Coal drags Teco down

TAMPA — Teco Energy Inc. has struggled a bit to get out of the coal business, already reducing the selling price of its coal division from a $140 million base price to $80 million.

If the sale to Booth Energy's Cambrian Coal Corp. does not close on March 13 as planned, however, it could have a huge impact on Teco's bottom line. The Tampa-based utility already took a $76.4 million charge from discontinued coal operations in 2014, according to a filing with the U.S. Securities and Exchange Commission. That has reduced the earnings per share by a third, from 92 cents to 58 cents based on revenue of $2.6 billion.

If coal were to remain on Teco's books, it would result in a loss for the vision in 2015, company executives say in their filing.

The biggest challenge to coal in recent years has been low-cost natural gas, which have allowed utility steam coal users to switch from coal to natural gas when producing electricity, Teco says. Hydraulic fracturing growth has increased natural gas production from shale formations, and dramatically reduced the cost of natural gas.

On top of that, there has been more competition among coal producers in Central Appalachia — an area that is served primarily by Kentucky and West Virginia. Teco says it would likely be forced to sign sales contracts for coal lower than the cost of production prices.

Teco also has struggled to open new surface mines, since the U.S. Army Corps of Engineers have reduced the number of permits it's issuing following continuous court challenges by environmental groups. Without those new mines, Teco has been unable to increase production in a way to lower cost and get closer to break-even points.

One final hurdle affecting coal is the federal government's proposal to eliminate the percentage depletion tax deduction for mining. That would mean an effective tax raise for coal from the traditional 20% to 25% range, to 37%.

Shares for Teco, which trades on the New York Stock Exchange using the symbol TE, closed Thursday at $19.62, down from the $20.28 prices from earlier in the week.