UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the quarterly period ended Sept. 30, 2001
--------------------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the transition period _____ to _____
Commission File Number 1-5007
------
TAMPA ELECTRIC COMPANY
----------------------
(Exact name of registrant as specified in its charter)
FLORIDA 59-0475140
------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
702 N. Franklin Street, Tampa, Florida 33602
-------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (813) 228-4111
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
-----
Number of shares outstanding of each of the issuer's classes of common stock, as
of the latest practicable date (Oct. 31, 2001):
Common Stock, Without Par Value 10
The registrant meets the conditions set forth in General Instruction (H)(1)(a)
and (b) of Form 10-Q and is therefore filing this form with the reduced
disclosure format.
Index to Exhibits Appears on Page 17
Page 1 of 17
PART I. FINANCIAL INFORMATION
--------------------------------
Item 1. Condensed Financial Statements
------------------------------
In the opinion of management, the unaudited condensed consolidated
financial statements include all adjustments which are of a recurring nature and
necessary to present fairly the financial position of Tampa Electric Company as
of Sept. 30, 2001 and Dec. 31, 2000, and the results of operations and cash
flows for the three- and nine-month periods ended Sept. 30, 2001 and 2000. The
results of operations for the three- and nine-month periods ended Sept. 30, 2001
are not necessarily indicative of the entire fiscal year ending Dec. 31, 2001.
Reference should be made to the explanatory notes affecting the income and
balance sheet accounts contained in Tampa Electric Company's Annual Report on
Form 10-K for the year ended Dec. 31, 2000 and to the notes on pages 7 through 9
of this report.
2
CONSOLIDATED BALANCE SHEETS
unaudited
(in millions)
Sept. 30, Dec. 31,
2001 2000
--------- --------
Assets
Property, plant and equipment, at original cost
Utility plant in service
Electric $ 4,091.2 $ 4,054.1
Gas 657.8 632.1
Construction work in progress 334.6 150.1
--------- ---------
5,083.6 4,836.3
Accumulated depreciation (1,993.2) (1,931.3)
--------- ---------
3,090.4 2,905.0
Other property 8.2 8.3
--------- ---------
3,098.6 2,913.3
--------- ---------
Current assets
Cash and cash equivalents 1.6 0.7
Receivables, less allowance for uncollectibles 207.4 180.4
Inventories, at average cost
Fuel 78.5 56.8
Materials and supplies 52.0 52.4
Prepayments 11.0 3.3
--------- ---------
350.5 293.6
--------- ---------
Deferred debits
Unamortized debt expense 14.0 13.2
Deferred income taxes 128.0 124.3
Regulatory asset - tax related 62.7 62.3
Other 179.6 143.1
--------- ---------
384.3 342.9
--------- ---------
$ 3,833.4 $ 3,549.8
========= =========
Liabilities and Capital
Capital
Common stock $1,312.1 $1,148.1
Retained earnings 324.8 299.0
-------- --------
1,636.9 1,447.1
Long-term debt, less amount due within one year 981.4 789.3
-------- --------
2,618.3 2,236.4
-------- --------
Current liabilities
Long-term debt due within one year 56.0 55.2
Notes payable 110.5 231.2
Accounts payable 137.6 188.0
Customer deposits 85.1 82.4
Interest accrued 25.9 34.2
Taxes accrued 129.2 71.6
-------- --------
544.3 662.6
-------- --------
Deferred credits
Deferred income taxes 440.1 424.5
Investment tax credits 32.7 36.1
Regulatory liability-tax related 67.0 72.4
Other 131.0 117.8
-------- --------
670.8 650.8
-------- --------
$3,833.4 $3,549.8
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
3
CONSOLIDATED STATEMENTS OF INCOME
unaudited
(in millions)
For the three months ended Sept. 30, 2001 2000
------ ------
Revenues
Electric $398.3 $391.6
Gas 70.6 72.0
------ ------
468.9 463.6
------ ------
Operating expenses
Operation
Fuel 103.6 80.4
Purchased power 57.2 75.6
Natural gas sold 34.3 38.5
Other 60.8 56.6
Maintenance 22.4 20.6
Depreciation 49.6 46.8
Taxes-Federal and state income 34.0 33.8
Taxes-Other than income 31.9 29.6
------ ------
393.8 381.9
------ ------
Operating Income 75.1 81.7
Other income
Allowance for other funds used during construction 1.9 0.4
Other income, net 1.2 0.9
------ ------
3.1 1.3
------ ------
Income before interest charges 78.2 83.0
------ ------
Interest charges
Interest on long-term debt 17.4 12.9
Allowance for borrowed funds used during construction (0.8) (0.2)
Other interest 2.2 12.3
------ ------
18.8 25.0
------ ------
Net Income $ 59.4 $ 58.0
====== ======
The accompanying notes are an integral part of the consolidated financial
statements.
