TE » Topics » REGULATION

These excerpts taken from the TE 10-K filed Mar 5, 2009.

Regulation

The retail operations of Tampa Electric are regulated by the Florida Public Service Commission (FPSC), which has jurisdiction over retail rates, quality of service and reliability, issuances of securities, planning, siting and construction of facilities, accounting and depreciation practices and other matters.

In general, the FPSC’s pricing objective is to set rates at a level that allows the utility to collect total revenues (revenue requirements) equal to its cost of providing service, plus a reasonable return on invested capital.

The costs of owning, operating and maintaining the utility system, other than fuel, purchased power, conservation and certain environmental costs, are recovered through base rates. These costs include operation and maintenance expenses, depreciation and taxes, as well as a return on Tampa Electric’s investment in assets used and useful in providing electric service (rate base). The rate of return on rate base, which is intended to approximate Tampa Electric’s weighted cost of capital, primarily includes its costs for debt, deferred income taxes at a zero cost rate and an allowed return on common equity. Base rates are determined in FPSC rate setting hearings which occur at irregular intervals at the initiative of Tampa Electric, the FPSC or other parties.

Tampa Electric’s rates and allowed return on equity (ROE) range of 10.75% to 12.75%, with a midpoint of 11.75%, are in effect until such time as changes are occasioned by an agreement approved by the FPSC or other FPSC actions as a result of rate or other proceedings initiated by Tampa Electric, FPSC staff or other interested parties.

Prior to August 2008, Tampa Electric had not sought a base rate increase since 1992. Since that rate proceeding, it had earned within its allowed ROE range while adding more than 200,000 customers and making significant investments in facilities and infrastructure. These facilities include baseload, intermediate and peaking generating capacity additions to reliably serve the growing customer base. Tampa Electric expects a continued high level of capital investment, and higher levels of non-fuel operations and maintenance expenditures. As a result of lower customer growth, lower energy sales growth, and ongoing high levels of capital investment, Tampa Electric’s 13-month average regulatory ROE was 8.7% at the end of 2008.

Recognizing the significant decline in ROE, Tampa Electric filed for a $228.2 million base rate increase in August 2008. The filing included a request for an ROE mid-point of 12%, 55.3% equity in the capital structure and rate base of $3.7 billion. The formal hearings before the FPSC were held in late January and the FPSC is scheduled to make its final decision on the requested increase in mid-March, with final rates effective in May 2009.

Fuel, purchased power, conservation and certain environmental costs are recovered through levelized monthly charges established pursuant to the FPSC’s cost recovery clauses. These charges, which are reset annually in an FPSC proceeding, are based on estimated costs of fuel, environmental compliance, conservation programs, purchased power and estimated customer usage for a specific recovery period, with a true-up adjustment to reflect the variance of actual costs from the projected costs. The FPSC may disallow recovery of any costs that it considers imprudently incurred.

In September 2008, Tampa Electric filed with the FPSC for approval of cost recovery rates for fuel and purchased power, capacity, environmental and conservation costs for the period January through December 2009. In November 2008, the FPSC approved Tampa Electric’s requested rates. The rates include the cost for natural gas and coal expected in 2009, the net recovery of $132.9 million of fuel and purchased power expenses, which were not collected in 2008 and underestimated in

 

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2007, the net over-recovery of $4.7 million of costs recovered through the Environmental Cost Recovery Clause (ECRC) for the 2007 and 2008 periods, and the operating cost for and a return on the capital invested in the third Selective Catalytic Reduction (SCR) project to enter service at the Big Bend Station as well as the operations and maintenance expense associated with the projects as required by the Environmental Protection Agency (EPA) Consent Decree and Florida Department of Environmental Protection (FDEP) Consent Final Judgment (see the Environmental Compliance section of Management Discussion and Analysis (MD&A)). The rates also reflect an additional disallowance of $1.9 million to settle all outstanding issues associated with the 2004 fuel transportation contract (see the Tampa Electric section and the 2008 Reconciliation of GAAP Net Income from continuing operations to non-GAAP Results). Rates in 2009 also reflect a two-block fuel factor structure with a lower factor for the first 1,000 kilowatt-hours used each month. Accordingly, Tampa Electric’s residential customer rate per 1,000 kilowatt-hours increased $14.06 from $114.38 in 2008 to $128.44 in 2009.

The FPSC determined that it was appropriate for Tampa Electric to recover SCR operating costs through the ECRC as well as earn a return on its SCR investment installed on Big Bend Unit 4 and Big Bend Units 1-3 in October 2004 and May 2005, respectively, for NOx control in compliance with the environmental consent decree. The SCR for Big Bend Unit 4 entered service in May 2007 and cost recovery started in 2007. The SCR for Big Bend Unit 3 entered service in May 2008 and cost recovery started in 2008. The SCRs for Big Bend Units 2 and 1 are scheduled to enter service by May 1, 2009 and 2010, respectively. Cost recovery for the capital investment for each unit, which is dependent on filings made in the year each SCR enters service, is expected to start in 2009 and 2010, respectively.

Tampa Electric is also subject to regulation by the Federal Energy Regulatory Commission (FERC) in various respects, including wholesale power sales, certain wholesale power purchases, transmission services, and accounting and depreciation practices. In June 2006, Tampa Electric received a notice that FERC had commenced an audit, which arose out of the normal course of the enforcement activities, to determine whether and how Tampa Electric and its affiliates complied with: 1) the practices and procedures contained within its Open Access Transmission Tariff (OATT); 2) the conditions by which FERC granted market-based rate authority to each respective affiliate of Tampa Electric; 3) the Standards of Conduct requirements; 4) the preservation of records requirements; 5) Tampa Electric’s wholesale fuel adjustment clause tariff; and 6) Tampa Electric’s reporting of capacity and energy shortages. The audit was completed and the company’s compliance plan filed in October 2007, addressing the recommendations made by FERC, was approved in January 2008. See also the Regulation section of MD&A.

The Energy Policy Act of 2005 repealed the Public Utility Holding Company Act of 1935 (PUHCA), which established a regulatory regime overseen by the SEC, and replaced it with a new statute focused on increased access to holding-company books and records to assist the FERC and state utility regulators in protecting customers of regulated utilities. On Dec. 8, 2005, the FERC finalized rules to implement the congressional mandated repeal of the PUHCA of 1935 and enactment of the PUHCA of 2005. FERC issued its final rules effective Feb. 8, 2006. Pursuant to this Act, TECO Energy has a single-state waiver regarding FERC’s access to its holding-company books and records.

Federal, state and local environmental laws and regulations cover air quality, water quality, land use, power plant, substation and transmission line siting, noise and aesthetics, solid waste and other environmental matters (see Environmental Matters section below).

The transactions between Tampa Electric and its affiliates are subject to regulation by the FPSC and FERC, and any charges deemed to be imprudently incurred may be disallowed for recovery from Tampa Electric’s customers. (For information about Tampa Electric’s contract for coal transportation and dry-bulk storage services with TECO Transport, see the Regulation—Coal Transportation Contract section of MD&A.)

Regulation

The retail operations of Tampa Electric are regulated by the Florida Public Service Commission (FPSC), which has jurisdiction over
retail rates, quality of service and reliability, issuances of securities, planning, siting and construction of facilities, accounting and depreciation practices and other matters.

STYLE="margin-top:6px;margin-bottom:0px; text-indent:3%">In general, the FPSC’s pricing objective is to set rates at a level that allows the utility to collect total revenues (revenue requirements) equal to
its cost of providing service, plus a reasonable return on invested capital.

