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TECO shows losses, vows better days

The utility company reports a $487.6-million fourth-quarter loss, but projects a profit for this year.

By LOUIS HAU
Published February 2, 2005

TAMPA - TECO Energy Inc. closed the book Tuesday on another year it would probably just as soon forget, reporting a fourth-quarter net loss of $487.6-million because of previously announced charges related to its ill-fated wholesale power investments.

In a reflection of how deep the company's resulting financial troubles have been, TECO's net loss in the quarter represented an improvement from the $790.7-million net loss it reported a year earlier.

To view the Tampa utility's woes in another way, its 2004 net loss of $552-million and its 2003 net loss of $909.4-million add up to nearly half of the company's shrunken market capitalization of $3.15-billion.

But TECO executives made it clear during a conference call Tuesday that they are eager to turn the page and look toward the future. They even provided Wall Street with their first earnings projection since the fall of 2002, estimating that the company would post net income from continuing operations this year of about 95 cents to $1.05 a share, swinging from a net loss from continuing operations of $2.10 a share in 2004.

TECO has spent the past year taking the painful steps necessary to put its wholesale power nightmare behind it, including recording a $762-million charge in its fourth-quarter 2003 financial results to write off its investments in its two largest wholesale plants, the Union power station in Arkansas and the Gila River power station in Arizona.

The company plans to complete the sale of its Commonwealth Chesapeake power station in Virginia by the end of the first quarter and expects to transfer ownership of the Union and Gila River power stations to its creditors by the end of May.

Once those transactions are completed, the only holdings left in TECO's domestic portfolio of unregulated wholesale power plants will be two mothballed 599-megawatt power plants in northern Arkansas and central Mississippi. TECO recorded fourth-quarter impairment charges of $480-million to account for downward valuation adjustments for the Commonwealth Chesapeake power station and the two remaining plants, as well as for unused steam turbines owned by a TECO subsidiary.

On a per-share basis, TECO reported a fourth-quarter net loss of $2.44, improving a year-earlier net loss of $4.21. The figure fell far short of the net loss of 16 cents projected by the consensus of analysts polled Thomson First Call, most of whom did not include the quarter's impairment charges in their estimates. Fourth-quarter revenue totaled $660.2-million, up from $598.9-million a year earlier.

Full year revenue was $2.7-billion, up from $2.6-billion in 2003.

"It's good to see them out of the (wholesale power) business," said Tim Winter, an analyst for A.G. Edwards & Sons Inc. in St. Louis. "Now they can focus on their core business."

The regulated utilities that make up TECO's core business were reliably solid in the fourth quarter. Tampa Electric posted net income of $26.8-million, up from $19.8-million a year earlier, excluding the effect of a $4.7-million after-tax restructuring charge in the fourth quarter of 2003. Tampa Electric raised its hurricane-recovery cost estimate to $72-million, from its previous estimate of $60-million. The company said its storm damage reserve fund stood at $44-million at the end of the year.

People's Gas System reported fourth-quarter net income of $6.4-million, unchanged from a year earlier, excluding a $400,000 after-tax restructuring charge recorded in the fourth quarter of 2004 and a $1.5-million after-tax restructuring charge in the same period of 2003.

Looking ahead to 2005, the company's TECO Coal subsidiary will provide a welcome cushion in earnings and cash flow, thanks to a recent surge in coal prices. During Tuesday's conference call, TECO president and chief operating officer John Ramil said about 97 percent of TECO Coal's projected 2005 output has been contracted at prices that are, on average, 40 percent higher than in 2004.

But coal-based synthetic fuel, which is eligible for lucrative federal tax credits, accounts for most of TECO Coal's earnings. That's of concern to analysts who question what the company plans to do once those tax credits expire at the end of 2007.

TECO vice president and treasurer Sandra Callahan said Tuesday the company plans to provide longer-term guidance on its plans in late March or early April.

"As the company retreats from its (wholesale power) business, the main driver of the company should be its core regulated operations," said Paul Patterson, an analyst with Glenrock Associates in New York. "The question remains how the company will address the absence of synthetic fuel earnings and cash flow in 2008."

TECO's shares closed Tuesday at $15.80, down 21 cents.

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

[Last modified February 2, 2005, 00:32:17]