TECO Classic

TECO Classic

COMPANIES by Dave Szymanski | Tampa Bay Editor

TECO Energy, the parent company of Tampa Electric, has shed non-core assets and stepped-up employee training to return to its past successful formula.

The story about New Coke is now part of corporate strategy textbooks: A successful multinational company tries to innovate and launches a new brand, putting considerable people and dollars behind it and the idea flops.

The company falls back to its proven core business. It phases out New Coke and renames its proven brand Coca-Cola Classic and rebounds.

Tampa's TECO Energy doesn't make beverages, but its president, John Ramil, coined a similar phrase for an effort years ago at the energy company: "TECO Classic." Repeated by other company executives, it was, essentially, a back-to-basics strategy, while trying to innovate.

The term is less used now, but it's still an accurate phrase for where the company has been the past three years and where it's going in the next five. It is sending a message to Wall Street, employees and investors that it is serious about getting its stock price up and retiring debt.

"We're refocusing and concentrating on our core utility business," Ramil says. "We need to keep getting better at everything. Our competition is ourselves."

Most employees and investors agree that TECO Energy is back on track and improving. But the "New Coke" mistake was painful. Recovery is taking awhile.

A changing institution

TECO Energy, with its 5,000 employees and multi-colored corporate logo lit on the downtown Tampa skyline, is a Tampa institution.

Despite its reputation for community service, and its public status on the New York Stock Exchange, it has operated quietly and steadily for decades.

On the horizon: An expansion of its Polk Power Station plant; technological advances, such as automated meter reading; an agreement to buy peaking power from other utilities when needed; and the sale of one of its core companies, TECO Transport, a water transportation company.

It successfully inked a new electricity service agreement with Winter Haven and is about to start the process with Plant City. It is finishing negotiations in Tampa.

Every CEO brags about customer service and the quality of employees. At TECO Energy, it's religion. And the church services include in-house and exterior training and development, especially for managers.

"It doesn't matter if we have all the latest technology," Ramil says. "Our 5,000 people have to deliver."

It is a hybrid business, being essentially a monopoly serving Hillsborough and pockets of other central Florida counties and also a business with heavy government regulation.

That means that unlike Microsoft, TECO Energy cannot charge whatever it wants for its service and products to boost profit, like true monopolies. That's because it needs approval on any rate increases from the Florida Public Service Commission in Tallahassee. The Commission can even tell the company to refund profit to customers.

There have been historic constants. Its linemen are revered like denim-clad Marines, especially in hurricane season. The daily newspapers reported only non-eventful quarterly earnings for years.

But that changed.

To understand TECO Energy and where it is heading in its back-to-basics, neo-traditionalist strategy, you need to start with the roots of its change. And you need to appreciate corporate history and a good deal of symbolism.

The Fagan era

At one time, TECO Energy was building power plants outside of Florida to get ready for deregulation. Its CEO at that time, Robert Fagan, declared this as the new future for the company: expansion out of state. It was the company's "New Coke."

Fagan had the endorsement of the corporate board and spent millions diversifying the company and expanding its reach. It made sense at the time: Deregulation was under way in Texas, California and Illinois and was expected to come to Florida.

TECO Power Services Corp. became a wholly-owned subsidiary of TECO Energy, Inc. TPS was supposed to build, own and operate electric generation facilities with emphasis on high-growth areas of North America. Domestically, it announced projects to serve customers in 18 states, spanning the southern United States.

TPS was viewed as the future of TECO Energy.

The company created a new Web site for business customers, and struck marketing sponsorships with the Tampa Bay Buccaneers and the Tampa Bay Lightning.

But deregulation lost its luster. Virginia partially re-regulated. As TECO Energy's debt climbed, expected new revenues came slowly. Then its stock slipped.

Projects were put on hold. The company asked some longtime top executives to take early retirement and consolidated some management responsibilities. At one point, Tampa Electric and Peoples Gas had the same president. As a reorganization and budget cutting process slowly began, vacant offices were more common at headquarters.

Fagan reversed course and started the company on a path toward refocusing on its core regulated utilities, mainly Tampa Electric and Peoples Gas - Coca Cola Classic.

The cover of one annual report showed smiling color pictures of an ethnically diverse number of employees standing side by side, from power plant managers to linemen to planners, ending with a female executive energetically jumping up.

In the future, to symbolize its refocusing, the cover of one company publication showcased a solitary young lineman working, strapped to a power pole.

The company shut down its downtown customer payment station in TECO Plaza, drawing the blinds above the metal counters facing the street where customers used to walk up and pay bills with cash or checks.

Now employees needed to go to participating vendors, like the magazine shop down the street. Part of it was a security issue. But some customers and employees saw it more symbolically, cost cutting and pulling back from a community presence.

