UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~September 30, 2016

¨☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No	Exact name of each registrant as specified in its charter, state of incorporation, address of principal executive offices, telephone number	I.R.S. Employer Identification Number
1-8180	TECO ENERGY, INC.	59-2052286
	(a Florida corporation) TECO Plaza 702 N. Franklin Street Tampa, Florida 33602 (813) 228-1111

1-5007	TAMPA ELECTRIC COMPANY	59-0475140
	(a Florida corporation) TECO Plaza 702 N. Franklin Street Tampa, Florida 33602 (813) 228-1111

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. YES x☒ NO ¨☐

Indicate by check mark whether the registrants have submitted electronically and posted on their corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files). YES x☒ NO ¨☐

Indicate by check mark whether TECO Energy, Inc. is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x☐ Accelerated filer ¨☐ Non-accelerated filer ¨☒ Smaller reporting company ¨☐

Indicate by check mark whether Tampa Electric Company is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨☐ Accelerated filer ¨☐ Non-accelerated filer x☒ Smaller reporting company ¨☐

Indicate by check mark whether TECO Energy, Inc. is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨☐ NO x☒

Indicate by check mark whether Tampa Electric Company is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨☐ NO x☒

As of ~~July~~Nov. 294, 2016, there were 1,000 shares of TECO Energy, Inc.’s common stock outstanding, all of which were held, beneficially and of record, by Emera US Holdings Inc. As of ~~July~~Nov. 294, 2016, there were 10 shares of Tampa Electric Company’s common stock issued and outstanding, all of which were held, beneficially and of record, by TECO Energy, Inc.

Tampa Electric Company meets the conditions set forth in General Instruction (H) (1) (a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format.

This combined Form 10-Q represents separate filings by TECO Energy, Inc. and Tampa Electric Company. Information contained herein relating to an individual registrant is filed by that registrant on its own behalf. Each registrant makes representations only as to information relating to itself and its subsidiaries.

DEFINITIONS

Acronyms and defined terms used in this and other filings with the U.S. Securities and Exchange Commission include the following:

Term		Meaning
ABS		asset-backed security
AFUDC		allowance for funds used during construction
AFUDC-debt		debt component of allowance for funds used during construction
AFUDC-equity		equity component of allowance for funds used during construction
AMT		alternative minimum tax
AOCI		accumulated other comprehensive income
APBO		accumulated postretirement benefit obligation
ARO		asset retirement obligation
BACT		Best Available Control Technology
CAIR		Clean Air Interstate Rule
Cambrian		Cambrian Coal Corporation
capacity clause		capacity cost-recovery clause, as established by the FPSC
CCRs		coal combustion residuals
CES		Continental Energy Systems
CMO		collateralized mortgage obligation
CNG		compressed natural gas
company		TECO Energy, Inc.
CPI		consumer price index
CSAPR		Cross State Air Pollution Rule
CO2		carbon dioxide
CT		combustion turbine
DR-CAFTA		Dominican Republic Central America – United States Free Trade Agreement
ECRC		environmental cost recovery clause
EEI		Edison Electric Institute
EGWP		Employee Group Waiver Plan
Emera		Emera Inc., a geographically diverse energy and services company headquartered in Nova Scotia, Canada
EPA		U.S. Environmental Protection Agency
EPS		earnings per share
ERISA		Employee Retirement Income Security Act
EROA		expected return on plan assets
EUSHI		Emera US Holdings Inc.
FASB		Financial Accounting Standards Board
FDEP		Florida Department of Environmental Protection
FERC		Federal Energy Regulatory Commission
FGT		Florida Gas Transmission Company
FPSC		Florida Public Service Commission
GCBF		gas cost billing factor
GHG		greenhouse gas(es)
HAFTA		Highway and Transportation Funding Act
HCIDA		Hillsborough County Industrial Development Authority
ICSID		International Centre for the Settlement of Investment Disputes
IGCC		integrated gasification combined-cycle
IOU		investor owned utility
IRS		Internal Revenue Service
ISDA		International Swaps and Derivatives Association
ITCs		investment tax credits
KW		kilowatt(s)
KWH		kilowatt-hour(s)
LIBOR		London Interbank Offered Rate
MAP-21		Moving Ahead for Progress in the 21st Century Act
MBS		mortgage-backed securities
MD&A		the section of this report entitled Management’s Discussion and Analysis of Financial Condition and Results of Operations
Merger		Merger of Merger Sub Company with and into TECO Energy, with TECO Energy as the surviving corporation
Merger Agreement		Agreement and Plan of Merger dated Sept. 4, 2015, by and among TECO Energy, Emera and Merger Sub
Merger Sub		Emera US Inc., a Florida corporation
MMA		The Medicare Prescription Drug, Improvement and Modernization Act of 2003

Term		Meaning
Merger Agreement		Agreement and Plan of Merger dated Sept. 4, 2015, by and among TECO Energy, Emera and Merger Sub Company
Merger Sub Company		Emera US Inc., a Florida corporation
MMA		The Medicare Prescription Drug, Improvement and Modernization Act of 2003
MMBTU		one million British Thermal Units
MRV		market-related value
MW		megawatt(s)
MWH		megawatt-hour(s)
NAESB		North American Energy Standards Board
NAV		net asset value
NMGC		New Mexico Gas Company, Inc.
NMGI		New Mexico Gas Intermediate, Inc.
NMPRC		New Mexico Public Regulation Commission
NOL		net operating loss
Note		Note to consolidated financial statements
NOx		nitrogen oxide
NPNS		normal purchase normal sale
NYMEX		New York Mercantile Exchange
O&M expenses		operations and maintenance expenses
OCI		other comprehensive income
OPC		Office of Public Counsel
OPEB		other postretirement benefits
OTC		over-the-counter
Parent		TECO Energy (the holding company, excluding subsidiaries)
PBGC		Pension Benefit Guarantee Corporation
PBO		postretirement benefit obligation
PCI		pulverized coal injection
PGA		purchased gas adjustment
PGAC		purchased gas adjustment clause
PGS		Peoples Gas System, the gas division of Tampa Electric Company
PPA		power purchase agreement
PPSA		Power Plant Siting Act
PRP		potentially responsible party
R&D		research and development
REIT		real estate investment trust
RFP		request for proposal
ROE		return on common equity
Regulatory ROE		return on common equity as determined for regulatory purposes
ROW		rights-of-way
S&P		Standard and Poor’s
SCR		selective catalytic reduction
SEC		U.S. Securities and Exchange Commission
SO2		sulfur dioxide
SERP		Supplemental Executive Retirement Plan
SPA		Securities Purchase Agreement dated Sept. 21, 2015, by and between TECO Diversified and Cambrian relating to the purchase of TECO Coal by Cambrian
STIF		short-term investment fund
Tampa Electric		Tampa Electric, the electric division of Tampa Electric Company
TCAE		Tampa Centro Americana de Electridad, Limitada, majority owner of the Alborada Power Station
TEC		Tampa Electric Company, the principal subsidiary of TECO Energy, Inc.
TECO Coal		TECO Coal LLC, and its subsidiaries, a coal producing subsidiary of TECO Diversified
TECO Diversified		TECO Diversified, Inc., a subsidiary of TECO Energy, Inc. and parent of TECO Coal Corporation
TECO Energy		TECO Energy, Inc.
TECO Finance		TECO Finance, Inc., a financing subsidiary for the unregulated businesses of TECO Energy, Inc.
TECO Guatemala		TECO Guatemala, Inc., a subsidiary of TECO Energy, Inc., parent company of formerly owned generating and transmission assets in Guatemala
TGH		TECO Guatemala Holdings, LLC
TRC		TEC Receivables Company
TSI		TECO Services, Inc.
U.S. GAAP		generally accepted accounting principles in the United States
VIE		variable interest entity
WRERA		The Worker, Retiree and Employer Recovery Act of 2008

Term		Meaning
U.S. GAAP		generally accepted accounting principles in the United States
VIE		variable interest entity
WRERA		The Worker, Retiree and Employer Recovery Act of 2008

PART I. FINANCIAL INFORMATION

Item 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

TECO ENERGY, INC.

Consolidated Condensed Balance Sheets

Unaudited

Assets	~~June~~Sept. 30,			Dec. 31,
(millions)	2016			2015
Current assets
Cash and cash equivalents	$	2924.24		$	23.8
Receivables, less allowance for uncollectibles of $2.0 and $2.1 at June 30, 2016 and Dec. 31, 2015, respectively		256.5			280.7
Receivables, less allowance for uncollectibles of $2.9 and $2.1 at Sept. 30, 2016 and Dec. 31, 2015, respectively		268.2			280.7
Inventories, at average cost
Fuel	~~106~~85.82			113.4
Materials and supplies		7883.87			76.8
Regulatory assets		1821.48			44.8
Prepayments and other current assets		2924.40			30.8
Total current assets		~~519~~507.13			570.3
Property, plant and equipment
Utility plant in service
Electric		7,~~419~~473.59			7,270.3
Gas		2,~~191~~216.96			2,113.8
Construction work in progress		~~855~~916.98			794.7
Other property		16.48			15.9
Property, plant and equipment, at original costs		10,~~483~~624.71			10,194.7
Accumulated depreciation		(2,~~810~~862.12	)		(2,712.9	)
Total property, plant and equipment, net		7,~~673~~761.69			7,481.8
Other assets
Regulatory assets		~~392~~458.97			395.2
Goodwill		408.4			408.4
Deferred charges and other assets		8587.74			77.8
Total other assets		~~887~~954.05			881.4
Total assets	$	9,~~079~~223.7		$	8,933.5

The accompanying notes are an integral part of the consolidated condensed financial statements.

TECO ENERGY, INC.

Consolidated Condensed Balance Sheets - continued

Unaudited

Liabilities and Capital	~~June~~Sept. 30,			Dec. 31,
(millions)	2016			2015
(millions, except share amounts)	2016			2015
Current liabilities
Long-term debt due within one year	$	0.0		$	333.3
Notes payable		~~615~~610.05			247.0
Accounts payable		~~295~~264.10			255.4
Customer deposits		~~168~~160.56			182.1
Regulatory liabilities		~~130~~148.12			84.8
Derivative liabilities		1.16			24.1
Interest accrued		3453.31			36.2
Taxes accrued		4665.0			13.2
Dividends declared		26.8			0.0
Other		44.5			22.6
Other		21.8			22.6
Total current liabilities		1,347.5			1,198.7
Total current liabilities		1,338.7			1,198.7
Other liabilities
Deferred income taxes		~~635~~650.1			570.7
Investment tax credits		10.32			10.5
Regulatory liabilities		~~723~~718.8			715.8
Deferred credits and other liabilities		~~371~~412.56			389.6
Long-term debt, less amount due within one year		3,490.03			3,489.2
Total other liabilities		5,~~230~~282.70			5,175.8
Commitments and contingencies (see Note 10)
Commitments and contingencies (see Note 8)
Capital
Common equity (400.0 million shares authorized; par value $1; 235.5 million and 235.3 million shares outstanding at June 30, 2016 and Dec. 31, 2015, respectively)		235.5			235.3
Common equity (10.0 million shares authorized, par value $0.01 and 1,000 shares outstanding at Sept. 30, 2016; 400.0 million shares authorized, par value $1 and 235.3 million shares outstanding at Dec. 31, 2015)		0.0			235.3
Additional paid in capital		12,~~898~~154.57			1,894.5
Retained earnings		~~387~~457.71			441.4
Accumulated other comprehensive loss		(1117.46	)		(12.2	)
Total capital		2,~~510~~594.32			2,559.0
Total liabilities and capital	$	9,~~079~~223.7		$	8,933.5

The accompanying notes are an integral part of the consolidated condensed financial statements.

TECO ENERGY, INC.

Consolidated Condensed Statements of Income

Unaudited

		Three months ended June 30,
		Three months ended Sept. 30,
(millions, except per share amounts)		2016			2015
Revenues
Regulated electric		$	~~498~~585.02		$	~~531~~559.73
Regulated gas			~~151~~138.46			~~146~~131.5
Unregulated			2.9			23.40
Total revenues			~~652~~726.37			~~680~~693.68
Expenses
Regulated operations and maintenance
Fuel			~~137~~173.45			~~171~~176.86
Purchased power			2738.83			1923.68
Cost of natural gas sold			5053.82			4942.10
Other			~~154~~153.6			~~155~~150.41
Operations and maintenance other expense			1.4			1.1
Merger transaction-related costs			37.9			15.4
Merger transaction-related costs			71.4			0.0
Depreciation and amortization			92.0			87.8
Depreciation and amortization			90.2			87.0
Taxes, other than income			56.3			51.5
Taxes, other than income			52.0			53.3
Total expenses			604.8			547.2
Total expenses			585.6			537.3
Income from operations			121.9			146.6
Income from operations			66.7			143.3
Other income
Allowance for other funds used during construction			56.95			34.7
Other income, net			12.01			1.4
Total other income			68.96			56.1
Interest charges
Interest expense			4647.71			48.24
Allowance for borrowed funds used during construction			(23.92	)		(12.83	)
Total interest charges			43.89			46.41
Income from continuing operations before provision for income taxes			2986.86			~~102~~106.06
Provision for income taxes			2417.32			4041.57
Net income from continuing operations			569.54			6164.59
Discontinued operations
Loss from discontinued operations			(0.42	)		(7817.18	)
Benefit for income taxes			(0.2	)		~~(28~~6.41	)
Loss from discontinued operations, net			(0.20	)		(4911.7	)
Net income		$	569.34		$	1153.82
Average common shares outstanding	– Basic		234.3			233.0
	– Diluted		235.5			233.6
Earnings per share from continuing operations	– Basic	$	0.03		$	0.26
	– Diluted	$	0.03		$	0.26
Earnings per share from discontinued operations	– Basic	$	0.00		$	(0.21	)
	– Diluted	$	0.00		$	(0.21	)
Earnings per share	– Basic	$	0.03		$	0.05
	– Diluted	$	0.03		$	0.05
Dividends paid per common share outstanding		$	0.230		$	0.225

The accompanying notes are an integral part of the consolidated condensed financial statements.

TECO ENERGY, INC.

Consolidated Condensed Statements of Income

Unaudited

		Six months ended June 30,
		Nine months ended Sept. 30,
(millions, except per share amounts)		2016			2015
Revenues
Regulated electric		$	~~921~~1,506.46		$	~~981~~1,540.48
Regulated gas			~~384~~522.39			~~386~~518.71
Unregulated			69.10			58.5
Total revenues			12,~~311~~038.85			12,~~373~~067.64
Expenses
Regulated operations and maintenance
Fuel			~~252~~426.61			~~315~~492.95
Purchased power			4280.25			3660.75
Cost of natural gas sold			~~147~~200.68			~~152~~194.1
Other			~~296~~452.92			~~299~~451.19
Operations and maintenance other expense			1.3			2.7
Merger transaction-related costs			109.4			15.4
Merger transaction-related costs			71.5			0.0
Depreciation and amortization			272.0			260.3
Depreciation and amortization			180.0			172.5
Taxes, other than income			160.8			156.6
Taxes, other than income			104.9			105.1
Total expenses			1,701.8			1,631.3
Total expenses			1,097.0			1,084.1
Income from operations			336.7			436.1
Income from operations			214.8			289.5
Other income
Allowance for other funds used during construction			1118.61			712.52
Other income, net			24.56			34.04
Total other income			1422.17			1016.56
Interest charges
Interest expense			95142.67			98146.04
Allowance for borrowed funds used during construction			(5.9.1	)		(36.70	)
Total interest charges			89133.76			94140.34
Income from continuing operations before provision for income taxes			~~139~~225.28			~~205~~312.73
Provision for income taxes			6077.02			80122.41
Net income from continuing operations			79148.26			~~125~~190.32
Discontinued operations
Loss from discontinued operations			(0.24	)		(87105.75	)
Benefit for income taxes			(0.13	)		~~(32~~38.23	)
Loss from discontinued operations, net			(0.1	)		(5567.52	)
Net income		$	79148.15		$	69123.80
Average common shares outstanding	– Basic		234.1			232.9
	– Diluted		235.4			233.5
Earnings per share from continuing operations	– Basic	$	0.34		$	0.53
	– Diluted	$	0.34		$	0.53
Earnings per share from discontinued operations	– Basic	$	0.00		$	(0.23	)
	– Diluted	$	0.00		$	(0.23	)
Earnings per share	– Basic	$	0.34		$	0.30
	– Diluted	$	0.34		$	0.30
Dividends paid per common share outstanding		$	0.46		$	0.45

The accompanying notes are an integral part of the consolidated condensed financial statements.

TECO ENERGY, INC.

Consolidated Condensed Statements of Comprehensive Income

Unaudited

	Three months ended June 30,						Six months ended June 30,
	Three months ended Sept. 30,						Nine months ended Sept. 30,
(millions)	2016			2015			2016			2015
Net income	$	569.34		$	1153.82		$	79148.15		$	69123.80
Other comprehensive income, net of tax
Gain on cash flow hedges		0.2			20.82			0.46			3.13
Amortization of unrecognized benefit costs and other		(0.25	)		1.0.2			0.38			1.68
Recognized cost due to curtailment		0.10			0.0			0.1			0.0
Other comprehensive income, net of tax		0.1			3.8			0.8			4.7
Change in benefit obligation due to remeasurement/ valuation		(6.9	)		(5.7	)		(6.9	)		(5.7	)
Comprehensive income	$	5.4		$	15.6		$	79.9		$	74.5
Recognized cost due to settlement		0.0			7.7			0.0			7.7
Other comprehensive income (loss), net of tax		(6.2	)		2.4			(5.4	)		7.1
Comprehensive income	$	63.2		$	55.6		$	143.1		$	130.1

The accompanying notes are an integral part of the consolidated condensed financial statements.

910

TECO ENERGY, INC.

Consolidated Condensed Statements of Cash Flows

Unaudited

	Six months ended June 30,
	Nine months ended Sept. 30,
(millions)	2016			2015
Cash flows from operating activities
Net income	$	79148.15		$	69123.80
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		~~180~~272.0			~~173~~261.35
Deferred income taxes and investment tax credits		6076.35			4684.96
Allowance for other funds used during construction		(1118.61	)		(712.52	)
Non-cash stock compensation		6.4			610.91
Loss on disposals of business/assets, pretax		(0.3	)		010.0
Deferred recovery clauses		4254.5			(413.1	)
Asset impairment, pretax		0.0			78.6
Receivables, less allowance for uncollectibles		2412.25			3946.81
Inventories		421.63			(3745.27	)
Prepayments and other current assets		26.98			(1214.2	)
Taxes accrued		3554.90			1931.06
Interest accrued		(116.9	)		(114.87	)
Accounts payable		5527.7			(5885.37	)
Other		(2027.26	)		(1534.16	)
Cash flows from operating activities		~~458~~651.21			~~298~~480.19
Cash flows from investing activities
Capital expenditures		(~~384~~573.83	)		(~~335~~511.70	)
Net proceeds from sale of business/assets		8.7			0.0
Other investing activities		8.5			(0.2	)
Other investing activities		(0.2	)		(0.1	)
Cash flows used in investing activities		(564.8	)		(511.2	)
Cash flows used in investing activities		(376.3	)		(335.8	)
Cash flows from financing activities
Dividends and dividend equivalents		(~~108~~135.64	)		(~~105~~158.98	)
Proceeds from the sale of common stock		4.1			3.5
Proceeds from the sale of common stock and equity contributions		26.2			6.4
Proceeds from long-term debt issuance		0.0			~~500~~499.07
Repayment of long-term debt		(333.3	)		(274.5	)
Net decrease in short-term debt (maturities of 90 days or less)		(3236.05	)		(5311.50	)
Proceeds from other short-term debt (maturities over 90 days)		400.0			0.0
Other financing activities		(6.7	)		(1.35	)
Cash flows from (used in) financing activities		(7685.57	)		6860.3
Net increase in cash and cash equivalents		50.46			30.60
Cash and cash equivalents at beginning of the period		23.8			25.4
Cash and cash equivalents at end of the period	$	2924.24		$	5655.04
Supplemental disclosure of non-cash activities
Change in accrued capital expenditures	$	(1420.26	)	$	1(8.61	)
Dividends declared and not paid	$	26.8		$	0.0

The accompanying notes are an integral part of the consolidated condensed financial statements.

1011

TECO ENERGY, INC.

Consolidated Condensed Statements of Capital

Unaudited

													Accumulated
							Additional						Other
				Common			Paid in			Retained			Comprehensive			Total
(millions)	Shares			Stock			Capital			Earnings			Income (Loss)			Capital
Balance, Dec. 31, 2015		235.3		$	235.3		$	1,894.5		$	441.4		$	(12.2	)	$	2,559.0
Net income											148.5						148.5
Other comprehensive loss, after tax														(5.4	)		(5.4	)
Common stock issued		0.2			0.2			(1.8	)								(1.6	)
Impact of Merger		(235.5	)		(235.5	)		235.5									0.0
Dividends and dividend equivalents											(135.4	)					(135.4	)
Stock compensation expense								6.4									6.4
Restricted stock—dividends								(1.6	)								(1.6	)
Cumulative effect of change in accounting											2.6						2.6
Equity contribution								22.1									22.1
Other								(0.4	)								(0.4	)
Balance, Sept. 30, 2016		0.0		$	0.0		$	2,154.7		$	457.1		$	(17.6	)	$	2,594.2

The accompanying notes are an integral part of the consolidated financial statements.

TECO ENERGY, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

UNAUDITED

1. Summary of Significant Accounting Policies

See TECO Energy, Inc.’s 2015 Annual Report on Form 10-K for a complete discussion of the company’s accounting policies. The significant accounting policies for all utility and diversified operations include:

Principles of Consolidation and Basis of Presentation

Intercompany balances and ~~intercompany~~ transactions have been eliminated in consolidation. In the opinion of management, the unaudited consolidated condensed financial statements include all adjustments that are of a recurring nature and necessary to state fairly the financial position of TECO Energy, Inc. and its subsidiaries as of ~~June~~Sept. 30, 2016 and Dec. 31, 2015, and the results of operations and cash flows for the periods ended ~~June~~Sept. 30, 2016 and 2015. The results of operations for the three and ~~six~~nine months ended ~~June~~Sept. 30, 2016 are not necessarily indicative of the results that can be expected for the entire fiscal year ending Dec. 31, 2016.

The use of estimates is inherent in the preparation of financial statements in accordance with U.S. GAAP. Actual results could differ from these estimates. The year-end consolidated condensed balance sheet data was derived from audited financial statements; however, this quarterly report on Form 10-Q does not include all year-end disclosures required for an annual report on Form 10-K by U.S. GAAP.

On July 1, 2016, TECO Energy and Emera completed the Merger contemplated by the Merger Agreement entered into on Sept. 4, 2015. As a result of the Merger, the Merger Sub Company merged with and into TECO Energy with TECO Energy continuing as the surviving corporation and becoming a wholly owned indirect subsidiary of Emera. The acquisition method of accounting was not pushed down to TECO Energy or its subsidiaries. See Note 1614 for further information.

Revenues

As of ~~June~~Sept. 30, 2016 and Dec. 31, 2015, unbilled revenues of $7371.23 million and $81.1 million, respectively, are included in the “Receivables” line item on the Consolidated Condensed Balance Sheets.

Accounting for Franchise Fees and Gross Receipt Taxes

Tampa Electric and PGS are allowed to recover certain costs from customers on a dollar-per-dollar basis through ~~prices~~rates approved by the FPSC. The amounts included in customers’ bills for franchise fees and gross receipt taxes are included as revenues on the Consolidated Condensed Statements of Income. Franchise fees and gross receipt taxes payable by Tampa Electric and PGS are included as an expense on the Consolidated Condensed Statements of Income in “Taxes, other than income”. These amounts totaled $2832.6 million and $5689.52 million for the three and ~~six~~nine months ended ~~June~~Sept. 30, 2016, respectively, compared to $2931.37 million and $5688.63 million for the three and ~~six~~nine months ended ~~June~~Sept. 30, 2015, respectively.

NMGC is an agent in the collection and payment of franchise fees and gross receipt taxes and is not required by a tariff to present the amounts on a gross basis. Therefore, NMGC’s franchise fees and gross receipt taxes are presented net with no line-item impact on the Consolidated Condensed Statements of Income.

2. New Accounting Pronouncements

Change in Accounting Policy

~~Presentation~~The ofnew ~~Debt~~U.S. ~~Issuance~~GAAP ~~Costs~~accounting policies that are applicable to and were adopted by the company are described as follows:

InInterest ~~April~~– ~~2015,~~Imputation ~~the FASB issued guidance regarding the presentation~~ of debt issuance costs on the balance sheet. Under the new guidance, an entity is required to present debt issuance costs as a direct deduction from the carrying amount of the related debt liability rather than as a deferred charge (i.e., as an asset) under current guidance. In August 2015, the FASB amended the guidance to include an SEC staff announcement that it will not object to a company presenting debt issuance costs related to line-of-credit arrangements as an asset, regardless of whether a balance is outstanding. This guidance became effective for the company beginning in 2016 and is required to be applied on a retrospective basis for all periods presented. As of June 30, 2016 and Dec. 31, 2015, the company classified $25.2 million and $27.7 million, respectively, of debt issuance costs, which do not include costs for line-of-credit arrangements, as a deduction in the “Long-term debt, less amount due within one year” line item on the company’s Consolidated Condensed Balance Sheet (previously classified in the “Deferred charges and other assets” line item). The guidance did not affect the company’s results of operations or cash flows.Interest

~~Stock~~In ~~Compensation~~April 2015, the FASB issued Accounting Standard Update (ASU) 2015-03, Interest – Imputation of Interest, which simplifies the presentation of debt issuance costs. The amendments require debt issuance costs be presented on the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs is not affected. The company adopted this standard in the first quarter of 2016, and Dec. 31, 2015 balances have been retrospectively restated. This change resulted in $27.7 million of debt issuance costs as of Dec. 31, 2015, previously presented as “Deferred charges and other assets”, being reclassified as a deduction from the carrying amount of the related “Long-term debt, less amount due within one year” line item on its Consolidated Condensed Balance Sheet. In accordance with ASU 2015-15 Interest: Imputation of Interest, the company continues to present debt issuance costs related to its letter of credit arrangements and related instruments in “Prepayments and other current assets” on its Consolidated Condensed Balance Sheets.

