional costs during the months of September through December 2021.

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 SPP program costs previously recovered in base rates 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 removed from base rates. This settlement agreement was approved on August 10, 2020, and Tampa Electric’s cost recovery began in January 2021. The current approved plan will apply for the years 2020, 2021 and 2022, and 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 described 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.     

PGS Base Rates       

On June 8, 2020, PGS filed a petition for an increase in rates and service charges effective January 2021. On November 19, 2020, the FPSC approved a settlement agreement filed by PGS. The settlement agreement provides for an increase in base rates by $58 million annually effective January 2021, which is a $34 million increase in revenue and $24 million increase of revenues previously recovered through the cast iron and bare steel replacement rider. This settlement agreement includes an allowed regulatory ROE range of 8.90% to 11.00% with a 9.90% midpoint. It provides PGS the ability to reverse a total of $34 million of accumulated depreciation through 2023 and sets new depreciation rates effective January 1, 2021 that are consistent with PGS’s current overall average depreciation rate. Under the agreement, base rates are frozen from January 1, 2021 to December 31, 2023, unless its earned ROE were to fall below 8.90% before that time with an allowed equity in the capital structure of 54.7% from investor sources of capital. The settlement agreement further addresses tax rate changes. The agreement contains a provision whereby PGS agrees to quantify the future impact of a decrease in tax rates on net operating income through a reduction in base revenues within 120 days of when such tax change becomes law. If on the contrary, tax legislation results in a tax rate increase, PGS can establish a regulatory asset to neutralize the impact of the increase in income tax rate to be addressed in a future proceeding and with recovery beginning no sooner than January 2024.

Regulatory Assets and Liabilities

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

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Regulatory Assets and Liabilities
(millions)	June 30, 2021		December 31, 2020
Regulatory assets:
Regulatory tax asset (1)	$	98	$	90
Cost-recovery clauses (2)		43		38
Environmental remediation (3)		25		22
Postretirement benefits (4)		298		309
Asset retirement obligation (5)		9		13
Other		8		13
Total regulatory assets		481		485
Less: Current portion		68		79
Long-term regulatory assets	$	413	$	406
Regulatory liabilities:
Regulatory tax liability (6)	$	678	$	691
Cost-recovery clauses (2)		18		23
Accumulated reserve - cost of removal (7)		469		498
Storm reserve (8)		48		48
Other		0		1
Total regulatory liabilities		1,213		1,261
Less: Current portion		57		67
Long-term regulatory liabilities	$	1,156	$	1,194

(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 a subsequent period.

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

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4. Income Taxes

CARES Act

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The CARES Act includes several business provisions including deferral in employer payroll taxes and an employee retention payroll tax credit. On December 27, 2020, the Consolidated Appropriations Act, 2021 (the 2021 Act) was signed into law. The 2021 Act provides for modifications and expansion of the employee retention payroll tax credit enacted under the CARES Act.  These Acts did not have a material impact to TEC’s financial statements.

American Rescue Plan Act of 2021

On March 11, 2021, the American Rescue Plan Act of 2021 (the Act) was signed into law. The Act includes an extension of the employee retention credit through December 31, 2021.  The Act did not have a material impact to TEC’s financial statements.

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, 2021 and 2020 were 16.1% and 17.1%, respectively. The June 30, 2021 and 2020 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, 2021 and 2020 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, 2021 and December 31, 2020, the amount of unrecognized tax benefits was $5 million and $9 million, respectively, all of which was recorded as a reduction of deferred income tax assets for tax credit carryforwards. TEC’s unrecognized federal tax benefits decreased in the first quarter of 2021 by approximately $5 million due to the settlement of its 2016 federal IRS Appeals R&D tax credits issue. TEC had $5 million and $9 million of unrecognized tax benefits at June 30, 2021 and December 31, 2020, that, if recognized, would reduce TEC’s effective tax rate.

