TECO moves to shore up shares

TAMPA -- Shaken by mounting Wall Street doubts about its wholesale power business, TECO Energy Inc. shifted into damage-control mode Monday: The Tampa energy company promised to speed up work on its 2003 budget to provide investors with guidance about the future.

But TECO's assurances failed to stem a continued slide in its stock price, which sank Monday to its lowest level in nearly 12 years.

TECO's shares fell Monday morning to an intraday low of $15.31, their lowest level since Nov. 2, 1990, when they hit that same level after adjusting for stock splits. The stock recovered slightly to finish the day at $15.44, down 89 cents, or 5.45 percent.

After the market closed Friday, Moody's Investors Services warned it was placing TECO's debt ratings on review for possible downgrade. The stock also continues to feel the aftershocks from recent "sell" recommendations from analysts at three brokerage firms who anticipate an oversupply of electricity in some of the markets that TECO's new wholesale power plants are expected to serve.

TECO has been particularly hard-hit in recent days, but it isn't alone. Shares of FPL Group, the parent of Florida Power & Light, fell 5.1 percent Monday after Jefferies & Co. downgraded FPL's stock to "sell" from "hold," due to similar concerns about the South Florida utility's exposure to the wholesale power market. FPL's stock closed at $52.85, down $2.85. (In an unrelated incident Monday, Florida Power & Light shut down an 800-megawatt unit at its Martin power plant near Indiantown, Martin County, after a fire and explosion erupted at the unit about 1 p.m. There were no injuries reported and the cause of the incident is under investigation, according to a company spokesman.)

At TECO, chief financial officer Gordon Gillette said in a statement that the recent negative reports about his company "came as a surprise." He noted that TECO had been cautioning Wall Street that it expected TECO Power Services, its wholesale power subsidiary, to be "challenged with its new projects" next year "due to currently projected lower power rates." On the other hand, the company expected growth in 2003 at its Tampa Electric, Peoples Gas, TECO Transport and TECO Coal units.

TECO had planned to provide Wall Street with more information about its financial and operating expectations for 2003 in mid-October, but Gillette said the utility now plans to provide an update "in the next few weeks, including plans addressing cash requirements, potential earnings volatility and the dividend."

TECO executives appeared especially determined to counter speculation that they may have to reduce the size of the company's quarterly dividend. Traditionally, many investors have bought utility stocks for their stability and for the regular dividends they pay.

TECO chairman and chief executive Robert Fagan said, "We remain completely dedicated to doing the right things for our shareholders in these challenging times, including maintaining the dividend."

In a report last week accompanying his sell recommendation, Credit Suisse First Boston analyst Neil Stein said TECO's dividend yield could come under pressure in a "worst case scenario" of no improvement in power market conditions and a deterioration in access to financing. If so, Stein argued, the company's cash flow could prove to be "insufficient to cover the dividend requirement."

Stein declined Monday to elaborate on his report or to comment on TECO's statement. But utility industry analyst Mark Luftig said he disagrees that TECO's dividend yield is at risk, arguing that cash flow will be sufficient to eke out at least a nominal increase next year in the yield, which has risen for 43 consecutive years.

Luftig is executive vice president and portfolio manager of Jersey City, N.J., money management company W.H. Reaves & Co., which specializes in energy, public utility and telecommunications stocks. Reaves holds more than 1-million shares of TECO common stock as well as some shares of preferred stock, Luftig said.

"The excess (generating) capacity will eventually diminish because the underlying growth rate in demand is about 11/2 to 2 percent where TECO has its plants," he said. "In addition, most people are figuring the economy's going to pick up and that too increases demand, and once that happens the price of electricity will go up."

Luftig said TECO made "an unfortunate bet" on the direction of power prices, waiting for prices to improve before signing contracts to sell a large portion of the power to be generated by its new plants.

Still, Luftig said, "To me, the TECO management team is highly credible. I've never known them to exaggerate the truth."

-- Louis Hau can be reached at hau@sptimes.com or (813) 226-3404.

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