In March 2016, the FASB issued guidance regarding employee share-based payment accounting. The guidance simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, accounting for forfeitures, classification of awards as either equity or liability, and presentation on the statement of cash flows. This guidance will be 13

11Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships

~~required~~In ~~for~~March 2016, the ~~company~~FASB ~~beginning~~issued inASU ~~2017~~2016-05, Derivatives and Hedging Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships. The Asstandard ~~early~~clarifies ~~adoption~~that isa ~~permitted,~~change in the ~~company~~counterparty ~~adopted~~to ~~the~~a ~~standard~~derivative ascontract, ofin ~~Jan.~~and 1of itself, ~~2016.~~does ~~Each~~not ~~aspect~~require ~~has~~the andedesignation of a hedging relationship provided that all other hedge accounting ~~impact~~criteria ~~and~~continue ~~was~~to ~~implemented~~be asmet. The ~~follows:~~company early adopted in the third quarter of 2016 as permitted.

·Compensation ~~Income tax consequences~~ – ~~Under~~Stock the new guidance, the company will no longer recognize excess tax benefits and certain tax deficiencies in additional paid in capital. Instead, the company will recognize all excess tax benefits and tax deficiencies as income tax expense or benefit on the income statement. In addition, the guidance eliminates the requirement that excess tax benefits be realized before the company can recognize them. Accordingly, the company recorded a $2.6 million cumulative adjustment to retained earnings as of Jan. 1, 2016 for excess tax benefits related to prior periods. In accordance with the new guidance, the company will no longer include excess tax benefits and tax deficiencies in the dilutive EPS calculation on a prospective basis.Compensation

·In ~~Accounting~~March ~~for~~2016, ~~forfeitures~~the –FASB ~~The~~issued ~~company’s~~ASU ~~policy~~2016-09, isCompensation – Stock Compensation to ~~estimate~~simplify several aspects of the ~~number~~accounting for share-based payment transactions, including the income tax consequences, accounting for forfeitures, classification of awards ~~expected~~as toeither beequity ~~forfeited~~or liabilities, ~~which~~and ispresentation ~~consistent~~on ~~with~~the ~~prior~~statement ~~periods~~of cash flows. The company early adopted as permitted in the first quarter of 2016. Each aspect has an accounting impact and was implemented as follows:

·• ~~Classification~~Income oftax ~~awards~~consequences -– The company ~~had~~will no ~~share-based~~longer ~~payments~~recognize ~~classified~~excess tax benefits and certain tax deficiencies in additional paid in capital. Instead, the company will recognize all excess tax benefits and tax deficiencies as ~~liability~~income ~~awards~~tax expense or benefit on the income statement. In addition, the guidance eliminates the requirement that excess tax benefits be realized before the company can recognize them. The company recorded a $2.6 million cumulative adjustment to retained earnings as of ~~June~~Jan. 301, 2016 orfor ~~Dec.~~excess ~~31,~~tax ~~2015~~benefits related to prior periods.

·• ~~Presentation~~Accounting onfor ~~the~~forfeitures ~~statement of cash flows~~ – ~~Excess~~The ~~tax~~company’s ~~benefits~~policy ~~are~~is ~~required~~ to beestimate ~~presented as an operating activity on~~ the ~~statement~~number of ~~cash~~awards ~~flows~~expected ~~rather~~to ~~than as a financing activity. The change may~~ be ~~applied~~forfeited, ~~retrospectively~~which oris ~~prospectively.~~consistent ~~The~~with ~~company elected to apply it prospectively, and~~ prior periods ~~were not retrospectively adjusted~~. Additionally, employee taxes paid by an employer to a tax authority when shares are withheld for tax-withholding purposes are required to be presented as a financing activity on a retrospective basis for all periods presented. Therefore, the company reclassified $1.3 million from operating activities to financing activities for the six months ended June 30, 2015.

•

Classification of awards - The company had no share-based payments classified as liability awards as of Sept. 30, 2016 or Dec. 31, 2015.

•

Presentation on the statement of cash flows – Excess tax benefits are required to be presented as an operating activity on the statement of cash flows rather than as a financing activity. The change may be applied retrospectively or prospectively. The company elected to apply it prospectively, and prior periods were not retrospectively adjusted. Additionally, employee taxes paid by an employer to a tax authority when shares are withheld for tax-withholding purposes are required to be presented as a financing activity on a retrospective basis for all periods presented. Therefore, the company reclassified $1.5 million from operating activities to financing activities for the nine months ended Sept. 30, 2015.

Future Accounting Pronouncements

The company considers the applicability and impact of all ASUs issued by FASB. The following updates have been issued by FASB but have not yet been adopted by TECO Energy. Any ASUs not included below were assessed and determined to be either not applicable to the company or are not expected to have a material impact on the consolidated financial statements.

Revenue from Contracts with Customers

In May 2014, the FASB issued ~~guidance~~ASU ~~regarding~~2014-09, ~~the~~Revenue ~~accounting for revenue~~ from ~~contracts~~Contracts with ~~customers.~~Customers, ~~The~~which ~~standard~~creates isa new principle-based ~~and provides a five-step model to determine when and how~~ revenue isrecognition ~~recognized~~framework. The core principle is that a company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled ~~in exchange for those goods or services~~to. InThe ~~addition, the~~ guidance will require additional disclosures regarding the nature, amount, timing and uncertainty of revenue arising from contracts with customers. This guidance will be effective ~~for the company~~ beginning in 2018, with early adoption permitted in 2017, and will allow for either full retrospective adoption or modified retrospective adoption. The company will adopt this guidance effective Jan. 1, 2018. The company has developed an implementation plan and is continuing to evaluate the available adoption methods. ~~and~~While the company does not expect the impact ofto be significant, it is continuing to evaluate the impact of adoption of this ~~guidance~~standard on its consolidated financial statements, ~~but~~and ~~does not expect the impact to be significant~~disclosures.

Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities

In January 2016, the FASB issued ASU ~~guidance~~2016-01, ~~related~~Financial toInstruments ~~accounting~~– ~~for~~Recognition ~~financial~~and ~~instruments,~~Measurement ~~including~~of ~~equity~~Financial ~~investments,~~Assets ~~financial~~and ~~liabilities~~Financial ~~under~~Liabilities. ~~the~~The ~~fair~~standard ~~value~~provides ~~option,~~guidance ~~valuation allowances~~ for ~~available-for-sale~~the ~~debt~~recognition, ~~securities~~measurement, ~~and the~~ presentation and disclosure ~~requirements~~of ~~for~~ financial ~~instruments.~~assets and liabilities. The company does not have equity investments or available-for-sale debt securities and it does not record financial liabilities under the fair value option. However, it is evaluating the impact of the adoption of this guidance on its financial statement disclosures,. This ~~including~~guidance ~~those~~will ~~regarding~~be ~~the~~effective ~~fair~~for ~~value~~annual ofreporting ~~its long-term debt~~periods, ~~but~~including itinterim ~~does~~reporting ~~not~~within ~~expect~~those ~~the~~periods, ~~impact~~beginning toafter ~~be significant~~Dec. ~~The~~15, ~~guidance will be effective for the company beginning in 2018~~2017.

~~Leases~~14

InLeases ~~February~~(Topic 2016, the FASB issued guidance regarding the accounting for leases. The objective is to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet for leases with a lease term of more than 12 months. Under the existing guidance, operating leases are not recorded as lease assets and lease liabilities on the balance sheet. Recognition of expenses for both operating and finance leases will be similar to existing guidance and as a result is expected to limit the impact of the changes on the income statement and statement of cash flows. In addition, the guidance will require additional disclosures regarding key information about leasing arrangements. This guidance will be effective for the company beginning in 2019, with early adoption permitted, and will be applied using a modified retrospective approach. The company is currently evaluating the impacts of the adoption of the guidance on its financial statements.842)

~~Derivative~~In ~~Contract~~February ~~Novations~~2016, the FASB issued ASU 2016-02, Leases. The standard increases transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet for leases with terms of more than 12 months. Under the existing guidance, operating leases are not recorded as lease assets and lease liabilities on the balance sheet. The effect of leases on the Consolidated Statements of Income and the Consolidated Statements of Cash Flows is largely unchanged. The guidance will require additional disclosures regarding key information about leasing arrangements. This guidance is effective for annual reporting periods including interim reporting within those periods, beginning after Dec. 15, 2018. Early adoption is permitted, and is required to be applied using a modified retrospective approach. The company is currently evaluating the impact of adoption of this standard on its consolidated financial statements.

modified retrospective basis. The guidance will not affect the company’s current financial statements. However, the company will assess the impact of this guidance on future derivative contract novations, if any.

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. The standard provides guidance regarding the measurement of credit losses for financial assets and certain other instruments that are not accounted for at fair value through net income, including trade and other receivables, debt securities, net investment in leases, and off-balance sheet credit exposures. The new guidance requires companies to replace the current incurred loss impairment methodology with a methodology that measures all expected credit losses for financial assets based on historical experience, current conditions, and reasonable and supportable forecasts. InThe ~~addition, the~~ guidance expands the disclosure requirements regarding credit losses, including the credit loss methodology and credit quality indicators. This guidance will be effective ~~for the company~~ beginning in 2020, with early adoption permitted in 2019, and will be applied using a modified retrospective approach. The company is currently evaluating the ~~impacts~~impact of ~~the~~ adoption of ~~the~~this ~~guidance~~standard on its consolidated financial statements.

Classification of Certain Cash Receipts and Cash Payments on the Statement of Cash Flows

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments on the Statement of Cash Flows. The standard provides guidance regarding the classification of certain cash receipts and cash payments on the statement of cash flows, where specific guidance is provided for issues not previously addressed. This guidance will be effective for the company beginning in 2018, with early adoption permitted, and is required to be applied on a retrospective approach. The company is currently evaluating the impact of adoption of this standard on its consolidated statement of cash flows.

3. Regulatory

Tampa Electric’s retail business and PGS are regulated separately by the FPSC. Tampa Electric is also subject to regulation by the FERC. 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 atbased on a ~~level~~cost ~~that~~of ~~allows~~service ~~utilities~~methodology ~~such~~which asallows ~~Tampa~~utilities ~~Electric and PGS~~ to collect total revenues (revenue requirement) equal to their cost of providing service, plus a reasonable return on invested capital.

NMGC is subject to regulation by the NMPRC. The NMPRC has jurisdiction over the regulatory matters related, directly and indirectly, to NMGC providing service to its customers, including, among other things, rates, accounting procedures, securities issuances, and standards of service. NMGC must follow certain accounting guidance that pertains specifically to entities that are subject to such regulation. Comparable to the FPSC, the NMPRC sets rates at a level that allows utilities ~~such as NMGC~~ to collect total revenues (revenue requirement) equal to their cost of providing service, plus a reasonable return on invested capital.

Regulatory Assets and Liabilities

Tampa Electric, PGS and NMGC 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; 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; and the advance recovery of expenditures for approved costs such as future storm damage or the future removal of property. All regulatory assets are recovered through the regulatory process.

1315

Details of the regulatory assets and liabilities are presented in the following table:

Regulatory Assets and Liabilities
(millions)	~~June~~Sept. 30, 2016		Dec. 31, 2015
Regulatory assets:
Regulatory tax asset (1)	$	8083.84	$	74.7
Cost-recovery clauses - deferred balances (2)		24.5		5.5
Cost-recovery clauses - offsets to derivative liabilities (2)		12.1		26.5
Environmental remediation (3)		54.68		54.0
Postretirement benefits (4)		~~236~~296.24		240.6
Deferred bond refinancing costs (5)		7.41		6.5
Debt basis adjustment (6)		1514.89		17.5
Competitive rate adjustment (2)		2.5		2.6
Other		1014.48		12.1
Total regulatory assets		~~411~~480.35		440.0
Less: Current portion		1821.48		44.8
Long-term regulatory assets	$	~~392~~458.97	$	395.2
Regulatory liabilities:
Regulatory tax liability	$	7.32	$	7.9
Cost-recovery clauses (2)		98111.05		55.9
Transmission and delivery storm reserve		56.1		56.1
Accumulated reserve - cost of removal (7)		~~678~~670.6		679.9
Other		13.9		0.8
Bill reduction credit (8)		8.0		0.3
Total regulatory liabilities		853.9		800.6
Other		13.6		0.5
Less: Current portion		130.1		84.8
Total regulatory liabilities		867.0		800.6
Long-term regulatory liabilities	$	723.8	$	715.8
Less: Current portion		148.2		84.8
Long-term regulatory liabilities	$	718.8	$	715.8

(1) The regulatory tax asset is primarily associated with the depreciation and recovery of AFUDC-equity. This asset does not earn a return but rather is included in the capital structure, which is used in the calculation of the weighted cost of capital used to determine revenue requirements. It will be recovered over the expected life of the related assets.

(2)

These assets and liabilities are related to FPSC and NMPRC clauses and riders. They are recovered or refunded through cost-recovery mechanisms approved by the FPSC or NMPRC, as applicable, on a dollar-for-dollar basis in the next year. In the case of the regulatory asset related to derivative liabilities, recovery occurs in the year following the settlement of the derivative position.

(3)

This asset is related to costs associated with environmental remediation primarily at manufactured gas plant sites. The balance is included in rate base, partially offsetting the related liability, and earns a rate of return as permitted by the FPSC. The timing of recovery is impacted by the timing of the expenditures related to remediation.

(4)	This asset is related to the deferred costs of postretirement benefits. It is included in rate base and earns a rate of return as permitted by the FPSC or NMPRC, as applicable. It is amortized over the remaining service life of plan participants.

(5) This asset represents the past costs associated with refinancing debt. It does not earn a return but rather is included in the capital structure, which is used in the calculation of the weighted cost of capital used to determine revenue requirements. It will be amortized over the term of the related debt instruments.

(6)	This asset represents the difference between the fair value and pre-merger carrying amounts for NMGC’s long-term debt on the acquisition date. It does not earn a return and is not included in the regulatory capital structure. It is amortized over the term of the related debt instrument.

(7)

This item represents the non-ARO cost of removal in the accumulated reserve for depreciation. AROs are costs for legally required removal of property, plant and equipment. Non-ARO cost of removal represent estimated funds received from customers through depreciation rates to cover future non-legally required cost of removal of property, plant and equipment, net of salvage value upon retirement, which reduces rate base for ratemaking purposes. This liability is reduced as costs of removal are incurred.

(8)	See Note 14 for information regarding NMGC’s stipulation agreement including a commitment to provide an annual bill reduction credit to customers. A minor portion of this balance is attributable to timing of bill reduction credits related to TECO Energy’s acquisition of NMGC in September 2014.

4. Income Taxes

The effective tax ~~rate~~rates ~~increased to 43.10%~~ for the ~~six~~three months ended ~~June~~Sept. 30, 2016 ~~from~~and 392015 were 19.0986% ~~for~~and ~~the~~39.12%, ~~same~~respectively. ~~period~~The ineffective ~~2015~~tax ~~primarily~~rate ~~due~~decreased to ~~non-deductible~~34.19% ~~Merger~~for ~~transaction costs offset by~~ the ~~tax~~nine ~~benefit~~months ~~related~~ended toSept. ~~long-term~~30, ~~incentive~~2016 ~~compensation~~from ~~(see~~39.10% ~~Notes~~for 2the ~~and~~same 16period ~~for~~in ~~further description)~~2015.

The ~~company’s~~decrease ~~subsidiaries join~~ in the ~~filing~~three-month ofeffective atax Urate of 19.S.26% ~~federal~~in ~~consolidated~~2016 ~~income~~versus ~~tax~~the ~~return.~~same ~~The~~period ~~IRS~~in ~~concluded~~2015 ~~its~~is ~~examination~~primarily ofdue to tax benefits recorded in the ~~company’s~~third ~~2014~~quarter ~~consolidated~~of ~~federal~~2016 ~~income~~for ~~tax~~federal ~~return~~R&D incredits, ~~December~~lower ~~2015.~~non-deductible ~~The~~Merger ~~U.S.~~transaction ~~federal~~costs ~~statute~~and ofother ~~limitations~~permanent book-to-tax differences.

The effective tax rate for year-to-date 2016 differed from the U.S. statutory rate of 35% primarily due to the effects of federal R&D credits and the tax benefit related to long-term incentive compensation offset by non-deductible Merger transaction costs (see Notes 2 and 14 for further description). The effective tax rate for year-to-date 2015 differed from the U.S. statutory rate primarily due to tax expense related to long-term incentive compensation shares that vested below target levels.

~~remains~~ ~~open~~Effective ~~for~~July ~~the~~1, ~~year~~2016 ~~2012~~ and ~~forward.~~due ~~Years 2015 and 2016 are currently under examination by the IRS under its Compliance Assurance Program (CAP). Due~~ to the Merger with Emera, ~~the~~TECO ~~company~~Energy isand ~~only~~its ~~eligible~~subsidiaries toare ~~participate~~included in ~~the~~a ~~CAP~~consolidated ~~through its short tax year ending June 30, 2016.~~ U.S. ~~state~~federal ~~jurisdictions have statutes of limitations generally ranging from three to four years from the filing of an~~ income tax return. ~~Additionally,~~with ~~any~~EUSHI ~~state net operating losses that were generated in prior years~~ and ~~are~~its ~~still being utilized are subject to examination by state jurisdictions~~subsidiaries. ~~The~~TECO ~~state~~Energy’s ~~impact~~income oftax ~~any~~expense ~~federal~~is ~~changes~~based ~~remains~~upon ~~subject~~a toseparate ~~examination~~return bymethod, ~~various~~modified ~~states~~ for athe ~~period~~benefits-for-loss ofallocation upin toaccordance ~~one~~with ~~year~~EUSHI’s ~~after~~tax ~~formal~~sharing ~~notification~~agreement. toTo the ~~states.~~extent ~~Years~~that ~~still~~TECO ~~open~~Energy’s tocash ~~examination~~tax bypositions ~~taxing~~are ~~authorities~~settled indifferently ~~major~~than ~~state~~the ~~jurisdictions~~amount ~~and~~reported ~~foreign~~as ~~jurisdictions~~realized ~~include~~under ~~2005 and forward. TECO Energy does not expect~~ the ~~settlement~~tax ofsharing ~~audit~~agreement, ~~examinations to significantly change~~ the ~~total~~difference ~~amount~~is ofaccounted ~~unrecognized~~for ~~tax~~as ~~benefits~~either bya ~~the~~capital ~~end~~contribution ofor ~~2016.~~a distribution.

The IRS concluded its examination of TECO Energy’s 2014 consolidated federal income tax return in December 2015. The U.S. federal statute of limitations remains open for the year 2013 and forward. Years 2015 and the short tax year ending June 30, 2016 are currently under examination by the IRS under its Compliance Assurance Program (CAP). Due to the Merger with Emera, the company is only eligible to participate in the CAP through its short tax year ending June 30, 2016. U.S. state jurisdictions have statutes of limitations generally ranging from three to four years from the filing of an income tax return. Additionally, any state net operating losses that were generated in prior years and are still being utilized are subject to examination by state jurisdictions. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. Years still open to examination by taxing authorities in major state jurisdictions and foreign jurisdictions include 2005 and forward.

Accounting for Uncertainty in Income Taxes

Authoritative guidance related to accounting for uncertainty in income taxes requires an enterprise to recognize in its financial statements the best estimate of the impact of a tax position by determining if the weight of the available evidence indicates that it is more likely than not, based solely on the technical merits, that the position will be sustained upon examination, including resolution of any related appeals and litigation processes. As of Sept. 30, 2016 and Dec. 31, 2015, TECO Energy’s uncertain tax positions were $7.7 million and zero, respectively, all of which was recorded as a reduction of deferred income tax assets for net operating losses and tax credit carryforwards. The increase was primarily due to an uncertain tax position related to federal R&D tax credits. TECO Energy believes that the total unrecognized tax benefits will decrease within the next twelve months due to the expected audit examination of TECO Energy’s federal income tax return for the short tax year ending June 30, 2016. As of Sept. 30, 2016, if recognized, $7.7 million of the unrecognized tax benefits would reduce TECO Energy’s effective tax rate.

5. Employee Postretirement Benefits

Included in the table below is the periodic expense for pension and other postretirement benefits offered by the company. Amounts disclosed for pension benefits include the amounts related to the qualified pension plan and the non-qualified, non-contributory SERP.

Pension Expense
(millions)	Pension Benefits						Other Postretirement Benefits
Three months ended June 30,	2016			2015			2016			2015
Three months ended Sept. 30,	2016			2015			2016			2015
Components of net periodic benefit expense
Service cost	$	4.69		$	6.47		$	0.45		$	0.56
Interest cost		87.32			86.75			2.20			2.10
Expected return on assets		(11.45	)		(129.51	)		(0.3	)		(0.23	)
Amortization of:
Prior service (benefit) cost		0.20			(0.01	)		(0.76	)		(0.6	)
Actuarial loss		34.58			43.82			0.01			0.0
Regulatory asset		0.0			0.0			0.3			0.23
Curtailment cost		10.30			0.0			0.0			0.0
Settlement cost		0.60			0.0			0.0			0.0
Net pension expense recognized in the TECO Energy Consolidated Condensed Statements of Income	$	75.14		$	7.42		$	12.90		$	2.0
Six months ended June 30,
Nine months ended Sept. 30,
Components of net periodic benefit expense
Service cost	$	913.09		$	1017.96		$	01.94		$	1.17
Interest cost		1623.46			1622.16			46.4			46.1
Expected return on assets		(2234.72	)		(2332.34	)		(0.69	)		(0.58	)
Amortization of:
Prior service (benefit) cost		0.2			(0.12	)		(1.39	)		(1.28	)
Actuarial loss		611.97			811.24			0.01			0.0
Regulatory asset		0.0			0.0			0.58			0.58
Curtailment cost		1.3			0.0			0.0			0.0
Settlement cost		0.6			0.0			0.0			0.0
Net pension expense recognized in the TECO Energy Consolidated Condensed Statements of Income	$	1117.71		$	1119.80		$	35.9		$	46.0

For the ~~2016~~Jan. ~~plan~~1, ~~year~~2016 measurement, TECO Energy isused ~~using~~ an assumed long-term EROA of 7.00% and a discount rate of 4.685% for pension benefits under its qualified pension plan. For the Jan. 1, 2016 measurement of TECO Energy’s other postretirement benefits, TECO Energy assumed a discount rate of 4.667% for the Florida-based plan and 4.687% for the NMGC plan. ~~Additionally, TECO Energy made contributions of $15.6 million and $24.5 million to its pension plan for the six months ended June 30, 2016 and 2015, respectively.~~

~~For~~As a result of the ~~three~~Merger, ~~and~~TECO ~~six~~Energy ~~months~~remeasured ~~ended~~its ~~June~~employee 30postretirement benefit plans on the Merger effective date, July 1, 2016. As part of the remeasurement, TECO Energy ~~and~~used ~~its~~an ~~subsidiaries~~above-mean ~~reclassified~~yield ~~$0.2~~curve ~~million~~to ~~and~~determine $1its discount rate.0 ~~million,~~The ~~respectively~~above-mean yield curve technique matches the yields from high-quality (AA-rated, ofnon-callable) ~~pretax~~corporate ~~unamortized~~bonds ~~prior~~to ~~service~~the ~~benefit~~company’s ~~and~~projected ~~actuarial~~cash ~~losses~~flows ~~from~~for ~~AOCI~~the plans to ~~net~~develop ~~income~~a aspresent ~~part~~value ofthat ~~periodic~~is ~~benefit~~converted ~~expense~~to a discount rate assumption, ~~compared~~which ~~with~~is ~~$1.4~~subject ~~million~~to ~~and~~change $2each year.2 ~~million~~TECO ~~for~~Energy ~~the~~previously ~~three~~used ~~and~~a ~~six~~bond ~~months~~model ~~ended~~matching ~~June~~technique ~~30,~~to ~~2015,~~determine ~~respectively~~its discount rate. InThe ~~addition,~~change ~~during~~in discount rate resulting from the ~~three~~different ~~and~~methodology ~~six~~used ~~months~~to ~~ended~~select ~~June,~~a ~~2016,~~discount ~~the~~rate ~~regulated~~did ~~companies~~not ~~reclassified~~have ~~$3.1~~a ~~million~~material impact on the company’s financial statements and ~~$5.3~~provides ~~million,~~consistency ~~respectively,~~with ofEmera’s ~~unamortized~~method ~~prior~~for ~~service~~selecting ~~benefit~~a ~~and~~discount ~~actuarial~~rate. ~~losses~~For ~~from~~the ~~regulatory~~July ~~assets~~1, to2016 ~~net~~measurement, ~~income~~TECO asEnergy ~~part~~used an assumed long-term EROA of ~~periodic~~7.00% ~~benefit~~and ~~expense,~~a ~~compared~~discount ~~with~~rate $of 3.072% ~~million~~for ~~and~~pension ~~$5.2~~benefits ~~million~~under ~~for~~its qualified pension plan. For the ~~three~~July ~~and~~1, ~~six~~2016 ~~months~~measurement ~~ended~~of ~~June~~TECO ~~30,~~Energy’s ~~2015~~other postretirement benefits, ~~respectively~~TECO Energy assumed a discount rate of 3.85%.