The costs of owning, operating and maintaining the utility
system, other than fuel, purchased power, conservation and certain environmental costs, are recovered through base rates. These costs include operation and maintenance expenses, depreciation and taxes, as well as a return on Tampa Electric’s
investment in assets used and useful in providing electric service (rate base). The rate of return on rate base, which is intended to approximate Tampa Electric’s weighted cost of capital, primarily includes its costs for debt, deferred income
taxes at a zero cost rate and an allowed return on common equity. Base rates are determined in FPSC rate setting hearings which occur at irregular intervals at the initiative of Tampa Electric, the FPSC or other parties.

STYLE="margin-top:6px;margin-bottom:0px; text-indent:3%">Tampa Electric’s rates and allowed return on equity (ROE) range of 10.75% to 12.75%, with a midpoint of 11.75%, are in effect until such time as
changes are occasioned by an agreement approved by the FPSC or other FPSC actions as a result of rate or other proceedings initiated by Tampa Electric, FPSC staff or other interested parties.

STYLE="margin-top:6px;margin-bottom:0px; text-indent:3%">Prior to August 2008, Tampa Electric had not sought a base rate increase since 1992. Since that rate proceeding, it had earned within its allowed ROE
range while adding more than 200,000 customers and making significant investments in facilities and infrastructure. These facilities include baseload, intermediate and peaking generating capacity additions to reliably serve the growing customer
base. Tampa Electric expects a continued high level of capital investment, and higher levels of non-fuel operations and maintenance expenditures. As a result of lower customer growth, lower energy sales growth, and ongoing high levels of capital
investment, Tampa Electric’s 13-month average regulatory ROE was 8.7% at the end of 2008.

Recognizing the significant decline in ROE,
Tampa Electric filed for a $228.2 million base rate increase in August 2008. The filing included a request for an ROE mid-point of 12%, 55.3% equity in the capital structure and rate base of $3.7 billion. The formal hearings before the FPSC were
held in late January and the FPSC is scheduled to make its final decision on the requested increase in mid-March, with final rates effective in May 2009.

FACE="Times New Roman" SIZE="2">Fuel, purchased power, conservation and certain environmental costs are recovered through levelized monthly charges established pursuant to the FPSC’s cost recovery clauses. These charges, which are reset
annually in an FPSC proceeding, are based on estimated costs of fuel, environmental compliance, conservation programs, purchased power and estimated customer usage for a specific recovery period, with a true-up adjustment to reflect the variance of
actual costs from the projected costs. The FPSC may disallow recovery of any costs that it considers imprudently incurred.

In September
2008, Tampa Electric filed with the FPSC for approval of cost recovery rates for fuel and purchased power, capacity, environmental and conservation costs for the period January through December 2009. In November 2008, the FPSC approved Tampa
Electric’s requested rates. The rates include the cost for natural gas and coal expected in 2009, the net recovery of $132.9 million of fuel and purchased power expenses, which were not collected in 2008 and underestimated in

 


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2007, the net over-recovery of $4.7 million of costs recovered through the Environmental Cost Recovery Clause (ECRC) for the 2007 and 2008 periods, and the
operating cost for and a return on the capital invested in the third Selective Catalytic Reduction (SCR) project to enter service at the Big Bend Station as well as the operations and maintenance expense associated with the projects as required by
the Environmental Protection Agency (EPA) Consent Decree and Florida Department of Environmental Protection (FDEP) Consent Final Judgment (see the Environmental Compliance section of Management Discussion and Analysis (MD&A)). The
rates also reflect an additional disallowance of $1.9 million to settle all outstanding issues associated with the 2004 fuel transportation contract (see the Tampa Electric section and the 2008 Reconciliation of GAAP Net Income from
continuing operations to non-GAAP Results
). Rates in 2009 also reflect a two-block fuel factor structure with a lower factor for the first 1,000 kilowatt-hours used each month. Accordingly, Tampa Electric’s residential customer rate per
1,000 kilowatt-hours increased $14.06 from $114.38 in 2008 to $128.44 in 2009.

The FPSC determined that it was appropriate for Tampa
Electric to recover SCR operating costs through the ECRC as well as earn a return on its SCR investment installed on Big Bend Unit 4 and Big Bend Units 1-3 in October 2004 and May 2005, respectively, for NOx control in compliance with the
environmental consent decree. The SCR for Big Bend Unit 4 entered service in May 2007 and cost recovery started in 2007. The SCR for Big Bend Unit 3 entered service in May 2008 and cost recovery started in 2008. The SCRs for Big Bend Units 2 and 1
are scheduled to enter service by May 1, 2009 and 2010, respectively. Cost recovery for the capital investment for each unit, which is dependent on filings made in the year each SCR enters service, is expected to start in 2009 and 2010,
respectively.

Tampa Electric is also subject to regulation by the Federal Energy Regulatory Commission (FERC) in various respects,
including wholesale power sales, certain wholesale power purchases, transmission services, and accounting and depreciation practices. In June 2006, Tampa Electric received a notice that FERC had commenced an audit, which arose out of the normal
course of the enforcement activities, to determine whether and how Tampa Electric and its affiliates complied with: 1) the practices and procedures contained within its Open Access Transmission Tariff (OATT); 2) the conditions by which
FERC granted market-based rate authority to each respective affiliate of Tampa Electric; 3) the Standards of Conduct requirements; 4) the preservation of records requirements; 5) Tampa Electric’s wholesale fuel adjustment clause
tariff; and 6) Tampa Electric’s reporting of capacity and energy shortages. The audit was completed and the company’s compliance plan filed in October 2007, addressing the recommendations made by FERC, was approved in January 2008.
See also the Regulation section of MD&A.

The Energy Policy Act of 2005 repealed the Public Utility Holding Company Act of
1935 (PUHCA), which established a regulatory regime overseen by the SEC, and replaced it with a new statute focused on increased access to holding-company books and records to assist the FERC and state utility regulators in protecting customers of
regulated utilities. On Dec. 8, 2005, the FERC finalized rules to implement the congressional mandated repeal of the PUHCA of 1935 and enactment of the PUHCA of 2005. FERC issued its final rules effective Feb. 8, 2006. Pursuant to this Act, TECO
Energy has a single-state waiver regarding FERC’s access to its holding-company books and records.

Federal, state and local
environmental laws and regulations cover air quality, water quality, land use, power plant, substation and transmission line siting, noise and aesthetics, solid waste and other environmental matters (see Environmental Matters section below).

The transactions between Tampa Electric and its affiliates are subject to regulation by the FPSC and FERC, and any charges deemed to be
imprudently incurred may be disallowed for recovery from Tampa Electric’s customers. (For information about Tampa Electric’s contract for coal transportation and dry-bulk storage services with TECO Transport, see the
Regulation—Coal Transportation Contract
section of MD&A.)

Regulation

The operations of PGS are regulated by the FPSC separately from the regulation 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 a utility such as PGS to collect total revenues (revenue requirements) equal to its cost of providing service, plus a reasonable return on invested capital.

The basic costs of providing natural gas service, other than the costs of purchased gas and interstate pipeline capacity, are recovered through base rates. Base rates are designed to recover the costs of owning, operating and maintaining the utility system. The rate of return on rate base, which is intended to approximate PGS’ weighted cost of capital, primarily includes its cost for debt, deferred income taxes at a zero cost rate, and an allowed return on common equity. Base rates are determined in FPSC proceedings which occur at irregular intervals at the initiative of PGS, the FPSC or other parties. For a description of recent proceeding activity, see the Regulation—PGS Rates section of MD&A.

PGS’ current rates, which became effective in January 2003, were agreed to in a settlement with all parties involved prior to a full rate proceeding, and a final FPSC order was granted on Dec. 17, 2002. PGS’ authorized rates provide an allowed ROE range from 10.25% to 12.25% with an 11.25% midpoint.

