Solid economics: delivering sustainable financial and operational performance
The foundation of TECO Energy's responsibility to our shareholders is solid financial performance. It enables us to proactively address sustainability challenges.
For nearly 120 years, TECO Energy companies have demonstrated their ability to innovate, adapt and thrive through varied economic conditions. Tampa Electric and Peoples Gas enjoyed steady growth; and for the past eight years, we've focused on strengthening our core businesses – regulated utilities – leading us to exceed Wall Street's expectations. We also returned cash dividends to investors for the 90th consecutive year.
Our acquisition of New Mexico Gas Co. on September 2, 2014 further supports our strategy of not only sustaining, but also growing our core regulated utility businesses. The transformative New Mexico Gas Co. acquisition will increase our customer base to more than 1.5 million customers in two states with opportunity for growth.
Tampa Electric's 2013 rate case settlement with the Florida Public Service Commission also established an increase in base revenues that allows us to continue to provide safe and reliable energy, modernize our systems and invest in efficient natural gas combined-cycle generation. The settlement included:
- Increases of $70 million, phased in over three years
- An increase of $110 million when the expansion of the Polk Power Station is complete, which is expected in January 2017
- An opportunity to earn at the authorized return on equity (ROE)
- An assurance that Tampa Electric residential customers' bills will remain the second lowest in Florida and 9 percent below the national average
We face unprecedented challenges in our industry, including:
- Lower total energy sales and customer growth
- Disruptive technologies testing the central generation utility business model
- Uncertainty of the future without clear energy policies and with ever-mounting regulatory and environmental pressures creating difficult investment decisions
- Customer expectations rising as technology provides better access to and control of information
Our focus is on growing our core utilities and sustaining our businesses. Our strategy and focus is to utilize new technologies that will enhance efficiencies and pursue new growth opportunities. We'll expand our electric generation portfolio, natural gas distribution and – possibly – our transmission system. We also will continue to promote the adoption of electric and natural gas vehicles. We have aligned our business units to support growth opportunities, and we are deeply involved in local economic development to support our community and business partners.
For 88 straight years, we have paid cash dividends to our shareholders. Our dividend, combined with the performance of our stock price, has resulted in total shareholder performance that is either in line with or better than the S&P Multi-Utility Index and the S&P 500 Index over the past five years. In 2012, TECO Energy's dividend increased by 3.5 percent to $0.88 annually.
FOCUS on Utility Growth
Between 2013 and 2016, the utility is expected to spend $310 million annually to support normal system growth and reliability. Additionally, the company plans to expand Polk Power Station, converting four existing natural gas combustion turbines into a more efficient combined-cycle unit with an in-service date of 2017 and expected capital expenditure of about $710 million. The project will expand the plant by about 460 megawatts, or enough electricity to power more than 100,000 homes. In addition to enhanced efficiency, the expansion will improve transmission reliability and dramatically reduce emissions of nitrogen oxide and carbon dioxide. "As Florida's economy recovers from the downturn, Tampa Electric anticipates growth in energy use in coming years, and we also will need to replace other sources of power," said Gordon Gillette, president of Tampa Electric. "We are committed to meeting our customers' needs for safe, reliable and cost-effective electricity."
- The increase in demand for environmentally friendly, domestic energy resources like natural gas will drive the organic growth for Peoples Gas. Our natural gas system is well positioned to take advantage of its expertise, as electric utilities modernize their coal-and oil-fired generation facilities, large commercial and industrial customers convert processes from oil and propane to natural gas and businesses and governmental entities seek transportation alternatives like clean and affordable compressed natural gas vehicles.
- Peoples Gas is also replacing 150 miles of cast iron pipe and about 400 miles of bare steel pipe through a 10-year program, investing about $80 million of capital to improve the reliability and safety of its system.
- The company is looking to emerging technologies for growth opportunities, including promoting the natural gas vehicle market by enabling the commercial transportation sector to convert to natural gas.
- In April 2012, Peoples Gas and Florida Public Utilities (FPU) announced a 33-mile joint pipeline to serve Nassau County, Fla., and Amelia Island. Through this pipeline, Peoples Gas will serve RockTenn's local containerboard manufacturing plant and FPU will install a local gas distribution system on Amelia Island. The project supports the economic development of the region by providing access to natural gas and creating about 100 jobs during the construction phase of the project.
- The gas utility expects to increase spending from $60 million to $100 million annually in capital on normal system requirements and expansion projects such as the Amelia Island project.