4
CONSOLIDATED STATEMENTS OF INCOME
unaudited
(in millions)
For the nine months ended Sept. 30, 2001 2000
-------- --------
Revenues
Electric $1,092.9 $1,024.2
Gas 287.0 230.1
-------- --------
1,379.9 1,254.3
-------- --------
Operating expenses
Operation
Fuel 248.1 244.6
Purchased power 186.9 143.2
Natural gas sold 159.7 115.2
Other 186.0 174.8
Maintenance 76.3 80.1
Depreciation 148.6 135.6
Taxes-Federal and state income 81.0 77.7
Taxes-Other than income 100.7 91.0
-------- --------
1,187.3 1,062.2
-------- --------
Operating Income 192.6 192.1
Other income
Allowance for other funds used during construction 4.0 1.4
Other income, net 3.6 1.0
-------- --------
7.6 2.4
-------- --------
Income before interest charges 200.2 194.5
-------- --------
Interest charges
Interest on long-term debt 45.4 38.2
Allowance for other funds used during construction (1.6) (0.5)
Other interest 13.7 22.0
-------- --------
57.5 59.7
-------- --------
Net Income $ 142.7 $ 134.8
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
unaudited
(in millions)
For the nine months ended Sept. 30, 2001 2000
------- -------
Cash flows from operating activities
Net income $ 142.7 $ 134.8
Adjustments to reconcile net income to net cash
Depreciation 148.6 135.6
Deferred income taxes 7.2 (53.6)
Investment tax credits, net (3.3) (3.4)
Allowance for funds used during construction (5.6) (1.9)
Deferred recovery clause (23.6) (31.9)
Refund to customers -- (3.8)
Receivables, less allowance for uncollectibles (27.0) (45.1)
Inventories (21.3) 8.3
Taxes accrued 57.6 108.7
Interest accrued (8.2) 23.7
Accounts payable (50.5) 10.3
Other (7.9) 25.6
------- -------
208.7 307.3
------- -------
Cash flows from investing activities
Capital expenditures (335.4) (248.1)
Allowance for funds used during construction 5.6 1.9
------- -------
(329.8) (246.2)
------- -------
Cash flows from financing activities
Proceeds from contributed capital from parent 164.0 105.0
Proceeds from long-term debt 250.0 154.5
Repayment of long-term debt (54.5) (84.0)
Net increase (decrease) in short-term debt (120.7) (166.5)
Payment of dividends (116.8) (95.1)
------- -------
122.0 (86.1)
------- -------
Net increase (decrease) in cash and cash equivalents 0.9 (25.0)
Cash and cash equivalents at beginning of period 0.7 26.1
------- -------
Cash and cash equivalents at end of period $ 1.6 $ 1.1
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
A. Tampa Electric Company (the company) is a wholly owned subsidiary of TECO
Energy, Inc.
B. The company has made certain commitments in connection with its continuing
construction program. Total construction expenditures during 2001 are
estimated to be $423 million for its electric division (referred to as
Tampa Electric) and $74 million for its natural gas division (referred to
as Peoples Gas System or PGS).