 

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At the end of 2007, PGS’ 13-month average regulatory ROE was below the bottom of its allowed range as a result of higher operating costs, continued investment in the distribution system and higher costs associated with required safety requirements, such as transmission and distribution pipeline integrity management.

Recognizing the significant decline in ROE, PGS filed for a $26.5 million base rate increase in August 2008. The major factors in the filing included a request for an ROE mid-point of 11.5%, 55% equity in the capital structure, and rate base of $564 million. The formal hearings before the FPSC are scheduled to be held in March and the FPSC is scheduled to make its final decision on the requested increase in May, with final rates effective in June 2009.

PGS recovers the costs it pays for gas supply and interstate transportation for system supply through the purchased gas adjustment (PGA) clause. This charge is designed to recover the costs incurred by PGS for purchased gas, and for holding and using interstate pipeline capacity for the transportation of gas it delivers to its customers. These charges may be adjusted monthly based on a cap approved annually in an FPSC hearing. The cap is based on estimated costs of purchased gas and pipeline capacity, and estimated customer usage for a specific recovery period, with a true-up adjustment to reflect the variance of actual costs and usage from the projected charges for prior periods. In November 2008, the FPSC approved rates under PGS’ PGA for the period January 2009 through December 2009 for the recovery of the costs of natural gas purchased for its distribution customers.

In addition to its base rates and purchased gas adjustment clause charges, PGS customers (except interruptible customers) also pay a per-therm conservation charge for all gas. This charge is intended to permit PGS to recover its costs incurred in developing and implementing energy conservation programs, which are mandated by Florida law and approved and supervised by the FPSC. PGS is permitted to recover, on a dollar-for-dollar basis, prudently incurred expenditures made in connection with these programs if it demonstrates that the programs are cost effective for its ratepayers. The FPSC requires natural gas utilities to offer transportation-only service to all non-residential customers. As a result, PGS receives its base rate for distribution regardless of whether a customer decides to opt for transportation-only service or continue bundled service. As of Dec. 31, 2008, PGS had approximately 13,600 transportation-only customers out of 29,500 eligible customers.

In addition to economic regulation, PGS is subject to the FPSC’s safety jurisdiction, pursuant to which the FPSC regulates the construction, operation and maintenance of PGS’ distribution system. In general, the FPSC has implemented this by adopting the Minimum Federal Safety Standards and reporting requirements for pipeline facilities and transportation of gas prescribed by the U.S. Department of Transportation in Parts 191, 192 and 199, Title 49, Code of Federal Regulations.

PGS is also subject to federal, state and local environmental laws and regulations pertaining to air and water quality, land use, noise and aesthetics, solid waste and other environmental matters.

Regulation

FACE="Times New Roman" SIZE="2">The operations of PGS are regulated by the FPSC separately from the regulation 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 a utility such as PGS to collect total revenues (revenue requirements) equal to its cost of providing service, plus a reasonable return on invested capital.

STYLE="margin-top:6px;margin-bottom:0px; text-indent:3%">The basic costs of providing natural gas service, other than the costs of purchased gas and interstate pipeline capacity, are recovered through base
rates. Base rates are designed to recover the costs of owning, operating and maintaining the utility system. The rate of return on rate base, which is intended to approximate PGS’ weighted cost of capital, primarily includes its cost for debt,
deferred income taxes at a zero cost rate, and an allowed return on common equity. Base rates are determined in FPSC proceedings which occur at irregular intervals at the initiative of PGS, the FPSC or other parties. For a description of recent
proceeding activity, see the Regulation—PGS Rates section of MD&A.

PGS’ current rates, which became effective
in January 2003, were agreed to in a settlement with all parties involved prior to a full rate proceeding, and a final FPSC order was granted on Dec. 17, 2002. PGS’ authorized rates provide an allowed ROE range from 10.25% to 12.25% with an
11.25% midpoint.

 


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At the end of 2007, PGS’ 13-month average regulatory ROE was below the bottom of its allowed range
as a result of higher operating costs, continued investment in the distribution system and higher costs associated with required safety requirements, such as transmission and distribution pipeline integrity management.

STYLE="margin-top:6px;margin-bottom:0px; text-indent:3%">Recognizing the significant decline in ROE, PGS filed for a $26.5 million base rate increase in August 2008. The major factors in the filing included a
request for an ROE mid-point of 11.5%, 55% equity in the capital structure, and rate base of $564 million. The formal hearings before the FPSC are scheduled to be held in March and the FPSC is scheduled to make its final decision on the requested
increase in May, with final rates effective in June 2009.

PGS recovers the costs it pays for gas supply and interstate transportation for
system supply through the purchased gas adjustment (PGA) clause. This charge is designed to recover the costs incurred by PGS for purchased gas, and for holding and using interstate pipeline capacity for the transportation of gas it delivers to its
customers. These charges may be adjusted monthly based on a cap approved annually in an FPSC hearing. The cap is based on estimated costs of purchased gas and pipeline capacity, and estimated customer usage for a specific recovery period, with a
true-up adjustment to reflect the variance of actual costs and usage from the projected charges for prior periods. In November 2008, the FPSC approved rates under PGS’ PGA for the period January 2009 through December 2009 for the recovery of
the costs of natural gas purchased for its distribution customers.

In addition to its base rates and purchased gas adjustment clause
charges, PGS customers (except interruptible customers) also pay a per-therm conservation charge for all gas. This charge is intended to permit PGS to recover its costs incurred in developing and implementing energy conservation programs, which are
mandated by Florida law and approved and supervised by the FPSC. PGS is permitted to recover, on a dollar-for-dollar basis, prudently incurred expenditures made in connection with these programs if it demonstrates that the programs are cost
effective for its ratepayers. The FPSC requires natural gas utilities to offer transportation-only service to all non-residential customers. As a result, PGS receives its base rate for distribution regardless of whether a customer decides to opt for
transportation-only service or continue bundled service. As of Dec. 31, 2008, PGS had approximately 13,600 transportation-only customers out of 29,500 eligible customers.

FACE="Times New Roman" SIZE="2">In addition to economic regulation, PGS is subject to the FPSC’s safety jurisdiction, pursuant to which the FPSC regulates the construction, operation and maintenance of PGS’ distribution system. In general,
the FPSC has implemented this by adopting the Minimum Federal Safety Standards and reporting requirements for pipeline facilities and transportation of gas prescribed by the U.S. Department of Transportation in Parts 191, 192 and 199, Title 49, Code
of Federal Regulations.

PGS is also subject to federal, state and local environmental laws and regulations pertaining to air and water
quality, land use, noise and aesthetics, solid waste and other environmental matters.

REGULATION

The retail operations of Tampa Electric and PGS are regulated by the FPSC, which has jurisdiction over retail rates, quality of service and reliability, issuances of securities, planning, siting and construction of facilities, accounting and depreciation practices and other matters.

In general, the FPSC’s pricing objective is to set rates at a level that allows the utility to collect total revenues (revenue requirements) equal to its cost of providing service, plus a reasonable return on invested capital.

For both Tampa Electric and PGS, the costs of owning, operating and maintaining the utility system, other than fuel, purchased power, conservation and certain environmental costs, are recovered through base rates. These costs include operation and maintenance expenses, depreciation and taxes, as well as a return on investment in assets used and useful in providing electric and natural gas distribution services (rate base). The rate of return on rate base, which is intended to approximate the individual company’s weighted cost of capital, primarily includes its costs for debt, deferred income taxes at a zero cost rate and an allowed return on common equity. Base rates are determined in FPSC rate setting hearings which occur at irregular intervals at the initiative of Tampa Electric, PGS, the FPSC or other parties.