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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,	2021			2020			2021			2020
Components of net periodic benefit cost
Service cost	$	6		$	5		$	1		$	0
Interest cost		6			6			2			2
Expected return on assets		(13	)		(12	)		0			0
Amortization of:
Actuarial loss (gain)		5			5			(1	)		0
Net periodic benefit cost	$	4		$	4		$	2		$	2
Six months ended June 30,
Components of net periodic benefit cost
Service cost	$	11		$	10		$	1		$	0
Interest cost		11			13			3			3
Expected return on assets		(26	)		(25	)		0			0
Amortization of:
Actuarial loss (gain)		11			10			0			0
Settlement cost		0			0			0			0
Net periodic benefit cost	$	7		$	8		$	4		$	3

TEC’s portion of the net periodic benefit cost for the three months ended June 30, 2021 and 2020, respectively, was $2 million and $3 million for pension benefits, and $3 million and $1 million for other postretirement benefits. TEC’s portion of the net periodic benefit cost for the six months ended June 30, 2021 and 2020, respectively, was $5 million and $6 million for pension benefits, and $5 million and $3 million for other postretirement benefits. TEC’s portion of net periodic benefit costs for pension and other benefits is included as an expense on the Consolidated Condensed Statements of Income in “Operations & maintenance”.   

TECO Energy assumed a long-term EROA of 6.70% and a discount rate of 2.38% for pension benefits under its qualified pension plan for 2021. For TECO Energy’s other postretirement benefits, TECO Energy used a discount rate of 2.47% for 2021.

TECO Energy made contributions of $11 million and $10 million to its qualified pension plan in each of the six months ended June 30, 2021 and 2020, respectively. TEC’s portion of these contributions was $9 million and $8 million, respectively. TECO Energy expects to make contributions to the pension plan of $10 million for the remainder of 2021. TEC estimates its portion of the remaining 2021 contribution to be $8 million.       

Included in the benefit cost discussed above, for the three and six months ended June 30, 2021, $5 million and $11 million, respectively, 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 $4 million and $9 million for the three and six months ended June 30, 2020, respectively.

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6. Short-Term Debt

Details of TEC’s short-term borrowings are presented in the following table:

	June 30, 2021								December 31, 2020
			Borrowings		Borrowings		Letters						Letters
	Credit		Outstanding -		Outstanding -		of Credit		Credit		Borrowings		of Credit
(millions)	Facilities		Credit Facilities (1)		Commercial Paper (1)		Outstanding		Facilities		Outstanding (1)		Outstanding
5-year facility (2)	$	800		0	$	410	$	1	$	800	$	345	$	1
3-year accounts    receivable facility (3)		0		0		0		0		150		130		0
1-year term facility (4)		0		0		0		0		300		300		0
Total	$	800		0	$	410	$	1	$	1,250	$	775	$	1

(1) Borrowings outstanding are reported as notes payable.

(2) This 5-year facility matures March 22, 2023. TEC also has an active commercial paper program for up to $800 million, of which the full amount outstanding is backed by TEC’s credit facility. The amount of commercial paper issued results in an equal amount of its credit facility being considered drawn and unavailable.

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

(4) This 1-year term facility was terminated on March 23, 2021.

At June 30, 2021, the credit facility required a commitment fee of 12.5 basis points. The weighted-average interest rate on outstanding amounts payable under the credit facilities and commercial paper program at June 30, 2021 and December 31, 2020 was 0.25% and 0.89%, respectively.

Commercial Paper Program

On May 25, 2021, TEC established a commercial paper program (the Program) under which TEC may issue on a private placement basis unsecured commercial paper notes (the Notes). Amounts available under the Program may be borrowed, repaid and reborrowed with the aggregate amount of the Notes outstanding under the Program at any time not to exceed $800 million.  The maturities of the Notes will vary, but may not exceed 270 days from the date of issue. The rates of interest will depend on whether the Note will be a fixed or floating rate. TEC must have credit facilities in place, at least equal to the amount of its commercial paper program. TEC does not issue commercial paper in an aggregate amount exceeding the then available capacity under its credit facility.

Accounts Receivable Facility

On July 14, 2020 and October 30, 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 and September 30, 2020. On March 22, 2021, this agreement matured and terminated.