The company is a potentially responsible party for certain superfund
sites and, through Peoples Gas System, for certain former manufactured gas
plant sites. While the joint and several liability associated with these
sites presents the potential for significant response costs, the company
estimates its ultimate financial liability at approximately $22 million
over the next 10 years. The environmental remediation costs associated
with these sites have been recorded on the accompanying consolidated
balance sheet, and are not expected to have a significant impact on
customer prices.
C. Contribution by operating division
(in millions)
Net
Revenues Income
------------- -------
Three Months Ended Sept. 30, 2001
Tampa Electric $ 398.5 $ 56.8
Peoples Gas System 70.6 2.6
-------- ------
469.1 59.4
Other and eliminations (0.2) --
-------- ------
Tampa Electric Company $ 468.9 $ 59.4
======== ======
Three Months Ended Sept. 30, 2000
Tampa Electric $ 391.8 $ 54.6
Peoples Gas System 72.0 3.4
-------- ------
463.8 58.0
Other and eliminations (0.2) --
-------- ------
Tampa Electric Company $ 463.6 $ 58.0
======== ======
Nine Months Ended Sept. 30, 2001
Tampa Electric $1,093.6 $125.4
Peoples Gas System 287.0 17.3
-------- ------
1,380.6 142.7
Other and eliminations (0.7) --
-------- ------
Tampa Electric Company $1,379.9 $142.7
======== ======
Nine Months Ended Sept. 30, 2000
Tampa Electric $1,024.8 $118.9
Peoples Gas System 230.1 15.9
-------- ------
1,254.9 134.8
Other and eliminations (0.6) --
-------- ------
Tampa Electric Company $1,254.3 $134.8
======== ======
7
D. The company adopted FAS 133, Accounting for Derivative Instruments and
Hedging, effective Jan. 1, 2001. The standard requires the company to
recognize derivatives as either assets or liabilities in the financial
statements, to measure those instruments at fair value, and to reflect the
changes in fair value of those instruments as either components of other
comprehensive income (OCI) or in net income, depending on the types of
those instruments. The company has completed the review and documentation
of its derivative contracts, and found such activity has been minimal and
relatively short-term in duration. Based on policies and procedures
approved by the Board of Directors, from time to time, the company enters
into futures, swaps and options contracts to limit exposure to gas price
increases at PGS.
The company did not have any open derivatives or hedges at adoption of
the standard that were subject to FAS 133 accounting. Amounts recorded in
other comprehensive income at Sept. 30, 2001 related to FAS 133 were not
material.
The company does not use derivatives or other financial products for
speculative purposes. Management will continue to document all current, new
and possible uses of derivatives, and develop procedures and methods for
measuring them.
E. On June 25, 2001, the company issued $250 million principal amount of
6.875% Notes due June 15, 2012. The Notes are subject to redemption, in
whole or in part, at any time, and at the option of the company, at a
redemption price equal to the greater of 100% of the principal amount of
the Notes then outstanding to be redeemed or the sum of the present value
of the remaining scheduled payments of principal and interest on the Notes
then outstanding to be redeemed, discounted at an adjusted treasury rate
plus 25 basis points to the redemption date. Net proceeds were 98.928% of
the principal amount. The proceeds were used to repay short-term debt and
for general corporate purposes.
F. On June 30, 2001, the Financial Accounting Standards Board finalized FAS
141, Business Combinations, and FAS 142, Goodwill and Other Intangible
Assets. FAS 141 requires all business combinations initiated after June
30, 2001, to be accounted for using the purchase method of accounting. With
the adoption of FAS 142 effective Jan. 1, 2002, goodwill is no longer
subject to amortization. Rather, goodwill will be subject to at least an
annual assessment for impairment by applying a fair-value-based test. Under
the new rules, an acquired intangible asset should be separately recognized
if the benefit of the intangible asset is obtained through contractual or
other legal rights, or if the intangible asset can be sold, transferred,
licensed, rented, or exchanged, regardless of the acquirer's intent to do
so. These intangible assets will be required to be amortized over their
useful lives.