Tampa Electric is also subject to regulation by the Federal Energy Regulatory Commission (FERC) in various respects, including wholesale power sales, certain wholesale power purchases, transmission services, and accounting practices.

Federal, state and local environmental laws and regulations cover air quality, water quality, land use, power plant, substation and transmission line siting, noise and aesthetics, solid waste and other environmental matters (see the Environmental Compliance section).

REGULATION

FACE="Times New Roman" SIZE="2">The retail operations of Tampa Electric and PGS are regulated by the FPSC, which has jurisdiction over retail rates, quality of service and reliability, issuances of securities, planning, siting and construction of
facilities, accounting and depreciation practices and other matters.

In general, the FPSC’s pricing objective is to set rates at a
level that allows the utility to collect total revenues (revenue requirements) equal to its cost of providing service, plus a reasonable return on invested capital.

FACE="Times New Roman" SIZE="2">For both Tampa Electric and PGS, the costs of owning, operating and maintaining the utility system, other than fuel, purchased power, conservation and certain environmental costs, are recovered through base rates.
These costs include operation and maintenance expenses, depreciation and taxes, as well as a return on investment in assets used and useful in providing electric and natural gas distribution services (rate base). The rate of return on rate base,
which is intended to approximate the individual company’s weighted cost of capital, primarily includes its costs for debt, deferred income taxes at a zero cost rate and an allowed return on common equity. Base rates are determined in FPSC rate
setting hearings which occur at irregular intervals at the initiative of Tampa Electric, PGS, the FPSC or other parties.

Tampa Electric is
also subject to regulation by the Federal Energy Regulatory Commission (FERC) in various respects, including wholesale power sales, certain wholesale power purchases, transmission services, and accounting practices.

STYLE="margin-top:6px;margin-bottom:0px; text-indent:3%">Federal, state and local environmental laws and regulations cover air quality, water quality, land use, power plant, substation and transmission line
siting, noise and aesthetics, solid waste and other environmental matters (see the Environmental Compliance section).

These excerpts taken from the TE 10-K filed Feb 26, 2009.

Regulation

The retail operations of Tampa Electric are regulated by the Florida Public Service Commission (FPSC), which has jurisdiction over retail rates, quality of service and reliability, issuances of securities, planning, siting and construction of facilities, accounting and depreciation practices and other matters.

In general, the FPSC’s pricing objective is to set rates at a level that allows the utility to collect total revenues (revenue requirements) equal to its cost of providing service, plus a reasonable return on invested capital.

The costs of owning, operating and maintaining the utility system, other than fuel, purchased power, conservation and certain environmental costs, are recovered through base rates. These costs include operation and maintenance expenses, depreciation and taxes, as well as a return on Tampa Electric’s investment in assets used and useful in providing electric service (rate base). The rate of return on rate base, which is intended to approximate Tampa Electric’s weighted cost of capital, primarily includes its costs for debt, deferred income taxes at a zero cost rate and an allowed return on common equity. Base rates are determined in FPSC rate setting hearings which occur at irregular intervals at the initiative of Tampa Electric, the FPSC or other parties.

Tampa Electric’s rates and allowed return on equity (ROE) range of 10.75% to 12.75%, with a midpoint of 11.75%, are in effect until such time as changes are occasioned by an agreement approved by the FPSC or other FPSC actions as a result of rate or other proceedings initiated by Tampa Electric, FPSC staff or other interested parties.

Prior to August 2008, Tampa Electric had not sought a base rate increase since 1992. Since that rate proceeding, it had earned within its allowed ROE range while adding more than 200,000 customers and making significant investments in facilities and infrastructure. These facilities include baseload, intermediate and peaking generating capacity additions to reliably serve the growing customer base. Tampa Electric expects a continued high level of capital investment, and higher levels of non-fuel operations and maintenance expenditures. As a result of lower customer growth, lower energy sales growth, and ongoing high levels of capital investment, Tampa Electric’s 13-month average regulatory ROE was 8.7% at the end of 2008.

Recognizing the significant decline in ROE, Tampa Electric filed for a $228.2 million base rate increase in August 2008. The filing included a request for an ROE mid-point of 12%, 55.3% equity in the capital structure and rate base of $3.7 billion. The formal hearings before the FPSC were held in late January and the FPSC is scheduled to make its final decision on the requested increase in mid-March, with final rates effective in May 2009.

Fuel, purchased power, conservation and certain environmental costs are recovered through levelized monthly charges established pursuant to the FPSC’s cost recovery clauses. These charges, which are reset annually in an FPSC proceeding, are based on estimated costs of fuel, environmental compliance, conservation programs, purchased power and estimated customer usage for a specific recovery period, with a true-up adjustment to reflect the variance of actual costs from the projected costs. The FPSC may disallow recovery of any costs that it considers imprudently incurred.

In September 2008, Tampa Electric filed with the FPSC for approval of cost recovery rates for fuel and purchased power, capacity, environmental and conservation costs for the period January through December 2009. In November 2008, the FPSC approved Tampa Electric’s requested rates. The rates include the cost for natural gas and coal expected in 2009, the net recovery of $132.9 million of fuel and purchased power expenses, which were not collected in 2008 and underestimated in

 

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2007, the net over-recovery of $4.7 million of costs recovered through the Environmental Cost Recovery Clause (ECRC) for the 2007 and 2008 periods, and the operating cost for and a return on the capital invested in the third Selective Catalytic Reduction (SCR) project to enter service at the Big Bend Station as well as the operations and maintenance expense associated with the projects as required by the Environmental Protection Agency (EPA) Consent Decree and Florida Department of Environmental Protection (FDEP) Consent Final Judgment (see the Environmental Compliance section of Management Discussion and Analysis (MD&A)). The rates also reflect an additional disallowance of $1.9 million to settle all outstanding issues associated with the 2004 fuel transportation contract (see the Tampa Electric section and the 2008 Reconciliation of GAAP Net Income from continuing operations to non-GAAP Results). Rates in 2009 also reflect a two-block fuel factor structure with a lower factor for the first 1,000 kilowatt-hours used each month. Accordingly, Tampa Electric’s residential customer rate per 1,000 kilowatt-hours increased $14.06 from $114.38 in 2008 to $128.44 in 2009.

The FPSC determined that it was appropriate for Tampa Electric to recover SCR operating costs through the ECRC as well as earn a return on its SCR investment installed on Big Bend Unit 4 and Big Bend Units 1-3 in October 2004 and May 2005, respectively, for NOx control in compliance with the environmental consent decree. The SCR for Big Bend Unit 4 entered service in May 2007 and cost recovery started in 2007. The SCR for Big Bend Unit 3 entered service in May 2008 and cost recovery started in 2008. The SCRs for Big Bend Units 2 and 1 are scheduled to enter service by May 1, 2009 and 2010, respectively. Cost recovery for the capital investment for each unit, which is dependent on filings made in the year each SCR enters service, is expected to start in 2009 and 2010, respectively.

Tampa Electric is also subject to regulation by the Federal Energy Regulatory Commission (FERC) in various respects, including wholesale power sales, certain wholesale power purchases, transmission services, and accounting and depreciation practices. In June 2006, Tampa Electric received a notice that FERC had commenced an audit, which arose out of the normal course of the enforcement activities, to determine whether and how Tampa Electric and its affiliates complied with: 1) the practices and procedures contained within its Open Access Transmission Tariff (OATT); 2) the conditions by which FERC granted market-based rate authority to each respective affiliate of Tampa Electric; 3) the Standards of Conduct requirements; 4) the preservation of records requirements; 5) Tampa Electric’s wholesale fuel adjustment clause tariff; and 6) Tampa Electric’s reporting of capacity and energy shortages. The audit was completed and the company’s compliance plan filed in October 2007, addressing the recommendations made by FERC, was approved in January 2008. See also the Regulation section of MD&A.