15As a result of the remeasurement, TECO Energy’s net periodic benefit expense increased by $0.6 million for pension benefits and zero for other postretirement benefits for the three- and nine-months ended Sept. 30, 2016. TECO Energy’s liability for pension benefits increased by $61.7 million and $17.6 million for other postretirement benefits. The associated regulatory asset increased $54.0 million for pension benefits and $14.1 million for other postretirement benefits. Accumulated other comprehensive income decreased $7.7 million for pension benefits and $3.5 million for other postretirement benefits.

~~The~~TECO ~~settlement~~Energy ~~cost~~made ~~recognized~~contributions ~~relates~~of to$37.4 ~~the~~million ~~settlement~~and of$55.0 ~~the~~million ~~SERP~~to ~~liability~~its qualified pension plan for the ~~TECO~~nine ~~Coal~~months ~~participant~~ended Sept. An30, ~~estimated~~2016 ~~curtailment~~and ~~loss~~2015, ~~for~~respectively. ~~the~~Additionally, ~~SERP~~NMGC made contributions of $12.37 million ~~was~~to ~~recognized~~its inother ~~the~~postretirement ~~second~~benefits ~~quarter~~plan offor ~~2016~~the asnine amonths ~~result~~ended ofSept. ~~retirements~~30, ~~expected in the third quarter of~~ 2016 ~~due~~and ~~to the Merger~~2015.

The company’s postretirement benefit plans were not explicitly impacted by the Merger. However, TECO Energy expects to recognize a settlement charge related to the SERP of approximately $8.0 million in the first quarter of 2017 due to retirements that will take place as a result of the Merger. 18

For the three and nine months ended Sept. 30, 2016, TECO Energy and its subsidiaries reclassified $0.8 million and $1.8 million, respectively, of pretax unamortized prior service benefit and actuarial losses from AOCI to net income as part of periodic benefit expense, compared with $0.2 million and $2.4 million for the three and nine months ended Sept. 30, 2015, respectively. In addition, during the three and nine months ended Sept. 30, 2016, the regulated companies reclassified $3.8 million and $9.1 million, respectively, of unamortized prior service benefit and actuarial losses from regulatory assets to net income as part of periodic benefit expense, compared with $2.6 million and $7.8 million for the three and nine months ended Sept. 30, 2015, respectively.

The settlement cost recognized relates to the settlement of the SERP liability for the TECO Coal participants. An estimated curtailment loss for the SERP of $1.3 million was recognized in the second quarter of 2016 as a result of retirements expected in the third quarter of 2016 as a result of the Merger, which expected retirements occurred in the third quarter of 2016.

6. Short-Term Debt

Details of the credit facilities and related borrowings are presented in the following table:

Credit Facilities
	June 30, 2016						Dec. 31, 2015
	Sept. 30, 2016						Dec. 31, 2015
					Letters						Letters
	Credit		Borrowings		of Credit		Credit		Borrowings		of Credit
(millions)	Facilities		Outstanding (1)		Outstanding		Facilities		Outstanding (1)		Outstanding
Tampa Electric Company:
5-year facility (2)	$	325.0	$	0.0	$	0.5	$	325.0	$	0.0	$	0.5
3-year accounts receivable facility (3)		150.0		~~123~~49.0		0.0		150.0		61.0		0.0
TECO Energy/TECO Finance:
5-year facility (2)(4)		300.0		90150.0		0.0		300.0		163.0		0.0
1-year term facility (4)(5)		400.0		400.0		0.0		0.0		0.0		0.0
New Mexico Gas Company:
5-year facility (2)		125.0		211.05		1.74		125.0		23.0		1.7
Total	$	1,300.0	$	~~615~~610.05	$	21.29	$	900.0	$	247.0	$	2.2
(1) Borrowings outstanding are reported as notes payable.
(2) This 5-year facility matures Dec. 17, 2018.
(3) Prior to Mar. 24, 2015, this was a 1-year facility. This 3-year facility matures Mar. 23, 2018.
(3) This 3-year facility matures Mar. 23, 2018.
(4) TECO Finance is the borrower and TECO Energy is the guarantor of this facility.
(5) This 1-year facility matures Mar. 14, 2017.

At ~~June~~Sept. 30, 2016, these credit facilities required commitment fees ranging from 12.5 to 30.0 basis points. The weighted-average interest rate on outstanding amounts payable under the credit facilities at ~~June~~Sept. 30, 2016 and Dec. 31, 2015 was 1.3371% and 1.29%, respectively.

TECO Energy/TECO Finance Credit Facility

On Mar. 14, 2016, TECO Finance entered into a one-year, $400 million credit agreement. The credit agreement (i) has a maturity date of Mar. 14, 2017; (ii) contains customary representations and warranties, events of default, and financial and other covenants; and (iii) provides for interest to accrue at variable rates based on the London interbank deposit rate plus a margin, or, as an alternative to such interest rate, at an interest rate equal to a margin plus the higher of JPMorgan Chase Bank’s prime rate, the federal funds rate plus 50 basis points, or the one-month London interbank deposit rate plus 1.00%.

7. Long-Term Debt

Fair Value of Long-Term Debt

At ~~June~~Sept. 30, 2016, total long-term debt had a carrying amount of $3,490.03 million and an estimated fair market value of $3,~~845~~911.82 million. At Dec. 31, 2015, total long-term debt had a carrying amount of $3,822.5 million and an estimated fair market value of $4,061.6 million. The company uses the market approach in determining fair value. The majority of the outstanding debt is valued using real-time financial market data obtained from Bloomberg Professional Service. The remaining securities are valued using prices obtained from the Municipal Securities Rulemaking Board and by applying estimated credit spreads obtained from a third party to the par value of the security. The fair value of debt securities totaling $58.8 million is determined using Level 1 measurements; the fair value of the remaining debt securities is determined using Level 2 measurements (see Note 13 for information regarding the fair value hierarchy).

1619

obtained from the Municipal Securities Rulemaking Board or by applying estimated credit spreads obtained from a third party to the par value of the security. The fair value of debt securities totaling $58.3 million is determined using Level 1 measurements; the fair value of the remaining debt securities is determined using Level 2 measurements (see Note 11 for information regarding the fair value hierarchy).

Purchase in Lieu of Redemption of Revenue Refunding Bonds

On Mar. 19, 2008, the HCIDA remarketed $86.0 million HCIDA Pollution Control Revenue Refunding Bonds, Series 2006 (Non-AMT) (the Series 2006 HCIDA Bonds) in a term rate mode pursuant to the terms of the Loan and Trust Agreement governing those bonds. The Series 2006 HCIDA Bonds bore interest at a term rate of 5.00% per annum from Mar. 19, 2008 to Mar. 15, 2012. On Mar. 15, 2012, TEC purchased in lieu of redemption the Series 2006 HCIDA Bonds. The Series 2006 HCIDA Bonds bore interest at a term rate of 1.875% per annum from Mar. 15, 2012 to Mar. 15, 2016. On Mar. 15, 2016, pursuant to the terms of the Loan and Trust Agreement governing the Series 2006 HCIDA Bonds, a mandatory tender occurred and a term rate of 2.00% per annum will apply from Mar. 15, 2016 to Mar. 15, 2020. The 2016 mandatory tender did not impact the Consolidated Condensed Balance Sheet. TEC is responsible for payment of the interest and principal associated with the Series 2006 HCIDA Bonds. Regularly scheduled principal and interest when due, are insured by Ambac Assurance Corporation.

As of ~~June~~Sept. 30, 2016, $232.6 million of bonds purchased in lieu of redemption, including the Series 2006 HCIDA Bonds described above, were held by the trustee at the direction of TEC to provide an opportunity to evaluate refinancing alternatives.

8. ~~Other~~Commitments ~~Comprehensive~~and ~~Income~~Contingencies

TECO Energy reported the following OCI related to changes in the fair value of cash flow hedges, recognized cost due to curtailment and amortization of unrecognized benefit costs associated with the company’s postretirement plans:

Other Comprehensive Income
	Three months ended June 30,									Six months ended June 30,
(millions)	Gross			Tax			Net			Gross		Tax			Net
2016
Unrealized gain on cash flow hedges	$	0.0		$	0.0		$	0.0		$	0.0	$	0.0		$	0.0
Reclassification from AOCI to net income (1)		0.3			(0.1	)		0.2			0.7		(0.3	)		0.4
Gain on cash flow hedges		0.3			(0.1	)		0.2			0.7		(0.3	)		0.4
Amortization of unrecognized benefit costs and other (2)		(0.3	)		0.1			(0.2	)		0.5		(0.2	)		0.3
Recognized cost due to curtailment (3)		0.1			0.0			0.1			0.1		0.0			0.1
Total other comprehensive income	$	0.1		$	0.0		$	0.1		$	1.3	$	(0.5	)	$	0.8
2015
Unrealized gain on cash flow hedges	$	4.0		$	(1.4	)	$	2.6		$	4.3	$	(1.5	)	$	2.8
Reclassification from AOCI to net income (1)		0.3			(0.1	)		0.2			0.7		(0.4	)		0.3
Gain on cash flow hedges		4.3			(1.5	)		2.8			5.0		(1.9	)		3.1
Amortization of unrecognized benefit costs (2)		1.6			(0.6	)		1.0			2.5		(0.9	)		1.6
Total other comprehensive income	$	5.9		$	(2.1	)	$	3.8		$	7.5	$	(2.8	)	$	4.7
(1) Related to interest rate contracts recognized in Interest expense.
(2) Related to postretirement benefits. See Note 5 for additional information.
(3) Related to the estimated curtailment loss for the SERP. See Note 5 for additional information.

Accumulated Other Comprehensive Loss
(millions)	June 30, 2016			Dec. 31, 2015
Unamortized pension loss and prior service credit (1)	$	(33.6	)	$	(34.2	)
Unamortized other benefit gains, prior service costs and transition obligations (2)		25.4			25.6
Net unrealized losses from cash flow hedges (3)		(3.2	)		(3.6	)
Total accumulated other comprehensive loss	$	(11.4	)	$	(12.2	)
(1) Net of tax benefit of $20.9 million and $21.5 million as of June 30, 2016 and Dec. 31, 2015, respectively.
(2) Net of tax expense of $15.8 million and $16.1 million as of June 30, 2016 and Dec. 31, 2015, respectively.
(3) Net of tax benefit of $2.0 million and $2.3 million as of June 30, 2016 and Dec. 31, 2015, respectively.

9. Earnings Per Share

	For the three months ended June 30,						For the six months ended June 30,
(millions, except per share amounts)	2016			2015			2016			2015
Basic earnings per share
Net income from continuing operations	$	5.5		$	61.5		$	79.2		$	125.3
Amount allocated to nonvested participating shareholders		(0.1	)		(0.2	)		(0.2	)		(0.4	)
Income before discontinued operations available to common shareholders - Basic	$	5.4		$	61.3		$	79.0		$	124.9
Income (loss) from discontinued operations, net	$	(0.2	)	$	(49.7	)	$	(0.1	)	$	(55.5	)
Amount allocated to nonvested participating shareholders		0.0			0.0			0.0			0.0
Income (loss) from discontinued operations available to common shareholders - Basic	$	(0.2	)	$	(49.7	)	$	(0.1	)	$	(55.5	)
Net income	$	5.3		$	11.8		$	79.1		$	69.8
Amount allocated to nonvested participating shareholders		(0.1	)		(0.2	)		(0.2	)		(0.4	)
Net income available to common shareholders - Basic	$	5.2		$	11.6		$	78.9		$	69.4
Average common shares outstanding - Basic		234.3			233.0			234.1			232.9
Earnings per share from continuing operations available to common shareholders - Basic	$	0.03		$	0.26		$	0.34		$	0.53
Earnings per share from discontinued operations available to common shareholders - Basic	$	0.0		$	(0.21	)	$	0.0		$	(0.23	)
Earnings per share available to common shareholders - Basic	$	0.03		$	0.05		$	0.34		$	0.30
Diluted earnings per share
Net income from continuing operations	$	5.5		$	61.5		$	79.2		$	125.3
Amount allocated to nonvested participating shareholders		(0.1	)		(0.2	)		(0.2	)		(0.4	)
Income before discontinued operations available to common shareholders - Diluted	$	5.4		$	61.3		$	79.0		$	124.9
Income (loss) from discontinued operations, net	$	(0.2	)	$	(49.7	)	$	(0.1	)	$	(55.5	)
Amount allocated to nonvested participating shareholders		0.0			0.0			0.0			0.0
Income (loss) from discontinued operations available to common shareholders - Diluted	$	(0.2	)	$	(49.7	)	$	(0.1	)	$	(55.5	)
Net income	$	5.3		$	11.8		$	79.1		$	69.8
Amount allocated to nonvested participating shareholders		(0.1	)		(0.2	)		(0.2	)		(0.4	)
Net income available to common shareholders - Diluted	$	5.2		$	11.6		$	78.9		$	69.4
Unadjusted average common shares outstanding - Diluted		234.3			233.0			234.1			232.9
Assumed conversion of stock options, unvested restricted stock, unvested RSUs and contingent performance shares, net		1.2			0.6			1.3			0.6
Average common shares outstanding - Diluted		235.5			233.6			235.4			233.5
Earnings per share from continuing operations available to common shareholders - Diluted	$	0.03		$	0.26		$	0.34		$	0.53
Earnings per share from discontinued operations available to common shareholders - Diluted	$	0.0		$	(0.21	)	$	0.0		$	(0.23	)
Earnings per share available to common shareholders - Diluted	$	0.03		$	0.05		$	0.34		$	0.30
Anti-dilutive shares		0.0			0.4			0.3			0.3

10. Commitments and Contingencies

Legal Contingencies

From time to time, TECO Energy and its subsidiaries are involved in various legal, tax and regulatory proceedings before various courts, regulatory commissions and governmental agencies in the ordinary course of its business. Where appropriate, accruals are made in accordance with accounting standards for contingencies to provide for matters that are probable of resulting in an estimable loss. The company believes the claims in which the company or a subsidiary of the company is a defendant in the pending actions described below are without merit and intends to defend the matters vigorously.

Peoples Gas Legal Proceedings

In November 2010, heavy equipment operated at a road construction site being conducted by Posen Construction, Inc. struck a natural gas line causing a rupture and ignition of the gas and an outage in the natural gas service to Lee and Collier counties, Florida. PGS filed suit in April 2011 against Posen Construction, Inc. in Federal Court for the Middle District of Florida to recover damages for repair and restoration relating to the incident and Posen Construction, Inc. counter-claimed against PGS alleging negligence. In the first quarter of 2014, the parties entered into a settlement agreement that resolves the claims of the parties. In addition, a suit was filed in November 2011 by the Posen Construction, Inc. employee operating the heavy equipment involved in the incident in Lee County Circuit Court against PGS and a PGS contractor involved in the project, seeking damages for his injuries. The suit against PGS remains pending, with a trial currently expected in ~~October~~February ~~2016~~2017. The company is unable at this time to estimate the possible loss or range of loss with respect to this matter. While the outcome of such proceeding is uncertain, management does not believe that its ultimate resolution will have a material adverse effect on the company’s results of operations, financial condition or cash flows.

New Mexico Gas Company Legal Proceedings

In February 2011, NMGC experienced gas shortages due to weather-related interruptions of electric service, weather-related problems on the systems of various interstate pipelines and in gas fields that are the sources of gas supplied to NMGC, and high weather-driven usage. This gas supply disruption and high usage resulted in the declaration of system emergencies by NMGC causing involuntary curtailments of gas utility service to approximately 28,700 customers (residential and business).

In March 2011, a customer purporting to represent a class consisting of all “32,000 [sic] customers” who had their gas utility service curtailed during the early-February system emergencies filed a putative class action lawsuit against NMGC. In March 2011, the Town of Bernalillo, New Mexico, purporting to represent a class consisting of all “New Mexico municipalities and governmental entities who have suffered damages as a result of the natural gas utility shut off” also filed a putative class action lawsuit against NMGC, four of its officers, and John and Jane Does at NMGC. In July 2011, the plaintiff in the Bernalillo class action filed an amended complaint to add an additional plaintiff purporting to represent a class of all “similarly situated New Mexico private businesses and enterprises.”

In September 2015, a settlement was reached with all the named plaintiff class representatives in both of the class actions. The settlements were on an individual basis and not a class basis.

In addition to the two settled class actions described above, 18 insurance carriers have filed two subrogation lawsuits for monies paid to their insureds as a result of the curtailment of natural gas service in February 2011. In January 2016, the judge entered summary judgment in favor of NMGC and all of the subrogation lawsuits were dismissed. The insurance carriers subsequently filed a timely appeal of the summary judgment. In late May 2016, a settlement was reached with all the named plaintiffs in the subrogation lawsuits.

~~The settlements are not material to the company’s financial position as of June 30, 2016.~~20

paid to their insureds as a result of the curtailment of natural gas service in February 2011. In January 2016, the judge entered summary judgment in favor of NMGC and all of the subrogation lawsuits were dismissed. The insurance carriers subsequently filed a timely appeal of the summary judgment. In late May 2016, a settlement was reached with all the named plaintiffs in the subrogation lawsuits. A motion to dismiss the appeal was granted by the court on Aug. 2, 2016.

The settlements were not material to the company.

Proceedings in connection with the Merger with Emera

Twelve securities class action lawsuits were filed against the company and its directors by holders of TECO Energy securities following the announcement of the Emera transaction. Eleven suits were filed in the Circuit Court for the 13th Judicial Circuit, in and for Hillsborough County, Florida. They alleged that TECO Energy’s board of directors breached its fiduciary duties in agreeing to the Merger Agreement and sought to enjoin the Merger. InSeveral ~~addition, several~~ of these suits alleged that one or more of TECO Energy, Emera and an Emera affiliate aided and abetted such alleged breaches. The securities class action lawsuits ~~have~~were ~~been~~ consolidated per court order. Since the consolidation, two of the complaints ~~have~~were ~~been~~ amended. One of those complaints has added a claim against the individual defendants for breach of fiduciary duty to disclose. The twelfth suit was filed in the Middle District of Florida Federal Court and has subsequently been voluntarily dismissed.

The company also received two separate shareholder demand letters from purported shareholders of the company. Both of these letters demanded that the company maximize shareholder value and remove alleged conflicts of interest as well as eliminate allegedly preclusive deal protection devices. One of the letters also demanded that the company refrain from consummating the transaction with Emera. Both of these demand letters have subsequently been withdrawn.

19In November 2015, the parties to the lawsuits entered into a Memorandum of Understanding with the various shareholder plaintiffs to settle, subject to court approval, all of the pending shareholder lawsuits challenging the proposed Merger. As a result of the Memorandum of Understanding, the company made additional disclosures related to the proposed Merger in a proxy supplement.

In ~~November~~September ~~2015~~2016, ~~the parties to the lawsuits entered into~~ a ~~Memorandum~~hearing ofwas ~~Understanding~~held ~~with the various shareholder plaintiffs~~ to ~~settle,~~gain ~~subject~~preliminary ~~to court~~ approval, ~~all~~ of ~~the pending shareholder lawsuits challenging the proposed Merger. As~~ a ~~result~~negotiated ofstipulation ~~the Memorandum~~ of ~~Understanding, the company made additional disclosures related to the proposed Merger in a proxy supplement~~settlement. ~~Subsequent~~ toAfter ~~the~~that ~~Merger closing the parties are expected to enter into a formal settlement agreement in August~~hearing, ~~which will be filed with~~ the ~~Hillsborough~~judge ~~Circuit~~entered ~~Court~~an ~~Judge~~order ~~for~~granting preliminary approval. ~~There can be no assurance that the parties will ultimately enter into a stipulation~~ of ~~settlement or that~~ the ~~court~~class ~~will~~action ~~approve the~~ settlement ~~even~~and ifscheduling ~~the parties were to enter into~~ a ~~stipulation~~final ofapproval ~~settlement.~~hearing ~~While~~for ~~the~~December outcome of such proceeding is uncertain, management does not believe that its ultimate resolution will have a material adverse effect on the company’s results of operations, financial condition or cash flows2016.

There can be no assurance that the court will grant final approval of the settlement. However, while the outcome of such proceeding remains uncertain, management does not believe that its ultimate resolution will have a material adverse effect on the company’s results of operations, financial condition or cash flows.

Claim in connection with the Sale of TECO Coal

As discussed in Note 15, TECO Coal was sold on Sept. 21, 2015 to Cambrian. On Mar. 18, 2016, Cambrian delivered a notice of a purported claim to TECO Diversified asserting breach of certain representations, and fraud and willful misconduct in connection therewith, of the SPA. While the outcome of such matter is uncertain, management does not believe that its ultimate resolution will have a material adverse effect on the company’s results of operations, financial condition or cash flows.

TECO Guatemala Holdings, LLC v. The Republic of Guatemala

On Dec. 19, 2013, the ICSID Tribunal hearing the arbitration claim of TGH, a wholly owned subsidiary of TECO Energy, against the Republic of Guatemala (Guatemala) under the DR – CAFTA, issued an award in the case (the Award). The ICSID Tribunal unanimously found in favor of TGH and awarded damages to TGH of approximately U.S. $21.1 million, plus interest from Oct. 21, 2010 at a rate equal to the U.S. prime rate plus 2%. In addition, the ICSID Tribunal ruled that Guatemala must reimburse TGH for approximately U.S. $7.5 million of the costs that it incurred in pursuing the arbitration.

On Apr. 18, 2014, Guatemala filed an application for annulment of the entire Award (or, alternatively, certain parts of the Award) pursuant to applicable ICSID rules.

Also on Apr. 18, 2014, TGH separately filed an application for partial annulment of the Award on the basis of certain deficiencies in the ICSID Tribunal’s determination of the amount of TGH’s damages.

On Apr. 5, 2016, an ICSID ad hoc Committee issued a decision in favor of TGH in the annulment proceedings. In its decision, the ad hoc Committee unanimously dismissed Guatemala’s application for annulment of the award and upheld the original $21.1 million award, plus interest. In addition, the ad hoc Committee granted TGH’s application for partial annulment of the award, and ordered Guatemala to pay certain costs relating to the annulment proceedings. Because the Tribunal’s award of costs to TGH in its original arbitration was based on the Tribunal’s assessment that TGH had prevailed on liability and Guatemala had partially prevailed on damages, and the latter finding was annulled by the ad hoc Committee, the Committee also annulled the Tribunal’s award of costs to TGH. As a result, TGH ~~has~~had the right to resubmit its arbitration claim against Guatemala to seek additional damages (in addition to the previously awarded $21.1 million), as well as additional interest on the $21.1 million, and its full costs relating to the original arbitration and the new arbitration proceeding. Results to date do not reflect any benefit of this decision.

PGS Compliance Matter In 2015, FPSC staff presented PGS with a summary of alleged safety rule violations, many of which were identified during PGS’ implementation of an action plan it instituted as a result of audit findings cited by FPSC audit staff in 2013. Following the 2013 audit and 2015 discussions with FPSC staff, PGS took immediate and significant corrective actions. The FPSC audit staff published a follow-up audit report that acknowledged the progress that had been made and found that further improvements were needed. As a result of this report, the Office of Public Counsel (OPC) filed a petition with the FPSC pointing to the violations of rules for safety inspections seeking fines or possible refunds to customers by PGS. On Feb. 25, 2016, the FPSC staff issued a notice informing PGS that the staff would be making a recommendation to the FPSC to initiate a show cause proceeding against PGS for alleged safety rule violations, with total potential penalties of up to $3.9 million. On Apr. 18, 2016, PGS reached a settlement regarding this matter with the OPC and FPSC staff and agreed to pay a $1 million civil penalty and customer refunds of $2 million. The FPSC approved the settlement agreement on May 5, 2016.21

On Sept. 23, 2016, TGH filed a request for resubmission to arbitration. On Oct. 3, 2016, ICSID issued a notice of registration for TGH’s request for resubmission, officially commencing the new arbitration and starting the time periods for constitution of the new tribunal.

Superfund and Former Manufactured Gas Plant Sites

TEC, through its Tampa Electric and Peoples Gas divisions, is a PRP for certain superfund sites and, through its Peoples Gas division, for certain former manufactured gas plant sites. While the joint and several liability associated with these sites presents the potential for significant response costs, as of ~~June~~Sept. 30, 2016, TEC has estimated its ultimate financial liability to be $33.9 million, primarily at PGS. This amount has been accrued and is primarily reflected in the long-term liability section under “Deferred credits and other liabilities” on the Consolidated Condensed Balance Sheets. The environmental remediation costs associated with these sites, which are expected to be paid over many years, are not expected to have a significant impact on customer rates.

The estimated amounts represent only the portion of the cleanup costs attributable to TEC. The estimates to perform the work are based on TEC’s experience with similar work, adjusted for site-specific conditions and agreements with the respective governmental agencies. The estimates are made in current dollars, are not discounted and do not assume any insurance recoveries.

are based on TEC’s experience with similar work, adjusted for site-specific conditions and agreements with the respective governmental agencies. The estimates are made in current dollars, are not discounted and do not assume any insurance recoveries.

