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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 10-Q


(Mark One)

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

    For the quarterly period ended September 30, 2002

OR

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

    For the transition period from                       to                      

Commission File Number 1-5007


TAMPA ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)


  FLORIDA
(State or other jurisdiction of
incorporation or organization)
   59-0475140
(I.R.S. Employer
Identification Number)		  

  702 N. Franklin Street, Tampa, Florida
(Address of principal executive offices)
   33602
(Zip Code)		  

Registrant’s telephone number, including area code: (813) 228-4111

Indicate by check mark whether the registrant (1) has 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) has been subject to such filing requirements for the past 90 days.

YES x NO o

Number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date (October 31, 2002):

Common Stock, Without Par Value 10

The registrant 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.

Index to Exhibits Appears on Page 25

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PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

         In the opinion of management, the unaudited consolidated financial statements include all adjustments that are of a recurring nature and necessary to present fairly the financial position of Tampa Electric Company as of Sept. 30, 2002 and 2001, and the results of operations and cash flows for the three-month and nine-month periods ended Sept. 30, 2002 and 2001. The results of operations for the three-month and nine-month periods ended Sept. 30, 2002 are not necessarily indicative of the entire fiscal year ending Dec. 31, 2002. Reference should be made to the explanatory notes affecting the income and balance sheet accounts contained in Tampa Electric Company’s Annual Report on Form 10-K for the year ended Dec. 31, 2001 and to the notes on pages 9 through 14 of this report.

2

TAMPA ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
Unaudited
(in millions)

Sept. 30,
2002		 Dec. 31,
2001
             
Assets              
Property, plant and equipment              
   Utility plant in service              
     Electric   $ 3,987.2   $ 3,827.0  
     Gas     731.1     699.4  
   Construction work in progress     674.3     404.0  
          5,392.6     4,930.4  
   Accumulated depreciation     (2,078.3 )   (1,974.3 )
          3,314.3     2,956.1  
   Other property     8.0     8.2  
          3,322.3     2,964.3  
   Property held for sale, net     232.3     245.2  
    3,554.6     3,209.5  
             
Current assets              
   Cash and cash equivalents     7.3     15.4  
   Receivables, less allowance for uncollectibles     222.1     166.8  
   Inventories              
     Fuel, at average cost     79.2     69.0  
     Materials and supplies     50.7     51.0  
   Prepayments and other     15.4     12.5  
    374.7     314.7  
Deferred debits              
   Unamortized debt expense     24.6     8.0  
   Deferred income taxes     134.0     136.2  
   Regulatory assets     157.1     198.3  
   Other     10.4     12.5  
       326.1     355.0  
     $ 4,255.4   $ 3,879.2  

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

3

TAMPA ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS – continued
Unaudited
(in millions)

Sept. 30,
2002		 Dec. 31,
2001
             
Liabilities and Capital              
Capital              
   Common stock   $ 1,535.2   $ 1,318.1  
   Retained earnings     268.7     304.4  
   Accumulated other comprehensive loss     —     (0.1 )
    1,803.9     1,622.4  
Long-term debt, less amount due within one year     1,346.2     880.9  
    3,150.1     2,503.3  
Current Liabilities              
   Long-term debt due within one year     81.0     156.1  
   Notes payable     5.0     249.0  
   Accounts payable     132.8     135.8  
   Customer deposits     93.2     86.3  
   Interest accrued     27.8     16.1  
   Taxes accrued     82.4     57.3  
    422.2     700.6  
Deferred credits              
   Deferred income taxes     442.8     441.6  
   Investment tax credits     28.2     31.6  
   Regulatory liabilities     101.1     106.2  
   Other     111.0     95.9  
    683.1     675.3  
  $ 4,255.4   $ 3,879.2  

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

4

TAMPA ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Unaudited
(in millions)

For the three months ended September 30,
2002 2001
Revenues              
   Electric (includes franchise fees and gross receipts taxes of $17.5 million in 2002,
       and $16.2 million in 2001)		   $ 439.0   $ 398.3  
   Gas (includes franchise fees and gross receipts taxes of $2.0 million in 2002, and
       $2.2 million in 2001)		     74.3     70.6  
    513.3     468.9  
Operating expenses              
   Operations              
     Fuel     122.8     103.6  
     Purchased power     66.6     57.2  
     Cost of natural gas sold     37.6     34.3  
     Other     64.8     60.8  
   Maintenance     22.9     22.4  
   Depreciation     57.0     49.7  
   Taxes-federal and state income     35.3     34.0  
   Taxes-other than income     32.0     31.9  
    439.0     393.9  
             
