Ahead of Clean Power Plan, Fla.’s TECO looks to get out of business

By Kristi E. Swartz | 07/24/2015 08:03 AM EDT

As analysts continue to speculate why Florida’s TECO Energy Inc. is contemplating a potential sale, it is unclear whether the utility’s energy portfolio will help or hurt in the wake of federal environmental rules.

As analysts continue to speculate why Florida’s TECO Energy Inc. is contemplating a potential sale, it is unclear whether the utility’s energy portfolio will help or hurt in the wake of federal environmental rules.

The state’s third-largest regulated electric company said in a statement last week it retained Morgan Stanley & Co. LLC to advise in connection with exploring strategic alternatives. The announcement comes weeks before U.S. EPA is set to release its final Clean Power Plan that targets existing power plants, but some analysts argue that is not a factor in who could buy the company.

"I do not believe they threw their hands up and said, ‘We cannot handle these onerous environmental rules,’" said Tim Winter, a utility analyst with Gabelli & Co. Inc. "They’ve been well ahead of the game for a long time."


TECO’s Tampa Electric Inc. touts itself on its website as being recognized as "one of the cleanest utilities in the nation using coal with no nuclear generation." Its generation assets include a natural gas plant that replaced an older coal-fired one, a coal-fired plant that the company plans to switch to natural gas, and a three-unit plant that has a 250-megawatt coal-gasification unit that has been operating since the mid-1990s.

The company’s fuel mix for the year ending June 2015 was 54 percent coal, 41 percent natural gas and 5 percent purchased power, a company spokeswoman said.

For context, Florida gets more than half its electricity from natural gas, but that figure is expected to grow as other regulated utilities look to build more natural gas plants. A proposed pipeline that would bring up to 1 billion cubic feet of natural gas into the state could boost that percentage even further.

EPA’s proposed Clean Power Plan rule asks Florida to reduce its carbon emissions 38.3 percent by 2030 from 2005 levels. In comments filed last year with Florida utility regulators, TECO said this would mean closing its coal-fired Big Bend Power Station plant instead of converting it to run on natural gas, as well as shutting down the coal-gasification unit in Polk County.

The PSC staff solicited comments for regulators to consider and submit to EPA by Dec. 1, 2014 (EnergyWire, Sept. 25, 2014).

In the filing, TECO said its customers continue to pay for steps the utility took before 2005 to reduce carbon emissions. Prematurely shutting down coal units will lead to higher fuel and operating costs that eventually will wind up in customer bills, the company said.

Those costs could be a factor for potential buyers, analysts said. If the buyer is an unregulated business, one concern would be how easy that company could recoup environmental compliance costs via a rate increase.

"When the EPA mandates that you have to upgrade or change your electricity mix, that’s a good reason to go to your Florida commission and say, ‘Hey, I have to make changes, and I need to increase rates,’" said David Parker, a Tampa-based utility analyst with Robert W. Baird & Co.

Analysts have given a range of potential buyers, including Florida’s two largest regulated utilities, which operate next to TECO’s territory in Florida. Others have said there could be interest from Canadian or European companies, as well.

Smaller electric utilities have been looking for buyers in the wake of environmental rules coupled with slow growth. Utilities also use consolidation to have economies of scale.

That being said, not all analysts think any of the major Southeast utilities are in play to buy TECO.

"It could be a nontraditional buyer looking for regulated options that provides a return," Parker said. "Private equity firms may be the ones that are a buyer. It’s likely not the big electric names that everyone is talking about."

TECO has had a long and interesting, while somewhat troubled, story. Besides owning a regulated electric utility and natural gas company, Peoples Gas System Inc., TECO owns a coal mining company with operations in Tennessee, Kentucky and Virginia.

TECO continues to look for a buyer for its coal unit.

Meanwhile, TECO bought natural gas distributor New Mexico Gas Co. in a deal that closed in 2014.