The man from Miami sees a future for TECO

After a disastrous investment plunge, the energy company has a seasoned executive to steer its recovery.

TAMPA - By now, the challenges for TECO Energy Inc. are widely known.

Five years ago, the Tampa utility veered sharply from its traditional role as a stable, dividend-making utility and began aggressively expanding its investments in unregulated wholesale power markets.

But the markets TECO had invested in soured soon after in a glut of generating capacity and second thoughts among state utility regulators about opening their electricity markets to competition. Hundreds of millions of dollars were lost, the stock price withered and the treasured dividend payment was cut nearly in half.

Last month, Robert Fagan, the chief executive who pushed the aggressive wholesale strategy - and the reversal from it - stepped down. In his place has come not a utility expert, but a retired accounting executive.

Sherrill Hudson, a longtime Miami civic leader, has been a member of TECO's board since January 2003. He was named chief executive July 7.

Hudson has little utility experience, save for serving as an advisory partner for Florida Power & Light of Juno Beach during his 19 years as a managing partner of the accounting firm Deloitte & Touche LLP in Miami. During his years in South Florida, Hudson oversaw Deloitte's Florida and Puerto Rico operations and was actively involved in civic organizations.

Hudson and his wife, Mary Ann, will keep their home in Coral Gables. He is staying at the Courtyard by Marriott in downtown Tampa until he finds a condominium on Harbour Island, where he plans to stay Monday through Friday and on some weekends.

During his off hours, Hudson likes to read business and management books and is a certified sports nut. He's a particularly avid fan of football, counting the Miami Hurricanes and the Miami Dolphins among his favorite teams.

"It was the Dolphins," he quickly corrected Thursday during an interview. "Now it's the Tampa Bucs."

Hudson has had a full schedule since becoming TECO's CEO, making the rounds to meet TECO employees, getting up to speed on the company's financial challenges and then dealing with the aftermath of Hurricane Charley.

Dressed crisply in a blue shirt, red tie, gray slacks and black penny loafers, Hudson fielded questions Thursday in a third-floor conference room at TECO headquarters in downtown Tampa. The following are excerpts from the interview:

It's been quite a busy first several weeks. You probably didn't imagine "retirement" being like this.

I never in my wildest dreams imagined I'd have a job like this. When I retired from Deloitte, my goal was to become a professional director (at Publix Supermarkets Inc. and other companies) and to be a consultant. So I was fairly busy, but not like now. This, quite frankly, is more than a full-time job. But I'll tell you, I love every day of it. It's been the most satisfying six weeks of my professional career.

A number of the board members approached me and asked me if I would consider being the chair and CEO. I told them that there were two things. I can't move to Tampa permanently. We just spent over two years remodeling an old 1926 Spanish home. ... Secondly, I would have to have the support of my wife of 40 years. We talked a while and she asked a lot of questions. And she said, "If this is something you would like to do, you can tell the board that I'll be very supportive."

I came on the board in January of '03, I really got totally immersed in the business. I was chair of the audit committee, I was on the finance committee. The thing I was impressed about from day one is that there are some great people at this company, it's a great, relatively young management team, and I think the board felt that from an operational standpoint, the (core) companies have done well.

There's been speculation on Wall Street that you were appointed to be a caretaker chief executive, given your lack of experience in the utility industry, because you hadn't sought the job and because the company did not conduct an external search. Do you see your appointment as long-term?

Absolutely. If you go back and study my career, every job I've ever done, I've put my heart and soul into being the absolute best that I could be and helping the organization be the best it could be. In six weeks I have totally immersed myself in this company. One of my top goals is to have a great CEO in place to take my job. I'm also a huge believer in promotion from within.

At the time of your appointment, TECO chief operating officer John Ramil was given the additional title of president and chief financial officer Gordon Gillette was made executive vice president. Should we view Ramil and Gillette as heirs apparent for the top job?

But there are others here. That's one of the things I told the board: If I would have been faced with having to rebuild an organization, I would not have taken this job. There's an incredible team of leaders in place here at this company. I would tell you quite frankly that John and Gordon are two of several candidates that long-term have the possibility to be CEO of this company.

TECO continues to be the subject of takeover speculation. Do you intend to remain independent in a sector that's seen a good deal of consolidation?

We absolutely intend to remain independent. I have no interest in selling the company. The thing we need to do is what we've publicly announced. We need to enhance our cash flow, we need to pay down debt, we need to get back into a position where financially we can start making additional investments in our core businesses.

When Bob Fagan came to TECO, his mandate was to help keep the company independent by growing the business through investments in unregulated wholesale power. What does the company need to do now to stay independent?

We need to get our earnings per share growing again, and we need to get our stock price up, and you do that through a combination of earnings per share and enhanced cash flow; and to do that we've got to make some substantial payments of the debt and we need to get our holding company debt back to an investment rating.

Wouldn't those steps enhance your appeal as a takeover target?

That's certainly not an interest of mine. Each analyst on Wall Street has an opinion on that. (Any takeover talk) is pure speculation.

Does the company intend to retain its dividend?

The board every quarter assesses the dividend. But all of our three-year forecasts assume continuation of the dividend, all of our internal cash-flow forecasts.

Hurricane Charley had been forecast last week to hit the Tampa Bay area directly. What would have been the consequences for Tampa Electric of such a direct hit?

It's impossible to tell you what the impact would have been. It would have been significant, there's no question about it. The population here is a lot greater than where it hit. There's no computer made that can predict Mother Nature.

TECO is collecting bids on the possible construction of a new headquarters building in Hillsborough County. What are the chances that the company will leave downtown Tampa?

Our preference is that we stay here (in our current building) if we can get a fair deal for both sides. But we have to have what's fair. We're reexamining everything we're doing and we're challenging all of our costs. It wouldn't be fair not to look at our real estate costs, the same yardstick as everything else. We are prepared to look at other alternatives. If we can't get a fair deal, we really owe it to all of our stakeholders to be frugal in the dollars we spend. We want to get something that's competitive. If you negotiate with no alternatives, in my professional career I've always found, you don't get as good a deal as if you negotiate from strength with alternatives.

But could those alternatives include leaving downtown?

There will be alternatives. Whether we move out or not, I just don't know, I can't answer that question.