Operating income     74.3     75.0  
             
Other income              
   Allowance for other funds used during construction     6.9     2.0  
   Other income, net     0.8     1.2  
     Total other income     7.7     3.2  
             
Interest charges              
   Interest on long-term debt     17.5     17.3  
   Other interest     1.0     2.2  
   Allowance for borrowed funds used during construction     (2.7 )   (0.7 )
     Total interest charges     15.8     18.8  
             
Net income   $ 66.2   $ 59.4  

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

5

TAMPA ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Unaudited
(in millions)

For the nine months ended
September 30,
2002 2001
Revenues              
   Electric (includes franchise fees and gross receipts taxes of $47.8 million in 2002,
       and $43.1 million in 2001)		   $ 1,197.6   $ 1,092.9  
   Gas (includes franchise fees and gross receipts taxes of $7.6 million in 2002, and
       $12.9 million in 2001)		     237.0     287.0  
    1,434.6     1,379.9  
             
Operating expenses              
   Operations              
     Fuel     337.1     248.1  
     Purchased power     169.3     186.9  
     Cost of natural gas sold     111.1     159.6  
     Other     196.0     186.1  
   Maintenance     77.5     76.3  
   Depreciation     164.3     148.6  
   Taxes-federal and state income     85.8     81.0  
   Taxes-other than income     99.2     100.7  
    1,240.3     1,187.3  
             
Operating income     194.3     192.6  
             
Other income              
   Allowance for other funds used during construction     16.9     4.0  
   Other income, net     1.6     3.6  
     Total other income     18.5     7.6  
             
Interest charges              
   Interest on long-term debt     51.8     45.4  
   Other interest     5.7     13.7  
   Allowance for borrowed funds used during construction     (6.5 )   (1.6 )
     Total interest charges     51.0     57.5  
             
Net income   $ 161.8   $ 142.7  

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

6

TAMPA ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(in millions)

For the nine months ended
September 30,
2002 2001
Cash flows from operating activities              
Net income   $ 161.8   $ 142.7  
   Adjustments to reconcile net income to net cash from operating activities:              
     Depreciation     164.3     148.6  
     Deferred income taxes     (10.0 )   7.2  
     Investment tax credits, net     (3.3 )   (3.3 )
     Allowance for funds used during construction     (23.4 )   (5.6 )
     Deferred recovery clause     75.2     (23.6 )
     Refund to customers     (6.1 )   —  
     Receivables, less allowance for uncollectibles     (55.4 )   (20.5 )
     Inventories     (9.9 )   (21.3 )
     Taxes accrued     25.0     57.6  
     Interest accrued     11.7     (8.2 )
     Accounts payable     (2.8 )   (50.5 )
     Other     (11.4 )   (14.4 )
       Cash flows from operating activities     315.7     208.7  
             
Cash flows from investing activities              
     Capital expenditures     (510.8 )   (335.4 )
     Allowance for funds used during construction     23.4     5.6  
       Cash flows from investing activities     (487.4 )   (329.8 )
             
Cash flows from financing activities              
     Proceeds from contributed capital from parent     217.0     164.0  
     Proceeds from long-term debt     690.4     250.0  
     Repayment of long-term debt     (302.4 )   (54.5 )
     Net increase (decrease) in short-term debt     (244.0 )   (120.7 )
     Payment of dividends     (197.4 )   (116.8 )
       Cash flows from financing activities     163.6     122.0  
             
Net (decrease) increase in cash and cash equivalents     (8.1 )   0.9  
Cash and cash equivalents at beginning of period     15.4     0.7  
Cash and cash equivalents at end of period   $ 7.3   $ 1.6  

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

7

TAMPA ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited
(in millions)

Three months ended
Sept. 30,		 Nine months ended
Sept. 30,
2002 2001 2002 2001
Net income   $ 66.2   $ 59.4   $ 161.8   $ 142.7  
         
Other comprehensive income, net of tax:                          
   Net gain (loss) on cash flow hedges (see Note C)     —     (0.1 )   0.1     (0.1 )
Comprehensive income   $ 66.2   $ 59.3   $ 161.9   $ 142.6  

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A.       Summary of Significant Accounting Policies

           Tampa Electric Company (the “Company”) is comprised of the Electric division, generally referred to as Tampa Electric and the Natural Gas division, which does business as Peoples Gas System, generally referred to as Peoples Gas System (PGS).