The company does not have any recorded goodwill, and therefore does
not expect adoption of FAS 142 to impact its results.
In July 2001, the Financial Accounting Standards Board finalized FAS
143, Accounting for Asset Retirement Obligations, which requires the
recognition of a liability for an asset retirement obligation in the period
in which it is incurred. When the liability is initially recorded, the
carrying amount of the related long-lived asset is correspondingly
increased. Over time, the liability is accreted to its present value and
the related capitalized charge is depreciated over the useful life of the
asset. FAS 143 is effective for fiscal years beginning after June 15,
2002. The company is currently reviewing the impact that FAS 143 will have
on its results.
In August 2001 the Financial Accounting Standards Board issued FAS
144, Accounting for the Impairment or Disposal of Long-Lived Assets. FAS
144 addresses accounting and reporting for the impairment or disposal of
long-lived assets, including the disposal of a segment of business. FAS
144 is effective for fiscal years beginning after December 15, 2001, with
earlier application encouraged. The company is currently reviewing the
impact that FAS 144 will have on its results.
8
G. On Oct. 24, 2001, Tampa Electric Company and the Florida Department of
Environmental Protection (FDEP) resolved by consent order an alleged permit
exceedance involving Tampa Electric's Polk Power Station. The Polk Power
Station was developed as a demonstration project with the participation of
the United States Department of Energy to demonstrate an innovative coal
gasification fuel technology process. The by-product quantities (residues
and unburnt coal) from the process have been higher than anticipated,
resulting in on-site storage of quantities in excess of permit limits. The
consent order provides for the payment of a $330,000 penalty, which was
paid on Nov. 8, 2001.
In August 2001, Tampa Electric paid a $104,000 penalty to FDEP as a
result of unanticipated delays in resolving the maintenance and repair
response pursuant to an April 10, 2001 consent order, which related to
solid waste and disposal facilities at Tampa Electric's Big Bend Station.
9
Item 2. Management's Narrative Analysis of Results of Operations
--------------------------------------------------------
This Quarterly Report on Form 10-Q contains forward-looking statements,
which are subject to the inherent uncertainties in predicting future results and
conditions. Certain factors that could cause actual results to differ
materially from those projected in these forward-looking statements include the
following: interest rates, debt levels, restrictive covenants and other factors
that could impact Tampa Electric Company's ability to obtain access to
sufficient capital on satisfactory terms; general economic conditions,
particularly those in Tampa Electric's service area affecting energy sales;
weather variations affecting energy sales and operating costs; the ability to
operate equipment without undue breakdowns or failures; potential competitive
changes in the electric and gas industries, particularly in the area of retail
competition; regulatory actions affecting Tampa Electric and Peoples Gas System;
commodity price changes affecting the competitive positions of Tampa Electric
and Peoples Gas System; and changes in and compliance with environmental
regulations that may impose additional costs or curtail some activities. Some
of these factors are discussed more fully under "Investment Considerations"
included as Exhibit 99.1 in TECO Energy's Quarterly Report on form 10-Q for the
quarter ended June 30, 2001, and reference is made thereto.
Results of Operations
- ---------------------
Three Months Ended Sept. 30, 2001:
The company's net income for the quarter ended Sept. 30, 2001 was $59.4
million, up from $58.0 million recorded for the three-month period ended Sept.
30, 2000. The company showed improved results from customer growth and higher
residential and commercial sales. Operating expenses increased due to higher
depreciation expense from normal plant additions and operations and maintenance
expenses.
Electric division (Tampa Electric)
Tampa Electric's net income for the third quarter was $56.8 million,
compared with $54.6 million for the same period in 2000. Tampa Electric showed
improved results from customer growth and retail energy sales growth of about 3
percent. Sales to residential and commercial customers increased 3.3 percent to
more than offset reduced sales to low-margin industrial phosphate customers.