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 had a maturity date of February 4, 2021; contained customary representations and warranties, events of default, and financial and other covenants; and provided 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. On January 29, 2021, TEC extended the maturity date of the agreement to April 29, 2021. On March 23, 2021, this loan was repaid and terminated.

5-Year Credit Facility

On December 18, 2020, TEC amended and restated its bank credit facility, entering into a Sixth Amended and Restated Credit Agreement. The amendment extended the maturity date of the credit facility from March 22, 2022 to March 22, 2023 (subject to further extension with the consent of each lender); increased the amount of the commitment by the lenders to $800 million; and provided for an interest rate based on either the London interbank deposit rate, Wells Fargo Bank’s prime rate, or the federal funds rate, plus a margin; allows TEC to borrow funds on a same-day basis under a swingline loan provision, which loans mature on the fourth banking day after which any such loans are made and bear interest at an interest rate as agreed by the borrower and the relevant swingline lender prior to the making of any such loans; continues to allow TEC to request the lenders to increase their commitments under the credit facility by up to $100 million in the aggregate; includes a $80 million letter of credit facility; and made other technical changes.

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7. Long-Term Debt

Fair Value of Long-Term Debt

At June 30, 2021, TEC’s long-term debt, including the current portion, had a carrying amount of $3,385 million and an estimated fair market value of $4,035 million. At December 31, 2020, TEC’s total long-term debt, including the current portion, had a carrying amount of $2,872 million and an estimated fair market value of $3,597 million. The fair value of the debt securities is determined using Level 2 measurements (see Note 11 for information regarding the fair value hierarchy).

Tampa Electric Company 2.40% Notes due 2031 and 3.45% Notes due 2051

On March 18, 2021, TEC completed a sale of (i) $400 million aggregate principal amount of 2.40% Notes due March 15, 2031 (the 2031 Notes) and (ii) $400 million aggregate principal amount of 3.45% Notes due March 15, 2051 (the 2051 Notes, and collectively, the Notes). Until December 15, 2030, in the case of the 2031 Notes, or September 15, 2050, in the case of the 2051 Notes, TEC may redeem all or any part of such series of Notes at its option at a redemption price equal to the greater of (i) 100% of the principal amount of such series of Notes to be redeemed or (ii) the sum of the present values of the remaining payments of principal and interest on the Notes to be redeemed that would be due if the Notes matured on (a) December 15, 2030, in the case of the 2031 Notes, discounted to the redemption date on a semiannual basis at the applicable treasury rate (as defined in the Indenture), plus 15 basis points, or (b) September 15, 2050, in the case of the 2051 Notes, discounted to the redemption date on a semiannual basis at the applicable treasury rate, plus 20 basis points; in either case, the redemption price would include accrued and unpaid interest to the redemption date. At any time on or after December 15, 2030, in the case of the 2031 Notes or September 15, 2050, in the case of the 2051 Notes, TEC may, at its option, redeem such series of the Notes, in whole or in part, at 100% of the principal amount of such series of the Notes being redeemed plus accrued and unpaid interest thereon to, but excluding, the date of redemption.

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, 2021 and December 31, 2020, TEC has estimated its ultimate financial liability to be $17 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.

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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, 2021:

									Long-term				Demand
	Purchased				Capital		Fuel and		Service		Operating		Side
(millions)	Power		Transportation		Projects		Gas Supply		Agreements		Leases		Management		Total
2021	$	35	$	119	$	297	$	173	$	35	$	2	$	2	$	663
2022		0		232		84		52		32		3		3		406
2023		0		211		58		1		43		3		0		316
2024		0		205		0		0		26		3		0		234
2025		0		191		0		0		18		2		0		211
Thereafter		0		2,014		0		0		66		48		0		2,128
Total future minimum payments	$	35	$	2,972	$	439	$	226	$	220	$	61	$	5	$	3,958

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, 2021, TEC was in compliance with all required covenants.

