TECO Energy & Chesapeake Make Deal - Analyst Blog


TECO Energy, Inc. 's ( TE ) subsidiary Peoples Gas System has entered into an agreement with Florida Public Utilities Company ("FPU"), a wholly-owned arm of Chesapeake Utilities Corporation ( CPK ) for the distribution of natural gas to Nassau County and Amelia Island. This project has already received approval from the Florida Public Service Commission.

Accordingly, the companies will set up 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 ( RKT ) container-board manufacturing mill in Fernandina Beach. In addition, Chesapeake Utilities will set up a gas-distribution system to serve local communities.

The companies have already begun plant construction and development activities in some places and natural gas services are expected to be available by November this year.

The project will have social, economic and environmental benefits. Currently, people in these regions primarily depend on costly and high pollutant petroleum or propane. Being a natural gas project, the new system will reduce carbon emissions and supply clean energy to its users. While consumers are expected to benefit from the usage of less expensive natural gas, both the companies will benefit from the optimal use of resources.

We think that TECO Energy is well positioned with its strong 2012 coal contracts pipeline. This will drive total coal sales of 7.0-7.3 million tons, out of which 90% has already been contracted.

The company will likely increase its quarterly dividend by 3.5% per annum to 88 cents per share in 2012. But the company is skeptical about the continued increase in cost of production due to a higher rate of severance taxes and royalty payments.

As a utility service provider, TECO Energy, Inc. remains focused on infrastructural development. Capital expenditure in fiscal 2011 amounted to $454.1 million. As of December 31 2011, the company had a strong liquidity position with total available funds at $718.4 million, including credit facilities of $675.0 million. The company can utilize these funds for future construction projects. We expect depreciation to increase from the 2011 level of $324.6 million due to normal capital add-ons for providing uninterrupted service to customers.  

Based in Tampa, Florida, TECO Energy is involved in the generation, purchase, transmission, distribution, and sale of electric energy in Florida.

TECO Energy, Inc. currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

CHESAPEAKE UTIL ( CPK ): Free Stock Analysis Report
ROCK-TENN CO ( RKT ): Free Stock Analysis Report

TECO ENERGY ( TE ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: CPK , RKT , TE



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