Operating expenses increased due to higher depreciation expense from normal
plant additions and higher operations and maintenance expenses for generating
unit maintenance. Allowance for funds used during construction (AFUDC) (or
interest and allowed equity cost capitalized to construction) was $2.7 million
and $0.6 million for the three months ended Sept. 30, 2001 and 2000,
respectively. AFUDC is expected to increase over the next several years,
reflecting Tampa Electric's generation expansion activities. A summary of the
operating statistics for the three months ended Sept. 30, 2001 and 2000 follows.
(in millions, except average customers)
Operating Revenues Kilowatt-hour sales
--------------------------------- --------------------------------
Three Months Ended Sept. 30, 2001 2000 Change 2001 2000 Change
-------- -------- ------ -------- -------- ------
Residential $ 199.8 $ 186.8 7.0% 2,313.0 2,251.0 2.8%
Commercial 114.4 104.9 9.1% 1,595.4 1,531.2 4.2%
Industrial - Phosphate 12.8 17.0 -24.7% 253.3 295.4 -14.3%
Industrial - Other 19.1 16.7 14.4% 311.7 275.1 13.3%
Other sales of electricity 28.1 25.0 12.4% 376.6 353.8 6.4%
Deferred and other revenues (4.0) 1.4 -- -- -- --
-------- -------- ------- -------
370.2 351.8 5.2% 4,850.0 4,706.5 3.0%
Sales for resale 18.9 32.0 -40.9% 299.0 764.2 -60.9%
Other operating revenue 9.4 8.0 17.5% -- -- --
-------- -------- ------- -------
$ 398.5 $ 391.8 1.7% 5,149.0 5,470.7 -5.9%
======== ======== ======= =======
Average customers (thousands) 576.4 560.5 2.8%
======== ========
Retail output to line (kilowatt hours) 5,031.7 5,062.7 -0.6%
======= =======
10
Natural Gas division (Peoples Gas System)
Peoples Gas System (PGS) reported net income of $2.6 million for the
quarter, compared with $3.4 million for the same period last year. Quarterly
results reflected higher operating and maintenance and depreciation expenses
that were only partially offset by customer growth of almost 4 percent and
higher residential and commercial sales. A summary of the operating statistics
for the three months ended Sept. 30, 2001 and 2000 follows:
(in millions, except average customers)
Operating Revenues Therms
--------------------------------- --------------------------------
Three Months Ended Sept. 30, 2001 2000 Change 2001 2000 Change
-------- -------- ------ -------- -------- ------
By Customer Segment:
Residential $12.9 $12.5 3.2% 8.3 8.0 3.7%
Commercial 27.9 32.4 -13.9% 68.2 61.9 10.2%
Industrial 2.8 2.6 7.7% 54.5 59.2 -8.0%
Off system sales 15.9 14.5 9.7% 45.1 30.0 50.3%
Power generation 3.1 2.6 19.2% 131.4 126.4 4.0%
Other revenues 8.0 7.4 8.1% -- -- --
----- ----- ----- -----
$70.6 $72.0 -1.9% 307.5 285.5 7.7%
===== ===== ===== =====
By Sales Type:
System supply $46.8 $53.6 -12.7% 76.6 72.0 6.4%
Transportation 15.8 11.0 43.6% 230.9 213.5 8.1%
Other revenues 8.0 7.4 8.1% -- -- --
----- ----- ----- -----
$70.6 $72.0 -1.9% 307.5 285.5 7.7%
===== ===== ===== =====
Average customers (thousands) 263.5 254.3 3.6%
===== =====
Non-operating Items
Total interest charges were $18.8 million for the three months ended Sept.
30, 2001, compared to $25.0 million for the same period in 2000. Financing
costs were higher for the third quarter of 2001, reflecting higher borrowing
levels. Third quarter 2000 interest charges included a pretax charge of $7.4
million for interest associated with income tax disputes.
Nine Months Ended Sept. 30, 2001:
The company's net income for the nine months ended Sept. 30, 2001 was
$142.7 million, up from $134.8 million recorded for the same period last year.
The 6-percent increase year-to-date reflected the continued strong customer
growth in the retail electric and gas businesses. Increased revenues were
somewhat offset by higher depreciation due to normal plant growth, and higher
operation and maintenance expenses at Tampa Electric.