           Revenue Recognition: The Company recognizes revenues in accordance with the Securities and Exchange Commission’s Staff Accounting Bulletin (SAB) 101, Revenue Recognition in Financial Statements. The criteria outlined in SAB 101 are that a) there is persuasive evidence that an arrangement exists; b) delivery has occurred or services have been rendered; c) the fee is fixed and determinable; and d) collectibility is reasonably assured. The Company recognizes revenues on a gross basis when earned for the physical delivery of products or services, and the risks and rewards of ownership have transferred to the buyer. Revenues for any financial or hedge transactions that do not result in physical delivery are reported on a net basis.

           The Company’s retail business and the prices charged to customers are regulated by the Florida Public Service Commission (FPSC). Tampa Electric’s wholesale business is regulated by the Federal Energy Regulatory Commission (FERC). As a result, the Company qualifies for the application of Financial Accounting Standard (FAS) 71, Accounting for the Effects of Certain Types of Regulation. See Note D for a discussion of the applicability of FAS 71 to the Company.

           Accounting for Excise Taxes, Franchise Fees and Gross Receipts: Excise taxes paid by Tampa Electric and PGS are not material and are expensed when incurred. Tampa Electric and PGS are allowed to recover certain costs incurred from customers through prices approved by the regulatory process. The amounts included in customers’ bills for franchise fees and gross receipt taxes are included as revenues on the Consolidated Statements of Income. These amounts totaled $19.5 million and $18.4 million, respectively, for the three months ended Sept. 30, 2002 and 2001, and $55.4 million and $56.0 million, respectively, for the nine months ended Sept. 30, 2002 and 2001. Franchise fees and gross receipt taxes payable by Tampa Electric and PGS are included as an expense on the Consolidated Statements of Income in Taxes, other than income, and totaled $19.5 million and $18.4 million, respectively, for the three months ended Sept. 30, 2002 and 2001, and $55.4 million and $55.9 million, respectively, for the nine months ended Sept. 30, 2002 and 2001.

           Planned Major Maintenance: The Company accounts for planned maintenance projects by expensing the costs as incurred. Planned major maintenance projects that do not increase the overall life or value of the related assets are expensed. When the major maintenance materially increases the life or value of the underlying asset, the cost is capitalized. While normal maintenance outages covering various areas of Tampa Electric’s plants generally occur on at least a yearly basis, major overhauls occur less frequently. Concurrent with a planned major maintenance outage, the cost of adding or replacing retirement units-of-property is capitalized in conformity with FPSC and FERC regulations.

           Principles of Consolidation and Reclassifications: The Company is a wholly-owned subsidiary of TECO Energy, Inc. Certain reclassifications have been made to prior period amounts to conform with the current period presentations. These reclassifications did not affect total net income, total assets, or net cash flows.

B.       Derivatives and Hedging

           From time to time, the Company enters into futures, forwards, swaps and option contracts to limit the exposure to price fluctuations for the physical purchases and sales of natural gas in the course of normal operations at Tampa Electric and PGS, and to limit the exposure to interest rate fluctuations on debt issuances. The Company only uses derivatives to reduce normal operating and market risks, not for speculative purposes. The Company’s primary objective in using derivative instruments for regulated operations is to reduce the impact of market price volatility on ratepayers.

           FAS 133, Accounting for Derivative Instruments and Hedging Activities, requires 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 other comprehensive

9

  income (OCI) or in net income, depending on the designation of those instruments. 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 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 its reclassification. For effective hedge transactions, the amount reclassified from OCI to earnings is offset in net income by the amount paid or received on the underlying physical transaction. Additionally, amounts defined in OCI related to an effective designated cash flow hedge must be reclassified to current earnings if the anticipated hedged transaction is no longer probable of occurring.

           At Sept. 30, 2002, the Company had derivative assets totaling $1.2 million. There were no amounts in OCI related to derivatives designated as cash flow hedges at Sept. 30, 2002. At Sept. 30, 2001, OCI included $0.1 million of unrealized after-tax losses, representing the fair value of cash flow hedges whose underlying hedged transaction will occur in the future. Amounts recorded in OCI reflect the value of derivative instruments designated as hedges, based on market prices as of the balance sheet date. These amounts are expected to fluctuate with movements in market prices and may or may not be realized as a loss upon future reclassification from OCI.