In instances where other PRPs are involved, most of those PRPs are creditworthy and are likely to continue to be creditworthy for the duration of the remediation work. However, in those instances that they are not, TEC could be liable for more than TEC’s actual percentage of the remediation costs.

Factors that could impact these estimates include the ability of other PRPs to pay their pro-rata portion of the cleanup costs, additional testing and investigation which could expand the scope of the cleanup activities, additional liability that might arise from the cleanup activities themselves or changes in laws or regulations that could require additional remediation. Under current regulations, these costs are recoverable through customer rates established in subsequent base rate proceedings.

Merger Commitments

In connection with the Merger with Emera, TECO Energy made certain commitments approved by the NMPRC. See Note 1614 for additional information.

Guarantees ~~and Letters of Credit~~

A summary of the face amount or maximum theoretical obligation and the year of expiration under ~~letters of credit and~~ guarantees as of ~~June~~Sept. 30, 2016 is as follows:

(millions)									~~Maximum~~									Maximum
							~~After (1)~~		~~Theoretical~~				~~Liabilities Recognized~~			After (1)			Theoretical			Liabilities Recognized
Guarantees for the Benefit of:	2016		~~2017-2020~~		2017		~~2020~~		~~Obligation~~	2018-2020			~~at June 30, 2016~~		2020			Obligation			at Sept. 30, 2016
TECO Energy
Fuel sales and transportation (2)	$	0.0	$	~~0.0~~		$	$0.0	~~93.9~~	$	~~93.9~~	$	0.0	$	~~0.0~~		$	93.9		$	93.9		$	0.0
Letters of indemnity - coal mining permits (3)		850.90		~~0.0~~			84.5	~~0.0~~		~~85.9~~		0.0		~~0.0~~			0.0			84.5			0.0
	$	850.90	$	~~0.0~~		$	$84.5	~~93.9~~	$	~~179.8~~	$	0.0	$	~~0.0~~		$	93.9		$	178.4		$	0.0
									Maximum
(1) These guarantees renew annually and are shown on the basis that they will continue to renew beyond 2020.
(millions)							After (1)		Theoretical				Liabilities Recognized
(2) The amounts shown represent the maximum theoretical amounts of cash collateral that TECO Energy would be required to post in the event of a downgrade below investment grade of its long-term debt ratings by the major credit rating agencies. Liabilities recognized represent the associated potential obligation related to net derivative liabilities under these agreements at Sept. 30, 2016. See Note 10 for additional information.
Letters of Credit for the Benefit of:	2016		2017-2020				2020		Obligation				at June 30, 2016 (4)
(3) These letters of indemnity guarantee payments to certain surety companies that issued reclamation bonds to the Commonwealths of Kentucky and Virginia in connection with TECO Coal's mining operations. Payments to the surety companies would be triggered if the reclamation bonds are called upon by either of these states and the permit holder, TECO Coal, does not pay the surety. The amounts shown represent the maximum theoretical amounts that TECO Energy would be required to pay to the surety companies. As discussed in Note 15, TECO Coal was sold on Sept. 21, 2015 to Cambrian. Pursuant to the SPA, Cambrian is obligated to file applications required in connection with the change of control with the appropriate governmental entities. Once the applicable governmental agency deems each application to be acceptable, Cambrian is obligated to post a bond or other appropriate collateral necessary to obtain the release of the corresponding bond secured by the TECO Energy indemnity for that permit. Until the bonds secured by TECO Energy's indemnity are released, TECO Energy's indemnity will remain effective. At the date of sale in September 2015, the letters of indemnity guaranteed $93.8 million. The company is working with Cambrian on the process to replace the bonds. Pursuant to the SPA, Cambrian has the obligation to indemnify and hold TECO Energy harmless from any losses incurred that arise out of the coal mining permits during the period commencing on the closing date through the date all permit approvals are obtained.
TEC	$	0.0	$	0.0			$	0.5	$	0.5			$	0.1
NMGC		0.0		0.0				1.7		1.7				0.8
	$	0.0	$	0.0			$	2.2	$	2.2			$	0.9
(1) These letters of credit and guarantees renew annually and are shown on the basis that they will continue to renew beyond 2020.
(2) The amounts shown represent the maximum theoretical amounts of cash collateral that TECO Energy would be required to post in the event of a downgrade below investment grade for its long-term debt ratings by the major credit rating agencies. Liabilities recognized represent the associated potential obligation related to net derivative liabilities under these agreements at June 30, 2016. See Note 12 for additional information.
(3) These letters of indemnity guarantee payments to certain surety companies that issued reclamation bonds to the Commonwealths of Kentucky and Virginia in connection with TECO Coal's mining operations. Payments to the surety companies would be triggered if the reclamation bonds are called upon by either of these states and the permit holder, TECO Coal, does not pay the surety. The amounts shown represent the maximum theoretical amounts that TECO Energy would be required to pay to the surety companies. As discussed in Note 15, TECO Coal was sold on Sept. 21, 2015 to Cambrian. Pursuant to the SPA, Cambrian is obligated to file applications required in connection with the change of control with the appropriate governmental entities. Once the applicable governmental agency deems each application to be acceptable, Cambrian is obligated to post a bond or other appropriate collateral necessary to obtain the release of the corresponding bond secured by the TECO Energy indemnity for that permit. Until the bonds secured by TECO Energy's indemnity are released, TECO Energy's indemnity will remain effective. At the date of sale in September 2015, the letters of indemnity guaranteed $93.8 million. The company is working with Cambrian on the process to replace the bonds. Pursuant to the SPA, Cambrian has the obligation to indemnify and hold TECO Energy harmless from any losses incurred, subject to the indemnification terms set forth in the SPA, that arise out of the coal mining permits during the period commencing on the closing date through the date all permit approvals are obtained.

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(4) The amounts shown are the maximum theoretical amounts guaranteed under current agreements. Liabilities recognized represent the associated obligation of TECO Energy, TEC or NMGC under these agreements at June 30, 2016. The obligations under these letters of credit include certain accrued injuries and damages when a letter of credit covers the failure to pay these claims.

Financial Covenants

~~In order to utilize their respective bank facilities,~~ TECO Energy and its subsidiaries must meet certain financial tests, including a debt to capital ratio, as defined in the applicable banking agreements. ~~In addition,~~ TECO Energy and its subsidiaries have certain restrictive covenants in specific agreements and debt instruments. At ~~June~~Sept. 30, 2016, TECO Energy and its subsidiaries were in compliance with all applicable financial covenants.

119. Segment Information

TECO Energy is an electric and gas utility holding company with diversified activities. Segments are determined based on how management evaluates, measures and makes decisions with respect to the operations of the entity. The management of TECO Energy reports segments based on each subsidiary’s contribution of revenues, net income and total assets as required by the accounting guidance for disclosures about segments of an enterprise and related information. Intercompany transactions are eliminated in the Consolidated Condensed Financial Statements of TECO Energy, but are included in determining reportable segments.

Segment Information (1)
(millions)	Tampa		Peoples		New Mexico				TECO										TECO
Three months ended June 30,	Electric		Gas		Gas Co. (2)				Coal (1)			Other (2)				Eliminations			Energy
Three months ended Sept. 30,	Electric		Gas		Gas Co. (2)				Coal (1)			Other (2)				Eliminations			Energy
2016
Revenues - external	$	~~498~~585.1	$	99103.93	$	5135.7			$	0.0		$	2.6			$	0.0		$	~~652~~726.37
Sales to affiliates		10.18		2.0.4		0.0				0.0			0.01				(3.1.3	)		0.0
Total revenues		~~499~~585.29		~~101~~103.97		5135.7				0.0			2.67				(3.1.3	)		~~652~~726.37
Depreciation and amortization		66.5		14.9		8.5				0.0			0.3				0.0			90.2
Total interest charges		22.4		3.7		2.8				0.0			15.2				(0.2	)		43.9
Total interest charges		22.6		3.7		3.3				0.0			14.5				(0.3	)		43.8
Net income (loss) from continuing operations		94.1		6.5		(19.8	)	(5)		0.0			(11.4	)	(5)		0.0			69.4
Internally allocated interest		0.0		0.0		0.0				0.0			0.3				(0.3	)		0.0
Income (loss) from discontinued operations, net (1)		0.0		0.0		0.0				0.0			0.0				0.0			0.0
Provision (benefit) for income taxes		36.9		4.6		(0.1	)			0.0			(17.1	)			0.0			24.3
Net income (loss)	$	94.1	$	6.5	$	(19.8	)		$	0.0		$	(11.4	)		$	0.0		$	69.4
Net income (loss) from continuing operations		68.6		7.1		(0.2	)			0.0			(70.0	)	(5)		0.0			5.5
Income (loss) from discontinued operations, net (1)		0.0		0.0		0.0				0.0			(0.2	)			0.0			(0.2	)
Net income (loss)	$	68.6	$	7.1	$	(0.2	)		$	0.0		$	(70.2	)		$	0.0			5.3
2015
Revenues - external	$	~~531~~559.64	$	9288.21	$	5443.07			$	0.0		$	2.86			$	0.0		$	~~680~~693.68
Sales to affiliates		0.8		12.30		0.0				0.0			0.10				(2.28	)		0.0
Total revenues		~~532~~560.42		9390.51		5443.07				0.0			2.96				(2.28	)		~~680~~693.68
Depreciation and amortization		64.0		14.0		8.4				0.0			0.6				0.0			87.0
Total interest charges		24.1		3.7		3.2				0.0			15.4				(0.3	)		46.1
Total interest charges		23.6		3.6		3.3				0.0			16.3				(0.4	)		46.4
Net income (loss) from continuing operations		82.1		6.2		(2.8	)			0.0			(20.6	)			0.0			64.9
Internally allocated interest		0.0		0.0		0.0				0.0			0.4				(0.4	)		0.0
Income (loss) from discontinued operations, net (1)		0.0		0.0		0.0				(12.1	)		0.4				0.0			(11.7	)
Provision (benefit) for income taxes		38.9		4.8		0.0				0.0			(3.2	)			0.0			40.5
Net income (loss)	$	82.1	$	6.2	$	(2.8	)		$	(12.1	)	$	(20.2	)		$	0.0		$	53.2
Net income (loss) from continuing operations		67.7		7.6		(0.1	)			0.0			(13.7	)			0.0			61.5
Income (loss) from discontinued operations, net (1)		0.0		0.0		0.0				(51.5	)		1.8				0.0			(49.7	)
Net income (loss)	$	67.7	$	7.6	$	(0.1	)		$	(51.5	)	$	(11.9	)		$	0.0			11.8

(millions)	Tampa		Peoples		New Mexico		TECO											TECO
Six months ended June 30,	Electric		Gas		Gas Co. (2)		Coal (1)			Other (2)				Eliminations				Energy
2016
Revenues - external	$	921.5	$	226.7	$	158.3	$	0.0		$	5.3			$	0.0			$	1,311.8
Sales to affiliates		2.2		6.4		0.0		0.0			0.0				(8.6	)			0.0
Total revenues		923.7		233.1		158.3		0.0			5.3				(8.6	)			1,311.8
Depreciation and amortization		132.6		29.7		16.9		0.0			0.8				0.0				180.0
Total interest charges		46.4		7.4		6.3		0.0			30.1				(0.5	)			89.7
Internally allocated interest		0.0		0.0		0.0		0.0			0.5				(0.5	)			0.0
Provision (benefit) for income taxes		64.7		13.5		9.6		0.0			(27.8	)			0.0				60.0
Net income (loss) from continuing operations		118.8		20.2		15.0		0.0			(74.8	)	(5)		0.0				79.2
Income (loss) from discontinued operations, net (1)		0.0		0.0		0.0		0.0			(0.1	)			0.0				(0.1	)
Net income (loss)	$	118.8	$	20.2	$	15.0	$	0.0		$	(74.9	)		$	0.0			$	79.1
2015
Revenues - external	$	981.4	$	213.9	$	173.0	$	0.0		$	5.3			$	0.0			$	1,373.6
Sales to affiliates		1.6		2.5		0.0		0.0			0.1				(4.2	)			0.0
Total revenues		983.0		216.4		173.0		0.0			5.4				(4.2	)			1,373.6
Depreciation and amortization		126.9		27.9		16.8		0.0			0.9				0.0				172.5
Total interest charges		47.1		7.1		6.6		0.0			34.2				(0.7	)			94.3
Internally allocated interest		0.0		0.0		0.0		0.0			0.7				(0.7	)			0.0
Provision (benefit) for income taxes		66.3		14.0		9.0		0.0			(8.9	)			0.0				80.4
Net income (loss) from continuing operations		115.9		22.2		13.8		0.0			(26.6	)			0.0				125.3
Income (loss) from discontinued operations, net (1)		0.0		0.0		0.0		(57.5	)		2.0				0.0				(55.5	)
Net income (loss)	$	115.9	$	22.2	$	13.8	$	(57.5	)	$	(24.6	)		$	0.0			$	69.8
At June 30, 2016
Total assets	$	7,103.4	$	1,135.9	$	1,200.9	$	0.0		$	1,945.8			$	(2,306.3	)	(4)		9,079.7
At Dec. 31, 2015
Total assets (3)	$	7,003.8	$	1,136.1	$	1,229.7	$	0.0		$	1,945.1			$	(2,381.2	)	(4)		8,933.5
(1) All periods have been adjusted to reflect the results from operations to discontinued operations for TECO Coal and certain charges and gains at Other, including Parent and TECO Diversified, that directly relate to TECO Coal and TECO Guatemala. See Note 15.
(2) NMGI is included in the Other segment.
(3) Certain prior year amounts have been reclassified to conform to current year presentation.
(4) Amounts primarily relate to intercompany advances and consolidated tax eliminations.
(5) Comprised primarily of transaction costs associated with the Merger with Emera. See Note 16.

12. Accounting for Derivative Instruments and Hedging Activities

(millions)	Tampa		Peoples		New Mexico				TECO											TECO
Nine months ended Sept. 30,	Electric		Gas		Gas Co. ⁽²⁾				Coal ⁽¹⁾			Other ⁽²⁾				Eliminations				Energy
2016
Revenues - external	$	1,506.6	$	330.0	$	194.0			$	0.0		$	7.9			$	0.0			$	2,038.5
Sales to affiliates		3.0		6.8		0.0				0.0			0.1				(9.9	)			0.0
Total revenues		1,509.6		336.8		194.0				0.0			8.0				(9.9	)			2,038.5
Total interest charges		68.8		11.1		9.1				0.0			45.3				(0.7	)			133.6
Net income (loss) from continuing operations		212.9		26.7		(4.8	)	⁽⁵⁾		0.0			(86.2	)	⁽⁵⁾		0.0				148.6
Income (loss) from discontinued operations, net ⁽¹⁾		0.0		0.0		0.0				0.0			(0.1	)			0.0				(0.1	)
Net income (loss)	$	212.9	$	26.7	$	(4.8	)		$	0.0		$	(86.3	)		$	0.0			$	148.5
2015
Revenues - external	$	1,540.8	$	302.0	$	216.7			$	0.0		$	7.9			$	0.0			$	2,067.4
Sales to affiliates		2.4		4.5		0.0				0.0			0.1				(7.0	)			0.0
Total revenues		1,543.2		306.5		216.7				0.0			8.0				(7.0	)			2,067.4
Total interest charges		71.2		10.8		9.8				0.0			49.6				(1.0	)			140.4
Net income (loss) from continuing operations		198.0		28.4		11.0				0.0			(47.2	)			0.0				190.2
Income (loss) from discontinued operations, net ⁽¹⁾		0.0		0.0		0.0				(69.6	)		2.4				0.0				(67.2	)
Net income (loss)	$	198.0	$	28.4	$	11.0			$	(69.6	)	$	(44.8	)		$	0.0			$	123.0
At Sept. 30, 2016
Total assets	$	7,244.9	$	1,161.5	$	1,230.4			$	0.0		$	2,031.8			$	(2,444.9	)	⁽⁴⁾	$	9,223.7
At Dec. 31, 2015
Total assets ⁽³⁾	$	7,003.8	$	1,136.1	$	1,229.7			$	0.0		$	1,945.1			$	(2,381.2	)	⁽⁴⁾	$	8,933.5

(1) All periods have been adjusted to reflect the results from discontinued operations for TECO Coal and certain charges and gains at Other, including Parent and TECO Diversified, that directly relate to TECO Coal and TECO Guatemala. See Note 15.
(2) NMGI is included in the Other segment.
(3) Certain prior year amounts have been reclassified to conform to current year presentation.
(4) Amounts primarily relate to consolidated tax reclassifications.
(5) Includes transaction costs associated with the Merger with Emera. See Note 14.

10. Accounting for Derivative Instruments and Hedging Activities

From time to time, TECO Energy and its affiliates enter into futures, forwards, swaps and option contracts for the following purposes:

·• To limit the exposure to price fluctuations for physical purchases and sales of natural gas in the course of normal operations at Tampa Electric, PGS and NMGC;

·• To optimize the utilization of NMGC’s physical natural gas storage capacity,; and

·• To limit the exposure to interest rate fluctuations on debt securities at TECO Energy and its affiliates.

TECO Energy and its affiliates use derivatives only to reduce normal operating and market risks, not for speculative purposes. The regulated utilities’ primary objective in using derivative instruments for regulated operations is to reduce the impact of market price volatility on ratepayers.

The risk management policies adopted by TECO Energy provide a framework through which management monitors various risk exposures. Daily and periodic reporting of positions and other relevant metrics are performed by a centralized risk management group, which is independent of all operating companies.

The company applies the accounting standards for derivative instruments and hedging activities. These standards require companies to recognize derivatives as either assets or liabilities in the financial statements, to measure those instruments at fair value and to reflect the changes in the fair value of those instruments as either components of OCI or in net income, depending on the designation of those instruments (see Note 1311). The changes in fair value that are recorded in OCI are not immediately recognized in current net income. As the underlying hedged transaction matures or the physical commodity is delivered, the deferred gain or loss on the related hedging instrument must be reclassified from OCI to earnings based on its value at the time of the instrument’s settlement. For effective hedge transactions, the amount reclassified from OCI to earnings is offset in net income by the market change of the amount paid or received on the underlying physical transaction.

The company applies the accounting standards for regulated operations to financial instruments used to hedge the purchase and sale of natural gas for the benefit of its regulated companies’ ratepayers. These standards, in accordance with the FPSC and NMPRC, permit the changes in fair value of natural gas derivatives to be recorded as regulatory assets or liabilities reflecting the impact of hedging activities on the fuel recovery clause. As a result, these changes are not recorded in OCI (see Note 3).

The company’s physical contracts qualify for the NPNS exception to derivative accounting rules, provided they meet certain criteria. Generally, NPNS applies if the company deems the counterparty creditworthy, if the counterparty owns or controls resources within the proximity to allow for physical delivery of the commodity, if the company intends to receive physical delivery and if the transaction is reasonable in relation to the company’s business needs. As of ~~June~~Sept. 30, 2016, all of the company’s physical contracts qualify for the NPNS exception with the exception of a minor amount of forward purchases and sales entered into by NMGC to optimize its gas storage capacity.

The derivatives that are designated as cash flow hedges at ~~June~~Sept. 30, 2016 and Dec. 31, 2015 are reflected on the company’s Consolidated Condensed Balance Sheets and classified accordingly as current and long-term assets and liabilities on a net basis as permitted by their respective master netting agreements. Derivative assets totaled $52.52 million and $0.2 million as of ~~June~~Sept. 30, 2016 and Dec. 31, 2015, respectively. Derivative liabilities totaled $1.17 million and $26.2 million as of ~~June~~Sept. 30, 2016 and Dec. 31, 2015, respectively. There are minor offset amount differences between the gross derivative assets and liabilities and the net amounts ~~presented~~included onin the Consolidated Condensed Balance Sheets. There was no cash collateral posted with or received from any counterparties.

All of the derivative assets and liabilities at ~~June~~Sept. 30, 2016 and Dec. 31, 2015 are designated as hedging instruments, which primarily are derivative hedges of natural gas contracts to limit the exposure to changes in market price for natural gas used to produce energy and natural gas purchased for resale to customers. The corresponding effect of these natural gas related derivatives on the regulated utilities’ fuel recovery clause mechanism is reflected on the Consolidated Condensed Balance Sheets as current and long-term regulatory assets and liabilities. Based on the fair value of the instruments at ~~June~~Sept. 30, 2016, net pretax ~~losses~~gains of $3.0.5 million are expected to be reclassified from regulatory assets or liabilities to the Consolidated Condensed Statements of Income within the next twelve months.

The ~~June~~Sept. 30, 2016 and Dec. 31, 2015 balance in AOCI related to the cash flow hedges and interest rate swaps (unsettled and previously settled) is presented in Note 812.

For derivative instruments that meet cash flow hedge criteria, the effective portion of the gain or loss on the derivative is reported as a component of OCI and reclassified into earnings in the same period or period during which the hedged transaction affects earnings. Gains and losses on the derivatives representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. For the three and ~~six~~nine months ended ~~June~~Sept. 30, 2016 and 2015, all hedges were effective. The derivative after-tax effect on OCI and the amount of after-tax gain or loss reclassified from AOCI into ~~earnings for~~

2425

earnings for the three and ~~six~~nine months ended ~~June~~Sept. 30, 2016 and 2015 is presented in Note 812. These gains and losses were the result of interest rate contracts for TEC. The location of the reclassification to income was reflected in “Interest expense” for TEC.

The maximum length of time over which the company is hedging its exposure to the variability in future cash flows extends to ~~June~~Sept. 30, 2018 for financial natural gas contracts. The following table presents the company’s derivative volumes that, as of ~~June~~Sept. 30, 2016, are expected to settle during the 2016, 2017 and 2018 fiscal years:

Derivative Volumes	Natural Gas Contracts
(millions)	(MMBTUs)
Year	Physical		Financial
2016		0.0		1914.32
2017		0.0		1732.78
2018		0.0		25.63
Total		0.0		3952.63

The company is exposed to credit risk by entering into derivative instruments with counterparties to limit its exposure to the commodity price fluctuations associated with natural gas. Credit risk is the potential loss resulting from a counterparty’s nonperformance under an agreement. The company manages credit risk with policies and procedures for, among other things, counterparty analysis, exposure measurement and exposure monitoring and mitigation.

It is possible that volatility in commodity prices could cause the company to have material credit risk exposures with one or more counterparties. If such counterparties fail to perform their obligations under one or more agreements, the company could suffer a material financial loss. However, as of ~~June~~Sept. 30, 2016, substantially all of the counterparties with transaction amounts outstanding in the company’s energy portfolio were rated investment grade by the major rating agencies. The company assesses credit risk internally for counterparties that are not rated.

The company has entered into commodity master arrangements with its counterparties to mitigate credit exposure to those counterparties. The company generally enters into the following master arrangements: (1) EEI agreements—standardized power sales contracts in the electric industry; (2) ISDA agreements—standardized financial gas and electric contracts; and (3) NAESB agreements—standardized physical gas contracts. The company believes that entering into such agreements reduces the risk from default by creating contractual rights relating to creditworthiness, collateral and termination.

The company has implemented procedures to monitor the creditworthiness of its counterparties and to consider nonperformance risk in determining the fair value of counterparty positions. Net liability positions generally do not require a nonperformance risk adjustment as the company uses derivative transactions as hedges and has the ability and intent to perform under each of these contracts. In the instance of net asset positions, the company considers general market conditions and the observable financial health and outlook of specific counterparties in evaluating the potential impact of nonperformance risk to derivative positions.

Certain TECO Energy derivative instruments contain provisions that require the company’s debt, or in the case of derivative instruments where TEC is the counterparty, TEC’s debt, to maintain an investment grade credit rating from any or all of the major credit rating agencies. If debt ratings, including TEC’s, were to fall below investment grade, it could trigger these provisions, and the counterparties to the derivative instruments could demand immediate and ongoing full overnight collateralization on derivative instruments in net liability positions. The company has no other contingent risk features associated with any derivative instruments.

1311. Fair Value Measurements

Items Measured at Fair Value on a Recurring Basis

Accounting guidance governing fair value measurements and disclosures provides that fair value represents the amount that would be received in selling an asset or the amount that would be paid in transferring a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based upon assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, accounting guidance also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Observable inputs, such as quoted prices in active markets;

Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.

Assets and liabilities are measured at fair value based on one or more of the following three valuation techniques noted under accounting guidance:

2526

(A) Market approach: Prices and other relevant information generated by market transactions involving

identical or comparable assets or liabilities;

(B) Cost approach: Amount that would be required to replace the service capacity of an asset (replacement

cost); and

expectations (including present value techniques, option-pricing and excess earnings models).

The fair value of financial instruments is determined by using various market data and other valuation techniques.

The following tables set forth by level within the fair value hierarchy, the company’s financial assets and liabilities that were accounted for at fair value on a recurring basis. As required by accounting standards for fair value measurements, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.