The Energy Policy Act of 2005 repealed the Public Utility Holding Company Act of 1935 (PUHCA), which established a regulatory regime overseen by the SEC, and replaced it with a new statute focused on increased access to holding-company books and records to assist the FERC and state utility regulators in protecting customers of regulated utilities. On Dec. 8, 2005, the FERC finalized rules to implement the congressional mandated repeal of the PUHCA of 1935 and enactment of the PUHCA of 2005. FERC issued its final rules effective Feb. 8, 2006. Pursuant to this Act, TECO Energy has a single-state waiver regarding FERC’s access to its holding-company books and records.

Federal, state and local environmental laws and regulations cover air quality, water quality, land use, power plant, substation and transmission line siting, noise and aesthetics, solid waste and other environmental matters (see Environmental Matters section below).

The transactions between Tampa Electric and its affiliates are subject to regulation by the FPSC and FERC, and any charges deemed to be imprudently incurred may be disallowed for recovery from Tampa Electric’s customers. (For information about Tampa Electric’s contract for coal transportation and dry-bulk storage services with TECO Transport, see the Regulation—Coal Transportation Contract section of MD&A.)

Regulation

The retail operations of Tampa Electric are regulated by the Florida Public Service Commission (FPSC), which has jurisdiction over
retail rates, quality of service and reliability, issuances of securities, planning, siting and construction of facilities, accounting and depreciation practices and other matters.

STYLE="margin-top:6px;margin-bottom:0px; text-indent:3%">In general, the FPSC’s pricing objective is to set rates at a level that allows the utility to collect total revenues (revenue requirements) equal to
its cost of providing service, plus a reasonable return on invested capital.

The costs of owning, operating and maintaining the utility
system, other than fuel, purchased power, conservation and certain environmental costs, are recovered through base rates. These costs include operation and maintenance expenses, depreciation and taxes, as well as a return on Tampa Electric’s
investment in assets used and useful in providing electric service (rate base). The rate of return on rate base, which is intended to approximate Tampa Electric’s weighted cost of capital, primarily includes its costs for debt, deferred income
taxes at a zero cost rate and an allowed return on common equity. Base rates are determined in FPSC rate setting hearings which occur at irregular intervals at the initiative of Tampa Electric, the FPSC or other parties.

STYLE="margin-top:6px;margin-bottom:0px; text-indent:3%">Tampa Electric’s rates and allowed return on equity (ROE) range of 10.75% to 12.75%, with a midpoint of 11.75%, are in effect until such time as
changes are occasioned by an agreement approved by the FPSC or other FPSC actions as a result of rate or other proceedings initiated by Tampa Electric, FPSC staff or other interested parties.

STYLE="margin-top:6px;margin-bottom:0px; text-indent:3%">Prior to August 2008, Tampa Electric had not sought a base rate increase since 1992. Since that rate proceeding, it had earned within its allowed ROE
range while adding more than 200,000 customers and making significant investments in facilities and infrastructure. These facilities include baseload, intermediate and peaking generating capacity additions to reliably serve the growing customer
base. Tampa Electric expects a continued high level of capital investment, and higher levels of non-fuel operations and maintenance expenditures. As a result of lower customer growth, lower energy sales growth, and ongoing high levels of capital
investment, Tampa Electric’s 13-month average regulatory ROE was 8.7% at the end of 2008.

Recognizing the significant decline in ROE,
Tampa Electric filed for a $228.2 million base rate increase in August 2008. The filing included a request for an ROE mid-point of 12%, 55.3% equity in the capital structure and rate base of $3.7 billion. The formal hearings before the FPSC were
held in late January and the FPSC is scheduled to make its final decision on the requested increase in mid-March, with final rates effective in May 2009.

FACE="Times New Roman" SIZE="2">Fuel, purchased power, conservation and certain environmental costs are recovered through levelized monthly charges established pursuant to the FPSC’s cost recovery clauses. These charges, which are reset
annually in an FPSC proceeding, are based on estimated costs of fuel, environmental compliance, conservation programs, purchased power and estimated customer usage for a specific recovery period, with a true-up adjustment to reflect the variance of
actual costs from the projected costs. The FPSC may disallow recovery of any costs that it considers imprudently incurred.

In September
2008, Tampa Electric filed with the FPSC for approval of cost recovery rates for fuel and purchased power, capacity, environmental and conservation costs for the period January through December 2009. In November 2008, the FPSC approved Tampa
Electric’s requested rates. The rates include the cost for natural gas and coal expected in 2009, the net recovery of $132.9 million of fuel and purchased power expenses, which were not collected in 2008 and underestimated in

 


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2007, the net over-recovery of $4.7 million of costs recovered through the Environmental Cost Recovery Clause (ECRC) for the 2007 and 2008 periods, and the
operating cost for and a return on the capital invested in the third Selective Catalytic Reduction (SCR) project to enter service at the Big Bend Station as well as the operations and maintenance expense associated with the projects as required by
the Environmental Protection Agency (EPA) Consent Decree and Florida Department of Environmental Protection (FDEP) Consent Final Judgment (see the Environmental Compliance section of Management Discussion and Analysis (MD&A)). The
rates also reflect an additional disallowance of $1.9 million to settle all outstanding issues associated with the 2004 fuel transportation contract (see the Tampa Electric section and the 2008 Reconciliation of GAAP Net Income from
continuing operations to non-GAAP Results
). Rates in 2009 also reflect a two-block fuel factor structure with a lower factor for the first 1,000 kilowatt-hours used each month. Accordingly, Tampa Electric’s residential customer rate per
1,000 kilowatt-hours increased $14.06 from $114.38 in 2008 to $128.44 in 2009.

The FPSC determined that it was appropriate for Tampa
Electric to recover SCR operating costs through the ECRC as well as earn a return on its SCR investment installed on Big Bend Unit 4 and Big Bend Units 1-3 in October 2004 and May 2005, respectively, for NOx control in compliance with the
environmental consent decree. The SCR for Big Bend Unit 4 entered service in May 2007 and cost recovery started in 2007. The SCR for Big Bend Unit 3 entered service in May 2008 and cost recovery started in 2008. The SCRs for Big Bend Units 2 and 1
are scheduled to enter service by May 1, 2009 and 2010, respectively. Cost recovery for the capital investment for each unit, which is dependent on filings made in the year each SCR enters service, is expected to start in 2009 and 2010,
respectively.

Tampa Electric is also subject to regulation by the Federal Energy Regulatory Commission (FERC) in various respects,
including wholesale power sales, certain wholesale power purchases, transmission services, and accounting and depreciation practices. In June 2006, Tampa Electric received a notice that FERC had commenced an audit, which arose out of the normal
course of the enforcement activities, to determine whether and how Tampa Electric and its affiliates complied with: 1) the practices and procedures contained within its Open Access Transmission Tariff (OATT); 2) the conditions by which
FERC granted market-based rate authority to each respective affiliate of Tampa Electric; 3) the Standards of Conduct requirements; 4) the preservation of records requirements; 5) Tampa Electric’s wholesale fuel adjustment clause
tariff; and 6) Tampa Electric’s reporting of capacity and energy shortages. The audit was completed and the company’s compliance plan filed in October 2007, addressing the recommendations made by FERC, was approved in January 2008.
See also the Regulation section of MD&A.

