TECO Energy Earnings Call Insights: Coal Earnings and Total Proceeds from Guatemala

TECO Energy Inc (NYSE:TE) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Coal Earnings

Ashar Khan – Visium: Can I just based on what you provided, if I’m doing my math right, we lose like about $0.17 in earnings at TECO Coal and then, I guess, midpoint of the range is $0.95. Is it fair to assume that you are losing another $0.05 at the electric company ’12 to ’13?

John B. Ramil – President and CEO: Ashar, this is John Ramil. I think you’re right on coal. We are going from about $15 million net income to the guidance of about $12 million and then we’ll be down little bit at the electric company, but the guidance range is $0.92 to $1, in the middle of $0.95.

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Ashar Khan – Visium: John, can you just help us just so we have what ROE are you expecting in ’13 at the electric company?

John B. Ramil – President and CEO: Well in ’13 we are expecting the things that Sandy talked about in her presentation and in her slides and we did earned right near the bottom of the ROE range at electric company in ’12 I think the number was right at about (10.4%) and expect to be a little bit south of that as we move into 2013.

Ashar Khan – Visium: Can you remind us how much is 100 basis points equivalent to in cents per share at the electric company?

Sandra W. Callahan – SVP-Finance and Accounting and CFO, Chief Accounting Officer and Assistant Secretary: A 100 basis point is that what you are asking?

Ashar Khan – Visium: That’s correct.

Sandra W. Callahan – SVP-Finance and Accounting and CFO, Chief Accounting Officer and Assistant Secretary: A 100 basis points of ROE is the equivalent of about $25 million in revenue requirements and so that’s obviously a pre-tax number.

Ashar Khan – Visium: So, about $0.08 a share or something.

John B. Ramil – President and CEO: Little less than that, Ashar.

Total Proceeds from Guatemala

Greg Gordon – ISI Group: On the guidance on sourcing usage of cash can you remind us what the total proceeds are from Guatemala. I think, you have said before that you’d use half of it to retire debt and half of it to buy back stock. So, can you just go through what the guidance was before for total proceeds of usage and now how that’s changed; you did explained why it’s changed, but can you just review those numbers?

Sandra W. Callahan – SVP-Finance and Accounting and CFO, Chief Accounting Officer and Assistant Secretary: The gross proceeds were $227.5 million and so after expenses and after paying-off the debt at San Jose was about $195 million roughly. Our expectation originally whether we would have approximately – we would use that in a balanced fashion to reduce debt, including the debt that we retired at the closing that represent San Jose and share repurchase. Our expectation now is that we’ve already reduced (debt) by $35 million, so we did deploy proceeds in that fashion. In terms of share repurchase we have reduced our expectation there and as I said it’s not likely that that will exceed $50 million over the next several years. The combination of both buying back shares to effectively offset shares that are typically issued on an annual basis to support compensation program and perhaps some opportunistic share repurchases. The balance of that really we would be using to support Tampa Electric’s capital program over the next several years.

Greg Gordon – ISI Group: But the other side of this is that the value of the parent tax position has been preserved for a longer period of time because you got the bonus depreciation which you hadn’t expected, is that correct?

Sandra W. Callahan – SVP-Finance and Accounting and CFO, Chief Accounting Officer and Assistant Secretary: That’s absolutely correct. This really is a timing question and I would emphasize that the bonus depreciation and repair deduction is a positive for the company because it has increased cash flows at Tampa Electric that has been helpful for the business in terms of supporting its capital program and it has extended the period of time that the parent company will be able to benefit from the future applications of those net operating losses to reduce taxable income.

John B. Ramil – President and CEO: Greg, I would add – this is John. I would add that as we think about deploying capital the first place we want to put it is into the utility business. And we have the opportunity to make those returns and with the extension of bonus depreciation, and all the things that Sandy described, plus as we moved further into the Polk expansion project the very, very positive supported lead we got from the Commission. And the need to go ahead and invest in that plant more quickly than we had earlier anticipated the primary first use of cash would be to invest in electric company, and that’s what we are doing, and the stock repurchase will move to an opportunity purchase.

Greg Gordon – ISI Group: One final question, guys. I understand that this year it looks like cash sources and uses in earnings power kind of get squeezed a little bit, but with the longer term cash flow file looking the way it does why sort of (upsteam) from dividend increase this year it is a relatively small amount of dollars in the scheme of things?

John B. Ramil – President and CEO: It is a small amount of dollars, Greg, and cash ’13, ’14 is going to be just fine as you pointed out longer term very strong with our NOL position. The management team just thought that as we (slid through) 2013 earnings were kind of tight, the payout ratio was very high and wasn’t the time to raise the dividend and the Board agreed but I’ll quickly add that we look forward to getting back to our normal pattern in ’14 and move back to consider raising the dividend.