Recurring Fair Value Measures
	As of June 30, 2016
	As of Sept. 30, 2016
(millions)	Level 1		Level 2		Level 3		Total
Assets
Natural gas derivatives	$	0.0	$	52.52	$	0.0	$	52.52
Liabilities
Natural gas derivatives	$	0.0	$	1.17	$	0.0	$	1.17
	As of Dec. 31, 2015
(millions)	Level 1		Level 2		Level 3		Total
Assets
Natural gas derivatives	$	0.0	$	0.2	$	0.0	$	0.2
Liabilities
Natural gas derivatives	$	0.0	$	26.2	$	0.0	$	26.2

The natural gas derivatives are OTC swap, forward and option instruments. Fair values of swaps and forwards are estimated utilizing the market approach. The price of swaps and forwards are calculated using observable NYMEX quoted closing prices of exchange-traded futures. Fair values of options are estimated utilizing the income approach. The price of options is calculated using the Black-Scholes model with observable exchange-traded futures as the primary pricing inputs to the model. Additional inputs to the model include historical volatility, discount rate, and a locational basis adjustment to NYMEX. The resulting prices are applied to the notional quantities of active swap, forward and option positions to determine the fair value (see Note 1210).

The company considered the impact of nonperformance risk in determining the fair value of derivatives. The company considered the net position with each counterparty, past performance of both parties, the intent of the parties, indications of credit deterioration and whether the markets in which the company transacts have experienced dislocation. At ~~June~~Sept. 30, 2016, the fair value of derivatives was not materially affected by nonperformance risk. There were no Level 3 assets or liabilities for the periods presented.

As of ~~June~~Sept. 30, 2016 and Dec. 31, 2015, the carrying value of the company’s short-term debt is not materially different from the fair value due to the short-term nature of the instruments and because the stated rates approximate market rates. The fair value is determined using Level 2 measurements. See Note 7 for information regarding the fair value of the company’s long-term debt.

~~14. Variable Interest Entities~~ 27

12. Other Comprehensive Income

TECO Energy reported the following OCI related to changes in the fair value of cash flow hedges, recognized cost due to curtailment, change in benefit obligation due to remeasurement and amortization of unrecognized benefit costs associated with the company’s postretirement plans:

Other Comprehensive Income
	Three months ended Sept. 30,									Nine months ended Sept. 30,
(millions)	Gross			Tax			Net			Gross			Tax			Net
2016
Unrealized gain on cash flow hedges	$	0.0		$	0.0		$	0.0		$	0.0		$	0.0		$	0.0
Reclassification from AOCI to net income ⁽¹⁾		0.3			(0.1	)		0.2			1.0			(0.4	)		0.6
Gain on cash flow hedges		0.3			(0.1	)		0.2			1.0			(0.4	)		0.6
Amortization of unrecognized benefit costs and other ⁽²⁾		0.8			(0.3	)		0.5			1.3			(0.5	)		0.8
Change in benefit obligation due to remeasurement ⁽³⁾		(11.2	)		4.3			(6.9	)		(11.2	)		4.3			(6.9	)
Recognized cost due to curtailment ⁽⁴⁾		0.0			0.0			0.0			0.1			0.0			0.1
Total other comprehensive loss	$	(10.1	)	$	3.9		$	(6.2	)	$	(8.8	)	$	3.4		$	(5.4	)
2015
Unrealized gain on cash flow hedges	$	0.0		$	0.0		$	0.0		$	4.3		$	(1.5	)	$	2.8
Reclassification from AOCI to net income ⁽¹⁾		0.3			(0.1	)		0.2			1.0			(0.5	)		0.5
Gain on cash flow hedges		0.3			(0.1	)		0.2			5.3			(2.0	)		3.3
Amortization of unrecognized benefit costs ⁽²⁾		0.4			(0.2	)		0.2			2.9			(1.1	)		1.8
Change in benefit obligation due to valuation ⁽⁵⁾		(8.7	)		3.0			(5.7	)		(8.7	)		3.0			(5.7	)
Recognized cost due to settlement ⁽⁶⁾		12.1			(4.4	)		7.7			12.1			(4.4	)		7.7
Total other comprehensive income	$	4.1		$	(1.7	)	$	2.4		$	11.6		$	(4.5	)	$	7.1

(1) Related to interest rate contracts recognized in Interest expense.
(2) Related to postretirement benefits. See Note 5 for additional information.
(3) Related to remeasurement of employee postretirement benefit plans on the Merger closing date. See Note 5 for additional information.
(4) Related to the estimated curtailment loss for the SERP. See Note 5 for additional information.
(5) Related to the transfer of employees and their associated postretirement benefits from TEC to the TECO Energy shared services company. TEC recognized these deferred costs as regulatory assets, whereas the shared services company recognized them in AOCI.
(6) Related to the settlement of the TECO Coal black lung obligation at the closing of the sale. See Notes 15 for additional information.

Accumulated Other Comprehensive Loss
(millions)	Sept. 30, 2016			Dec. 31, 2015
Unamortized pension loss and prior service credit ⁽¹⁾	$	(37.7	)	$	(34.2	)
Unamortized other benefit gains, prior service costs and transition obligations ⁽²⁾		23.1			25.6
Net unrealized losses from cash flow hedges ⁽³⁾		(3.0	)		(3.6	)
Total accumulated other comprehensive loss	$	(17.6	)	$	(12.2	)

(1) Net of tax benefit of $23.5 million and $21.5 million as of Sept. 30, 2016 and Dec. 31, 2015, respectively.
(2) Net of tax expense of $14.3 million and $16.1 million as of Sept. 30, 2016 and Dec. 31, 2015, respectively.
(3) Net of tax benefit of $1.9 million and $2.3 million as of Sept. 30, 2016 and Dec. 31, 2015, respectively.

13. Variable Interest Entities

The determination of a VIE’s primary beneficiary is the enterprise that has both 1) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and 2) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE.

Tampa Electric has entered into multiple PPAs with wholesale energy providers in Florida to ensure the ability to meet customer energy demand and to provide lower cost options in the meeting of this demand. These agreements range in size from 117 MW to 250 MW of available capacity, are with similar entities and contain similar provisions. Because some of these provisions provide for the transfer or sharing of a number of risks inherent in the generation of energy, these agreements meet the definition of being variable interests. These risks include: operating and maintenance, regulatory, credit, commodity/fuel and energy market risk. Tampa Electric has reviewed these risks and has determined that the owners of these entities have retained the majority of these risks over the expected life of the underlying generating assets, have the power to direct the most significant activities, and have the obligation or right to absorb losses or benefits. As a result, Tampa Electric is not the primary beneficiary and is not required to consolidate any of these entities. Tampa Electric purchased $19.1 million and $48.1 million under these PPAs for the three and nine months ended Sept. 30, 2016, respectively, and $10.7 million and $26.0 million for the three and nine months ended Sept. 30, 2015, respectively.

has reviewed these risks and has determined that the owners of these entities have retained the majority of these risks over the expected life of the underlying generating assets, have the power to direct the most significant activities, and have the obligation or right to absorb losses or benefits. As a result, Tampa Electric is not the primary beneficiary and is not required to consolidate any of these entities. Tampa Electric purchased $16.4 million and $29.0 million under these PPAs for the three and six months ended June 30, 2016, respectively, and $9.9 million and $15.3 million for the three and six months ended June 30, 2015, respectively.

The company does not provide any material financial or other support to any of the VIEs it is involved with, nor is the company under any obligation to absorb losses associated with these VIEs. In the normal course of business, the company’s involvement with these VIEs does not affect its Consolidated Condensed Balance Sheets, Statements of Income or Cash Flows.

1514. ~~Discontinued~~Mergers ~~Operations~~ and ~~Asset~~Acquisitions ~~Impairments~~

TECO Coal

On Sept. 21, 2015, TECO Energy’s subsidiary, TECO Diversified, entered into an SPA and completed the sale of all of its ownership interest in TECO Coal to Cambrian. The SPA did not provide for an up-front purchase payment, but provides for future contingent consideration of up to $60 million that may be paid yearly through 2019 if certain coal benchmark prices reach certain levels. The 2015 benchmark price was not reached and no contingent consideration payment was triggered. TECO Energy retains certain deferred tax assets and personnel-related liabilities, but all other TECO Coal assets and liabilities, including working capital, asset retirement obligations and workers compensation reserves, were transferred in the transaction. Letters of indemnity related to TECO Coal reclamation bonds will remain in effect until the bonds are replaced by Cambrian, which is expected to be completed in 2016 (see description of guarantees in Note 10). The SPA contained customary representations, warranties and covenants (see Note 10 for description of a claim related to the SPA). The income shown for 2016 in the table below reflects a refund of prepaid costs.

Since the closing of the sale, TECO Energy has not had influence over operations of TECO Coal, therefore the contingent payments are not considered to meet the definition of direct cash flows under the applicable discontinued operations FASB guidance.

TECO Guatemala

In 2012, TECO Guatemala completed the sale of its interests in the Alborada and San José power stations, and related solid fuel handling and port facilities in Guatemala. All periods presented reflect the classification of results from operations for TECO Guatemala and certain charges at Parent that directly relate to TECO Guatemala as discontinued operations. While TECO Energy and its subsidiaries no longer have assets or operations in Guatemala, its subsidiary, TECO Guatemala Holdings, LLC, has retained its rights under its arbitration claim filed against the Republic of Guatemala (see Note 10). The charges shown in the table below are legal costs associated with that claim.

Combined Components of Discontinued Operations

The following table provides selected components of discontinued operations related to the sales of TECO Coal and TECO Guatemala:

Components of income from discontinued operations	Three months ended						Six months ended
	June 30,						June 30,
(millions)	2016			2015			2016			2015
Revenues—TECO Coal	$	0.0		$	76.1		$	0.0		$	148.8
Income (loss) from operations—TECO Coal		(0.3	)		0.5			(0.1	)		(9.0	)
Loss on impairment—TECO Coal		0.0			(78.6	)		0.0			(78.6	)
Loss from operations—TECO Guatemala		(0.1	)		0.0			(0.1	)		(0.1	)
Loss from discontinued operations—TECO Coal		(0.3	)		(78.1	)		(0.1	)		(87.6	)
Loss from discontinued operations—TECO Guatemala		(0.1	)		0.0			(0.1	)		(0.1	)
Loss from discontinued operations		(0.4	)		(78.1	)		(0.2	)		(87.7	)
Benefit for income taxes		(0.2	)		(28.4	)		(0.1	)		(32.2	)
Loss from discontinued operations, net	$	(0.2	)	$	(49.7	)	$	(0.1	)	$	(55.5	)

16. Mergers and Acquisitions

Merger with Emera Inc.

Description of Transaction

Pursuant to the Merger Agreement, upon the closing of the Merger, each issued and outstanding share of TECO Energy common stock was cancelled and converted automatically into the right to receive $27.55 in cash, without interest (Merger Consideration). This represents an aggregate purchase price of approximately $10.7 billion including Emera’s purchase price allocation for debt of approximately $4.2 billion.

The Merger Agreement requires Emera, among other things, (i) to maintain TECO Energy’s historic levels of community involvement and charitable contributions and support in TECO Energy’s existing service territories, (ii) to maintain TECO Energy’s headquarters in Tampa, Florida, (iii) to honor current union contracts in accordance with their terms and (iv) to provide each continuing non-union employee, for a period of two years following the closing of the Merger, with a base salary or wage rate no less favorable than, and incentive compensation and employee benefits, respectively, substantially comparable in the aggregate to those that they received as of immediately prior to the closing.

Merger-Related Regulatory Matters

On Apr. 11, 2016, Emera and TECO Energy filed with the NMPRC an unopposed stipulation agreement reflecting a settlement reached with certain intervening parties in the then pending proceeding seeking the approval of the Merger by the NMPRC. On May 2, 2016, the Hearing Examiner held a hearing to consider the stipulation agreement. On June 8, 2016, the Hearing Examiner filed a Certificate of Stipulation, recommending approval by the NMPRC of the stipulation with respect to which all intervenors had either consented or filed a notice of non-opposition. On June 22, 2016, the NMPRC approved the stipulation, and an order was entered on that same day.

As part of the stipulation agreement filed with the NMPRC ~~noted above~~, upon closing of the Merger, NMGC agreed, among other things, to:

·• make commitments to charitable contributions and enterprises engaged in economic and business development in New Mexico of $0.8 million annually for three years,

·• continue to provide an annual bill reduction credit of $4 million through June 30, 2018,

·• evaluate and construct, at shareholder expense, an enlarged pipeline from its current system to the New Mexico/Mexican border at an estimated cost of approximately $5 million,

·• establish, at shareholder expense, a matching fund of $10 million to extend its natural gas infrastructure to currently underserved or unserved areas in New Mexico, and

·• contribute, at shareholder expense, $5 million within 5 years to economic development projects or programs throughout New Mexico.

~~The preceding pretax costs of up to $30.4 million (or approximately $18.5 million after tax) will be recorded in the third quarter of 2016 in the Consolidated Condensed Statements of Income.~~29

The company recorded the pretax costs of $30.4 million (or approximately $17.7 million after tax) related to these commitments in the three months ended Sept. 30, 2016. The bill credit of $8.0 million was recognized as a reduction in “Regulated gas revenues” and the remaining items recorded in “Merger transaction-related costs” on the Consolidated Condensed Statements of Income for the three and nine months ended Sept. 30, 2016. As of Sept. 30, 2016, approximately $30 million remains to be paid and is included in “Other” in cash flows from operating activities in the Consolidated Condensed Statements of Cash Flows for the nine months ended Sept. 30, 2016.

Transaction-Related Costs

~~During~~In addition to the Merger-related regulatory matters above, during the three and ~~six~~nine months ended ~~June~~Sept. 30, 2016, TECO Energy also incurred approximately $7115.45 million and $7187.50 million, respectively, of pretax ~~incremental~~ transaction-related costs ($589.46 million ~~after~~and ~~tax~~$68.1 ~~for~~million ~~the~~after ~~three months ended June 30~~tax, ~~2016~~respectively), ~~which~~compared ~~are~~with ~~presented~~approximately in$15.4 ~~“Merger~~million of pretax transaction-related costs” onduring the ~~Consolidated~~three ~~Condensed~~and ~~Statements~~nine ~~of Income. For the three~~ months ended ~~June~~Sept. 30, ~~2016, these costs include $27~~2015.7 ~~million of investment banking, legal and other consultant costs, $42.4 million for change-in-control and other compensation payments, and $1.3 million for a non-cash SERP curtailment charge.~~ These costs are ~~expected~~presented ~~to be primarily paid~~ in ~~the~~“Merger ~~third quarter of 2016 and the first quarter of 2017. The company will record $15.2 million in the third quarter of 2016, primarily for accelerated vesting of outstanding stock~~transaction-~~based~~related ~~compensation~~costs” ~~awards~~on ~~in accordance with~~ the ~~Merger~~Consolidated ~~Agreement~~Condensed ~~which~~Statements ~~will be paid in the third quarter~~ of ~~2016~~Income.

For the three months ended Sept. 30, 2016, the $15.5 million of costs are primarily for accelerated vesting of outstanding stock-based compensation awards in accordance with the Merger Agreement and other employee-related costs. For the nine months ended Sept. 30, 2016, the costs also include $27.7 million of investment banking, legal and other consultant costs, $42.4 million for change-in-control and other compensation payments, and $1.3 million for a non-cash SERP curtailment charge recorded in the second quarter. During the third quarter of 2016, Emera contributed $22 million to TECO Energy primarily related to funding accelerated stock compensation payments. Transaction-related costs expensed and paid through Sept. 30, 2016 have been reflected in cash flows from operating activities in the Consolidated Condensed Statements of Cash Flows for the nine months ended Sept. 30, 2016. As of Sept. 30, 2016, approximately $20 million remains to be paid. These remaining costs are expected to be paid primarily in the first quarter of 2017 and are included in “Accounts payable” in cash flows from operating activities in the Consolidated Condensed Statements of Cash Flows for the nine months ended Sept. 30, 2016.

See Notes 4 and 5 for information regarding impacts to the company’s taxes and employee postretirement benefits, respectively, as a result of the Merger.

Dividends Paid

On June 22, 2016, in ~~preparation for the Merger with Emera and in~~ accordance with the Merger Agreement, the TECO Energy board of directors declared a special pro-rated dividend at the then-current rate of $0.002527 per share per day that accrued from May 16, 2016 (the prior TECO Energy dividend record date) until and including June 30, 2016 (the day prior to the effective ~~day~~date of the Merger). This dividend was accrued on the company’s Consolidated Condensed Balance Sheet as of June 30, 2016. On July 12, 2016, TECO Energy paid ~~the~~this ~~dividends~~dividend of $26.8 million to shareholders of record as of the close of business on the last trading day prior to the effective date of the Merger.

1715. ~~Subsequent~~Discontinued ~~Events~~Operations and Asset Impairments

~~On July 1, 2016,~~ TECO ~~Energy~~Coal and Emera completed the Merger contemplated by the Merger Agreement entered into on Sept. 4, 2015. As a result of the Merger, Merger Sub merged with and into TECO Energy with TECO Energy continuing as the surviving corporation and becoming a wholly owned indirect subsidiary of Emera. See Note 16 for further information.

29On Sept. 21, 2015, TECO Energy’s subsidiary, TECO Diversified, entered into an SPA and completed the sale of all of its ownership interest in TECO Coal to Cambrian. The SPA did not provide for an up-front purchase payment, but provides for future contingent consideration of up to $60 million that may be paid yearly through 2019 if certain coal benchmark prices reach certain levels. The 2015 benchmark price was not reached and no contingent consideration payment was triggered. TECO Energy retains certain deferred tax assets and personnel-related liabilities, but all other TECO Coal assets and liabilities, including working capital, asset retirement obligations and workers compensation reserves, were transferred in the transaction. Letters of indemnity related to TECO Coal reclamation bonds will remain in effect until the bonds are replaced by Cambrian (see description of guarantees in Note 8). The SPA contained customary representations, warranties and covenants (see Note 8 for description of a claim filed by Cambrian related to the SPA). The costs shown for 2016 in the table below reflects charges for personnel-related liabilities that remained with TECO Energy and legal costs associated with the claim related to the SPA.

TECO Guatemala

In 2012, TECO Guatemala completed the sale of its interests in the Alborada and San José power stations, and related solid fuel handling and port facilities in Guatemala. All periods presented reflect the classification of results from operations for TECO Guatemala and certain charges at Parent that directly relate to TECO Guatemala as discontinued operations. While TECO Energy and its subsidiaries no longer have assets or operations in Guatemala, its subsidiary, TECO Guatemala Holdings, LLC, has retained its rights under its arbitration claim filed against the Republic of Guatemala (see Note 8). The charges shown in the table below are legal costs associated with that claim.

Combined Components of Discontinued Operations

The following table provides selected components of discontinued operations related to the sales of TECO Coal and TECO Guatemala:

Components of income from discontinued operations	Three months ended						Nine months ended
	Sept. 30,						Sept. 30,
(millions)	2016			2015			2016			2015
Revenues—TECO Coal	$	0.0		$	51.6		$	0.0		$	200.4
Loss from operations—TECO Coal		(0.1	)		(7.4	)		(0.2	)		(16.4	)
Loss on sale—TECO Coal		0.0			(10.0	)		0.0			(10.0	)
Loss on impairment—TECO Coal		0.0			0.0			0.0			(78.6	)
Loss from operations—TECO Guatemala		(0.1	)		(0.4	)		(0.2	)		(0.5	)
Loss from discontinued operations—TECO Coal		(0.1	)		(17.4	)		(0.2	)		(105.0	)
Loss from discontinued operations—TECO Guatemala		(0.1	)		(0.4	)		(0.2	)		(0.5	)
Loss from discontinued operations		(0.2	)		(17.8	)		(0.4	)		(105.5	)
Benefit for income taxes		0.2			6.1			0.3			38.3
Loss from discontinued operations, net	$	0.0		$	(11.7	)	$	(0.1	)	$	(67.2	)

TAMPA ELECTRIC COMPANY

Consolidated Condensed Balance Sheets

Unaudited

Assets	~~June~~Sept. 30,			Dec. 31,
(millions)	2016			2015
Property, plant and equipment
Utility plant in service
Electric	$	7,~~419~~473.59		$	7,270.3
Gas		1,~~447~~466.03			1,398.6
Construction work in progress		~~832~~875.12			771.1
Utility plant in service, at original costs		9,~~698~~815.64			9,440.0
Accumulated depreciation		(2,~~762~~808.03	)		(2,676.8	)
Utility plant in service, net		67,~~936~~007.61			6,763.2
Other property		10.25			9.7
Total property, plant and equipment, net		67,~~946~~017.86			6,772.9
Current assets
Cash and cash equivalents		1315.84			9.1
Receivables, less allowance for uncollectibles of $1.6 and $1.5 at June 30, 2016 and Dec. 31, 2015, respectively		238.7			230.2
Receivables, less allowance for uncollectibles of $2.5 and $1.5 at Sept. 30, 2016 and Dec. 31, 2015, respectively		254.9			230.2
Inventories, at average cost
Fuel		~~102~~80.27			105.6
Materials and supplies		7580.12			73.1
Regulatory assets		1820.06			44.3
Taxes receivable from affiliate		0.0			61.3
Prepayments and other current assets		2016.63			21.5
Total current assets		468.41			545.1
Deferred debits
Regulatory assets		~~373~~438.82			373.8
Other		2729.79			16.8
Total deferred debits		~~401~~468.51			390.6
Total assets	$	7,~~816~~953.78		$	7,708.6

The accompanying notes are an integral part of the consolidated condensed financial statements.

3032

TAMPA ELECTRIC COMPANY

Consolidated Condensed Balance Sheets - continued

Unaudited

Liabilities and Capitalization	~~June~~Sept. 30,			Dec. 31,
(millions)	2016			2015
Capitalization
Common stock	$	2,395.4		$	2,305.4
Accumulated other comprehensive loss		(3.20	)		(3.6	)
Retained earnings		~~270~~371.62			313.7
Total capital		2,~~662~~763.86			2,615.5
Long-term debt		2,162.36			2,161.7
Total capitalization		4,~~825~~926.12			4,777.2
Current liabilities
Long-term debt due within one year		0.0			83.3
Notes payable		~~123~~49.0			61.0
Accounts payable		~~209~~222.50			221.6
Customer deposits		~~162~~155.72			176.3
Regulatory liabilities		~~124~~140.4			83.2
Derivative liabilities		01.74			24.1
Interest accrued		1740.71			16.9
Taxes accrued		7274.25			13.2
Other		10.03			10.2
Total current liabilities		~~720~~692.29			689.8
Deferred credits
Deferred income taxes		1,~~352~~388.12			1,308.8
Investment tax credits		10.32			10.5
Regulatory liabilities		~~608~~597.0			603.5
Deferred credits and other liabilities		~~301~~339.03			318.8
Total deferred credits		2,~~271~~334.47			2,241.6
Commitments and Contingencies (see Note 8)
Total liabilities and capitalization	$	7,~~816~~953.78		$	7,708.6

The accompanying notes are an integral part of the consolidated condensed financial statements.

3133

TAMPA ELECTRIC COMPANY

Consolidated Condensed Statements of Income and Comprehensive Income

Unaudited

	Three months ended June 30,
	Three months ended Sept. 30,
(millions)	2016			2015
Revenues
Electric	$	~~498~~586.80		$	~~532~~560.41
Gas		~~100~~103.01			9288.21
Total revenues		~~598~~689.81			~~624~~648.62
Expenses
Regulated operations and maintenance
Fuel		~~137~~173.45			~~171~~176.86
Purchased power		2738.83			1923.68
Cost of natural gas sold		3540.74			3028.15
Other		~~132~~134.56			~~134~~128.37
Depreciation and amortization		8182.48			7879.0
Taxes, other than income		4752.56			4947.58
Total expenses		~~462~~522.32			~~483~~484.34
Income from operations		~~136~~166.59			~~141~~163.38
Other income
Allowance for other funds used during construction		6.02			34.76
Other income, net		02.91			1.2
Total other income		68.93			45.98
Interest charges
Interest on long-term debt		27.87			2729.80
Other interest		1.25			1.20
Allowance for borrowed funds used during construction		(23.81	)		(12.82	)
Total interest charges		26.21			27.28
Income before provision for income taxes		~~117~~149.21			~~119~~141.08
Provision for income taxes		4148.5			4353.75
Net income		75100.76			7588.3
Other comprehensive income, net of tax
Gain on cash flow hedges		0.2			20.82
Total other comprehensive income, net of tax		0.2			20.82
Comprehensive income	$	75100.98		$	7888.15

The accompanying notes are an integral part of the consolidated condensed financial statements.

3234

TAMPA ELECTRIC COMPANY

Consolidated Condensed Statements of Income and Comprehensive Income

Unaudited

	Six months ended June 30,
	Nine months ended Sept. 30,
(millions)	2016			2015
Revenues
Electric	$	~~923~~1,509.0		$	~~982~~1,542.89
Gas		~~226~~329.89			~~213~~302.90
Total revenues		1,~~149~~838.89			1,~~196~~844.79
Expenses
Regulated operations and maintenance
Fuel		~~252~~426.61			~~315~~492.95
Purchased power		4280.25			3660.75
Cost of natural gas sold		86126.04			73101.49
Other		~~253~~388.62			~~256~~384.18
Depreciation and amortization		~~162~~245.31			~~154~~233.8
Taxes, other than income		96148.06			97144.19
Total expenses		~~892~~1,414.79			~~934~~1,418.04
Income from operations		~~257~~424.10			~~262~~426.75
Other income
Allowance for other funds used during construction		1117.68			712.51
Other income, net		24.23			23.46
Total other income		1322.81			915.97
Interest charges
Interest on long-term debt		5684.85			5584.5
Interest expense		23.49			23.3
Allowance for borrowed funds used during construction		(58.56	)		(35.68	)
Total interest charges		5379.78			5482.20
Income before provision for income taxes		~~217~~366.23			~~218~~360.42
Provision for income taxes		78126.27			80133.38
Net income		~~139~~239.06			~~138~~226.14
Other comprehensive income, net of tax
Gain on cash flow hedges		0.46			3.13
Total other comprehensive income, net of tax		0.46			3.13
Comprehensive income	$	~~139~~240.42		$	~~141~~229.27

The accompanying notes are an integral part of the consolidated condensed financial statements.