The Energy Policy Act of 2005 repealed the Public Utility Holding Company Act of
1935 (PUHCA), which established a regulatory regime overseen by the SEC, and replaced it with a new statute focused on increased access to holding-company books and records to assist the FERC and state utility regulators in protecting customers of
regulated utilities. On Dec. 8, 2005, the FERC finalized rules to implement the congressional mandated repeal of the PUHCA of 1935 and enactment of the PUHCA of 2005. FERC issued its final rules effective Feb. 8, 2006. Pursuant to this Act, TECO
Energy has a single-state waiver regarding FERC’s access to its holding-company books and records.

Federal, state and local
environmental laws and regulations cover air quality, water quality, land use, power plant, substation and transmission line siting, noise and aesthetics, solid waste and other environmental matters (see Environmental Matters section below).

The transactions between Tampa Electric and its affiliates are subject to regulation by the FPSC and FERC, and any charges deemed to be
imprudently incurred may be disallowed for recovery from Tampa Electric’s customers. (For information about Tampa Electric’s contract for coal transportation and dry-bulk storage services with TECO Transport, see the
Regulation—Coal Transportation Contract
section of MD&A.)

Regulation

The operations of PGS are regulated by the FPSC separately from the regulation 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 a utility such as PGS to collect total revenues (revenue requirements) equal to its cost of providing service, plus a reasonable return on invested capital.

The basic costs of providing natural gas service, other than the costs of purchased gas and interstate pipeline capacity, are recovered through base rates. Base rates are designed to recover the costs of owning, operating and maintaining the utility system. The rate of return on rate base, which is intended to approximate PGS’ weighted cost of capital, primarily includes its cost for debt, deferred income taxes at a zero cost rate, and an allowed return on common equity. Base rates are determined in FPSC proceedings which occur at irregular intervals at the initiative of PGS, the FPSC or other parties. For a description of recent proceeding activity, see the Regulation—PGS Rates section of MD&A.

PGS’ current rates, which became effective in January 2003, were agreed to in a settlement with all parties involved prior to a full rate proceeding, and a final FPSC order was granted on Dec. 17, 2002. PGS’ authorized rates provide an allowed ROE range from 10.25% to 12.25% with an 11.25% midpoint.

 

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At the end of 2007, PGS’ 13-month average regulatory ROE was below the bottom of its allowed range as a result of higher operating costs, continued investment in the distribution system and higher costs associated with required safety requirements, such as transmission and distribution pipeline integrity management.

Recognizing the significant decline in ROE, PGS filed for a $26.5 million base rate increase in August 2008. The major factors in the filing included a request for an ROE mid-point of 11.5%, 55% equity in the capital structure, and rate base of $564 million. The formal hearings before the FPSC are scheduled to be held in March and the FPSC is scheduled to make its final decision on the requested increase in May, with final rates effective in June 2009.

PGS recovers the costs it pays for gas supply and interstate transportation for system supply through the purchased gas adjustment (PGA) clause. This charge is designed to recover the costs incurred by PGS for purchased gas, and for holding and using interstate pipeline capacity for the transportation of gas it delivers to its customers. These charges may be adjusted monthly based on a cap approved annually in an FPSC hearing. The cap is based on estimated costs of purchased gas and pipeline capacity, and estimated customer usage for a specific recovery period, with a true-up adjustment to reflect the variance of actual costs and usage from the projected charges for prior periods. In November 2008, the FPSC approved rates under PGS’ PGA for the period January 2009 through December 2009 for the recovery of the costs of natural gas purchased for its distribution customers.

In addition to its base rates and purchased gas adjustment clause charges, PGS customers (except interruptible customers) also pay a per-therm conservation charge for all gas. This charge is intended to permit PGS to recover its costs incurred in developing and implementing energy conservation programs, which are mandated by Florida law and approved and supervised by the FPSC. PGS is permitted to recover, on a dollar-for-dollar basis, prudently incurred expenditures made in connection with these programs if it demonstrates that the programs are cost effective for its ratepayers. The FPSC requires natural gas utilities to offer transportation-only service to all non-residential customers. As a result, PGS receives its base rate for distribution regardless of whether a customer decides to opt for transportation-only service or continue bundled service. As of Dec. 31, 2008, PGS had approximately 13,600 transportation-only customers out of 29,500 eligible customers.

In addition to economic regulation, PGS is subject to the FPSC’s safety jurisdiction, pursuant to which the FPSC regulates the construction, operation and maintenance of PGS’ distribution system. In general, the FPSC has implemented this by adopting the Minimum Federal Safety Standards and reporting requirements for pipeline facilities and transportation of gas prescribed by the U.S. Department of Transportation in Parts 191, 192 and 199, Title 49, Code of Federal Regulations.

PGS is also subject to federal, state and local environmental laws and regulations pertaining to air and water quality, land use, noise and aesthetics, solid waste and other environmental matters.

Regulation

FACE="Times New Roman" SIZE="2">The operations of PGS are regulated by the FPSC separately from the regulation 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 a utility such as PGS to collect total revenues (revenue requirements) equal to its cost of providing service, plus a reasonable return on invested capital.

STYLE="margin-top:6px;margin-bottom:0px; text-indent:3%">The basic costs of providing natural gas service, other than the costs of purchased gas and interstate pipeline capacity, are recovered through base
rates. Base rates are designed to recover the costs of owning, operating and maintaining the utility system. The rate of return on rate base, which is intended to approximate PGS’ weighted cost of capital, primarily includes its cost for debt,
deferred income taxes at a zero cost rate, and an allowed return on common equity. Base rates are determined in FPSC proceedings which occur at irregular intervals at the initiative of PGS, the FPSC or other parties. For a description of recent
proceeding activity, see the Regulation—PGS Rates section of MD&A.

PGS’ current rates, which became effective
in January 2003, were agreed to in a settlement with all parties involved prior to a full rate proceeding, and a final FPSC order was granted on Dec. 17, 2002. PGS’ authorized rates provide an allowed ROE range from 10.25% to 12.25% with an
11.25% midpoint.

 


9







Table of Contents


At the end of 2007, PGS’ 13-month average regulatory ROE was below the bottom of its allowed range
as a result of higher operating costs, continued investment in the distribution system and higher costs associated with required safety requirements, such as transmission and distribution pipeline integrity management.

STYLE="margin-top:6px;margin-bottom:0px; text-indent:3%">Recognizing the significant decline in ROE, PGS filed for a $26.5 million base rate increase in August 2008. The major factors in the filing included a
request for an ROE mid-point of 11.5%, 55% equity in the capital structure, and rate base of $564 million. The formal hearings before the FPSC are scheduled to be held in March and the FPSC is scheduled to make its final decision on the requested
increase in May, with final rates effective in June 2009.

PGS recovers the costs it pays for gas supply and interstate transportation for
system supply through the purchased gas adjustment (PGA) clause. This charge is designed to recover the costs incurred by PGS for purchased gas, and for holding and using interstate pipeline capacity for the transportation of gas it delivers to its
customers. These charges may be adjusted monthly based on a cap approved annually in an FPSC hearing. The cap is based on estimated costs of purchased gas and pipeline capacity, and estimated customer usage for a specific recovery period, with a
true-up adjustment to reflect the variance of actual costs and usage from the projected charges for prior periods. In November 2008, the FPSC approved rates under PGS’ PGA for the period January 2009 through December 2009 for the recovery of
the costs of natural gas purchased for its distribution customers.

In addition to its base rates and purchased gas adjustment clause
charges, PGS customers (except interruptible customers) also pay a per-therm conservation charge for all gas. This charge is intended to permit PGS to recover its costs incurred in developing and implementing energy conservation programs, which are
mandated by Florida law and approved and supervised by the FPSC. PGS is permitted to recover, on a dollar-for-dollar basis, prudently incurred expenditures made in connection with these programs if it demonstrates that the programs are cost
effective for its ratepayers. The FPSC requires natural gas utilities to offer transportation-only service to all non-residential customers. As a result, PGS receives its base rate for distribution regardless of whether a customer decides to opt for
transportation-only service or continue bundled service. As of Dec. 31, 2008, PGS had approximately 13,600 transportation-only customers out of 29,500 eligible customers.