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9. Segment Information

(millions)	Tampa								Tampa Electric
Three months ended June 30,	Electric		PGS		Eliminations				Company
2021
Revenues - external	$	531	$	123	$	0			$	654
Intracompany sales		1		0		(1	)			0
Total revenues		532		123		(1	)			654
Total interest charges		29		5		0				34
Net income	$	102	$	19	$	0			$	121
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
Six months ended June 30,
2021
Revenues - external	$	977	$	276	$	0			$	1,253
Intracompany sales		2		2		(4	)			0
Total revenues		979		278		(4	)			1,253
Total interest charges		57		10		0				67
Net income	$	167	$	46	$	0			$	213
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
Total assets at June 30, 2021	$	10,101	$	2,021	$	(663	)	(1)	$	11,459
Total assets at December 31, 2020	$	9,800	$	1,901	$	(653	)	(1)	$	11,048

(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:

(millions)	Tampa							Tampa Electric
Three months ended June 30, 2021	Electric		PGS		Eliminations			Company
Electric revenue
Residential	$	276	$	0	$	0		$	276
Commercial		144		0		0			144
Industrial		41		0		0			41
Regulatory deferrals and unbilled revenue		11		0		0			11
Other (1)		60		0		(1	)		59
Total electric revenue		532		0		(1	)		531
Gas revenue
Residential		0		49		0			49
Commercial		0		46		0			46
Industrial (2)		0		6		0			6
Other (3)		0		22		0			22
Total gas revenue		0		123		0			123
Total revenue	$	532	$	123	$	(1	)	$	654

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Three months ended June 30, 2020
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

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(millions)	Tampa								Tampa Electric
Six months ended June 30, 2021	Electric			PGS		Eliminations			Company
Electric revenue
Residential	$	508		$	0	$	0		$	508
Commercial		270			0		0			270
Industrial		78			0		0			78
Regulatory deferrals and unbilled revenue		9			0		0			9
Other (1)		114			0		(2	)		112
Total electric revenue		979			0		(2	)		977
Gas revenue
Residential		0			116		0			116
Commercial		0			99		0			99
Industrial (2)		0			12		0			12
Other (3)		0			51		(2	)		49
Total gas revenue		0			278		(2	)		276
Total revenue	$	979		$	278	$	(4	)	$	1,253
Six months ended June 30, 2020
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

(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, 2021 and December 31, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $130 million and $135 million, respectively. As allowed under ASC 606, these amounts exclude 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. 

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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, 2021 and December 31, 2020, 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.

12. Subsequent Events

 On August 6, 2021, TEC filed with the FPSC a joint motion for approval of a settlement agreement dated as of August 6, 2021 by and among TEC and the intervenors in TEC’s rate case filed with the FPSC in April 2021. In addition, on August 3, 2021, the FPSC approved Tampa Electric’s request for a mid-course adjustment to its fuel and capacity charges, effective with September 2021 customer bills. See Note 3 – Tampa Electric Base Rates, Tampa Electric Big Bend Modernization Project and Tampa Electric Mid-Course Adjustment to Fuel Recovery for further information.

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

Earnings Summary - Unaudited  

		Three months ended June 30,						Six months ended June 30,
(millions)		2021			2020			2021			2020
Revenues
	Tampa Electric	$	532		$	454		$	979		$	875
	PGS		123			97			278			227
	Eliminations		(1	)		(2	)		(4	)		(6	)
	TEC	$	654		$	549		$	1,253		$	1,096
Net income
	Tampa Electric	$	102		$	106		$	167		$	165
	PGS		19			11			46			29
	TEC	$	121		$	117		$	213		$	194

Operating Results

Second quarter 2021 net income was $121 million, compared to $117 million in the second quarter of 2020. Second quarter 2021 results were impacted by higher base revenues and AFUDC, partially offset by higher depreciation expense, O&M expense and interest expense at Tampa Electric and PGS. Year-to-date 2021 net income was $213 million, compared to $194 million in the 2020 year-to-date period. Year-to-date 2021 results were impacted by higher base revenues at PGS, lower O&M at Tampa Electric and higher AFUDC at Tampa Electric, partially offset by higher depreciation expense at Tampa Electric and PGS. See Operating Company Results below for further detail.