3335

TAMPA ELECTRIC COMPANY

Consolidated Condensed Statements of Cash Flows

Unaudited

	Six months ended June 30,
	Nine months ended Sept. 30,
(millions)	2016			2015
Cash flows from operating activities
Net income	$	~~139~~239.06		$	~~138~~226.14
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		~~162~~245.31			~~154~~233.8
Deferred income taxes and investment tax credits		3669.58			3052.06
Allowance for funds used during construction		(1117.68	)		(712.51	)
Deferred recovery clauses		4154.03			(313.27	)
Receivables, less allowance for uncollectibles		(824.57	)		(2431.4	)
Inventories		117.48			(4244.14	)
Prepayments		46.34			(67.29	)
Taxes accrued		~~120~~122.36			93.16
Interest accrued		023.82			224.05
Accounts payable		318.6			(1439.38	)
Other		(2552.93	)		(1434.94	)
Cash flows from operating activities		~~463~~702.26			~~305~~474.46
Cash flows from investing activities
Capital expenditures		(~~353~~517.86	)		(~~312~~473.48	)
Net proceeds from sale of assets		8.7			0.0
Cash flows used in investing activities		(~~345~~508.19	)		(~~312~~473.48	)
Cash flows from financing activities
Common stock		90.0			3088.0
Proceeds from long-term debt issuance		0.0			251.32
Repayment of long-term debt		(83.3	)		(83.3	)
Net decrease in short-term debt		62(12.0	)		(58.0	)
Dividends		(182.1	)		(~~109~~175.59	)
Cash flows from (used in) financing activities		(~~113~~187.4	)		3022.50
Net increase in cash and cash equivalents		46.73			2322.58
Cash and cash equivalents at beginning of period		9.1			10.4
Cash and cash equivalents at end of period	$	1315.84		$	33.92
Supplemental disclosure of non-cash activities
Change in accrued capital expenditures	$	(1319.96	)	$	1(10.51	)

The accompanying notes are an integral part of the consolidated condensed financial statements.

3436

TAMPA ELECTRIC COMPANY

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

UNAUDITED

1. Summary of Significant Accounting Policies

See TEC’s 2015 Annual Report on Form 10-K for a complete discussion of accounting policies. The significant accounting policies for TEC include:

Principles of Consolidation and Basis of Presentation

TEC is a wholly owned subsidiary of TECO Energy. For the purposes of its consolidated financial reporting, TEC is comprised of the electric division, ~~generally~~ referred to as Tampa Electric, and the natural gas division, ~~generally~~ referred to as PGS~~, and potentially the accounts of VIEs for which it is the primary beneficiary~~. For the periods presented, no VIEs have been consolidated (see Note 13).

Intercompany balances and ~~intercompany~~ transactions have been eliminated in consolidation. In the opinion of management, the unaudited consolidated condensed financial statements include all adjustments that are of a recurring nature and necessary to state fairly the financial position of TEC as of ~~June~~Sept. 30, 2016 and Dec. 31, 2015, and the results of operations and cash flows for the periods ended ~~June~~Sept. 30, 2016 and 2015. The results of operations for the three and ~~six~~nine months ended ~~June~~Sept. 30, 2016 are not necessarily indicative of the results that can be expected for the entire fiscal year ending Dec. 31, 2016.

Revenues

As of ~~June~~Sept. 30, 2016 and Dec. 31, 2015, unbilled revenues of $6663.67 million and $53.7 million, respectively, are included in the “Receivables” line item on the Consolidated Condensed Balance Sheets.

Accounting for Franchise Fees and Gross Receipts

Tampa Electric and PGS are allowed to recover certain costs from customers on a dollar-per-dollar basis through ~~prices~~rates approved by the FPSC. The amounts included in customers’ bills for franchise fees and gross receipt taxes are included as revenues on the Consolidated Condensed Statements of Income. Franchise fees and gross receipt taxes payable by Tampa Electric and PGS are included as an expense on the Consolidated Condensed Statements of Income in “Taxes, other than income”. These amounts totaled $2832.6 million and $5689.52 million for the three and ~~six~~nine months ended ~~June~~Sept. 30, 2016, respectively, and $2931.37 million and $5688.63 million for the three and ~~six~~nine months ended ~~June~~Sept. 30, 2015, respectively.

2. New Accounting Pronouncements

Change in Accounting Policy

~~Presentation~~The ofnew ~~Debt~~U.S. ~~Issuance~~GAAP ~~Costs~~accounting policies that are applicable to and were adopted by TEC are described as follows:

InInterest ~~April~~– ~~2015,~~Imputation ~~the FASB issued guidance regarding the presentation~~ of ~~debt~~Interest issuance costs on the balance sheet. Under the new guidance, an entity is required to present debt issuance costs as a direct deduction from the carrying amount of the related debt liability rather than as a deferred charge (i.e., as an asset) under current guidance. In August 2015, the FASB amended the guidance to include an SEC staff announcement that it will not object to a company presenting debt issuance costs related to line-of-credit arrangements as an asset, regardless of whether a balance is outstanding. This guidance became effective for TEC beginning in 2016 and is required to be applied on a retrospective basis for all periods presented. As of June 30, 2016 and Dec. 31, 2015, TEC classified $17.5 million and $18.1 million, respectively, of debt issuance costs, which do not include costs for line-of-credit arrangements, as a deduction in the “Long-term debt, less amount due within one year” line item on the company’s Consolidated Condensed Balance Sheet (previously

35In April 2015, the FASB issued Accounting Standard Update (ASU) 2015-03, Interest – Imputation of Interest, which simplifies the presentation of debt issuance costs. The amendments require debt issuance costs be presented on the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs is not affected. TEC adopted this standard in the first quarter of 2016, and Dec. 31, 2015 balances have been retrospectively restated. This change resulted in $18.1 million of debt issuance costs as of Dec. 31, 2015, previously presented as “Deferred charges and other assets”, being reclassified as a deduction from the carrying amount of the related “Long-term debt, less amount due within one year” line item on its Consolidated Condensed Balance Sheet. In accordance with ASU

~~classified as an asset in the “Unamortized debt expense” line item). The guidance did not affect TEC’s results of operations or cash flows.~~37

2015-15 Interest: Imputation of Interest, TEC continues to present debt issuance costs related to its letter of credit arrangements and related instruments in “Prepayments and other current assets” on its Consolidated Condensed Balance Sheets.

Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships

In March 2016, the FASB issued ASU 2016-05, Derivatives and Hedging Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships. The standard clarifies that a change in the counterparty to a derivative contract, in and of itself, does not require the dedesignation of a hedging relationship provided that all other hedge accounting criteria continue to be met. TEC early adopted in the third quarter of 2016 as permitted.

Future Accounting Pronouncements

TEC considers the applicability and impact of all ASUs issued by FASB. The following updates have been issued by FASB but have not yet been adopted by TEC. Any ASUs not included below were assessed and determined to be either not applicable to TEC or are not expected to have a material impact on the consolidated financial statements.

Revenue from Contracts with Customers

In May 2014, the FASB issued ~~guidance~~ASU ~~regarding~~2014-09, ~~the~~Revenue ~~accounting for revenue~~ from ~~contracts~~Contracts with ~~customers.~~Customers, ~~The~~which ~~standard~~creates isa new principle-based ~~and provides a five-step model to determine when and how~~ revenue isrecognition ~~recognized~~framework. The core principle is that a company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled ~~in exchange for those goods or services~~to. InThe ~~addition, the~~ guidance will require additional disclosures regarding the nature, amount, timing and uncertainty of revenue arising from contracts with customers. This guidance will be effective ~~for TEC~~ beginning in 2018, with early adoption permitted in 2017, and will allow for either full retrospective adoption or modified retrospective adoption. TEC will adopt this guidance effective Jan. 1, 2018. TEC has developed an implementation plan and is continuing to evaluate the available adoption methods. ~~and~~While TEC does not expect the impact ofto be significant, it is continuing to evaluate the impact of adoption of this ~~guidance~~standard on its consolidated financial statements, ~~but~~and ~~does not expect the impact to be significant~~disclosures.

Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities

In January 2016, the FASB issued ASU ~~guidance~~2016-01, ~~related~~Financial toInstruments ~~accounting~~– ~~for~~Recognition ~~financial~~and ~~instruments,~~Measurement ~~including~~of ~~equity~~Financial ~~investments,~~Assets ~~financial~~and ~~liabilities~~Financial ~~under~~Liabilities. ~~the~~The ~~fair~~standard ~~value~~provides ~~option,~~guidance ~~valuation allowances~~ for ~~available-for-sale~~the ~~debt~~recognition, ~~securities~~measurement, ~~and the~~ presentation and disclosure ~~requirements~~of ~~for~~ financial ~~instruments.~~assets and liabilities. TEC does not have equity investments or available-for-sale debt securities and it does not record financial liabilities under the fair value option. However, it is evaluating the impact of the adoption of this guidance on its financial statement disclosures,. This ~~including~~guidance ~~those~~will ~~regarding~~be ~~the~~effective ~~fair~~for ~~value~~annual ofreporting ~~its long-term debt~~periods, ~~but~~including itinterim ~~does~~reporting ~~not~~within ~~expect~~those ~~the~~periods, ~~impact~~beginning toafter ~~be significant~~Dec. ~~The~~15, ~~guidance will be effective for TEC beginning in 2018~~2017.

Leases (Topic 842)

In February 2016, the FASB issued ~~guidance~~ASU ~~regarding~~2016-02, ~~the accounting for leases~~Leases. The ~~objective~~standard isincreases ~~to increase~~ transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet for leases with aterms ~~lease term~~ of more than 12 months. Under the existing guidance, operating leases are not recorded as lease assets and lease liabilities on the balance sheet. ~~Recognition~~The effect of ~~expenses for both operating and finance~~ leases ~~will~~on bethe ~~similar~~Consolidated toStatements ~~existing~~of ~~guidance~~Income and ~~as a result is expected to limit~~ the ~~impact~~Consolidated Statements of ~~the~~Cash ~~changes~~Flows onis ~~the~~largely ~~income statement and statement of cash flows~~unchanged. The ~~In addition, the~~ guidance will require additional disclosures regarding key information about leasing arrangements. This guidance ~~will~~is be effective for ~~TEC~~annual reporting periods including interim reporting within those periods, beginning inafter ~~2019~~Dec. 15, ~~with~~2018. ~~early~~Early adoption is permitted, and ~~will~~is required to be applied using a modified retrospective approach. TEC is currently evaluating the ~~impacts~~impact of ~~the~~ adoption of ~~the~~this ~~guidance~~standard on its consolidated financial statements.

Derivative Contract Novations

In March 2016, the FASB issued guidance clarifying that a change in the counterparty to a derivative contract, in and of itself, does not require the dedesignation of a hedging relationship provided that all other hedge accounting criteria continue to be met. The guidance is effective for TEC beginning in 2017, with early adoption permitted, and may be applied on a prospective or modified retrospective basis. The guidance will not affect TEC’s current financial statements. However, TEC will assess the impact of this guidance on future derivative contract novations, if any.

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. The standard provides guidance regarding the measurement of credit losses for financial assets and certain other instruments that are not accounted for at fair value through net income, including trade and other receivables, debt securities, net investment in leases, and off-balance sheet credit exposures. The new guidance requires companies to replace the current incurred loss impairment methodology with a methodology that measures all expected credit losses for financial assets based on historical experience, current conditions, and reasonable and supportable forecasts. InThe ~~addition, the~~ guidance expands the disclosure requirements regarding credit losses, including the credit loss methodology and credit quality indicators. This guidance will be effective ~~for TEC~~ beginning in 2020, with early adoption permitted in 2019, and will be applied using a modified retrospective approach. TEC is currently evaluating the ~~impacts~~impact of ~~the~~ adoption of ~~the~~this ~~guidance~~standard on its consolidated financial statements.

Classification of Certain Cash Receipts and Cash Payments on the Statement of Cash Flows

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments on the Statement of Cash Flows. The standard provides guidance regarding the classification of certain cash receipts and cash payments on the statement of cash flows, where specific guidance is provided for issues not previously addressed. This guidance will be effective for TEC beginning in 2018, with early adoption permitted, and is required to be applied on a retrospective approach. TEC is currently evaluating the impact of adoption of this standard on its consolidated statement of cash flows.

3. Regulatory

Tampa Electric’s retail business and PGS’s ~~retail businesses~~ are regulated separately by the FPSC. Tampa Electric is also subject to regulation by the FERC. 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 atbased on a ~~level~~cost ~~that~~of ~~allows~~service ~~utilities~~methodology ~~such~~which asallows ~~Tampa~~utilities ~~Electric and PGS~~ to collect total revenues (revenue requirement) equal to their cost of providing service, plus a reasonable return on invested capital.

Regulatory Assets and Liabilities

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; 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; and the advance recovery of expenditures for approved costs such as future storm damage or the future removal of property. All regulatory assets are recovered through the regulatory process.

Details of the regulatory assets and liabilities are presented in the following table:

Regulatory Assets and Liabilities
(millions)	~~June~~Sept. 30, 2016		Dec. 31, 2015
Regulatory assets:
Regulatory tax asset (1)	$	8083.61	$	74.6
Cost-recovery clauses - deferred balances (2)		24.54		5.2
Cost-recovery clauses - offsets to derivative liabilities (2)		01.85		26.2
Environmental remediation (3)		54.68		54.0
Postretirement benefits (4)		~~234~~296.35		238.3
Deferred bond refinancing costs (5)		65.19		6.5
Competitive rate adjustment (2)		2.5		2.6
Other		10.41		10.7
Total regulatory assets		~~391~~458.8		418.1
Less: Current portion		1820.06		44.3
Long-term regulatory assets	$	~~373~~438.82	$	373.8
Regulatory liabilities:
Regulatory tax liability	$	5.3	$	5.7
Cost-recovery clauses (2)		92107.58		54.2
Transmission and delivery storm reserve		56.1		56.1
Accumulated reserve - cost of removal (6)		~~564~~554.78		570.0
Other		13.84		0.7
Total regulatory liabilities		~~732~~737.4		686.7
Less: Current portion		~~124~~140.4		83.2
Long-term regulatory liabilities	$	~~608~~597.0	$	603.5

(2)

These assets and liabilities are related to FPSC clauses and riders. They are recovered or refunded through cost-recovery mechanisms approved by the FPSC on a dollar-for-dollar basis in the next year. In the case of the regulatory asset related to derivative liabilities, recovery occurs in the year following the settlement of the derivative position.

(3)

(4)	This asset is related to the deferred costs of postretirement benefits. It is included in rate base and earns a rate of return as permitted by the FPSC. It is amortized over the remaining service life of plan participants.

(6)

4. Income Taxes

~~TEC~~Effective isJuly ~~included~~1, in2016 and due to the ~~filing~~Merger ofwith Emera, TEC is included in a consolidated U.S. federal income tax return with ~~TECO~~EUSHI ~~Energy~~ and its ~~affiliates~~subsidiaries. TEC’s income tax expense is based upon a separate return ~~computation~~method, modified for the benefits-for-loss allocation in accordance with EUSHI’s tax sharing agreement. To the extent that TEC’s ~~effective~~cash tax ~~rates~~positions ~~for~~are settled differently than the ~~six~~amount ~~months~~reported ~~ended~~as ~~June~~realized 30under the tax sharing agreement, ~~2016~~the ~~and~~difference ~~2015~~is ~~differ~~accounted ~~from~~for ~~the~~as ~~statutory~~either ~~rate~~a ~~principally~~capital ~~due~~contribution toor ~~the~~a ~~tax~~distribution. ~~benefit~~Taxes ~~related~~accrued to ~~AFUDC-equity~~affiliates was $14.2 million as of Sept. 30 2016.

~~The IRS concluded its examination of TECO Energy~~TEC’s ~~2014~~effective ~~consolidated federal income~~ tax ~~return~~rates ~~in December 2015. The U.S. federal statute of limitations remains open~~ for the ~~year~~three ~~2012~~months ~~and~~ended ~~forward~~Sept. ~~Years~~30, ~~2015~~2016 and ~~2016~~2015 ~~are~~were ~~currently under examination by the IRS under its Compliance Assurance Program (CAP)~~32.53% ~~Due~~and ~~to the Merger with Emera~~37.73%, ~~TECO~~respectively. ~~Energy~~The iseffective ~~only~~tax ~~eligible~~rates tofor ~~participate in~~ the ~~CAP~~nine ~~through~~months ~~its~~ended ~~short~~Sept. ~~tax year ending June~~ 30, 2016. ~~Florida’s~~and ~~statute~~2015 ofwere ~~limitations~~34.59% isand ~~three~~37.15%, ~~years~~respectively. ~~from~~The ~~the~~decrease ~~filing~~in ofthe anthree-month ~~income~~effective tax ~~return.~~rate ~~The state impact~~ of ~~any~~5.2% ~~federal~~in ~~changes~~2016 ~~remains~~versus ~~subject~~the tosame ~~examination~~period byin ~~various~~2015 ~~states~~is ~~for~~primarily adue ~~period of up~~ to ~~one~~a ~~year~~tax ~~after~~benefit ~~formal~~recorded ~~notification~~in to the ~~states.~~third ~~Years~~quarter ~~still~~of ~~open~~2016 tofor ~~examination~~federal byR&D ~~Florida~~credits. TEC’s effective tax ~~authorities~~rates ~~include~~for ~~2005~~the ~~and~~nine ~~forward~~months asended aSept. ~~result~~30, of2016 ~~TECO~~and ~~Energy’s~~2015 ~~consolidated~~differ ~~Florida~~from ~~net operating loss still being utilized. TEC does not expect~~ the ~~settlement~~statutory ofrate ~~audit~~principally ~~examinations~~due to ~~significantly change~~ the ~~total~~tax ~~amount~~benefit ofrelated ~~unrecognized~~to ~~tax~~AFUDC-equity ~~benefits~~and byfederal ~~the~~R&D ~~end of 2016~~credits.

The IRS concluded its examination of TECO Energy’s 2014 consolidated federal income tax return in December 2015. The U.S. federal statute of limitations remains open for the year 2013 and forward. Years 2015 and the short tax year ending June 30, 2016 are currently under examination by the IRS under its Compliance Assurance Program (CAP). Due to the Merger with Emera, TECO Energy is only able to participate in the CAP through its short tax year ending June 30, 2016. Florida’s statute of limitations is three years from the filing of an income tax return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. Years still open to examination by Florida’s tax authorities include 2005 and forward as a result of TECO Energy’s consolidated Florida net operating loss still being utilized.

Accounting for Uncertainty in Income Taxes

Authoritative guidance related to accounting for uncertainty in income taxes require an enterprise to recognize in its financial statements the best estimate of the impact of a tax position by determining if the weight of the available evidence indicates that it is more likely than not, based solely on the technical merits, that the position will be sustained upon examination, including resolution of any related appeals and litigation processes. As of Sept. 30, 2016 and Dec. 31, 2015, TEC’s uncertain tax positions were $6.5 million and zero, respectively, all of which was recorded as a reduction of deferred income tax assets for tax credit carryforwards. The increase was due to an uncertain tax position related to federal R&D tax credits. TEC believes that the total unrecognized tax benefits will decrease within the next twelve months due to the expected audit examination of TECO Energy’s consolidated federal income tax return for the short tax year ending June 30, 2016. As of Sept. 30, 2016, if recognized, $6.5 million of the unrecognized tax benefits would reduce TEC’s effective tax rate.

5. Employee Postretirement Benefits

TEC is a participant in the comprehensive retirement plans of TECO Energy. Amounts allocable to all participants of the TECO Energy retirement plans are found in Note 5, Employee Postretirement Benefits, in the TECO Energy Notes to Consolidated Condensed Financial Statements. TEC’s portion of the net pension expense for the three months ended ~~June~~Sept. 30, 2016 and 2015, respectively, was $3.25 million and $43.23 million for pension benefits, and $1.57 million and $1.54 million for other postretirement benefits. TEC’s portion of the net pension expense for the ~~six~~nine months ended ~~June~~Sept. 30, 2016 and 2015, respectively, was $69.16 million and $610.81 million for pension benefits, and $34.07 million and $24.93 million for other postretirement benefits.

For the ~~2016~~Jan. ~~plan~~1, ~~year~~2016 measurement, TECO Energy assumed a long-term EROA of 7.00% and a discount rate of 4.685% for pension benefits under its qualified pension plan. For the Jan. 1, 2016 measurement of TECO Energy’s other postretirement benefits, TECO Energy used a discount rate of 4.667%. Additionally, TECO Energy made contributions of $15.6 million and $24.5 million to its pension plan in the six months ended June 30, 2016 and 2015, respectively. TEC’s portion of the contributions was $12.9 million and $18.5 million, respectively.

~~Included~~As ina result of the ~~benefit~~Merger, ~~expenses~~TECO ~~discussed~~Energy ~~above,~~remeasured ~~for~~its ~~the~~employee ~~three~~postretirement ~~and~~benefit ~~six~~plans ~~months~~on ~~ended~~the ~~June~~Merger ~~30,~~effective ~~2016~~date, ~~TEC~~July ~~reclassified~~1, $22016.8 ~~million~~As ~~and~~part $of ~~4.8~~the ~~million~~remeasurement, ~~respectively,~~TECO ofEnergy ~~unamortized~~used ~~prior~~an ~~service~~above-mean ~~benefit~~yield ~~and~~curve ~~actuarial~~to ~~losses~~determine ~~from~~its ~~regulatory~~discount ~~assets~~rate. toThe ~~net~~above-mean ~~income~~yield curve technique matches the yields from high-quality (AA-rated, ~~compared~~non-callable) ~~with~~corporate ~~$2.8~~bonds ~~million~~to ~~and~~the ~~$4.7~~company’s ~~million~~projected cash flows for the ~~three~~plans ~~and~~to ~~six~~develop ~~months~~a ~~ended~~present ~~June~~value ~~30,~~that ~~2015~~is converted to a discount rate assumption, ~~respectively.~~which is subject to change each

year. TECO Energy previously used a bond model matching technique to determine its discount rate. The change in discount rate resulting from the different methodology used to select a discount rate did not have a material impact on the company’s financial statements and provides consistency with Emera’s method for selecting a discount rate. For the July 1, 2016 measurement, TECO Energy used an assumed long-term EROA of 7.00% and a discount rate of 3.72% for pension benefits under its qualified pension plan. For the July 1, 2016 measurement of TECO Energy’s other postretirement benefits, TECO Energy assumed a discount rate of 3.85%.

As a result of the remeasurement, TEC’s net periodic benefit expense increased by $0.8 million for pension benefits and $0.3 million for other postretirement benefits for the three- and nine-months ended Sept. 30, 2016. TEC’s liability and associated regulatory asset for pension benefits increased $53.3 million and $12.4 million for other postretirement benefits.

TECO Energy made contributions of $37.4 million and $55.0 million to its qualified pension plan in the nine months ended Sept. 30, 2016 and 2015, respectively. TEC’s portion of the contributions was $30.9 million and $43.9 million, respectively.

Included in the benefit expenses discussed above, for the three and nine months ended Sept. 30, 2016, TEC reclassified $2.8 million and $7.6 million, respectively, of unamortized prior service benefit and actuarial losses from regulatory assets to net income, compared with $2.3 million and $7.0 million for the three and nine months ended Sept. 30, 2015, respectively.

6. Short-Term Debt

Details of the credit facilities and related borrowings are presented in the following table:

Credit Facilities
	June 30, 2016						Dec. 31, 2015
	Sept. 30, 2016						Dec. 31, 2015
					Letters						Letters
	Credit		Borrowings		of Credit		Credit		Borrowings		of Credit
(millions)	Facilities		Outstanding (1)		Outstanding		Facilities		Outstanding (1)		Outstanding
Tampa Electric Company:
5-year facility (2)	$	325.0	$	0.0	$	0.5	$	325.0	$	0.0	$	0.5
3-year accounts receivable facility (3)		150.0		~~123~~49.0		0.0		150.0		61.0		0.0
Total	$	475.0	$	~~123~~49.0	$	0.5	$	475.0	$	61.0	$	0.5

(1)	Borrowings outstanding are reported as notes payable.

(2)	This 5-year facility matures Dec. 17, 2018.

(3) ~~Prior to Mar. 24, 2015, this was a 1-year facility.~~ This 3-year facility matures Mar. 23, 2018.

7. Long-Term Debt

Fair Value of Long-Term Debt

At ~~June~~Sept. 30, 2016, TEC’s total long-term debt had a carrying amount of $2,162.36 million and an estimated fair market value of $2,~~446~~505.26 million. At Dec. 31, 2015, TEC’s total long-term debt had a carrying amount of $2,245.0 million and an estimated fair market value of $2,433.3 million. TEC uses the market approach in determining fair value. The majority of the outstanding debt is valued using real-time financial market data obtained from Bloomberg Professional Service. The remaining securities are valued using prices obtained from the Municipal Securities Rulemaking Board ~~and~~or by applying estimated credit spreads obtained from a third party to the par value of the security. The fair value of debt securities totaling $58.83 million is determined using Level 1 measurements; the fair value of the remaining debt securities is determined using Level 2 measurements (see Note 11 for information regarding the fair value hierarchy).