The company sold its employee parking garage downtown across the street to a developer, who toppled it for a condominium tower. Employees had to search elsewhere for parking.

Some looked out their windows at the daily demolition.

Employees began to grumble.

Positive momentum

Meanwhile, despite growing economic pressures, some good things were happening at the company.

Tampa Electric's Polk Power Station was getting international attention for its environmentally friendly coal-gasification technology.

A $1.2 billion effort began to modify the company's Big Bend Power Station in eastern Hillsborough to reduce air emissions. The modern Bayside Power Station opened as the company phased out its aging Gannon Station next door.

At Big Bend, the company took advantage of the warm water from its production process and opened the Manatee Viewing Center, complete with a boardwalk, education center and gift shop, for people to see gentle sea cows swimming near the plant.

The company stepped up marketing for its alternative energy programs, such as biomass, and its free energy audits.

Popular Tampa Bay Buccaneer linebacker and community icon Derrick Brooks appeared in ads touting the company's efforts to save energy costs for customers.

The company's Guatemalan plants continued to produce more revenues and profit as that market grew, and there is room for a couple of hundred megawatts of expansion there.

The response to the multiple hurricanes in 2004 proved symbolic, too: Employees from all locations did whatever was needed, including serving food to linemen and helping secure motel rooms for them. Executives such as Ramil and Hernandez got out and walked the streets.

"The biggest thing we learned was not only to have plans, but to test them for flexibility," Ramil says. "Hurricane Charlie was supposed to have a western path, but turned east. Flexibility. It's awful important."

The Hudson era

Fagan moved on about three years ago, when a new CEO and chairman from South Florida, Sherrill Hudson, arrived in port on the winds of change.

The mission from the TECO board was clear: Cut costs. Get back to the core business. Pump up employees, investors and customers and hit the road to speak to Wall Street analysts. TECO Energy was bruised, but still standing.

Today, it is difficult to see the Fagan legacy. All of the out-of-state under-construction facilities, plus other non-core real estate in and out of Florida, are sold, other than land for future electric substations.

"It's all done and behind us," Hudson says.

Even TECO Transport, the company's water transportation company with a fleet of barges and ocean-bound carriers, is for sale. Transport is one of TECO Energy's five core businesses. It has at least 100 offers, Ramil says. Hudson says the decision to sell Transport has been "painful" because of all the progress its managers and employees have made.

With the impending sale, that would leave these core companies: Tampa Electric (nicknamed TECO by many), Peoples Gas (Florida's largest natural gas company), Kentucky-based TECO Coal and TECO Guatemala.

Mixing cultures

Coal could be the next company sold. It is based in Kentucky and as of 1998, no longer supplies the coal for Tampa Electric because Tampa Electric requires a different kind of coal. It has a vastly different corporate culture, in tune with its rural hunting communities, but it brings in revenues.

"There's a great management team there," Hudson says.

Like TECO Coal, there are differences in corporate culture within Tampa Electric and Peoples Gas. The main difference is that Peoples Gas has a much more open culture, with a freer flow of ideas from line-level employees to executives and back down. Tampa Electric is more traditional in its top-down communications with employees.

There continues to be some awkwardness in uniting the two corporate cultures, dating back to their different corporate roots. Peoples Gas was once part of the Lykes Brothers family of holdings in Tampa.

One energy executive was skeptical of the publicity Peoples Gas got in its efficiency efforts. But in acquiring Peoples, TECO got an energy company with an established, statewide presence and another technology.

The comebacks main cheerleader has been Hudson, a tall, avuncular, friendly man with a command of numbers who likes mixing with employees.

Fagan seemed distant to some employees because of his quieter personality. Hudson spends time talking with individual line employees and shaking their hands in the hallways and in plants.

He isn't alone. Other TECO executives, such as Ramil, take off the suit jackets and sit in the TECO atrium downstairs, eating lunch among the masses at tables underneath a giant tubular metal sculpture suspended from the roof above.

Hudson is also a little bit different than most TECO managers: He's an accountant by training and comes from Miami. Within the halls of TECO Plaza, the company's eight-story headquarters in downtown Tampa, most top executives and middle managers are engineers. And many, such as Ramil, are from Tampa.

There's a definite sense that his stay is temporary. Yet the TECO board brought in Hudson with his successful financial and management background to help the company rebound. He has mainly succeeded, but he did it with the help of Ramil and the management team.

Earlier this month, TECO Energy reported second quarter net income of $73.7 million, or 35 cents per share, compared to $62.5 million, or 30 cents per share, in the second quarter of 2006.

Year-to-date net income and earnings per share were $146.5 million or $0.70 per share in 2007, compared to $117.7 million or $0.57 per share in the same period in 2006.

Getting more efficient

While TECO Energy retains some of its traditions, it has also re-examined itself.