           As of Sept. 30, 2002, Tampa Electric had transactions in place to hedge commodity price risk that qualifies for cash flow hedge accounting treatment under FAS 133. During the three and nine months ended Sept. 30, 2002, the Company reclassified net pretax losses of $0.4 million and $0.4 million, respectively, to earnings for cash flow hedges compared to pre-tax losses of $0.6 million for the three and nine months ended Sept. 30, 2001. Amounts reclassified from OCI were related to cash flow hedges of physical purchases of natural gas. For these types of hedge relationships, the loss on the derivative, reclassified from OCI to earnings, is offset by the reduced expense arising from lower prices paid for spot purchases of natural gas.

C.       Comprehensive Income

           FAS 130, Reporting Comprehensive Income, requires that comprehensive income, which includes net income as well as certain changes in assets and liabilities recorded in common equity, be reported in the financial statements. Components of OCI are presented below:

(in millions) Gross Tax Net
Three months ended Sept. 30, 2002                    
   Unrealized (loss) gain on cash flow hedges   $ (0.4 ) $ (0.1 ) $ (0.3 )
   Less: Loss (gain) reclassified to net income     0.4     0.1     0.3  
Total other comprehensive income (loss)   $ —   $ —   $ —  
                   
Three months ended Sept. 30, 2001                    
   Unrealized (loss) gain on cash flow hedges   $ (0.7 ) $ (0.2 ) $ (0.5 )
   Less: Loss (gain) reclassified to net income     0.6     0.2     0.4  
     Total other comprehensive income (loss)   $ (0.1 ) $ —   $ (0.1 )
                   
Nine months ended Sept. 30, 2002                    
   Unrealized (loss) gain on cash flow hedges   $ (0.3 ) $ —   $ (0.3 )
   Less: Loss (gain) reclassified to net income     0.4     —     0.4  
     Total other comprehensive income (loss)   $ 0.1   $ —   $ 0.1  
                   
Nine months ended Sept. 30, 2001                    
   Unrealized (loss) gain on cash flow hedges   $ (0.7 ) $ (0.2 ) $ (0.5 )
   Less: Loss (gain) reclassified to net income     0.6     0.2     0.4  
     Total other comprehensive income (loss)   $ (0.1 ) $ —   $ (0.1 )

 

10

D.       Regulatory Assets and Liabilities

           Tampa Electric and PGS maintain their accounts in accordance with recognized policies of the FPSC. In addition, Tampa Electric maintains its accounts in accordance with recognized policies prescribed or permitted by the FERC. These policies conform with generally accepted accounting principles in all material respects.

           The Company applies the accounting treatment permitted by FAS 71, Accounting for the Effects of Certain Types of Regulation. Areas of applicability include: deferral of revenues under approved regulatory agreements; revenue recognition resulting from cost recovery clauses that provide for monthly billing charges to reflect increases or decreases in fuel; purchased power, conservation and environmental costs; and deferral of costs as regulatory assets when cost recovery is ordered over a period longer than a fiscal year, to the period that the regulatory agency recognizes them. Details of the regulatory assets and liabilities as of Sept. 30, 2002 and Dec. 31, 2001 are presented in the following table:

(in millions) Sept. 30,
2002		 Dec. 31,
2001
Regulatory assets:              
   Regulatory tax asset (1)   $ 49.9   $ 41.3  
   Other:              
     Cost recovery clauses     32.1     105.2  
     Coal contract buyout (2)     6.1     8.1  
     Deferred bond refinancing costs (3)     36.8     13.7  
     Environmental remediation     20.3     22.3  
     Competitive rate adjustment     7.2     5.9  
     Other     4.7     1.8  
    107.2     157.0  
Total regulatory assets   $ 157.1   $ 198.3  
             
Regulatory liabilities:              
   Regulatory tax liability (1)   $ 38.2   $ 43.1  
   Other:              
     Deferred allowance auction credits     1.2     1.1  
     Cost recovery clauses     2.6     0.5  
      Deferred gain on property sales (4)     0.7     0.9  
     Revenue refund     0.3     6.3  
     Environmental remediation     20.3     22.3  
     Transmission and distribution storm reserve     35.0     32.0  
     Other     2.8     —  
    62.9     63.1  
Total regulatory liabilities   $ 101.1   $ 106.2  

    (1)   Related primarily to plant life. Includes excess deferred taxes of $21.8 million and $24.6 million as of Sept. 30, 2002 and Dec. 31, 2001, respectively.

    (2)   Amortized over a 10-year period ending December 2004.

    (3)   Refinancing costs comprise:

Debt related to     Amortized until  
Refinancing costs for $155.0 million   2003  
Refinancing costs for $51.6 million