Teco Energy, Inc. Business Information, Profile, and History

History of Teco Energy, Inc.

TECO Energy, Inc., is a holding company whose main operating subsidiary, Tampa Electric Company, is an electric utility serving Florida's central west coast. Tampa Electric serves about 1 million people and more than 467,000 residential, industrial, and commercial customers in an area of approximately 2,000 square miles, the principal cities being Tampa, Plant City, Winter Haven and Dade City. Other operating companies are involved in water transportation of coal, grain, and other bulk commodities, the mining of coal, development and production of natural gas, the ownership and operation of power generating facilities, investment in real estate, and operation of a transfer and storage terminal south of New Orleans.

Tampa Electric had its beginnings in 1899 as a company that managed electric trolley systems serving the 12-year-old city of Tampa. Investors from the Boston area provided most of the capital. Soon afterward, Tampa Electric purchased Consumers Electric Light and Power. Consumers Electric had become embroiled in a controversy with cattlemen after the company built a 2,500-kilowatt hydroelectric plant and a dam across the Hillsborough River. The dam flooded several hundred acres of land previously used for grazing. The dam was blown up with dynamite in 1898, a year after it was completed. Despite suspicions about who was responsible for the dam's destruction, the crime was never prosecuted. Lacking the funds to finance the rebuilding of the dam, Consumers Electric sold its system to the new Tampa Electric. The dam, rebuilt in 1899, generated electricity until high water from a hurricane washed it away in 1933.

Tampa Electric built its first steam generating plant in 1906, a 1,000-kilowatt, coal-fired unit on the banks of the Hillsborough River. The trolley system and ice-making remained Tampa Electric's major businesses, and the company began giving away light bulbs in 1913 to encourage residents to bring electricity into their homes.

Revenues from electricity sales didn't surpass revenues from the trolley system until the late 1920s. In Tampa, that decade was marked by a population boom driven by the cigar manufacturing industry. At its peak, there were 196 cigar factories employing 12,000 people and producing 300 million cigars a year for companies such as Hav-A-Tampa, Cuesta-Rey, El Sol, and Arturo Fuente.

One of Tampa Electric's employees during the 1920s was Francis Bellamy, who was director of advertising. Bellamy is better remembered for writing the Pledge of Allegiance in 1892.

Leading the company during this period was Peter O. Knight, a vice president from the company's beginnings who became president in 1924 and held that position for 22 years before retiring. The company acquired the ice companies in Plant City, Winter Haven, and Dade City, and operated those companies as subsidiaries until 1931, when they were consolidated with Tampa Electric. Under Knight's guidance, the company paid off its debt by 1932 and remained economically healthy during the Great Depression.

The company's street railway system saw its use and revenues decline during the 1930s. Gas rationing brought about an increase in use during World War II, but business fell off again when the war ended. Electric rail transportation was finally abandoned in 1946. The company started a crash program to remove the rails from the streets, eliminating what some citizens regarded as unsightly symbols of an archaic time.

Nevertheless, annual customer consumption more than doubled during the 1940s. In order to finance a major expansion of its electrical energy system, Tampa Electric in 1946 issued its first debt securities since the 1920s.

William MacInnes joined the company as president in 1954, after working with the company's management for six years as an account executive from Stone & Webster Corp., Boston and New York. Stone & Webster provided accounting, engineering, construction, tax, and other advice on a contract basis.

MacInnes, who remained president until 1967 and then served as chairman until 1984, made a key decision in 1955 to shift Tampa Electric's main source of power from oil to coal. MacInnes sought to reduce the company's dependence on oil because oil suppliers balked at signing supply contracts with price caps, lending uncertainty to future oil prices. Nevertheless, the shift was regarded as a risky move because the prices of oil and coal were comparable and it was expensive to transport coal. The company attacked the transportation problem by developing a barge network to bring coal from Kentucky and Illinois mines down the Mississippi and across the Gulf of Mexico to Tampa. Phosphate was shipped on the return trips. The formation of this network began the company's bulk shipping business and its coal transfer operation on the Mississippi River.

The shift to coal was justified when oil prices soared in the 1970s at the time of the Arab oil embargo. Oil prices reached as high as $35 a barrel, compared to about $1.25 a barrel during the 1960s. Some of the company's generating units continued to burn oil until they were converted in the 1970s.

In order to ensure long-term coal supply, the company purchased Gatliff Coal Co. in 1974. Gatliff operated surface coal mines and an underground coal mine in southeastern Kentucky, and continues to supply most of Tampa Electric's low-sulfur coal needs. The Gatliff purchase came under the presidency of H. L. Culbreath, who took that post in 1971 and then the presidency of the holding company that was formed in 1981. He later added the title of chairman of both companies until retiring in 1991.

Under Culbreath, the utility also responded to increasing environmental concerns. Burning low-sulfur coal helped meet the new federal and state regulations, and power plants built in the 1950s and 1960s were rebuilt to meet standards. The 1,600-megawatt Big Bend Four unit, completed in 1985, cost about $575 million, with approximately half the cost going for environmental equipment.