Purchase in Lieu of Redemption of Revenue Refunding Bonds

On Mar. 19, 2008, the HCIDA remarketed $86.0 million HCIDA Pollution Control Revenue Refunding Bonds, Series 2006 (Non-AMT) (the Series 2006 HCIDA Bonds) in a term-rate mode pursuant to the terms of the Loan and Trust agreement governing those bonds. The Series 2006 HCIDA Bonds bore interest at a term rate of 5.00% per annum from Mar. 19, 2008 to Mar. 15, 2012. On Mar. 15, 2012, TEC purchased in lieu of redemption the Series 2006 HCIDA Bonds. The Series 2006 HCIDA Bonds bore interest at a term rate of 1.875% per annum from Mar. 15, 2012 to Mar. 15, 2016. On Mar. 15, 2016, pursuant to the terms of the Loan and Trust Agreement governing the Series 2006 HCIDA Bonds, a mandatory tender occurred and a term rate of 2.00% per annum will apply from Mar. 15, 2016 to Mar. 15, 2020. The 2016 mandatory tender did not impact the Consolidated Condensed Balance Sheet. TEC is responsible for payment of the interest and principal associated with the Series 2006 HCIDA Bonds. Regularly scheduled principal and interest when due, are insured by Ambac Assurance Corporation.

As of June 30, 2016, $232.6 million of bonds purchased in lieu of redemption, including the series 2006 HCIDA Bonds described above, were held by the trustee at the direction of TEC to provide an opportunity to evaluate refinancing alternatives.41

Agreement governing the Series 2006 HCIDA Bonds, a mandatory tender occurred and a term rate of 2.00% per annum will apply from Mar. 15, 2016 to Mar. 15, 2020. The 2016 mandatory tender did not impact the Consolidated Condensed Balance Sheet. TEC is responsible for payment of the interest and principal associated with the Series 2006 HCIDA Bonds. Regularly scheduled principal and interest when due, are insured by Ambac Assurance Corporation.

As of Sept. 30, 2016, $232.6 million of bonds purchased in lieu of redemption, including the series 2006 HCIDA Bonds described above, were held by the trustee at the direction of TEC to provide an opportunity to evaluate refinancing alternatives.

8. Commitments and Contingencies

Legal Contingencies

From time to time, TEC and its subsidiaries are involved in various legal, tax and regulatory proceedings before various courts, regulatory commissions and governmental agencies in the ordinary course of its business. Where appropriate, accruals are made in accordance with accounting standards for contingencies to provide for matters that are probable of resulting in an estimable loss. The company believes the claims in the pending actions described below are without merit and intends to defend the matters vigorously.

Peoples Gas Legal Proceedings

PGS Compliance Matter

In 2015, FPSC staff presented PGS with a summary of alleged safety rule violations, many of which were identified during PGS’ implementation of an action plan it instituted as a result of audit findings cited by FPSC audit staff in 2013. Following the 2013 audit and 2015 discussions with FPSC staff, PGS took immediate and significant corrective actions. The FPSC audit staff published a follow-up audit report that acknowledged the progress that had been made and found that further improvements were needed. As a result of this report, the Office of Public Counsel (OPC) filed a petition with the FPSC pointing to the violations of rules for safety inspections seeking fines or possible refunds to customers by PGS. On Feb. 25, 2016, the FPSC staff issued a notice informing PGS that the staff would be making a recommendation to the FPSC to initiate a show cause proceeding against PGS for alleged safety rule violations, with total potential penalties of up to $3.9 million. On Apr. 18, 2016, PGS reached a settlement regarding this matter with

the OPC and FPSC staff and agreed to pay a $1 million civil penalty and customer refunds of $2 million. The FPSC approved the settlement agreement on May 5, 2016.

Superfund and Former Manufactured Gas Plant Sites

Letters of Credit

A summary of the face amount or maximum theoretical obligation under TEC’s letters of credit as of June 30, 2016 is as follows:

Letters of Credit - Tampa Electric Company
(millions)					After (1)				Liabilities Recognized
Letters of Credit for the Benefit of:	2016		2017-2020		2020		Total		at June 30, 2016
TEC (2)	$	0.0	$	0.0	$	0.5	$	0.5	$	0.1
(1) These letters of credit renew annually and are shown on the basis that they will continue to renew beyond 2020.
(2) The amounts shown are the maximum theoretical amounts guaranteed under current agreements. Liabilities recognized represent the associated obligation under these agreements at June 30, 2016. The obligations under these letters of credit include certain accrued injuries and damages when a letter of credit covers the failure to pay these claims.

Financial Covenants

~~In order to utilize its bank credit facilities,~~ TEC must meet certain financial tests, including a debt to capital ratio, as defined in the applicable banking agreements. ~~In addition,~~ TEC has certain restrictive covenants in specific agreements and debt instruments. At ~~June~~Sept. 30, 2016, TEC was in compliance with all applicable financial covenants.

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9. Segment Information

(millions)	Tampa							~~Tampa Electric~~		Tampa Electric
Three months ended June 30,	Electric		PGS		Eliminations			Company
Three months ended Sept. 30,	Electric		PGS		Eliminations					Company
2016
Revenues - external	$	~~498~~585.89	$	~~100~~103.02	$	0.0		$	~~598.8~~	$	689.1
Intracompany sales		0.40		10.95		(20.35	)		~~0.0~~		0.0
Total revenues		~~499~~585.29		~~101~~103.97		(20.35	)		~~598.8~~		689.1
Depreciation and amortization		66.5		14.9		0.0			81.4
Total interest charges		22.4		3.7		0.0					26.1
Total interest charges		22.6		3.7		(0.1	)		26.2
Net income	$	94.1	$	6.5	$	0.0				$	100.6
Provision for income taxes		36.9		4.6		0.0			41.5
2015
Net income	$	68.6	$	7.1	$	0.0			75.7
Revenues - external	$	560.1	$	88.1	$	0.0				$	648.2
2015
Intracompany sales		0.1		2.0		(2.1	)				0.0
Revenues - external	$	532.4	$	92.2	$	0.0		$	624.6
Total revenues		560.2		90.1		(2.1	)				648.2
Intracompany sales		0.0		1.3		(1.3	)		0.0
Total interest charges		24.1		3.7		0.0					27.8
Total revenues		532.4		93.5		(1.3	)		624.6
Net income	$	82.1	$	6.2	$	0.0				$	88.3
Depreciation and amortization		64.0		14.0		0.0			78.0
Nine months ended Sept. 30,
Total interest charges		23.6		3.6		0.0			27.2
2016
Provision for income taxes		38.9		4.8		0.0			43.7
Revenues - external	$	1,508.9	$	330.0	$	0.0				$	1,838.9
Net income	$	67.7	$	7.6	$	0.0		$	75.3
Intracompany sales		0.7		6.8		(7.5	)				0.0
Six months ended June 30,
Total revenues		1,509.6		336.8		(7.5	)				1,838.9
2016
Total interest charges		68.8		11.1		(0.1	)				79.8
Revenues - external	$	923.0	$	226.8	$	0.0		$	1,149.8
Net income	$	212.9	$	26.7	$	0.0				$	239.6
Intracompany sales		0.7		6.3		(7.0	)		0.0
2015
Total revenues		923.7		233.1		(7.0	)		1,149.8
Revenues - external	$	1,542.9	$	302.0	$	0.0				$	1,844.9
Depreciation and amortization		132.6		29.7		0.0			162.3
Intracompany sales		0.3		4.5		(4.8	)				0.0
Total interest charges		46.4		7.4		(0.1	)		53.7
Total revenues		1,543.2		306.5		(4.8	)				1,844.9
Provision for income taxes		64.7		13.5		0.0			78.2
Total interest charges		71.2		10.8		0.0					82.0
Net income	$	~~118~~198.80	$	2028.24	$	0.0		$	~~139.0~~	$	226.4
2015
Total assets at Sept. 30, 2016	$	7,244.9	$	1,161.5	$	(452.6	)	(2	)	$	7,953.8
Revenues - external	$	982.8	$	213.9	$	0.0		$	1,196.7
Total assets at Dec. 31, 2015 (1)	$	7,003.8	$	1,136.1	$	(431.3	)	(2	)	$	7,708.6
Intracompany sales		0.2		2.5		(2.7	)		0.0
Total revenues		983.0		216.4		(2.7	)		1,196.7
Depreciation and amortization		126.9		27.9		0.0			154.8
Total interest charges		47.1		7.1		0.0			54.2
Provision for income taxes		66.3		14.0		0.0			80.3
Net income	$	115.9	$	22.2	$	0.0		$	138.1
Total assets at June 30, 2016	$	6,720.1	$	1,099.8	$	(3.2	)	$	7,816.7
Total assets at Dec. 31, 2015 (1)		6,620.2		1,097.7		(9.3	)		7,708.6

(1)

Certain prior year amounts have been reclassified to conform to current year presentation.

(2)

Amounts relate to consolidated tax reclassifications.

10. Accounting for Derivative Instruments and Hedging Activities

From time to time, TEC enters into futures, forwards, swaps and option contracts for the following purposes:

·• To limit the exposure to price fluctuations for physical purchases and sales of natural gas in the course of normal operations, and

·• To limit the exposure to interest rate fluctuations on debt securities.

TEC uses derivatives only to reduce normal operating and market risks, not for speculative purposes. TEC’s primary objective in using derivative instruments for regulated operations is to reduce the impact of market price volatility on ratepayers.

The risk management policies adopted by TEC provide a framework through which management monitors various risk exposures. Daily and periodic reporting of positions and other relevant metrics are performed by a centralized risk management group, which is independent of all operating companies.

41TEC applies the accounting standards for derivative instruments and hedging activities. These standards require companies to recognize derivatives as either assets or liabilities in the financial statements, to measure those instruments at fair value and to reflect the changes in the fair value of those instruments as either components of OCI or in net income, depending on the designation of those instruments (see Note 11). The changes in fair value that are recorded in OCI are not immediately recognized in current net income. As the underlying hedged transaction matures or the physical commodity is delivered, the deferred gain or loss on the related hedging instrument must be reclassified from OCI to earnings based on its value at the time of the instrument’s settlement. For effective hedge transactions, the amount reclassified from OCI to earnings is offset in net income by the market change of the amount paid or received

TEC applies the accounting standards for derivative instruments and hedging activities. These standards require companies to recognize derivatives as either assets or liabilities in the financial statements, to measure those instruments at fair value and to reflect the changes in the fair value of those instruments as either components of OCI or in net income, depending on the designation of those instruments (see Note 11). The changes in fair value that are recorded in OCI are not immediately recognized in current net income. As the underlying hedged transaction matures or the physical commodity is delivered, the deferred gain or loss on the related hedging instrument must be reclassified from OCI to earnings based on its value at the time of the instrument’s settlement. For effective hedge transactions, the amount reclassified from OCI to earnings is offset in net income by the market change of the amount paid or received on the underlying physical transaction. 43

on the underlying physical transaction.

TEC applies the accounting standards for regulated operations to financial instruments used to hedge the purchase of natural gas for its regulated companies. These standards, in accordance with the FPSC, permit the changes in fair value of natural gas derivatives to be recorded as regulatory assets or liabilities reflecting the impact of hedging activities on the fuel recovery clause. As a result, these changes are not recorded in OCI (see Note 3).

TEC’s physical contracts qualify for the NPNS exception to derivative accounting rules, provided they meet certain criteria. Generally, NPNS applies if TEC deems the counterparty creditworthy, if the counterparty owns or controls resources within the proximity to allow for physical delivery of the commodity, if TEC intends to receive physical delivery and if the transaction is reasonable in relation to TEC’s business needs. As of ~~June~~Sept. 30, 2016, all of TEC’s physical contracts qualify for the NPNS exception.

The derivatives that are designated as cash flow hedges at ~~June~~Sept. 30, 2016 and Dec. 31, 2015 are reflected on TEC’s Consolidated Condensed Balance Sheets and classified accordingly as current and long-term assets and liabilities on a net basis as permitted by their respective master netting agreements. Derivative assets totaled $41.95 million and $0.0 as of ~~June~~Sept. 30, 2016 and Dec. 31, 2015, respectively. Derivative liabilities totaled $01.75 million and $26.2 million as of ~~June~~Sept. 30, 2016 and Dec. 31, 2015, respectively. There are minor offset amount differences between the gross derivative assets and liabilities and the net amounts ~~presented~~included onin the Consolidated Condensed Balance Sheets. There was no cash collateral posted with or received from any counterparties.

All of the derivative assets and liabilities at ~~June~~Sept. 30, 2016 and Dec. 31, 2015 are designated as hedging instruments, which primarily are derivative hedges of natural gas contracts to limit the exposure to changes in market price for natural gas used to produce energy and natural gas purchased for resale to customers. The corresponding effect of these natural gas related derivatives on the regulated utilities’ fuel recovery clause mechanism is reflected on the Consolidated Condensed Balance Sheets as current and long-term regulatory assets and liabilities. Based on the fair value of the instruments at ~~June~~Sept. 30, 2016, net pretax losses of $20.71 million are expected to be reclassified from regulatory assets or liabilities to the Consolidated Condensed Statements of Income within the next twelve months.

The ~~June~~Sept. 30, 2016 and Dec. 31, 2015 balance in AOCI related to the cash flow hedges and interest rate swaps (unsettled and previously settled) is presented in Note 12.

The maximum length of time over which TEC is hedging its exposure to the variability in future cash flows extends to ~~June~~Sept. 30, 2018 for financial natural gas contracts. The following table presents TEC’s derivative volumes that, as of ~~June~~Sept. 30, 2016, are expected to settle during the 2016, 2017 and 2018 fiscal years:

	Natural Gas Contracts
(millions)	(MMBTUs)
Year	Physical		Financial
2016		0.0		177.07
2017		0.0		1323.92
2018		0.0		25.63
Total		0.0		3336.52

TEC is exposed to credit risk by entering into derivative instruments with counterparties to limit its exposure to the commodity price fluctuations associated with natural gas. Credit risk is the potential loss resulting from a counterparty’s nonperformance under an agreement. TEC manages credit risk with policies and procedures for, among other things, counterparty analysis, exposure measurement and exposure monitoring and mitigation.

42It is possible that volatility in commodity prices could cause TEC to have material credit risk exposures with one or more counterparties. If such counterparties fail to perform their obligations under one or more agreements, TEC could suffer a material financial loss. However, as of Sept. 30, 2016, substantially all of the counterparties with transaction amounts outstanding in TEC’s energy portfolio were rated investment grade by the major rating agencies. TEC assesses credit risk internally for counterparties that are not rated.

It is possible that volatility in commodity prices could cause TEC to have material credit risk exposures with one or more counterparties. If such counterparties fail to perform their obligations under one or more agreements, TEC could suffer a material financial loss. However, as of June 30, 2016, substantially all of the counterparties with transaction amounts outstanding in TEC’s energy portfolio were rated investment grade by the major rating agencies. TEC assesses credit risk internally for counterparties that are not rated. 44

TEC has entered into commodity master arrangements with its counterparties to mitigate credit exposure to those counterparties. TEC generally enters into the following master arrangements: (1) EEI agreements—standardized power sales contracts in the electric industry; (2) ISDA agreements—standardized financial gas and electric contracts; and (3) NAESB agreements—standardized physical gas contracts. TEC believes that entering into such agreements reduces the risk from default by creating contractual rights relating to creditworthiness, collateral and termination.

TEC has implemented procedures to monitor the creditworthiness of its counterparties and to consider nonperformance risk in determining the fair value of counterparty positions. Net liability positions generally do not require a nonperformance risk adjustment as TEC uses derivative transactions as hedges and has the ability and intent to perform under each of these contracts. In the instance of net asset positions, TEC considers general market conditions and the observable financial health and outlook of specific counterparties in evaluating the potential impact of nonperformance risk to derivative positions.

Certain TEC derivative instruments contain provisions that require TEC’s debt to maintain an investment grade credit rating from any or all of the major credit rating agencies. If debt ratings were to fall below investment grade, it could trigger these provisions, and the counterparties to the derivative instruments could demand immediate and ongoing full overnight collateralization on derivative instruments in net liability positions. TEC has no other contingent risk features associated with any derivative instruments.

11. Fair Value Measurements

Items Measured at Fair Value on a Recurring Basis

Level 1: Observable inputs, such as quoted prices in active markets;

Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.

Assets and liabilities are measured at fair value based on one or more of the following three valuation techniques noted under accounting guidance:

(A) Market approach: Prices and other relevant information generated by market transactions involving

identical or comparable assets or liabilities;

(B) Cost approach: Amount that would be required to replace the service capacity of an asset (replacement

cost); and

expectations (including present value techniques, option-pricing and excess earnings models).

The fair value of financial instruments is determined by using various market data and other valuation techniques.

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The following tables set forth by level within the fair value hierarchy, TEC’s financial assets and liabilities that were accounted for at fair value on a recurring basis. As required by accounting standards for fair value measurements, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. TEC’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.

Recurring Derivative Fair Value Measures
	As of June 30, 2016
	As of Sept. 30, 2016
(millions)	Level 1		Level 2		Level 3		Total
Assets
Natural gas swaps	$	0.0	$	41.95	$	0.0	$	41.95
Liabilities
Natural gas swaps	$	0.0	$	01.75	$	0.0	$	01.75
	As of Dec. 31, 2015
(millions)	Level 1		Level 2		Level 3		Total
Liabilities
Natural gas swaps	$	0.0	$	26.2	$	0.0	$	26.2

Natural gas swaps are OTC swap instruments. The fair value of the swaps is estimated utilizing the market approach. The price of swaps is calculated using observable NYMEX quoted closing prices of exchange-traded futures. These prices are applied to the notional quantities of active positions to determine the reported fair value (see Note 10).

TEC considered the impact of nonperformance risk in determining the fair value of derivatives. TEC considered the net position with each counterparty, past performance of both parties, the intent of the parties, indications of credit deterioration and whether the markets in which TEC transacts have experienced dislocation. At ~~June~~Sept. 30, 2016, the fair value of derivatives was not materially affected by nonperformance risk. There were no Level 3 assets or liabilities for the periods presented.

12. Other Comprehensive Income

Other Comprehensive Income	Three months ended ~~June~~Sept. 30,							~~Six~~Nine months ended ~~June~~Sept. 30,
(millions)	Gross		Tax			Net		Gross		Tax			Net
2016
Unrealized gain on cash flow hedges	$	0.0	$	0.0		$	0.0	$	0.0	$	0.0		$	0.0
Reclassification from AOCI to net income		0.3		(0.1	)		0.2		01.70		(0.34	)		0.46
Gain on cash flow hedges		0.3		(0.1	)		0.2		01.70		(0.34	)		0.46
Total other comprehensive income	$	0.3	$	(0.1	)	$	0.2	$	01.70	$	(0.34	)	$	0.46
2015
Unrealized gain on cash flow hedges	$	40.0	$	(10.40	)	$	20.60	$	4.3	$	(1.5	)	$	2.8
Reclassification from AOCI to net income		0.3		(0.1	)		0.2		01.70		(0.45	)		0.35
Gain on cash flow hedges		40.3		(10.51	)		20.82		5.03		(12.90	)		3.13
Total other comprehensive income	$	40.3	$	(10.51	)	$	20.82	$	5.03	$	(12.90	)	$	3.13

Accumulated Other Comprehensive Loss
(millions)	~~June~~Sept. 30, 2016			Dec. 31, 2015
Net unrealized losses from cash flow hedges (1)	$	(3.20	)	$	(3.6	)
Total accumulated other comprehensive loss	$	(3.20	)	$	(3.6	)

(1) Net of tax benefit of $21.09 million and $2.3 million as of ~~June~~Sept. 30, 2016 and Dec. 31, 2015, respectively.

4446

13. Variable Interest Entities

Tampa Electric has entered into multiple PPAs with wholesale energy providers in Florida to ensure the ability to meet customer energy demand and to provide lower cost options in the meeting of this demand. These agreements range in size from 117 MW to 250 MW of available capacity, are with similar entities and contain similar provisions. Because some of these provisions provide for the transfer or sharing of a number of risks inherent in the generation of energy, these agreements meet the definition of being variable interests. These risks include: operating and maintenance, regulatory, credit, commodity/fuel and energy market risk. Tampa Electric has reviewed these risks and has determined that the owners of these entities have retained the majority of these risks over the expected life of the underlying generating assets, have the power to direct the most significant activities, and have the obligation or right to absorb losses or benefits. As a result, Tampa Electric is not the primary beneficiary and is not required to consolidate any of these entities. Tampa Electric purchased $1619.41 million and $2948.01 million under these PPAs for the three and ~~six~~nine months ended ~~June~~Sept. 30, 2016, respectively, and $910.97 million and $1526.30 million for the three and ~~six~~nine months ended ~~June~~Sept. 30, 2015, respectively.

TEC does not provide any material financial or other support to any of the VIEs it is involved with, nor is TEC under any obligation to absorb losses associated with these VIEs. In the normal course of business, TEC’s involvement with these VIEs does not affect its Consolidated Condensed Balance Sheets, Statements of Income or Cash Flows.

14. Mergers and Acquisitions

Merger with Emera Inc.

As disclosed in Note 1, TEC is a wholly owned subsidiary of TECO Energy. On July 1, 2016, TECO Energy and Emera completed the Merger contemplated by the Merger Agreement entered into on Sept. 4, 2015. As a result of the Merger, the Merger Sub Company merged with and into TECO Energy with TECO Energy continuing as the surviving corporation and becoming a wholly owned indirect subsidiary of Emera. Therefore, TEC continues to be a wholly owned subsidiary of TECO Energy and became an indirect wholly owned subsidiary of Emera as of July 1, 2016.

The Merger Agreement requires Emera, among other things, (i) to maintain TECO Energy’s historic levels of community involvement and charitable contributions and support in TECO Energy’s existing service territories, (ii) to maintain TECO Energy’s and TEC’s headquarters in Tampa, Florida, (iii) to honor current union contracts in accordance with their terms and (iv) to provide each continuing non-union employee, for a period of two years following the closing of the Merger, with a base salary or wage rate no less favorable than, and incentive compensation and employee benefits, respectively, substantially comparable in the aggregate to those that they received as of immediately prior to the closing.

~~15. Subsequent Events~~47

On July 1, 2016, TECO Energy and Emera completed the Merger contemplated by the Merger Agreement entered into on Sept. 4, 2015. As a result of the Merger, Merger Sub merged with and into TECO Energy with TECO Energy continuing as the surviving corporation and becoming a wholly owned indirect subsidiary of Emera. As TEC is a wholly owned subsidiary of TECO Energy, TEC became an indirect wholly owned subsidiary of Emera. See Note 14 for further information.

Item 2.

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS

This Management’s Discussion & Analysis contains forward-looking statements, which are subject to the inherent uncertainties in predicting future results and conditions. Actual results may differ materially from those forecasted. The forecasted results are based on the company's current expectations and assumptions, and the company does not undertake to update that information or any other information contained in this Managements Discussion & Analysis, except as may be required by law. Factors that could impact actual results include: the ability to retain and motivate the workforce during the period of integration with Emera; regulatory actions by federal, state or local authorities; unexpected capital needs or unanticipated reductions in cash flow that affect liquidity; the ability to access the capital and credit markets when required; general economic conditions affecting customer growth and energy sales at the utility companies; economic conditions affecting the Florida and New Mexico economies; weather variations and customer energy usage patterns affecting sales and operating costs at the utilities and the effect of weather conditions on energy consumption; the effect of extreme weather conditions or hurricanes; general operating conditions; input commodity prices affecting cost at all of the operating companies; natural gas demand at the utilities; and the ability of TECO Energy's subsidiaries to operate equipment without undue accidents, breakdowns or failures. Additional information is contained under "Risk Factors" in ~~Item~~TECO 1AEnergy’s ~~Risk~~Annual ~~Factors~~Report ofon ~~Part~~Form II10-K offor ~~this~~the year ended Dec. 31, 2015 and the update in TECO Energy’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016.

~~Acquisition~~Merger bywith Emera

On July 1, 2016, ~~the acquisition of~~ TECO Energy’s byMerger with Emera closed. Upon closing, TECO Energy became a wholly owned indirect subsidiary of Emera. Pursuant to the Merger Agreement, upon closing, each issued and outstanding share of TECO Energy common stock was cancelled and converted into the right to receive $27.55 in cash, without interest (see Note 1614 to the TECO Energy Consolidated Financial Statements). The acquisition method of accounting was not pushed down to TECO Energy or its subsidiaries.

