Cheaper coal costly to Teco's bottom line

If you think oil prices have hit rock bottom, wait until you hear what's been happening with coal.

Coal production nationally fell below 1 billion short tons in 2013 for the first time in 20 years, according to the U.S. Energy Information Administration, and the market only worsened in 2014.

Because of that, Teco Energy Inc.'s efforts to bail on the coal industry are becoming much more expensive. The firm was recently forced to cut the sales price of one unit by 18% in just four months.

Booth Energy's Cambrian Coal Corp. will buy Teco Coal for $140 million, according to Teco's latest filings with the U.S. Securities and Exchange Commission. That includes an $80 million base price, and $60 million more if unreleased coal price benchmarks are achieved over the next five years.

Last October, however, the deal was much different. Back then, Cambrian was ready to pay $170 million, which included a $120 million base price, and $50 million more based on coal price benchmarks over a five-year period.

“The coal markets have continued to weaken for a number of months now,” Teco CEO John Ramil says, in a release. “We believe that the new amended agreement reflects the fair value of Teco Coal in the current markets, and allows us to execute our strategy to exit the coal business in an expeditious manner.”

Teco Coal has more than 775 employees in mines throughout Kentucky and Virginia. The Tampa-based utility has maintained coal operations since the mid-1970s.