Regulatory

9 Months Ended

Sep. 30, 2013

3. Regulatory

Tampa Electric’s and PGS’s retail businesses are regulated by the FPSC. Tampa Electric is also subject to regulation by the FERC under PUHCA 2005. However, pursuant to a waiver granted in accordance with the FERC’s regulations, TECO Energy is not subject to certain accounting, record-keeping and reporting requirements prescribed by the FERC’s regulations under PUHCA 2005. The operations of PGS are regulated by the FPSC separately from the operations of Tampa Electric. The FPSC has jurisdiction over rates, service, issuance of securities, safety, accounting and depreciation practices and other matters. In general, the FPSC sets rates at a level that allows utilities such as Tampa Electric and PGS to collect total revenues (revenue requirements) equal to their cost of providing service, plus a reasonable return on invested capital.

Base Rates-Tampa Electric

Tampa Electric’s 2013 and 2012 results reflect base rates established in March 2009, when the FPSC awarded $104 million higher revenue requirements effective in May 2009 that authorized an ROE midpoint of 11.25%, 54.0% equity in the capital structure and 2009 13-month average rate base of $3.4 billion. In a series of subsequent decisions in 2009 and 2010, related to a calculation error and a step increase for CTs and rail unloading facilities that entered service before the end of 2009, base rates increased an additional $33.5 million.

On Feb. 4, 2013, Tampa Electric delivered a letter to the FPSC notifying it of its intent to file a request for an increase in its retail base rates and service charges. On April 5, 2013, Tampa Electric filed a petition with the FPSC requesting, among other things, a permanent increase in rates and service charges sufficient to generate additional annual revenues of approximately $134.8 million, to be effective on or after Jan. 1, 2014. The request provided for a return on equity range of 10.25% to 12.25% with a midpoint of 11.25%. The petition also requested certain changes to existing rate schedules, as well as the adoption of new rate designs.

On Sept. 6, 2013, TEC and all of the intervenors in its Tampa Electric division base rate proceeding filed with the FPSC a joint motion for the FPSC to approve a stipulation and settlement agreement, which would resolve all matters in Tampa Electric’s pending base rate proceeding.

This agreement provided for the following revenue increases: $57.5 million effective Nov. 1, 2013, an additional $7.5 million effective Nov. 1, 2014, an additional $5.0 million effective Nov. 1, 2015, and an additional $110.0 million effective Jan. 1, 2017 or the date that the expansion of TEC’s Polk Power Station goes into service, whichever is later. The agreement provides that Tampa Electric’s allowed regulatory ROE would be a mid-point of 10.25% with a range of plus or minus 1%, with a potential increase to 10.50% if U.S. Treasury bond yields exceed a specified threshold. The agreement provides that Tampa Electric cannot file for additional rate increases until 2017 (to be effective in 2018), unless its earned ROE were to fall below 9.25% (or 9.5% if the allowed ROE is increased as described above) before that time. If its earned ROE were to rise above 11.25% (or 11.5% if the allowed ROE is increased as described above) any party to the agreement other than TEC could seek a review of Tampa Electric’s base rates. Under the agreement, the allowed equity in the capital structure is 54% from investor sources of capital and Tampa Electric will begin using a 15-year amortization period for all computer software retroactive to Jan. 1, 2013.

On Sept. 11, 2013, the FPSC unanimously voted to approve the stipulation and settlement agreement between TEC and all of the intervenors in its Tampa Electric division base rate proceeding, which resolved Tampa Electric’s base rate proceeding.

Storm Damage Cost Recovery

Tampa Electric is accruing $8.0 million annually to a FERC-authorized and FPSC-approved self-insured storm damage reserve. This reserve was created after Florida’s IOUs were unable to obtain transmission and distribution insurance coverage due to destructive acts of nature. Tampa Electric’s storm reserve was $55.4 million and $50.4 million as of Sept. 30, 2013 and Dec. 31, 2012, respectively. Effective Nov. 1, 2013, Tampa Electric will cease accruing for this storm damage reserve as a settlement provision of the base rate proceeding mentioned above. However, in the event of a named storm that results in damage to its system, Tampa Electric can petition the FPSC to seek recovery of those costs over a 12-month period or longer as determined by the FPSC, as well as replenish its reserve to the level as of Oct. 31, 2013.

Regulatory Assets and Liabilities

Tampa Electric and PGS maintain their accounts in accordance with recognized policies of the FPSC. In addition, Tampa Electric maintains its accounts in accordance with recognized policies prescribed or permitted by the FERC.

Tampa Electric and PGS apply the accounting standards for regulated operations. Areas of applicability include: deferral of revenues under approved regulatory agreements; revenue recognition resulting from cost-recovery clauses that provide for monthly billing charges to reflect increases or decreases in fuel, purchased power, conservation and environmental costs; and the deferral of costs as regulatory assets to the period in which the regulatory agency recognizes them, when cost recovery is ordered over a period longer than a fiscal year.

Details of the regulatory assets and liabilities as of Sept. 30, 2013 and Dec. 31, 2012 are presented in the following table:


Regulatory Assets and Liabilities
(millions)	Sept. 30, 2013		Dec. 31, 2012
Regulatory assets:
Regulatory tax asset ⁽¹⁾	$	67.2	$	67.2

Other:
Cost-recovery clauses		14.4		42.9
Postretirement benefit asset		263.8		276.1
Deferred bond refinancing costs ⁽²⁾		8.3		9.2
Environmental remediation		47.8		46.9
Competitive rate adjustment		4.2		4.1
Other		5.7		6.5

Total other regulatory assets		344.2		385.7

Total regulatory assets		411.4		452.9
Less: Current portion		40.9		70.3

Long-term regulatory assets	$	370.5	$	382.6

Regulatory liabilities:
Regulatory tax liability ⁽¹⁾	$	13.7	$	14.6

Other:
Cost-recovery clauses		49.4		73.9
Transmission and delivery storm reserve		55.4		50.4
Deferred gain on property sales ⁽³⁾		2.3		3.4
Other		1.3		1.0
Accumulated reserve - cost of removal		591.9		593.7

Total other regulatory liabilities		700.3		722.4

Total regulatory liabilities		714.0		737.0
Less: Current portion		81.3		105.6

Long-term regulatory liabilities	$	632.7	$	631.4

(1)	Primarily related to plant life and derivative positions.

(2)	Amortized over the term of the related debt instruments.

(3)	Amortized over a 5-year period with various ending dates.

All regulatory assets are recovered through the regulatory process. The following table further details the regulatory assets and the related recovery periods:


Regulatory Assets
(millions)	Sept. 30, 2013		Dec. 31, 2012
Clause recoverable ⁽¹⁾	$	18.6	$	47.0
Components of rate base ⁽²⁾		266.7		279.1
Regulatory tax assets ⁽³⁾		67.2		67.2
Capital structure and other ⁽³⁾		58.9		59.6

Total	$	411.4	$	452.9

(1)	To be recovered through recovery mechanisms approved by the FPSC on a dollar-for-dollar basis in the next year.

(2)	Primarily reflects allowed working capital, which is included in rate base and earns a rate of return as permitted by the FPSC.

(3)

“Regulatory tax assets” and “Capital structure and other” regulatory assets have a recoverable period longer than a fiscal year and are recognized over the period authorized by the regulatory agency. Also included are unamortized loan costs, which are amortized over the life of the related debt instruments. See footnotes 1 and 2 in the prior table for additional information.

Tampa Electric Company [Member]

Regulatory