COVID-19 Pandemic

To date, the COVID-19 pandemic has not had a material financial impact on TEC’s earnings. TEC’s top priority continues to be the health and safety of its customers and employees. Management continues to monitor developments, economic conditions and recommendations by local and national public health authorities related to COVID-19 and is adjusting operational requirements as needed.

To date, customer defaults have not been material and as of June 30, 2021, adjustments to the allowance for credit losses have not had a material impact on the financial statements. TEC is continuing to monitor customer accounts and to work with customers on payment arrangements.

The extent of the future impact of the COVID-19 pandemic on TEC’s financial results and business operations is uncertain at this time but is not expected to have a material financial impact in 2021. Future impacts will depend on a variety of factors, including the duration and severity of the pandemic, further government actions, timing and effectiveness of vaccinations, future economic activity and energy usage. TEC plans to complete its capital investment projects and continue to reliably and safely serve its customers. Capital project delays and supply chain disruptions have been immaterial to date but, depending on the duration of the COVID-19 pandemic, forecasted capital expenditures may be delayed due to supply chain disruptions, travel restrictions or the deferral of non-essential capital work. 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 the COVID-19 pandemic on future cash flows. For further information on the potential future impacts of COVID-19 on TEC, refer to the COVID-19 Pandemic and Liquidity and Capital Resources sections of TEC’s Annual Report on Form 10-K for the year ended December 31, 2020.  

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 2021 was $102 million, compared with $106 million for the same period in 2020. Results primarily reflected higher depreciation expense and higher interest expense, partially offset by higher AFUDC, lower income tax expense and higher base revenues. 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 clause and other pass-through costs.

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Revenues were $78 million higher than in the same quarter in 2020 primarily driven by higher fuel recovery clause revenue as a result of higher fuel costs. Base revenue increased by $3 million primarily due to customer growth, warmer weather and higher base rates from additional solar generation projects being placed in-service, partially offset by the revenues now being recovered through the Storm Protection Plan Cost Recovery Clause. Total degree days (a measure of heating and cooling demand) in Tampa Electric's service area in the second quarter of 2021 were 8% above normal (a 20-year statistical degree day average) and 3% above the 2020 period, reflecting favorable weather in the second quarter of 2021 compared to 2020. Total net energy for load, which is a calendar measurement of energy output, in the second quarter of 2021 was 2% higher than the same period in 2020.

O&M expense, excluding all FPSC-approved cost-recovery clauses, was $2 million higher than in the same period of 2020 primarily due to higher employee benefit costs. Depreciation and amortization expense increased $12 million in the second quarter of 2021 compared to the same period in 2020 primarily due to normal additions to facilities to reliably serve customers, the in-service of solar generation projects, and an $8 million intangible software amortization credit in 2020 due to a regulatory agreement approved by the FPSC (see Note 3 to the TEC Consolidated Condensed Financial Statements for further information).

Tampa Electric’s net income year-to-date 2021 was $167 million, compared with $165 million for the same period in 2020. Results primarily reflected higher AFUDC and lower O&M expense, partially offset by higher depreciation expense.

Revenues were $104 million higher than year-to-date 2020 primarily driven by higher fuel recovery clause revenue as a result of higher fuel costs. Base revenue was consistent with year-to-date 2020 due to customer growth and higher base rates from additional solar generation projects being placed in-service, offset by less warm weather in the first quarter of 2021 and the revenues now being recovered through the Storm Protection Plan Cost Recovery Clause. Total degree days (a measure of heating and cooling demand) in Tampa Electric's service area year-to-date 2021 were 6% above normal (a 20-year statistical degree day average) and 4% below the 2020 period, reflecting milder weather year-to-date 2021 compared to 2020. Total net energy for load, which is a calendar measurement of energy output, year-to-date 2021 was consistent with year-to-date 2020.

