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TECO moves to shore up bottom line
By LOUIS HAU, Times Staff Writer TAMPA -- TECO Energy Inc. said Monday that it will delay the completion of two out-of-state power plants and raise $400-million through asset sales and other actions, all part of a wide-ranging effort to repair damage to its bottom line from its growing exposure to weak wholesale power prices. The Tampa utility company released its plan late Monday, shortly after Fitch Ratings said it was cutting the debt ratings of TECO and its Tampa Electric Co. and TECO Finance subsidiaries, citing "continued weakness in wholesale power markets and the expected negative impact on TECO's earnings and cash flow measures." Fitch revised its rating outlook to stable from negative. Both announcements came after Monday's market close. TECO's shares finished Monday at $14.98, down 10 cents, on lighter-than-average trading volume. TECO's shares have been pounded by Wall Street concerns about its exposure to the uncertain wholesale energy market and are down 48 percent from their 52-week high of $29.05 on April 23. As promised two weeks ago, TECO included earlier-than-planned guidance on its earnings expectations for next year in its statement Monday. TECO said its plan should enable it to report 2003 net income of $1.75 to $2 a share, roughly in line with the recently reduced $1.91 consensus estimate of analysts polled by Thomson Financial/First Call. The Tampa utility also said it expects 2002 earnings per share to come in "within a few cents of its original 5 percent growth target." The company reported net income of $2.26 a share last year. "We have long described 2003 as "transitional' as our major utility and non-utility generating projects begin commercial operation," TECO chairman and chief executive Robert Fagan said in the statement. "The plan we are announcing today eliminates the need for additional financing and virtually removes our cash exposure to merchant power prices for next year." Under the plan, TECO Power Services, TECO's wholesale power unit, will postpone completion of two 599-megawatt wholesale plants, its Dell Power Station in Dell, Ark., and its McAdams Power Station in Kosciusko, Miss., to reduce capital expenditures. "This deferral will allow us to complete construction whenever power prices increase to a level commensurate with our investment," TECO Power Services president Richard Ludwig said in the statement. "When the market is ready for us, we will be ready for the market." But the company intends to proceed as planned with the 2003 opening of two far more ambitious plants, the 2,145-megawatt Gila River Power Station in Gila Bend, Ariz., and the 2,205-megawatt Union Power Station in El Dorado, Ark. Both are 50-50 joint ventures with Panda Energy International Inc. of Dallas. Ludwig acknowledged the company had experienced "upward pressure" on its capital spending due to potential cost overruns resulting from the bankruptcy of Enron Corp. An Enron unit, National Energy Production Corp., had been contracted to build the four new power plants. In May, TECO signed agreements with SNC-Lavalin Group Inc. of Montreal to take over the projects. TECO also said it would sell part of the synthetic-fuel tax credits it generates from TECO Coal's production of synfuel coal and Tampa Electric's coal-gasification unit at the Polk Power Station in Polk County. TECO also will sell methane-gas assets in Alabama and collect $250-million from financial transactions or asset sales, including repatriation of cash from power plants it owns in Guatemala. TECO chief financial officer Gordon Gillette said in the statement that the company will remained focused on maximizing cash flow in 2002 and 2003. "Although we have a $200-million debt maturity refinancing that we will undertake this year, our plans call for no incremental new debt in 2003," he said. "While we expect rating agencies to cut our debt ratings, we want to improve our ratings, and rapid execution of this plan would be the first step in this direction." The company said its plan for 2003 has "virtually eliminated" its exposure to downside risks in cash flow from its wholesale power business. Most cash flow in 2003 will come from TECO's regulated utility operations and non-wholesale power businesses. In addition, four of TECO Power Services' plants in operation have long-term contracts in place, while its Frontera Power Station in Texas expects to have a significant portion of its power contracted next year. TECO said it is evaluating its options for its interest in TECO Power Services' Odessa and Guadalupe power stations in Texas. TECO's interest is in the form of a loan to Panda Energy through the end of 2002, after which Panda will either repay the loans or the loans will convert to an equity ownership in the facilities. -- Louis Hau can be reached at hau@sptimes.com or (813) 226-3404.
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From the Times Business report
From the AP
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