Earnings Summary - Unaudited

	Three Months Ended June 30,						Six Months Ended June 30,
	Three Months Ended Sept. 30,						Nine months ended Sept. 30,
(millions) Except per-share amounts	2016			2015			2016			2015
Consolidated revenues	$	~~652~~726.37		$	~~680~~693.68		$	12,~~311~~038.85		$	12,~~373~~067.64
Net income from continuing operations		569.54			6164.59			79148.26			~~125~~190.32
Loss on discontinued operations, net		(0.20	)		(4911.7	)		(0.1	)		(5567.52	)
Net income		569.34			1153.82			79148.15			69123.80
Average common shares outstanding
Basic		234.3			233.0			234.1		232.9
Diluted	235.5			233.6			235.4			233.5
Earnings per share – basic
Continuing operations	$	0.03		$	0.26		$	0.34		$	0.53
Discontinued operations		0.00			(0.21	)		0.00			(0.23	)
Earnings per share - basic	$	0.03		$	0.05		$	0.34		$	0.30
Earnings per share – diluted
Continuing operations	$	0.03		$	0.26		$	0.34		$	0.53
Discontinued operations		0.00			(0.21	)		0.00			(0.23	)
Earnings per share - diluted	$	0.03		$	0.05		$	0.34		$	0.30

Operating Results

Three Months Ended ~~June~~Sept. 30, 2016

~~Second-~~Third quarter 2016 net income was $569.34 million, ~~or $0.03 per share,~~ compared with $1153.82 million, ~~or $0.05 per share,~~ in the ~~second~~third quarter of 2015. Net income from continuing operations was $569.54 million, ~~or $0.03 per share,~~ in the 2016 ~~second~~third quarter, compared with $6164.59 million, ~~or $0.26 per share,~~ for the same period in 2015. ~~Net~~Third ~~income~~quarter ~~from~~2016 ~~continuing~~results ~~operations~~include in$27.3 million of costs related to the ~~2016~~Merger ~~period~~with ~~reflects~~Emera ($5845.49 million ofpretax), ~~Emera~~compared ~~acquisition-related~~with ~~costs~~$12.2 million in the third quarter of 2015 ($7115.4 million pretax) (see Note 1614 to the TECO Energy Consolidated Financial Statements). The ~~second~~third quarter ~~losses~~loss in discontinued operations of $4911.7 million in 2015 reflected the operating results and charges associated with TECO Coal, which was sold in 2015 (see Note 15 to the TECO Energy Consolidated Financial Statements).

~~Six~~Nine Months Ended ~~June~~Sept. 30, 2016

Year-to-date net income through the ~~second~~third quarter of 2016 was $79148.15 million, ~~or $0.34 per share,~~ compared with $69123.80 million, ~~or $0.30 per share,~~ in the 2015 year-to-date period. Net income from continuing operations was $79148.6 million in the 2016 year-to-date period, compared with $190.2 million for the same period in 2015. Year-to-date 2016 net income reflects $85.8 million of Emera transaction-related costs ($117.4 million pretax), orcompared to $012.342 ~~per~~million ~~share~~of Emera transaction-related costs ($15.4 million pretax) and $1.2 million of NMGC integration costs in the year-to-date 2015 results. The $67.2 million year-to-date loss in discontinued operations in 2015 reflected the operating results and charges associated with TECO Coal, which was sold in 2015.

the 2016 year-to-date period, compared with $125.3 million, or $0.53 per share, for the same period in 2015. Year-to-date 2016 net income reflects $58.5 million of Emera acquisition-related costs. The $55.5 million year-to-date loss in discontinued operations in 2015 reflected the operating results and charges associated with TECO Coal, which was sold in 2015.

Operating Company Results

All amounts included in the operating company discussions below are after tax, unless otherwise noted.

Tampa Electric Company – Electric Division

Tampa Electric’s net income for the ~~second~~third quarter of 2016 was $6894.61 million, compared with $6782.71 million for the same period in 2015. ~~Second~~ Third-quarter net income in 2016 included $6.02 million of AFUDC-equity, which represents allowed equity cost capitalized to construction costs, and $6.2 million of federal R&D tax credits, compared with $34.76 million of AFUDC-equity in the 2015 quarter. Results for the quarter reflected a 1.6% higher average number of customers. Energy sales were ~~lower~~higher due to ~~more~~above normal summer weather compared to the ~~second~~third quarter of 2015 when ~~consistently~~weather ~~higher~~was ~~than~~only ~~normal~~slightly ~~spring~~above ~~temperatures~~normal. ~~were~~Third ~~experienced.~~quarter ~~Results~~results also reflected higher operations and maintenance expense ~~slightly~~and higher depreciation expense than in 2015, ~~and~~as ~~higher~~further ~~depreciation~~discussed ~~expenses~~below.

Total degree days in Tampa Electric's service area in the ~~second~~third quarter of 2016 were 58% above normal, ~~but~~and 106% ~~below~~above the 2015 period~~, when degree days were 15% above normal~~. ~~Total~~Pretax ~~net energy for load decreased 2.6% in the second quarter of 2016, compared with the same period in 2015. In the 2016 period, pretax~~ base revenues were $216.5 million ~~lower~~higher than in 2015, asdue ~~lower~~to higher energy sales from ~~more~~above normal weather, ~~was only partially offset by~~ customer growth and a $1.65 million ofincrease ~~higher pretax base revenue~~ from higher base rates effective Nov. 1, 2015, as a result of the 2013 rate case settlement.

While net energy for load is a calendar measurement of retail energy sales rather than a billing-cycle measurement, the quarterly energy sales shown on the following table reflect the energy sales based on billing cycles, which can vary period to period. Retail energy sales to residential and commercial customers ~~decreased~~increased in the ~~second~~third quarter of 2016 primarily due to ~~milder~~above-normal ~~weather~~summer temperatures compared to the 2015 quarter when ~~spring~~summer temperatures were ~~higher~~slightly above normal. Sales to non-phosphate industrial customers increased due to the strength of the Tampa area economy. Sales to lower-margin industrial-phosphate customers ~~decreased~~increased as self-generation by those customers ~~increased and mining activity migrates out of Tampa Electric’s service area~~decreased.

In the ~~second~~third quarter of 2016, operations and maintenance expense, excluding all FPSC-approved cost-recovery clauses, ~~was~~increased ~~slightly~~$4.0 ~~higher~~million ~~than~~driven inby ~~the 2015 quarter, reflecting~~ higher ~~costs to safely and reliably operate and maintain the generating system and provide high-quality customer service, essentially offset by lower~~ employee-related ~~costs primarily due to the lower level of short-term incentive~~ accruals ~~for all employees~~ in 2016 compared to 2015. Depreciation and amortization expense increased $1.58 million in 2016 as a result of normal additions to facilities to reliably serve customers.

Tampa Electric’s year-to-date net income ~~through the second quarter of 2016~~ was $~~118~~212.89 million, compared with $~~115~~198.90 million ~~for~~in the ~~same~~2015 period, indriven ~~2015~~by higher base revenue from 1. 6% higher average number of customers partially offset by higher operations and maintenance and depreciation expense. Year-to-date net income in 2016 included $1117.68 million of AFUDC-equity, ~~which~~and ~~represents~~$6.2 ~~allowed~~million ~~equity~~of ~~cost~~federal ~~capitalized~~R&D totax ~~construction costs~~credits, compared with $712.51 million of AFUDC-equity in the 2015 period. ~~Results for the year-to-date period reflected a 1.6% higher average number of customers.~~ Energy sales were ~~lower~~higher compared to 2015 due to the ~~well-~~above-normal ~~second~~third quarter temperatures ~~experienced in the 2015 period. Results reflected operations~~ and ~~maintenance~~customer ~~expense slightly higher than in 2015 and higher depreciation expense~~growth.

~~Total~~Year-to-date total degree days in Tampa Electric's service area ~~for the year-to-date period of 2016~~ were 56% above normal, but 92% below the 2015 period, when degree days where 7% above normal. Total net energy for load ~~decreased~~increased 01.98% in the year-to-date 2016 period, compared with the same period in 2015. In the 2016 year-to-date period, pretax base revenues were $320.82 million higher than in 2015, asincluding ~~lower~~approximately ~~energy sales to residential customers from more normal weather was more than offset by customer growth, higher sales to industrial customers, and~~ $~~2.7~~4 million of higher pretax base revenue resulting from higher base rates effective Nov. 1, 2015 as a result of the 2013 rate case settlement.

In the 2016 year-to-date period, retail energy sales to residential and commercial customers ~~decreased~~increased primarily from ~~milder~~customer ~~spring weather than was experienced in the 2015 period~~growth. Sales to non-phosphate industrial customers ~~increased~~and ~~due~~ to ~~the strength of the Tampa area economy. Sales to~~ lower-margin industrial-phosphate customers ~~decreased~~increased as a result of the same factors as the ~~second~~third quarter.

In the 2016 year-to-date period, operations and maintenance expense, excluding all FPSC-approved cost-recovery clauses, was ~~almost~~approximately $15.0 million higher than in the 2015 period, reflecting higher costs to safely and reliably operate and maintain the generating, transmission and distribution systems and provide high-quality customer service,; ~~partially~~and ~~offset~~higher ~~by lower~~ employee-related costs, ~~primarily~~including ~~due~~higher ~~to the lower level of~~ short-term incentive accruals ~~for all employees~~ in 2016 compared to 2015. Depreciation and amortization expense increased $3.5.3 million in 2016, as a result of normal additions to facilities to reliably serve customers.

~~A summary of~~ Tampa Electric’s regulated operating statistics for the three and ~~six~~nine months ended ~~June~~Sept. 30, 2016 and 2015 are as follows:

4749

(millions, except average customers and total degree days)	Operating Revenues									Kilowatt-hour sales
Three months ended June 30,	2016			2015			% Change			2016		2015		% Change
Three months ended Sept. 30,	2016			2015			% Change			2016		2015		% Change
By Customer Type
Residential	$	~~252~~331.60		$	~~267~~311.48			(56.52	)		2,~~240~~960.71		2,~~330~~728.68		(38.95	)
Commercial		~~147~~167.63			~~154~~167.91			(40.71	)		1,~~565~~814.20		1,~~609~~753.96		(23.84	)
Industrial – Phosphate		12.79			1311.80			(817.03	)		~~158~~159.14		~~173~~130.28		(821.79	)
Industrial – Other		2728.48			27.97			(14.80	)		~~320~~339.74		~~319~~313.57		08.42
Other sales of electricity		4347.36			4446.92			(3.60	)		~~446~~502.79		~~456~~473.08		(26.01	)
Deferred and other revenues (1)		1(17.95	)		9(18.32	)		~~(79~~3.68	)
Total energy sales	$	~~485~~570.51		$	~~518~~545.26			(64.35	)		45,~~731~~775.48		45,~~889~~400.27		(36.29	)
Sales for resale		02.70			1.0.2			~~(30~~900.0	)		1856.36		315.20		~~(41~~1,032.30	)
Other operating revenue		13.08			1314.34			(24.32	)
Total revenues	$	~~499~~585.29		$	~~532~~560.52			(64.36	)		45,~~749~~832.74		45,~~920~~405.47		(37.59	)
Average customers (thousands)		~~729~~731.38			~~717~~720.91			1.6
Retail net energy for load (kilowatt hours)											56,~~261~~045.52		5,~~401~~700.21		~~(2.~~6.1	)
Total degree days											1,~~255~~768		1,~~404~~666		~~(10.~~6.1	)
Six months ended June 30,
Nine months ended Sept. 30,
By Customer Type
Residential	$	~~470~~801.0		$	~~480~~792.86			(21.21	)		47,~~155~~115.34		46,~~170~~898.08		(03.41	)
Commercial		~~280~~447.47			~~287~~454.9			(21.6	)		24,~~953~~767.2		24,~~960~~713.16		(01.21	)
Industrial – Phosphate		2538.87			2738.3			(51.50	)		~~321~~480.69		~~340~~471.98		(51.79	)
Industrial – Other		5281.96			5280.73			01.46			~~617~~957.93		~~598~~912.96		34.29
Other sales of electricity		82130.84			85131.47			(31.0	)		~~848~~1,351.0		~~856.~~1,329.9		(01.96	)
Deferred and other revenues (1)		(1735.50	)		16(1.74	)		(~~204~~2,400.80	)
Total energy sales		~~894~~1,464.4			~~950~~1,496.84			(52.91	)		814,~~896~~671.08		814,~~926~~326.07		(02.34	)
Sales for resale		24.1			23.90			~~(27~~36.67	)		68130.62		8489.7		~~(19~~45.02	)
Other operating revenue		2741.21			2943.48			(76.52	)
Total revenues	$	~~923~~1,509.76		$	~~983.~~1,543.2			(62.02	)		814,~~964~~802.60		914,~~010~~416.74		(02.57	)
Average customers (thousands)		~~727~~729.71			~~716~~717.03			1.6
Retail net energy for load (kilowatt hours)											915,~~578~~623.57		915,~~664~~345.90		(01.98	)
Total degree days											13,~~857~~625		23,~~034~~700		(82.70	)
(1) Primarily reflects the timing of environmental and fuel clause recoveries.

Tampa Electric Company – Natural Gas Division

PGS reported net income of $76.15 million for the ~~second~~third quarter, compared with $7.6.2 million in the 2015 quarter. ~~Average~~Results ~~customer~~reflect ~~growth~~a ~~was~~ 2.37% higher average number of customers in the quarter. ~~Therm~~and increased therm sales to ~~residential and~~ commercial customers ~~increased primarily~~ as a result of customer growth. ~~Sales to commercial~~ and ~~industrial customers increased as~~ a ~~result of the~~ stronger ~~Florida~~ economy ~~and increased sales of compressed natural gas to vehicle fleets~~. Off- system sales increased, ~~reflecting~~due ~~higher~~to ~~levels~~power ~~of operation by gas-fired~~ generation indemand ~~Florida~~resulting ~~due~~from towarmer ~~lower~~weather ~~natural gas prices~~ and ~~weather~~coal-~~related~~to-gas ~~demand~~switching. ~~Second~~Third-quarter results in 2016 reflected ~~non-fuel~~ operations and maintenance expense $10.16 million higher than in the 2015, period driven by higher ~~operating and compliance costs due to increasing pipeline safety regulations, partially offset by lower~~ employee-related costs ~~primarily due to the lower level of short-term incentive accruals for all employees~~ in 2016 compared to 2015. Depreciation and amortization increased ~~slightly~~$0.6 million due to normal additions to facilities to serve customers.

PGS reported net income of $2026.27 million for the ~~2016~~ year-to-date period, compared with $2228.24 million in the 2015 year-to-date period. ~~These~~Results ~~results~~ reflect a 2.4% higher average number of customers and increased residential and commercial therm sales asdue ato ~~result~~strong ofeconomic ~~the~~conditions ~~same~~in ~~factors~~Florida. ~~that~~Off ~~drove~~system ~~therm~~ sales increased due to the same reasons as in the ~~second~~third quarter. Operations and maintenance expense ~~was~~increased $2.18 million ~~higher~~compared ~~and~~to ~~depreciation~~the ~~expense~~2015 ~~was~~period, ~~$1.0~~driven ~~million~~by higher ~~than~~general ~~the~~operating ~~2015~~costs ~~period,~~around ~~both~~pipeline ~~driven~~safety bycompliance ~~the~~and ~~same~~customer ~~factors~~growth. asDepreciation ~~the~~and ~~second~~amortization ~~quarter~~increased $1.6 million due to normal additions to facilities to serve customers.

48PGS’s regulated operating statistics for the three and nine months ended Sept. 30, 2016 and 2015 are as follows:

~~A summary of PGS’s regulated operating statistics for the three and six months ended June 30, 2016 and 2015 follows:~~ 50

(millions, except average customers)	Operating Revenues							Therms
Three months ended June 30,	2016		2015		% Change			2016		2015		% Change
Three months ended Sept. 30,	2016		2015		% Change			2016		2015		% Change
By Customer Type
Residential	$	3025.58	$	2826.18		8(3.57	)		1410.68		1210.59		16(0.89	)
Commercial		3431.50		3230.58		60.26			~~117~~108.82		~~109~~106.90		7.2.1
Industrial		3.45		3.23		6.21			7779.9		7068.28		1116.01
Off system sales		1827.47		1413.45		27105.82			7279.25		4643.40		5584.69
Power generation		0.1.8		1.97		~~(94~~5.79	)		~~189~~204.18		~~190~~192.82		(06.96	)
Other revenues		1211.31		11.12		10(0.89	)
Total	$	99100.29	$	9187.23		815.86			~~471~~483.62		~~429~~420.89		914.78
By Sales Type
System supply	$	5761.50	$	5148.65		1125.48			9296.51		6560.71		4059.89
Transportation		2928.38		2827.56		24.83			~~379~~387.1		~~364~~360.18		47.13
Other revenues		1211.41		11.12		11(0.79	)
Total	$	99100.29	$	9187.23		815.86			~~471~~483.62		~~429~~420.89		914.78
Average customers (thousands)		~~369~~370.9		361.70		2.37
Six months ended June 30,
Nine months ended Sept. 30,
By Customer Type
Residential	$	81106.08	$	77104.31		42.86			4758.53		4657.9		10.37
Commercial		77108.3		74104.19		4.3.2			~~258~~367.91		~~248~~354.1		43.47
Industrial		610.72		69.48		4.71			~~161~~241.43		~~146~~215.31		1012.32
Off system sales		3159.30		2235.27		4165.03			~~126~~205.05		69112.87		8082.53
Power generation		23.19		35.96		(4630.24	)		~~379~~584.75		~~375~~567.46		13.10
Other revenues		2840.90		2738.34		54.92
Total	$	~~227~~328.32	$	~~211~~298.25		79.69			~~973~~1,456.57		~~886~~1,307.54		911.84
By Sales Type
System supply	$	~~132~~194.90	$	~~121~~169.06		914.84			~~186~~282.67		~~132~~192.0		4147.42
Transportation		6594.52		6290.95		4.1			~~786~~1,174.90		~~754~~1,115.54		45.3
Other revenues		2840.90		2738.34		54.92
Total	$	~~227~~328.32	$	~~211~~298.25		79.69			~~973~~1,456.57		~~886~~1,307.54		911.84
Average customers (thousands)		~~368~~369.74		360.46		2.34

New Mexico Gas Company

NMGC reported a ~~second~~third-quarter 2016 loss of $019.28 million, compared with a $02.18 million loss in the 2015 period. ~~Growth~~In in the ~~average~~third ~~number~~quarter of ~~customers~~2016, inNMGC ~~the~~recorded ~~2016~~approximately ~~quarter~~$18 ~~and~~million ~~year-to-date~~of ~~periods~~costs ~~were 0~~($30.~~6%.~~4 Inmillion ~~the~~pretax) ~~second~~related ~~quarter,~~to ~~heating~~the ~~degree~~conditions ~~days~~contained ~~were~~in 7%the ~~above~~Emera ~~normal~~acquisition ~~but~~stipulation 3%agreement ~~below~~approved by the ~~2015~~NMPRC, ~~quarter.~~of ~~Non-fuel~~which ~~operating~~the ~~and~~bill ~~maintenance~~credit ~~expense~~ was ~~slightly~~recognized ~~higher~~as ~~than~~a reduction in revenues and the ~~2015~~remaining ~~quarter~~items ~~due~~recorded as expenses (see Note 14 to ~~higher~~the ~~employee~~TECO ~~related~~Energy ~~expenses. Results~~Consolidated ~~included~~Financial $0Statements).6 ~~million~~Excluding the impact of ~~pretax~~the ~~rate~~stipulation ~~credits~~agreement, toNMGC’s ~~customers~~loss ~~under~~for the ~~stipulation~~quarter ~~approved~~was by$1.3 million compared to the ~~NMPRC~~prior inyear ~~2014~~quarter loss of $2.8 million.

~~NMGC~~Growth ~~reported~~in ~~year-to-date~~the ~~net~~average ~~income~~number of ~~$15.0~~customers ~~million~~in ~~compared~~the ~~with~~2016 ~~$13.8~~third ~~million~~quarter inand ~~the~~year-to-date ~~2015~~periods ~~period~~were 0.6%. ~~Results~~In ~~reflected~~ the ~~benefit~~third ofquarter, heating degree days ~~that~~ were ~~slightly~~above ~~higher~~the ~~than in~~ 2015, quarter but ~~more than 4~~16% below normal. ~~Operating~~Excluding ~~and~~the ~~maintenance~~costs ~~expense~~related ~~was~~to ~~essentially unchanged from~~ the ~~prior~~stipulation ~~period. Results~~mentioned ~~included~~above, ~~$2.5~~non-fuel ~~million~~operating ofand ~~pretax~~maintenance ~~rate~~expense ~~credits~~was toslightly ~~customers~~lower ~~under~~than in the ~~stipulation~~2015 ~~approved~~quarter bydue ~~the~~to ~~NMPRC~~cost inefficiency ~~2014~~initiatives.

NMGC ~~expects~~reported a year-to-date ~~record~~loss of $~~30.~~4.8 million compared with net income of ~~pretax~~$11.0 ~~expense~~million in the ~~third~~2015 ~~quarter~~period, due to the recording of ~~2016~~costs in the third quarter related to the conditions contained in the Emera acquisition stipulation ~~approved~~agreement. byExcluding the ~~NMPRC~~impact ~~(see~~of ~~Note~~the 16stipulation agreement, year-to-date net income was $13.7 million compared to $11.0 million in 2015. Year-to-date results reflected customer growth and the ~~TECO~~benefit ~~Energy~~of ~~Consolidated~~heating ~~Financial~~degree ~~Statements)~~days that were slightly higher than in 2015, but more than 4% below normal. Excluding the costs related to the stipulation mentioned above, operating and maintenance expense was slightly lower due to cost efficiency initiatives.

~~A summary of NMGC’s regulated operating statistics for the three and six months ended June 30, 2016 and 2015 follows:~~51

49NMGC’s regulated operating statistics for the three and nine months ended Sept. 30, 2016 and 2015 are as follows:

(millions, except average customers and total degree days)	Operating Revenues								Therms
Three months ended June 30,	2016			2015		% Change			2016		2015		% Change
Three months ended Sept. 30,	2016			2015		% Change			2016		2015		% Change
By Customer Type
Residential	$	3730.14		$	3830.23		(20.93	)		4223.84		3822.95		104.0
Commercial		8.50			108.13		(153.86	)		1611.13		1611.87		(43.24	)
Industrial		0.1			0.12		-(50.0	)		0.2		0.24		-(50.0	)
Off system sales		0.2			0.2		-			0.0		0.0		-
On system transportation		3.3			3.1		6.5			73.4		70.0		4.9
On system transportation		4.1			3.7		10.8			76.1		73.4		3.7
Off system transportation		0.2			0.2		-			12.4		12.1		2.5
Off system transportation		0.2			0.2		-			12.3		12.3		-
Other revenues (1)		(6.3	)		1.6		(493.8	)
Other revenues		1.5			1.5		-
Total	$	35.7		$	43.7		(18.3	)		120.7		116.7		3.4
Total	$	51.7		$	54.0		(4.3	)		147.5		141.6		4.2
By Sales Type
System supply	$	4538.95		$	4838.68		(50.68	)		5934.19		5534.96		50.79
Transportation		4.3.5			3.93		106.31			8885.48		8582.71		34.25
Other revenues		1.5			1.5		-
Other revenues (1)		(6.3	)		1.6		(493.8	)
Total	$	5135.7		$	5443.07		(418.3	)		~~147~~120.57		~~141~~116.67		43.24
Average customers (thousands)		~~518~~517.85			~~515~~514.85		0.6
Total degree days										~~457~~30		~~472~~4		(3650.20	)
Six months ended June 30,
Nine months ended Sept. 30,
By Customer Type
Residential	$	~~114~~145.82		$	~~125~~156.70		(86.79	)		~~165~~188.38		~~160~~182.17		3.23
Commercial		2836.15			3341.18		(1512.17	)		5869.14		5769.85		(0.51	)
Industrial		0.34			0.35		-(20.0	)		0.78		01.70		-(20.0	)
Off system sales		1.0.6			0.73		42100.90			3.9		1.2		225.0
On system transportation		1013.79			912.8		98.26			~~171~~245.23		~~158~~228.1		87.35
Off system transportation		0.47			0.47		-			2335.48		2234.67		3.52
Other revenues		3.0			3.0		-
Other revenues (1)		(3.3	)		4.6		(171.7	)
Total	$	~~158~~194.30		$	~~173~~216.07		(810.5	)		~~422~~544.60		~~400~~517.52		5.52
By Sales Type
System supply	$	~~144~~182.27		$	~~159~~198.86		(9.8.0	)		~~228~~262.09		~~219~~254.84		3.73
Transportation		1114.16			1013.25		8.81			~~194~~281.61		~~180~~262.78		7.70
Other revenues		3.0			3.0		-
Other revenues (1)		(3.3	)		4.6		(171.7	)
Total	$	~~158~~194.30		$	~~173~~216.07		(810.5	)		~~422~~544.60		~~400~~517.52		5.52
Average customers (thousands)		~~519~~518.37			~~516~~515.37		0.6
Total degree days										2,~~427~~457		2,~~393~~397		12.45
(1) Includes a bill reduction credit of $8.0 million. See Note 14 to the TECO Energy Consolidated Financial Statements.

Other (net)

The ~~second~~segment ~~quarter~~data ~~2016 cost for Other – net was $70.2 million, which included $0.2 million~~ in discontinued operations related to TECO Coal, which was sold in 2015. The second quarter 2016 cost from continuing operations for Other – net was $70.0 million and included $58.4 million ($71.4 million pretax) of costs associated with the Emera transaction, compared with the cost of $13.7 million in 2015, which included $0.4 million of NMGC-related integration costs. Emera transaction costs included primarily employee-related and consultant fees (see Note 169 to the TECO Energy Consolidated Condensed Financial Statements). ~~Year-to-date~~presents ~~2016 cost for~~ Other –and ~~net~~Eliminations ~~was~~as ~~$74.9~~separate ~~million, compared with $24~~segments.6 ~~million~~The indiscussion ~~the~~below ~~2015~~nets ~~period, which included $1.0 million of NMGC integration costs. Year-to-date cost from continuing operations for Other – net was $74.8 million compared with $26.6 million in~~ the ~~2015~~two ~~period~~segments. ~~Year-to-date 2016 costs ref~~

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