When he was running energy delivery for Tampa Electric, Tom Hernandez encouraged his managers to look at "sacred cows" in the company and see if they needed to remain that way. The result was thousands in cost savings and more efficient operations.

Gordon Gillette, an engineer and company CFO, also runs the company's successful Guatemalan operations.

As deregulation waned, the company also shifted its corporate communications strategy to more internal work to support the reorganization effort and unite employees.

The Web site for business customers was replaced by a new corporate magazine, Insight, which aimed to unite all TECO Energy employees from Guatemala to Kentucky to Tampa.

Despite the changes in the past few years, TECO Energy retains some traditions, such as employee longevity. Twenty-year employees are common, especially in the power plants.

Part of the longevity comes from the company's promoting from within. For example, Vice President Clint Childress was a former lineman. That came in handy when dealing with labor issues.

Ramil was a former co-op student at the University of South Florida in Tampa who worked for Tampa Electric when he was in engineering school. Company recruiters mention this to students.

Like other industrial companies, there is a little animosity between the plants and the headquarters. And there is unionization.

The company recently finished negotiations on a new three-year contract with its largest union, the International Brotherhood of Electrical Workers. The talks went well for both sides, done in record time, Ramil says.

Executive duo

The board planned Hudson's tenure as a temporary one. He originally stayed in the downtown Marriott Courtyard hotel and commuted from South Florida on weekends.

His departure date remains unclear. But when it happens, Ramil is the clear successor.

Ramil has worked his way through the ranks and is the operations guy. Hudson may be standing on the bow, pointing, looking ahead, reciting the company mission, but Ramil is behind the people at the controls, adjusting the sails.

Like Hudson, Ramil is friendly and approachable. Both are excellent at employee gatherings and foster a TECO family atmosphere. But while Hudson is sharp on details, yet folksy and sometimes off-the-cuff, Ramil is genuine, yet smoother. Younger, yet experienced.

On a Dateline NBC interview with Stone Phillips, the COO faced questions about federal pollution rules, showing no Nixonesque signs of tension and sweat under the TV.

The broadcast was considered not only a home run, but a grand slam for great national PR by many in the company. Ramil's star rose higher. He took the reins as chairman of the Greater Tampa Chamber of Commerce and joined the board of directors at the University of South Florida.

Learning to communicate

Tampa Electric took a PR hit in newspapers and talk radio from the way it handled the new electric poles in the Egypt Lake area of Tampa.

It is legally obligated to provide safe and reliable power to residents. To do that, it needed to increase the size of some poles so it could get power to growing areas safely and efficiently. So it began installing them.

When residents saw the larger poles going in and learned of the project, they not only objected but protested in front of TECO headquarters with signs. That attracted TV cameras. And lawyers. The controversy dragged on for weeks, then months.

Electric rallied with community meetings and options. It eventually diffused the situation. But it learned to communicate more often and earlier with residents.

There will be other Egypt Lakes. The poles must go somewhere.

It is a similar sentiment voiced by residents, such as City Councilwoman Linda Saul-Sena, who favor underground electric wires in Tampa's shady and established Davis Islands neighborhood as a way to make it look more pleasant and prevent line damage in hurricanes.

But placing above-ground wires underground is a long and expensive process. And identifying and repairing lines underground can be more difficult and more time-consuming in a storm.

Safety has been and continues to be a hallmark at the company. It holds annual "safety summits" in different locations, hosted by the different companies, to share best practices and brainstorm innovations.

Managers keep detailed safety records. Long periods with no accidents are cause for special lunches sponsored by the company. The company prints hats and shirts congratulating employees.

Besides keeping employees safe, good safety practices save the company money and keep experienced workers on the job. For lineman, safety is paramount. Electric lines have killed people.

TECO Energy also pushes its reputation as a benefactor to the community.

"In corporate America, we're all strained to do what we used to do," Hudson says. "We have the commitment of our people. We do support key organizations. We're proud of that."

It also is practical. TECO Energy has its own political action committee and a presence in Tallahassee and Washington, D.C.

All of which is pointing back toward is core product - TECO Classic.

BY THE NUMBERS

TECO Energy profits

2007 $275.2 million

2006 $264.2 million

Revenue:

2006 $3,448 million

2005 $3,010 million

2004 $2,639 million

Net income*

2006 $201.5 million

2005 $172.3 million

2004 $73.1 million**

Earnings per share

2006 $0.97

2005 $0.84

2004 $0.38**

*this is a non-GAAP measure which excludes charges/gains and synfuel **(this is the last year that has merchant power results included)

REVIEW SUMMARY

Company: TECO Energy

Industry: Energy

Keys: Serving customers, employees and shareholders as a fiscally sound energy company means getting back to its core utility business.