O&M expense, excluding all FPSC-approved cost-recovery clauses, was $10 million lower than year-to-date 2020 primarily due to lower generation costs related to timing and scope of outages, lower labor costs as a result of lower coal generation, the recovery of Storm Protection Plan clause expenses and lower employee benefit costs. Depreciation and amortization expense was $17 million higher in year-to-date 2021 primarily due to normal additions to facilities to reliably serve customers, the in-service of solar generation projects, and an $8 million intangible software amortization credit in 2020 due to a regulatory agreement approved by the FPSC (see Note 3 to the TEC Consolidated Condensed Financial Statements for further information).

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Tampa Electric’s regulated operating statistics for the three and six months ended June 30, 2021 and 2020 were as follows:

(millions, except customers and total degree days)	Operating Revenues								Kilowatt-Hours Billed
Three months ended June 30,	2021		2020			% Change			2021		2020			% Change
By Customer Type
Residential (1)	$	276	$	254			9			2,472		2,518			(2	)
Commercial (1)		144		121			19			1,525		1,431			7
Industrial (1)		41		32			28			541		452			20
Other (1)		47		39			21			478		439			9
Regulatory deferrals and unbilled revenue (2)		11		(3	)		(467	)
Total retail sales of electricity		519		443			17			5,016		4,840			4
Off system sales of electricity		1		0			#DIV/0	!		16		11			45
Other operating revenue		12		11			9
Total revenues	$	532	$	454			17			5,032		4,851			4
Customers at June 30, (thousands)		802		786			2
Retail net energy for load (kilowatt hours)		5,516		5,388			2
Total degree days		1,345		1,311			3
Six months ended June 30,
By Customer Type
Residential (1)	$	508	$	459			11			4,525		4,398			3
Commercial (1)		270		246			10			2,850		2,804			2
Industrial (1)		78		69			13			1,015		949			7
Other (1)		90		81			11			912		883			3
Regulatory deferrals and unbilled revenue (2)		9		(5	)		(280	)					��
Total retail sales of electricity		955		850			12			9,302		9,034			3
Off system sales of electricity		1		1			0			27		33			(18	)
Other operating revenue		23		24			(4	)
Total revenues	$	979	$	875			12			9,329		9,067			3
Customers at June 30, (thousands)		802		786			2
Retail net energy for load (kilowatt-hours)		9,952		9,939			0
Total degree days		1,953		2,034			(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 $19 million for the second quarter, compared with $11 million in the second quarter of 2020. Results reflect a 5% higher number of customers in the second quarter of 2021 compared to the second quarter of 2020. Revenues were $26 million higher than the prior year quarter primarily due to higher base rates that went into effect January 2021, customer growth, higher PGA clause-related revenues, and COVID-19 impacts lowering commercial sales in the 2020 period. These revenue increases were partially offset by lower cast iron bare steel replacement rider revenue that is now being recovered through the new base rates and lower off-system sales in 2021. The base revenues increase, excluding the shift of cast iron bare steel rider-related revenue, was $18 million. Operations and maintenance expense, excluding all FPSC-approved cost-recovery clauses, was $2 million higher than in the 2020 quarter primarily due to higher labor and contractor costs to operate and maintain the growing distribution system. Depreciation and amortization increased $3 million due to asset growth.

PGS had net income of $46 million for the 2021 year-to-date period, compared with $29 million in the 2020 period. Revenues were $51 million higher than the prior period primarily due to higher base rates that went into effect January 2021, customer growth, higher PGA clause-related revenues, and COVID-19 impacts lowering commercial sales in the second quarter of 2020. These revenue increases were partially offset by lower cast iron bare steel replacement rider revenue that is now being recovered through the new base rates and lower off-system sales in 2021. The base revenues increase excluding the shift of cast iron bare steel rider-related revenue was $32 million. Operations and maintenance expense, excluding all FPSC-approved cost-recovery clauses, was $2 million higher than in 2020 primarily due to the same quarterly drivers mentioned above. Depreciation and amortization increased $5 million due to asset growth.  

