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TECO to Revamp Gas Pipeline

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TECO Energy Inc.'s subsidiary TECO Peoples Gas announced its plans to commence a 10-year aggressive program with annual investment of $8 million for replacing cast-iron and bare steel natural gas distribution pipes. This project has already received approval from the Florida Public Service Commission.

Per the program, TECO Energy will install high-density polyethylene pipes or coated steel pipes replacing cast-iron and bare steel pipes.

This project will have social, economic and environmental benefits. The U.S. Department of Transportation rolled out rules regarding the maintenance of distribution pipeline standards after two mishaps at San Bruno, California and Allentown, Pennsylvania.

This program will enable the company to meet current distribution pipeline standards. In addition, the company will supply natural gas to its Florida customers in a much more safer and reliable manner.

TECO Energy started its older pipe replacement program more than a decade ago. The company intends to begin its 10-year program from January 2013 and will put back approximately 150 miles of cast-iron pipe and roughly 400 miles of bare steel pipe.

TECO Energy has reported that this replacement program will cost roughly 5 cents per month for residential natural gas customers in 2013. It is a regular practice for the regulated utility companies to recover their invested funds from consumers through rate increase. We do believe the increment in monthly natural gas bill stretches the budget of the residential consumers. However, at the same time, these infrastructure developments ensure uninterrupted gas supply throughout the year.

We have observed that TECO Energy has focused on infrastructural development over the last few years. In April 2012, the company signed a pact with Florida Public Utilities Company, a wholly-owned arm of Chesapeake Utilities Corporation (CPK - Free Report) for the distribution of natural gas to Nassau County and Amelia Island.

Per the contract, the companies installed a 33-mile long natural gas pipeline in Nassau County and Amelia Island to link the Peoples Gas Jacksonville system with Rock-Tenn Company's container-board manufacturing mill in Fernandina Beach.

We have observed that TECO Peoples Gas’ performance improved in second-quarter 2012 owing to gradual economic development in Florida and customer growth. Alongside, we believe that the demand for metallurgical coal in the Asian markets will improve on the back of higher production of steel and electricity generation, particularly in India and China. We expect this trend to continue to benefit the company’s performance going forward.

In second-quarter 2012, TECO Peoples Gas reported net income of $9 million versus $5.9 million in the year-ago quarter driven by higher sales to residential consumers resulting from customer additions, greater volume sold to commercial and industrial users and decline in non-fuel operations and maintenance expenses.

During second-quarter 2012 earnings call, TECO Energy lowered its full-year 2012 earnings guidance to $1.20–$1.30 per share from the prior estimate of $1.30–$1.40 per share due to the negative effect of mild weather.

As per the Zacks Consensus Estimates, TECO Energy’s earnings for the third-quarter and full-year 2012 are currently pegged at 41 cents per share and $1.25 per share, respectively.

Tampa, Florida-based TECO Energy Inc. is involved in regulated utility operations. Through its subsidiaries, it generates, transmits, distributes, purchases and sells electric energy in Florida and Guatemala. TECO Energy Inc. currently holds a Zacks #4 Rank, which translates into a short-term Sell rating.

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