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Citing Coal Costs, TECO Lowers Earnings Expectations

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By RUSSELL RAY

The Tampa Tribune

Published: August 1, 2008

TAMPA - The poor housing market in Florida and soaring production costs for coal led TECO Energy Corp. on Thursday to lower its expectations for 2008.

In addition to reporting a 30 percent drop in second-quarter earnings, TECO revised its earnings forecast for the year.

The parent company of Tampa Electric and Peoples Gas now expects to earn between 80 cents and 90 cents a share this year, down from the company's original projection of 95 cents to $1.10 a share.

A sharp decline in home buying has slowed customer growth and energy sales at both utilities, executives said. What's more, profits from the company's coal mining business have been hurt by a 20 percent increase in production costs.

"The good news is that we see prospects for a good recovery in 2009," Chief Financial Officer Gordon Gillette said during a conference call with investors.

Gillette pointed to proposals to raise rates at Tampa Electric and Peoples Gas by more than 9 percent next year. He also said profits from the company's coal-mining business will improve next year as the business renews supply contracts at today's coal prices. Although coal prices have doubled this year, TECO isn't benefiting from the increase because its current supply contracts were negotiated in 2006 and 2007, when prices were significantly lower.

Meanwhile, customer growth and energy sales at both utilities have fallen well below expectations, TECO said.

At Tampa Electric, TECO's biggest asset, customer growth averaged 0.2 percent in the second quarter, down from 0.6 percent in the first quarter. Last year, the electric utility recorded 2.2 percent customer growth. This year, the company expects customer growth of less than 1 percent.
Electricity sales rose 2.7 percent in the second quarter, lower than expected, the direct result of customers cutting their energy costs, said John Ramil, president and chief operating officer of TECO Energy.

"We know that they're more aware of their spending," Ramil said.
Tampa Electric earned $40.2 million in the second quarter, up from $34.7 million during the same period last year.
Customer growth at Peoples Gas, the state's largest natural gas utility with 345,000 customers, averaged 0.3 percent. The utility earned $5.3 million in the second quarter, down slightly from $5.4 million in the same quarter last year.

"Various forecasts earlier in the year indicated that the housing market was expected to bottom out in 2008," TECO Chairman and CEO Sherrill Hudson said, "but the credit and housing issues appear to be deeper and more protracted than were forecast even a few months ago."

Meanwhile, TECO Energy's second-quarter earnings plunged. Net income for the quarter totaled $51.4 million, or 24 cents a share, down from $73.7 million, or 35 cents a share, in the second quarter of 2007.

Executives attributed the decline to last year's sale of the company's shipping business and the expiration of tax credits for the production of synthetic fuel. The quarterly results didn't include gains from those businesses, which contributed $20.6 million, or 10 cents a share, to the second-quarter results of 2007.

The company also pointed to a $14.3 million tax gain in last year's second quarter related to sale of two merchant power plants in 2005.

Revenue climbed to $887.2 million, up from $866.5 million in the second quarter last year.

During the first half of this year, TECO earned $82.2 million, or 39 cents a share, down from $146.5 million, or 70 cents a share, during the same period last year.

TECO has about $840 million in cash and credit.

Reporter Russell Ray can be reached at (813) 259-7870 or rray@tampatrib.com.

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