Teco Energy is well on the way out of its liquidity crisis, but is considering reinforcing its position with the sale of its merchant energy unit including its two just-completed giant power projects, the 2,145 MW Gila River power station in Arizona and the 2,200 MW Union Power Station in Arkansas.

CEO Robert Fagan pointed out that Teco also had completed the buyout of Panda Energy’s interests in the two plants. As 100% owners, the company will have more flexibility in how it deals with the assets. “We’re looking at selling the assets. We are looking at joint ventures and we’re looking at selling all of [Teco Power Services]…, if it turns out to be the right thing to do,” Fagan said.

Fagan said operating results so far for the merchant plants were “unacceptable. We have a lot to learn and we expect better performance.”

“Our liquidity crisis is substantially behind us,” Fagan said, addressing analysts at the Edison Electric Institute’s Financial Conference Tuesday. The company’s debt to equity ratio has dropped from 62% a year ago to 54% currently. Fagan said Teco had raised or saved $950 million in cash to complete its construction projects, and along the way had sold equity to reduce its need to rely on bank credit.

With the completion of the two major projects and with no new ones on the horizon, “we will minimize any further cash investment in merchant generation,” reducing capital expenditures to maintenance levels. Teco is separating out the merchant generation in its financial reports so results will be trackable. The separation also will better position the assets for sale, if necessary. “We will be looking at all the options over the next several months,” Fagan said.

Fagan said Teco also is “actively marketing” its interest in the Texas Independent Energy (TIE) projects, and has bid them into an Entergy request for proposals.

Earlier this month Teco reported third quarter net income of $15.0 million or $0.08 per share compared with $118.9 million or $0.76 for the same period in 2002. The loss from continuing operations was $19.2 million in the third quarter, compared with net income of $110.6 million for the same period in 2002. On an earnings-per-share basis, the loss from continuing operations was $0.11 for the third quarter, compared with earnings per share of $0.71 in the 2002 period. Discontinued operations in the quarter reflect the results from Hardee Power Partners (the owner of the Hardee Power Station), which was sold Sept. 30, 2003. The number of common shares outstanding was 15% higher for the quarter than for the same period in 2002, the company said.

Fagan touted the future of the company’s core electric and gas distribution systems in the expanding Florida market, which he said has about half the population of California and the same generating capacity.

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