Electric division (Tampa Electric)
Tampa Electric's year-to-date net income was $125.4 million, compared with
$118.9 million for the same period last year, reflecting customer growth and
higher retail energy sales as a result of a growing local economy and favorable
winter weather. AFUDC associated with the repowering of the Gannon Station
increased to $5.6 million from $1.9 million for the same period last year.
Operating expenses, excluding recoverable fuel and purchased power, increased
primarily due to higher depreciation from normal plant additions and generating
unit maintenance. A summary of the operating statistics for the nine months
ended Sept. 30, 2001 and 2000 follows:
11
(in millions, except average customers)
Operating Revenues Kilowatt-hour sales
--------------------------------- --------------------------------
Nine Months Ended Sept. 30, 2001 2000 Change 2001 2000 Change
-------- -------- ------ -------- -------- ------
Residential $ 516.4 $ 468.3 10.3% 5,985.6 5,661.3 5.7%
Commercial 309.5 282.1 9.7% 4,315.3 4,169.1 3.5%
Industrial - Phosphate 46.0 47.0 -2.1% 931.5 970.6 -4.0%
Industrial - Other 53.7 47.2 13.8% 872.2 814.7 7.1%
Other sales of electricity 77.0 70.6 9.1% 1,027.7 999.8 2.8%
Deferred and other revenues (3.6) 5.2 -- -- -- --
--------- --------- -------- --------
999.0 920.4 8.5% 13,132.3 12,615.5 4.1%
Sales for resale 67.0 81.0 -17.3% 1,269.9 1,910.2 -33.5%
Other operating revenue 27.6 23.4 17.9% -- -- --
--------- --------- -------- --------
$ 1,093.6 $ 1,024.8 6.7% 14,402.2 14,525.7 -0.9%
========= ========= ======== ========
Average customers (thousands) 573.8 558.1 2.8%
========= =========
Retail output to line
(kilowatt hours) 13,729.0 13,477.5 1.9%
======== ========
Natural Gas division (Peoples Gas System)
PGS reported almost 9 percent higher year-to-date net income of $17.3
million, compared to $15.9 million last year, reflecting continuing customer
growth and higher residential and commercial usage early in the year as a result
of favorable winter weather. Decreased volumes for low-margin transportation of
gas for electric power generators, interruptible customers and off-system sales
earlier in the year reflected the higher cost of gas for customers who have the
ability to switch to alternate fuels or alter consumption patterns. The price
differential between natural gas and alternative fuels currently favors natural
gas. Customers are returning to natural gas as alternative fuel inventories are
exhausted and contractual commitments expire. A summary of the operating
statistics for the nine months ended Sept. 30, 2001 and 2000 follows:
(in millions, except average customers)
Operating Revenues Therms
--------------------------------- --------------------------------
Nine Months Ended Sept. 30, 2001 2000 Change 2001 2000 Change
-------- -------- ------ -------- -------- ------
By Customer Segment:
Residential $ 72.5 $ 51.5 40.8% 46.8 41.7 12.2%
Commercial 135.6 103.6 30.9% 231.4 213.7 8.3%
Industrial 9.6 9.7 -1.0% 179.6 211.6 -15.1%
Off system sales 29.0 34.8 -16.7% 70.7 89.5 -21.0%
Power generation 8.8 8.1 8.6% 317.8 338.1 -6.0%
Other revenues 31.5 22.4 40.6% -- -- --
------ ------ ----- -----
$287.0 $230.1 24.7% 846.3 894.6 -5.4%
====== ====== ===== =====
By Sales Type:
System supply $209.9 $172.3 21.8% 220.6 255.3 -13.6%
Transportation 45.6 35.4 28.8% 625.7 639.3 -2.1%
Other revenues 31.5 22.4 40.6% -- -- --
------ ------ ----- -----
$287.0 $230.1 24.7% 846.3 894.6 -5.4%
====== ====== ===== =====
Average customers (thousands) 265.3 255.1 4.0%
====== ======
12
Non-operating Items
Total interest charges were $57.5 million for the nine months ended Sept.