FACE="Times New Roman" SIZE="2">In addition to economic regulation, PGS is subject to the FPSC’s safety jurisdiction, pursuant to which the FPSC regulates the construction, operation and maintenance of PGS’ distribution system. In general,
the FPSC has implemented this by adopting the Minimum Federal Safety Standards and reporting requirements for pipeline facilities and transportation of gas prescribed by the U.S. Department of Transportation in Parts 191, 192 and 199, Title 49, Code
of Federal Regulations.

PGS is also subject to federal, state and local environmental laws and regulations pertaining to air and water
quality, land use, noise and aesthetics, solid waste and other environmental matters.

REGULATION

The retail operations of Tampa Electric and PGS are regulated by the FPSC, which has jurisdiction over retail rates, quality of service and reliability, issuances of securities, planning, siting and construction of facilities, accounting and depreciation practices and other matters.

In general, the FPSC’s pricing objective is to set rates at a level that allows the utility to collect total revenues (revenue requirements) equal to its cost of providing service, plus a reasonable return on invested capital.

For both Tampa Electric and PGS, the costs of owning, operating and maintaining the utility system, other than fuel, purchased power, conservation and certain environmental costs, are recovered through base rates. These costs include operation and maintenance expenses, depreciation and taxes, as well as a return on investment in assets used and useful in providing electric and natural gas distribution services (rate base). The rate of return on rate base, which is intended to approximate the individual company’s weighted cost of capital, primarily includes its costs for debt, deferred income taxes at a zero cost rate and an allowed return on common equity. Base rates are determined in FPSC rate setting hearings which occur at irregular intervals at the initiative of Tampa Electric, PGS, the FPSC or other parties.

Tampa Electric is also subject to regulation by the Federal Energy Regulatory Commission (FERC) in various respects, including wholesale power sales, certain wholesale power purchases, transmission services, and accounting practices.

Federal, state and local environmental laws and regulations cover air quality, water quality, land use, power plant, substation and transmission line siting, noise and aesthetics, solid waste and other environmental matters (see the Environmental Compliance section).

REGULATION

FACE="Times New Roman" SIZE="2">The retail operations of Tampa Electric and PGS are regulated by the FPSC, which has jurisdiction over retail rates, quality of service and reliability, issuances of securities, planning, siting and construction of
facilities, accounting and depreciation practices and other matters.

In general, the FPSC’s pricing objective is to set rates at a
level that allows the utility to collect total revenues (revenue requirements) equal to its cost of providing service, plus a reasonable return on invested capital.

FACE="Times New Roman" SIZE="2">For both Tampa Electric and PGS, the costs of owning, operating and maintaining the utility system, other than fuel, purchased power, conservation and certain environmental costs, are recovered through base rates.
These costs include operation and maintenance expenses, depreciation and taxes, as well as a return on investment in assets used and useful in providing electric and natural gas distribution services (rate base). The rate of return on rate base,
which is intended to approximate the individual company’s weighted cost of capital, primarily includes its costs for debt, deferred income taxes at a zero cost rate and an allowed return on common equity. Base rates are determined in FPSC rate
setting hearings which occur at irregular intervals at the initiative of Tampa Electric, PGS, the FPSC or other parties.

Tampa Electric is
also subject to regulation by the Federal Energy Regulatory Commission (FERC) in various respects, including wholesale power sales, certain wholesale power purchases, transmission services, and accounting practices.

STYLE="margin-top:6px;margin-bottom:0px; text-indent:3%">Federal, state and local environmental laws and regulations cover air quality, water quality, land use, power plant, substation and transmission line
siting, noise and aesthetics, solid waste and other environmental matters (see the Environmental Compliance section).

These excerpts taken from the TE 10-K filed Feb 28, 2008.

REGULATION

The retail operations of Tampa Electric and PGS are regulated by the FPSC, which has jurisdiction over retail rates, quality of service and reliability, issuances of securities, planning, siting and construction of facilities, accounting and depreciation practices, and other matters.

In general, the FPSC’s pricing objective is to set rates at a level that allows the utility to collect total revenues (revenue requirements) equal to its cost of providing service, plus a reasonable return on invested capital.

For both Tampa Electric and PGS, the costs of owning, operating and maintaining the utility system, other than fuel, purchased power, conservation and certain environmental costs, are recovered through base rates. These costs include operation and maintenance expenses, depreciation and taxes, as well as a return on investment in assets used and useful in providing electric and natural gas distribution services (rate base). The rate of return on rate base, which is intended to approximate the individual company’s weighted cost of capital, primarily includes its costs for debt, deferred income taxes at a zero cost rate and an allowed return on common equity. Base rates are determined in FPSC rate setting hearings which occur at irregular intervals at the initiative of Tampa Electric, PGS, the FPSC or other parties.

Tampa Electric is also subject to regulation by the Federal Energy Regulatory Commission (FERC) in various respects, including wholesale power sales, certain wholesale power purchases, transmission services, and accounting practices.

Federal, state and local environmental laws and regulations cover air quality, water quality, land use, power plant, substation and transmission line siting, noise and aesthetics, solid waste and other environmental matters (see Environmental Compliance section above).

REGULATION

STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%">The retail operations of Tampa Electric and PGS are regulated by the FPSC, which has jurisdiction over retail rates, quality of service and reliability,
issuances of securities, planning, siting and construction of facilities, accounting and depreciation practices, and other matters.

In
general, the FPSC’s pricing objective is to set rates at a level that allows the utility to collect total revenues (revenue requirements) equal to its cost of providing service, plus a reasonable return on invested capital.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">For both Tampa Electric and PGS, the costs of owning, operating and maintaining the utility system, other than fuel, purchased power, conservation and
certain environmental costs, are recovered through base rates. These costs include operation and maintenance expenses, depreciation and taxes, as well as a return on investment in assets used and useful in providing electric and natural gas
distribution services (rate base). The rate of return on rate base, which is intended to approximate the individual company’s weighted cost of capital, primarily includes its costs for debt, deferred income taxes at a zero cost rate and an
allowed return on common equity. Base rates are determined in FPSC rate setting hearings which occur at irregular intervals at the initiative of Tampa Electric, PGS, the FPSC or other parties.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Tampa Electric is also subject to regulation by the Federal Energy Regulatory Commission (FERC) in various respects, including wholesale power sales,
certain wholesale power purchases, transmission services, and accounting practices.

Federal, state and local environmental laws and
regulations cover air quality, water quality, land use, power plant, substation and transmission line siting, noise and aesthetics, solid waste and other environmental matters (see Environmental Compliance section above).

STYLE="margin-top:18px;margin-bottom:0px">Tampa Electric Rates

Tampa Electric’s rates and
allowed return on equity (ROE) range of 10.75% to 12.75%, with a midpoint of 11.75%, are in effect until such time as changes are occasioned by an agreement approved by the FPSC or other FPSC actions as a result of rate or other proceedings
initiated by Tampa Electric, FPSC staff or other interested parties.

Tampa Electric has not sought a base rate increase since 1992. Since
that last rate proceeding it has earned within its allowed ROE range while adding more than 200,000 customers and making significant investments in facilities and infrastructure. These facilities include baseload and peaking generating capacity
additions, to reliably serve the growing customer base. Tampa Electric expects a continued high level of capital investment, and higher levels of non-fuel operations and maintenance expenditures. After dropping to the bottom of its allowed ROE range
of 10.75% to 12.75% in the middle of 2007, at the end of 2007 Tampa Electric’s 13-month moving average regulatory ROE was 11.4%, as a result of the positive impact of favorable weather in the second

 


90









half of 2007 and lower depreciation expense and lower property taxes in the second half of the year. However, based on our current lower forecast for
customer and energy sales growth, expected higher operations and maintenance expenses and ongoing higher levels of capital investment, we expect Tampa Electric’s forecasted ROE to go below the bottom of its allowed range during 2008. This is
expected to cause a need for base rate relief for Tampa Electric in 2009.