In 1986, the discharge canal at the Big Bend plant was designated by the state of Florida as a sanctuary for manatees, which head to the warm waters of the canal during the winter. An observation deck was built for the public to view the manatees. The Florida Audubon Society presented Tampa Electric with its 1991 corporate award, citing the company's formation of an independent citizens' task force on power plant site location and the utility's program to restore 2,700 acres of environmentally sensitive land along Tampa Bay.

Tampa Electric also became a leader in recycling coal combustion byproducts, with fly ash from plants being used in a number of construction projects. The utility recycled about $1 million in coal combustion byproducts in 1991. The following year, it signed an agreement to annually sell 200,000 tons of gypsum, a byproduct of the scrubber at the Big Bend Four unit, for use in the manufacturing of wallboard.

The evolution of the company from an electric company to an energy company was spurred by the 1981 formation of TECO Energy as a holding company, which provided a way to capitalize on opportunities in fields related to the company's energy business. The new structure meant the shipping, bulk storage, and coal mining companies, which had been part of the electric company, became separate corporations. As part of the restructuring, the nonfinancial businesses were grouped under a company called TECO Diversified.

By the 1990s, much of TECO's diversification centered around coal. It had emerged as one of the largest river and ocean transporters of coal and other commodities, and rapidly increased production of coal and natural gas from coal beds. The diversified businesses became increasingly important to the bottom line, providing 29 percent of TECO Energy's earnings in 1991. That was up from 11 percent in 1987, and 25 percent in 1990.

Subsidiary TECO Coal doubled its reserves of low-sulfur coal in eastern Kentucky and Tennessee from 35 million to 70 million tons, and later acquired additional reserves in Central Appalachia that brought total holdings to 175 million tons. The company planned to develop a larger presence in United States and export markets for high-quality, low-sulfur coal. Some of the additional output was expected to supply increased demand for electricity in the South Atlantic states, where a number of coal-fired plants were in place but operating below capacity. The company sold 3.3 million tons of coal in 1991, a figure projected to reach 8 to 10 million tons per year by the mid-1990s.

TECO Coalbed Methane was formed in 1989 to participate in the joint venture development and production of natural gas from coal-bed drilling in the Black Warrior Basin of Alabama. Taurus Exploration, Inc., a unit of Energen Corp., was involved in both projects. Through 1991, TECO had committed $135 million to the coalbed methane projects, and 95 percent of more than 400 wells were supplying gas.

TECO Transport and Trade aggressively pursued new customers, and by 1991 was doing more than half its business with customers other than Tampa Electric. Its ocean-going vessels transported coal and other bulk commodities to ports in Europe, Africa, Central and South America, the Caribbean, and the East and West coasts of the United States. The company's coal storage and transfer terminal, the largest on the United States Gulf Coast, handled coal and other materials for South American markets. Mid-South Towing, TECO Transport's inland river-barge business, by 1992 was operating a fleet of 14 towboats and more than 500 barges on the Mississippi and Ohio rivers.

TECO Power Services, TECO Energy's wholesale power generation subsidiary, concentrated on developing projects from the ground up. In 1989, it was awarded a $120 million grant from the United States Department of Energy's Clean Coal Technology Program for a joint venture project demonstrating coal gasification technology. The facility was expected to attain a sulfur removal rate of about 98 percent, making it cleaner than coal plants using scrubbers. The power plant was designed to run up to 12 percent more efficiently than any other coal-fired technology. The 260-megawatt project was scheduled to become operational in 1995. Power from the Polk County plant would be sold to the city of Tallahassee, Florida.

TECO Power became involved in another non-traditional power generating project, the construction of a combined cycle power plant in Central Florida's Hardee County that was scheduled to go into operation in 1993. The project would supply backup power to Seminole Electric Cooperative, which provides wholesale power to distribution cooperatives serving more than 500,000 customers. It would also provide additional capacity to Tampa Electric.

A steadily growing economy boosted Tampa Electric's performance in the early 1990s. The company's 206-megawatt Hookers Point power plant, which had been idled in 1986, was returned to service in 1990 to help meet growing peak demand on Tampa Electric's own system and to provide more energy to offer to other utilities.

Tampa Electric began to aggressively pursue opportunities in wholesale energy markets, with its power sales to other utilities expected to reach $24 million in 1992. That January, the company began supplying Reedy Creek Improvement District, which serves the Walt Disney World Resort. Later in the year Tampa Electric began providing wholesale power to the Central Florida city of Wauchula.

Timothy L. Guzzle, who succeeded Culbreath as chairman of TECO Energy, affirmed the company's commitment to focusing on and developing closely related energy businesses that TECO understands and can manage. The company's philosophy continued to stress developing its own businesses and projects rather than buying into existing ones as a way to create value and increase earnings.

Principal Subsidiaries: Tampa Electric Co.; TECO Power Services Corp.; TECO Diversified, Inc.; TECO Coal Corp.; TECO Coalbed Methane, Inc.; TECO Properties, Inc.; TECO Transport and Trade Corp.