30, 2001, compared to $59.7 million for the same period in 2000. Financing
costs for 2001 were higher reflecting higher borrowing levels. The 2000
interest charges included a pretax charge of $7.4 million recorded at Tampa
Electric for interest associated with income tax disputes.
Recent Developments
- -------------------
In September 2001, Tampa Electric along with the other Florida
investor-owned utilities (IOUs) filed with the Florida Public Service
Commissioner (FPSC) for approval of rates under the various cost recovery
clauses for the period January 2002 through December 2002. This filing includes
the impacts of Tampa Electric's mid-course correction filed in February 2001
when Tampa Electric filed with the FPSC for approval of a mid-course correction
to increase its fuel cost recovery factors due to significantly higher oil and
natural gas prices and purchase power costs. The FPSC has hearings scheduled for
November 2001 to address these issues.
As previously reported, Tampa Electric, Florida Power and Light, and
Florida Power Corporation (collectively, Applicants), in compliance with the
Federal Energy Regulatory Commission's (FERC) Order No. 2000, submitted to FERC
an application to form a regional transmission organization (RTO) to be known as
GridFlorida. On March 28, 2001, FERC granted "provisional" approval of the
proposal for GridFlorida. This approval was conditional upon the Applicants
making a subsequent compliance filing by May 29, 2001, implementing certain
changes described in the order.
In early May, the Staff of the Florida Public Service Commission (FPSC)
recommended that the FPSC examine the prudence of the Applicants' decision to
join an RTO, in general, and to form and participate in GridFlorida, in
particular. The FPSC Staff asserted that FERC Order No. 2000 does not require
participation and, therefore, each company's decision must be evaluated and
associated costs and benefits to ratepayers must be quantified.
The issues raised by the FPSC process create uncertainty with respect to
the Applicants' actions to comply with Order No. 2000. Because the resolution
of these issues is critical to the continued formation of GridFlorida, the
Applicants decided to suspend their RTO development activities until the issues
are resolved. This was communicated to FERC when the May 29, 2001 compliance
filing was made. The FPSC held an RTO prudence determination proceeding for
each company. The FPSC's Staff Recommendation was issued on Oct. 30, 2001,
which among other things recommended that the FPSC issue a determination finding
that the utilities were prudent in participating in the collaborative process
and incurring the costs to date, but did not recommend a finding of prudence
with respect to moving ahead with the RTO as proposed by the Applicants. At a
Special Agenda Conference held Nov. 7, 2001, the FPSC decided against the
formation of the GridFlorida RTO as proposed, and requested that the
Applicants file a plan for the formation of an Independent System Operation
within 90 days.
Concurrently, FERC issued an order initiating mediation to merge the
various proposed RTOs in the four quadrants of the country, including the
Southeast. The goal was to develop an RTO known as the Southeast Power Grid
that would encompass a natural market for power in the Southeast. GridFlorida
and TECO Power Services are participating in the discussions with the other RTO
participants.
Accounting Standards
- --------------------
Accounting for Derivative Instruments and Hedging
The company adopted FAS 133, Accounting for Derivative Instruments and
Hedging, effective Jan. 1, 2001. The standard requires the company to recognize
derivatives as either assets or liabilities in the financial statements, to
measure those instruments at fair value, and to reflect the changes in fair
value of those instruments as either components of comprehensive income or in
net income, depending on the types of those instruments. See Note D on page 8
for a full discussion of the impacts to the company.
Business Combinations and Goodwill and Other Intangible Assets
On June 30, 2001, the Financial Accounting Standards Board finalized FAS
141, Business Combinations, and FAS 142, Goodwill and Other Intangible Assets.