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PGS’s regulated operating statistics for the three and six months ended June 30, 2021 and 2020 were as follows:

(millions, except customers)	Operating Revenues							Therms
Three months ended June 30,	2021		2020		% Change			2021		2020		% Change
By Customer Type
Residential	$	49	$	36		36			21		19		11
Commercial		46		28		64			126		99		27
Industrial		5		4		25			117		118		(1	)
Power generation		1		1		0			200		238		(16	)
Off system sales		4		8		(50	)		10		38		(74	)
Other operating revenues		15		17		(12	)
Total	$	120	$	94		28			474		512		(7	)
By Sales Type
System supply	$	66	$	50		32			39		62		(37	)
Transportation		39		27		44			435		450		(3	)
Other operating revenues		15		17		(12	)
Total	$	120	$	94		28			474		512		(7	)
Customers at June 30, (thousands)		436		414		5
Six months ended June 30,
By Customer Type
Residential	$	116	$	84		38			59		52		13
Commercial		99		69		43			266		244		9
Industrial		9		8		13			229		230		(0	)
Power generation		3		3		0			418		472		(11	)
Off system sales		10		17		(41	)		25		80		(69	)
Other operating revenues		34		39		(13	)
Total	$	271	$	220		23			997		1,078		(8	)
By Sales Type
System supply	$	154	$	118		31			101		144		(30	)
Transportation		83		63		32			896		934		(4	)
Other operating revenues		34		39		(13	)
Total	$	271	$	220		23			997		1,078		(8	)
Customers at June 30, (thousands)		436		414		5

Other Income

For the second quarter of 2021 and 2020, TEC’s other income was $12 million and $9 million, respectively, and included AFUDC-equity of $10 million and $7 million, respectively. For the year-to-date periods in 2021 and 2020, TEC’s other income was $23 million and $16 million, respectively, and included AFUDC-equity of $20 million and $13 million, respectively. The increase in AFUDC-equity was primarily due to the timing of Tampa Electric’s modernization of its Big Bend Power Station and the construction of solar projects.

Interest Expense

For the second quarter of 2021 and 2020, TEC’s interest expense, excluding AFUDC-debt, was $39 million and $35 million, respectively. For the year-to-date periods in 2021 and 2020, TEC’s interest expense, excluding AFUDC-debt, was $77 million and $72 million, respectively. The increase was due to higher borrowings to support TEC’s ongoing capital investment program.

Income Taxes

The provisions for income taxes were $21 million and $24 million for the three months ended June 30, 2021 and 2020, respectively, and $41 million and $40 million for the six months ended June 30, 2021 and 2020, respectively. Compared to the 2020 period, the provision for income taxes for the six months ended June 30, 2021 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, higher investment tax credit amortization related to solar projects and higher R&D tax credits. Compared to the second quarter in prior year, the provision for incomes taxes for the three months ended June 30, 2021 decreased primarily due to higher tax benefits due to AFUDC, higher amortization of the regulatory liability related to tax reform, higher investment tax credit

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amortization related to solar projects and higher R&D tax credits.

Liquidity and Capital Resources

The table below sets forth the June 30, 2021 liquidity, cash balances and amounts available under the TEC credit facilities.  

(millions)
Credit facilities	$	800
Drawn amounts/letters of credit		411
Available credit facilities		389
Cash and short-term investments		24
Total liquidity	$	413

Cash Impacts Related to Operating Activities  

Cash flows from operating activities for the six months ended June 30, 2021 were $346 million, a decrease of $36 million compared to the same period in 2020. Decreases to cash from operations were primarily the result of higher fuel under-recoveries, partially offset by the timing of invoice payments.

Cash Impacts Related to Financing Activities

Cash flows from financing activities for the six months ended June 30, 2021 resulted in net cash inflows of $256 million. TEC received $790 million of proceeds from long-term debt and $290 million of equity contributions (see Note 7 to the TEC Consolidated Condensed Financial Statements for further information regarding TEC’s long-term debt). These increases in cash flows were partially offset by repayment of $300 million of other short-term debt with a maturity of greater than 90 days, repayment of long-term debt of $278 million, dividend payments to Parent of $181 million and a net repayment of $65 million of short-term debt with maturities of 90 days or less.  

