The utility claims it could default on $1.1-billion in two large out-of-state power plants and still have an $800-million "cushion."
By LOUIS HAU
Published October 29, 2003
ORLANDO - TECO Energy Inc. raised the possibility Tuesday that it could write off its $1.1-billion investment in two massive out-of-state power plants.
The prospect of defaulting on the Union plant in Arkansas and the Gila River plant in Arizona came up as top executives of the Tampa utility sought to persuade Wall Street analysts and fund managers that the company can contain the fallout from money-losing wholesale power operations.
In a presentation at the Edison Electric Institute's annual financial conference in Orlando, TECO chief financial officer Gordon Gillette told an overflow crowd of more than 1,200 that the company can maintain the 65 percent debt-to-total-capital ratio required under a key debt covenant plus have an additional $1.9-billion of pre-tax equity.
That would be more than enough to walk away from the two plants, he indicated, and still have an $800-million "cushion" in case the company needed to write off its investments in other wholesale plants.
Still, taking a billion-dollar writeoff would eventually require TECO to strengthen its balance sheet in some fashion, by selling assets or issuing more stock.
TECO chairman and chief executive Robert Fagan emphasized that the company is still considering all options for its wholesale power portfolio as it negotiates with creditors over the next few months, including the sale of all or part of the plants. TECO is saddled with plants that it built on speculation in markets that continue to experience a glut of power generation.
Also, Fagan said he expects TECO's efforts to sell off most of its ownership in its synthetic fuels facilities to proceed as planned. Progress Energy Inc.'s announcement last week that the Internal Revenue Service has upheld its continued claims for federal synfuels tax credits bodes well for TECO's plans to complete the sale of a 49 percent interest in its synfuels operations and to sell an additional 40 percent stake.
Fagan said the company expects to have positive cash flow in 2004, adding that those calculations include the continued payout of TECO's dividend.
Because TECO has met its short-term cash needs through the sale of its Hardee power plant in Hardee County and by turning to the debt and equity markets earlier this year, the company plans to hold on to profitable assets it had previously considered selling, such as its wholesale power operations in Guatemala and its TECO Transport subsidiary.
TECO executive vice president and chief operating officer John Ramil said Tampa Electric Co.'s new five-year contract with TECO Transport included slightly more favorable terms than before. Ramil estimated that TECO Transport is charging about $1 less per ton of coal shipped, which he said amounts to a cost savings of about 4 to 5 percent.