FAS 141 requires all business combinations initiated after June 30, 2001, to be
accounted for using the purchase method of accounting. With the adoption of FAS
142 effective Jan. 1,
13
2002, goodwill is no longer subject to amortization. Rather, goodwill will be
subject to at least an annual assessment for impairment by applying a fair-
value-based test. Under the new rules, an acquired intangible asset should be
separately recognized if the benefit of the intangible asset is obtained through
contractual or other legal rights, or if the intangible asset can be sold,
transferred, licensed, rented, or exchanged, regardless of the acquirer's intent
to do so. These intangible assets will be required to be amortized over their
useful lives.
Tampa Electric Company does not have any recorded goodwill. See Note F on
page 8 for a full discussion of the impacts to the company.
Asset Retirement Obligations
In July 2001, the Financial Accounting Standards Board finalized FAS 143,
Accounting for Asset Retirement Obligations, which requires the recognition of a
liability for an asset retirement obligation in the period in which it is
incurred. When the liability is initially recorded, the carrying amount of the
related long-lived asset is correspondingly increased. Over time, the liability
is accreted to its present value and the related capitalized charge is
depreciated over the useful life of the asset. FAS 143 is effective for fiscal
years beginning after June 15, 2002. See Note F on page 8 for a full discussion
of the impacts to the company.
Accounting for the Impairment of Disposal of Long-Lived Assets
In August 2001 the Financial Accounting Standards Board issued FAS 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. FAS 144
addresses accounting and reporting for the impairment or disposal of long-lived
assets, including the disposal of a segment of business. FAS 144 is effective
for fiscal years beginning after December 15, 2001, with earlier application
encouraged. The company is currently reviewing the impact that FAS 144 will
have on its results. See Note F on page 8 for a discussion of the impacts to
the company.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
- ------------------
Tampa Electric Company is exposed to changes in interest rates primarily as
a result of its borrowing activities. A hypothetical 10-percent increase in the
company's weighted average interest rate on its variable rate debt would have an
estimated $0.7 million impact on the company's pretax earnings over the next
fiscal year.
A hypothetical 10-percent decrease in interest rates would not have a
significant impact on the estimated fair value of the company's long-term debt
at Sept. 30, 2001.
Based on policies approved by the Board of Directors, from time to time the
company may enter into futures, swaps and option contracts to moderate exposure
to interest rate changes.
Commodity Price Risk
- --------------------
Currently, at Tampa Electric and Peoples Gas System, commodity price
increases due to changes in market conditions for fuel, purchased power and
natural gas are recovered through cost recovery clauses, with no effect on
earnings.
From time to time, Peoples Gas System may enter into futures, swaps and
options contracts to limit the effect of natural gas price increases on the
prices it charges customers. Amounts recorded in other comprehensive income at
Sept. 30, 2001 were not material.
The company does not use derivatives or other financial products for
speculative purposes.
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PART II. OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
On Oct. 24, 2001, Tampa Electric Company and the Florida Department of
Environmental Protection (FDEP) resolved by consent order an alleged permit
exceedance involving Tampa Electric's Polk Power Station. The Polk Power
Station was developed as a demonstration project with the participation of
the United States Department of Energy to demonstrate an innovative coal
gasification fuel technology process. The by-product quantities (residues
and unburnt coal) from the process have been higher than anticipated,
resulting in on-site storage of quantities in excess of permit limits. The
consent order provides for the payment of a $330,000 penalty, which was paid
on Nov. 8, 2001.
In August 2001, Tampa Electric paid a $104,000 penalty to FDEP as a
result of unanticipated delays in resolving the maintenance and repair
response pursuant to an April 10, 2001 consent order, which related to
solid waste and disposal facilities at Tampa Electric's Big Bend Station.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
12 Ratio of earnings to fixed charges
(b) Reports on Form 8-K
The registrant did not file any Current Reports on Form 8-K for the
quarter ended Sept. 30, 2001.
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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: Nov. 13, 2001 *By: /s/ G. L. GILLETTE
-------------------------------
G. L. GILLETTE
Senior Vice President - Finance
and Chief Financial Officer
(Principal Financial Officer)
16
INDEX TO EXHIBITS
Exhibit No. Description of Exhibits
12 Ratio of earnings to fixed charges