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, 2021, TEC was in compliance with all applicable financial covenants. The following table contains the significant financial covenant and the performance relative to it at June 30, 2021.

Significant Financial Covenants

			Calculation at
Instrument (1)	Financial Covenant (2)	Requirement/Restriction	June 30, 2021
Credit facility - $800 million	Debt/capital	Cannot exceed 65%	46%

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

(2) As defined in the instrument.

Credit Ratings of Senior Unsecured Debt at June 30, 2021

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

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

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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, 2021.

Regulatory Matters

See Note 3 to the TEC Consolidated Condensed Financial Statements for information regarding TEC’s regulatory matters as of June 30, 2021.

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, 2021, 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 2021. For further discussion of critical accounting policies and estimates, see TEC’s Annual Report on Form 10-K for the year ended December 31, 2020.

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, 2021. Based on such evaluation, TEC’s principal financial officer and principal executive officer have concluded that, as of June 30, 2021, 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 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 5. OTHER INFORMATION

On August 6, 2021, TEC filed with the FPSC a joint motion for approval of a settlement agreement dated as of August 6, 2021 (the Settlement Agreement) by and among TEC and the intervenors in TEC’s rate case filed with the FPSC in April 2021. The Settlement Agreement agrees to an increase in base rates annually effective with January 2022 bills, to generate a $191 million increase in revenue consisting of $123 million of traditional base rate charges and $68 million in a new charge to recover the costs of retiring assets. The Settlement Agreement further includes two subsequent year adjustments of $90 million and $21 million, effective January 2023 and January 2024, respectively. Under the agreement, the allowed equity in the capital structure will continue to be 54% from investor sources of capital. The Settlement Agreement includes an allowed regulatory ROE range of 9.0% to 11.0% with a 9.95% midpoint. The Settlement Agreement allows a 25 basis point increase in the allowed ROE range and mid-point, and $10 million of additional revenue, if the average 30-year United States Treasury Bond yield rate for any period of six consecutive months is at least 50 basis points greater than the yield rate on the date the FPSC votes to approve the agreement. Under the agreement, base rates will not change from January 1, 2022 through December 31, 2024, unless TEC’s earned ROE was to fall below the bottom of the range during that time. The Settlement Agreement contains a provision whereby TEC agrees to quantify the future impact of a decrease or increase in corporate income tax rates on net operating income through a reduction or increase in base revenues within 180 days of when such tax change becomes law or its effective date. The Settlement Agreement further creates a mechanism to recover the costs of retiring coal generation units and meter assets over a period of 15 years which survives the term of this agreement. The Settlement Agreement would not become effective unless and until approved by the FPSC, which is expected to consider the matter by October 2021.

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).	*
4.1	Sixteenth Supplemental Indenture dated as of March 18, 2021, between Tampa Electric Company, as issuer, and The Bank of New York Mellon, as trustee, supplementing the Indenture dated as of July 1, 1998, as amended (Exhibit 4.9, Form 8-K dated March 18, 2021 of Tampa Electric Company).	*
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)
99.1	Stipulation and Settlement Agreement, dated as of August 6, 2021, by and among Tampa Electric Company, the Office of Public Counsel, the Florida Industrial Power Users Group, Federal Executive Agencies, the Florida Retail Federation, Walmart, Inc., and the West Central Florida Hospital Utility Alliance.
101.INS**	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document.

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Exhibit
No.	Description
101.SCH**	Inline XBRL Taxonomy Extension Schema Document.
101.CAL**	Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF**	Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB**	Inline XBRL Taxonomy Label Linkbase Document.
101.PRE**	Inline XBRL Taxonomy Presentation Linkbase Document.
104	The cover page from TEC’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 has been formatted in Inline XBRL.

(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.

** The XBRL related information in Exhibit 101 to this quarterly report on Form 10-Q shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

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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 10, 2021	By:	/s/ Gregory W. Blunden
		Gregory W. Blunden
		Treasurer and Chief Financial Officer      (Chief Accounting Officer)
		(Principal Financial and Accounting Officer)

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