This excerpt taken from the TE 10-K filed Feb 28, 2007.

REGULATION

The retail operations of Tampa Electric are regulated by the FPSC, which has jurisdiction over retail rates, quality of service and reliability, issuances of securities, planning, siting and construction of facilities, accounting and depreciation practices, and other matters.

In general, the FPSC’s pricing objective is to set rates at a level that allows the utility to collect total revenues (revenue requirements) equal to its cost of providing service, plus a reasonable return on invested capital.

The costs of owning, operating and maintaining the utility system, other than fuel, purchased power, conservation and certain environmental costs, are recovered through base rates. These costs include operation and maintenance expenses, depreciation and taxes, as well as a return on Tampa Electric’s investment in assets used and useful in providing electric service (rate base). The rate of return on rate base, which is intended to approximate Tampa Electric’s weighted cost of capital, primarily includes its costs for debt, deferred income taxes at a zero cost rate and an allowed return on common equity. Base rates are determined in FPSC rate setting hearings which occur at irregular intervals at the initiative of Tampa Electric, the FPSC or other parties.

Tampa Electric is also subject to regulation by the Federal Energy Regulatory Commission (FERC) in various respects, including wholesale power sales, certain wholesale power purchases, transmission services, and accounting practices.

Federal, state and local environmental laws and regulations cover air quality, water quality, land use, power plant, substation and transmission line siting, noise and aesthetics, solid waste and other environmental matters (see Environmental Compliance section above).

This excerpt taken from the TE 10-K filed Mar 7, 2006.

Regulation

The operations of PGS are regulated by the FPSC separately from the regulation 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 a utility such as PGS to collect total revenues (revenue requirements) equal to its cost of providing service, plus a reasonable return on invested capital.

The basic costs of providing natural gas service, other than the costs of purchased gas and interstate pipeline capacity, are recovered through base rates. Base rates are designed to recover the costs of owning, operating and maintaining the utility system. The rate of return on rate base, which is intended to approximate PGS’ weighted cost of capital, primarily includes its cost for debt, deferred income taxes at a zero cost rate, and an allowed return on common equity. Base rates are determined in FPSC proceedings which occur at irregular intervals at the initiative of PGS, the FPSC or other parties. For a description of recent proceeding activity, see the Regulation – Peoples Gas 2002 Rate Proceeding section of MD&A.

 

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Table of Contents

PGS recovers the costs it pays for gas supply and interstate transportation for system supply through the purchased gas adjustment clause. This charge is designed to recover the costs incurred by PGS for purchased gas, and for holding and using interstate pipeline capacity for the transportation of gas it sells to its customers. These charges may be adjusted monthly based on a cap approved annually in an FPSC hearing. The cap is based on estimated costs of purchased gas and pipeline capacity, and estimated customer usage for a specific recovery period, with a true-up adjustment to reflect the variance of actual costs and usage from the projected charges for prior periods. For a description of the most recent adjustment, see the Regulation – Cost Recovery Clauses – Peoples Gas section of MD&A.

In addition to its base rates and purchased gas adjustment clause charges for system supply customers, PGS customers (except interruptible customers) also pay a per-therm conservation charge for all gas; this charge is intended to permit PGS to recover its costs incurred in developing and implementing energy conservation programs, which are mandated by Florida law and approved and supervised by the FPSC. PGS is permitted to recover, on a dollar-for-dollar basis, expenditures made in connection with these programs if it demonstrates that the programs are cost effective for its ratepayers.

The FPSC requires natural gas utilities to offer transportation-only service to all non-residential customers. As a result, PGS receives its base rate for distribution regardless of whether a customer decides to opt for transportation-only service or continue bundled service. PGS had approximately 11,700 transportation customers as of Dec. 31, 2005 out of 28,300 eligible customers.

In addition to economic regulation, PGS is subject to the FPSC’s safety jurisdiction, pursuant to which the FPSC regulates the construction, operation and maintenance of PGS’ distribution system. In general, the FPSC has implemented this by adopting the Minimum Federal Safety Standards and reporting requirements for pipeline facilities and transportation of gas prescribed by the U.S. Department of Transportation in Parts 191, 192 and 199, Title 49, Code of Federal Regulations.

PGS is also subject to federal, state and local environmental laws and regulations pertaining to air and water quality, land use, noise and aesthetics, solid waste and other environmental matters.

This excerpt taken from the TE 10-K filed Mar 15, 2005.

Regulation

 

The operations of PGS are regulated by the FPSC separately from the regulation of Tampa Electric’s electric operations. 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 a utility such as PGS to collect total revenues (revenue requirements) equal to its cost of providing service, plus a reasonable return on invested capital.

 

The basic costs of providing natural gas service, other than the costs of purchased gas and interstate pipeline capacity, are recovered through base rates. Base rates are designed to recover the costs of owning, operating and maintaining the utility system. The rate of return on rate base, which is intended to approximate PGS’ weighted cost of capital, primarily includes its cost for debt, deferred income taxes at a zero cost rate, and an allowed return on common equity. Base rates are determined in FPSC proceedings which occur at irregular intervals at the initiative of PGS, the FPSC or other parties. For a description of recent proceeding activity, see the Regulation – Peoples Gas 2002 Rate Proceeding section of MD&A.

 

PGS recovers the costs it pays for gas supply and interstate transportation for system supply through the purchased gas adjustment clause. This charge is designed to recover the costs incurred by PGS for purchased gas, and for holding and using interstate pipeline capacity for the transportation of gas it sells to its customers. These charges are adjusted monthly based on a cap approved annually in an FPSC hearing. The cap is based on estimated costs of purchased gas and pipeline capacity, and estimated customer usage for a specific recovery period, with a true-up adjustment to reflect the variance of actual costs and usage from the projected charges for prior periods. For a description of the most recent adjustment, see the Regulation – Cost Recovery Clauses – Peoples Gas section of MD&A.

 

In addition to its base rates and purchased gas adjustment clause charges for system supply customers, PGS customers (except interruptible customers) also pay a per-therm charge for all gas; this charge is intended to permit PGS to recover its costs incurred in developing and implementing energy conservation programs, which are mandated by Florida law and approved and supervised by the FPSC. PGS is permitted to recover, on a dollar-for-dollar basis, expenditures made in connection with these programs if it demonstrates that the programs are cost effective for its ratepayers.

 

The FPSC requires natural gas utilities to offer transportation-only service to all non-residential customers. As a result, PGS receives its base rate for distribution regardless of whether a customer decides to opt for transportation-only service or continue bundled service. PGS had over 11,000 transportation customers as of Dec. 31, 2004 out of 28,900 eligible customers.

 

8


Table of Contents

In addition to economic regulation, PGS is subject to the FPSC’s safety jurisdiction, pursuant to which the FPSC regulates the construction, operation and maintenance of PGS’ distribution system. In general, the FPSC has implemented this by adopting the Minimum Federal Safety Standards and reporting requirements for pipeline facilities and transportation of gas prescribed by the U.S. Department of Transportation in Parts 191, 192 and 199, Title 49, Code of Federal Regulations.

 

PGS is also subject to federal, state and local environmental laws and regulations pertaining to air and water quality, land use, noise and aesthetics, solid waste and other environmental matters.

 

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