TECO ENERGY INC | 2013 | FY |

19. Discontinued Operations

On Aug. 7, 2012, TECO Energy received an offer from Renewable Energy Investments Guatemala Limited (REIN), a wholly-owned subsidiary of Sur Eléctrica Holding Limited (SUR), to purchase the independent power projects in Guatemala and certain affiliated Guatemala companies. SUR and REIN are international business companies organized under the laws of the Commonwealth of the Bahamas. On Sept. 27, 2012, an indirect wholly-owned subsidiary of TECO Energy, Inc., TECO Guatemala Holdings II, LLC (TGH), entered into an equity purchase agreement with SUR, and two equity purchase agreements with REIN (the three equity purchase agreements are collectively referred to herein as the “PAs”). Pursuant to the PA with SUR, TGH agreed to sell all of its ownership interests in TPS Guatemala One, Ltd. (TPS GO) for $12.5 million, and pursuant to the PAs with REIN, it agreed to sell all of its ownership interests in (i) TPS San José International, Inc. (TPS SJI) for $213.5 million and (ii) TECO Guatemala Services, Ltd. (TGS) for $1.5 million (TPS GO, TPS SJI and TGS are collectively referred to herein as the Disposal Group). The companies in the Disposal Group are the ultimate parent companies of TCAE, CGESJ, TEMSA, and TPS Operaciones de Guatemala, Limitada (TPSO), the owner of certain local real estate assets and the employer of the local employees. The total purchase price for the Disposal Group under the PAs was $227.5 million.

The sale of TPS GO, which owns 96.06% of TCAE, closed on Sept. 27, 2012. An affiliate of the party that controlled the remaining interest in TCAE (the “noncontrolling interest holder”) held certain contractual rights with respect to TEMSA and CGESJ, including a right of first offer. The noncontrolling interest holder was also granted the opportunity to purchase TGS since the operations of TPSO are integral to the operations of TEMSA and CGESJ. The noncontrolling interest holder exercised the right of first offer for TPS SJI and elected to purchase TGS by executing PAs similar to the PAs with REIN on Oct. 17, 2012 and Oct. 26, 2012, respectively. The sales of TPS SJI and TGS to the noncontrolling interest holder closed on Dec. 19, 2012.

 

As a result of the PAs, the TECO Guatemala segment is accounted for as a discontinued operation at Dec. 31, 2013. The following table provides selected components of discontinued operations:

 

Components of income from discontinued operations attributable to TECO Energy		Twelve months ended Dec. 31,
(millions)		2013				2012				2011
Revenues		$	0.0			$	114.2			$	133.5
(Loss) income from operations			(0.2	)			27.7				33.7
Loss on assets sold, including transaction costs			0.0				(38.3	)			(0.4	)
Income (loss) from discontinued operations			(0.2	)			(10.6	)			33.3
Provision (benefit) for income taxes			(0.1	)			22.4				11.2
Income (loss) from discontinued operations, net			(0.1	)			(33.0	)			22.1
Less: Income from discontinued operations attributable to noncontrolling interest			0.0				0.3				0.3
Income (loss) from discontinued operations attributable to TECO Energy, net		($	0.1	)		($	33.3	)		$	21.8

The provision for income taxes line item includes an after-tax charge of $22.9 million in 2012 associated with foreign tax credits. The 2012 charge is a result of the sales of the Disposal Group which eliminate future foreign source income that would be required to utilize these credits.

The PAs contain customary representations, warranties and covenants. The PAs also contain indemnification provisions subject to specified limitations as to time and amount, including an indemnification provision related to an uncertain tax position related to TCAE.

On Dec. 19, 2013, the ICSID tribunal hearing TGH’s arbitration claim against the Republic of Guatemala under DR-CAFTA issued an award in the case. The ICSID tribunal unanimously found in favor of TGH and awarded damages of approximately U.S. $21.1 million, plus interest from Oct. 21, 2010 at a rate equal to the prime rate plus 2%. In addition, the tribunal ruled that Guatemala must reimburse TGH for approximately $7.5 million of the costs it incurred in pursuing the arbitration.

The ICSID tribunal found that Guatemala breached its treaty obligation to grant TGH fair and equitable treatment under the terms of the DR-CAFTA, thereby causing damages to TGH for which it is entitled to compensation. In sum, the tribunal found that Guatemala’s repudiation of fundamental regulatory principles applying to the tariff review process was arbitrary and breached elementary standards of due process in administrative matters.

Each party has 120 days from the date of the award to seek annulment of the decision. Pending the outcome of a potential annulment filing, results in 2013 do not reflect any benefit of this decision.