TECO Energy (NYSE:TE), which said Feb. 5 that it will have to take a price cut on the sale of its TECO Coal unit, said Feb. 9 that the coal operations lost money in 2014.
TECO Energy President and Chief Executive Officer John Ramil said: “We are committed to exiting the coal business, and continue to work with the purchaser to complete the sale this year. Upon closing, this action will complete our return to our utility foundation.”
TECO Energy is the parent of Florida electric utility Tampa Electric, which for years has not needed TECO Coal’s production for its own power plants. Tampa’s Gannon coal plant, which in the middle of the last decade was repowered into a gas-fired facility, had needed a specialty coal produced out of the Blue Gem seam by TECO Coal because of the coal’s ash-fusion characteristics.
A fourth quarter 2014 loss in discontinued operations of $16.6m consisted of the TECO Coal loss from operations and an additional $11.6m impairment charge and related tax valuation adjustments related to the current market value of TECO Coal, and $0.2m of costs recorded in the Other segment.
The fourth-quarter loss from operations for TECO Coal was $4.8m on sales of 1.5 million tons, compared with net income of $6.7m on similar volume sold in the same period in 2013. In 2014, fourth-quarter results reflect selling prices and costs associated with reductions in personnel and steps taken in advance of closing the sale of the company, which has most of its operations in eastern Kentucky.
TECO Coal’s full-year loss from operations in 2014 was $5.6m on sales of 5.5 million tons, compared with net income of $9m on 5.8 million tons sold in the 2013 period. The 2014 full-year results reflect the same factors as the quarter.
Discontinued operations during 2015 will include the operating results for TECO Coal through the closing of the sale as well as reflect the accounting for the completion of the pending sale. TECO Coal expects to record operating losses during this period up until the asset sale due to continued weak coal market conditions. The current market conditions may impact the ultimate timing and terms of the closing of the sale, the company added.
TECO Energy said Feb. 5 that it has entered into a second amendment of its agreement with Cambrian Coal Corp., a member of the Booth Energy group, to modify the terms of the Securities Purchase Agreement (SPA) dated as of October 2014 related to the sale of TECO Coal. Under this second amendment, the total sales price of $140m includes future contingent consideration of $60m if coal benchmark prices reach certain levels over the next five years. The $80m cash base purchase price is subject to post-closing adjustments. The SPA remains subject to the buyer obtaining financing and can be terminated by either party if the specified closing conditions are not met by March 13.
When this deal was first announced last October, the total sales price was $170m, including future contingent consideration of $50m if certain coal benchmark prices reach certain levels over the next five years. The $120m cash base purchase price in that version of the deal was also subject to post-closing adjustments.
Ramil said in the Feb. 5 statement: “The coal markets have continued to weaken for a number of months now. We believe that the new amended agreement reflects the fair value of TECO Coal in the current markets, and allows us to execute our strategy to exit the coal business in an expeditious manner.”