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TECO Energy, Inc. (NYSE:TE)

Q4 2009 Earnings Call Transcript

February 5, 2009 9:00 am ET

Executives

Mark Kane -- Director, IR

Sandy Callahan -- CFO

John Ramil -- COO

Kim Caruso -- Treasurer

Analysts

Lasan Johong -- RBC Capital Markets

Ali Agha -- SunTrust Robinson Humphrey

Timothy Yee -- KeyBanc

Gavin Tan [ph] -- Macquarie

Maurice May -- Power Insights

Scott Senchak -- Decade Capital

Operator

Good morning. My name is Sylvia, and I will be your conference operator today. At this time, I would like to welcome everyone to the TECO Energy’s fourth quarter results and outlook 2010 conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. (Operator instructions). Thank you.

I will now turn the call over to Mr. Mark Kane, Director of Investor Relations.

Mark Kane

Thank you, Sylvia and good morning, everyone. Thank you for joining us for TECO Energy’s fourth quarter 2009 results conference call and webcast. Our earnings, along with unaudited financial statements, were released and filed with the SEC earlier this morning.

This presentation is being webcast, and our earnings release, financial statements and the slides for this presentation are available on our website at tecoenergy.com. This presentation will be available for replay through the website, approximately two hours after the end of the presentation and will be available for 30 days.

In the course of our remarks today, we will be making forward-looking statements regarding our financial outlook and plans for 2010. There are a number of factors that could cause our actual results to differ materially from those that we will discuss as our outlook and expectations today. For a more complete discussion of these factors, we refer you to the discussion of the risk factors in our Annual Report on Form 10-K for the period ended December 31, 2008 and as updated in our subsequent SEC filings.

Also today, we will be using non-GAAP measures in the course of the presentation. There are reconciliations to the nearest GAAP measure contained in the appendix to today’s presentation.

On the call today, Sandy Callahan, our Chief Financial Officer, will cover the fourth quarter of 2009 results and full year results, and provide our guidance for 2010, and discuss the factors that we see driving our results this year. Also with us today to participate in answering your questions are John Ramil, TECO Energy’s Chief Operating Officer; and Kim Caruso, TECO Energy’s Treasurer.

Now, I will turn it over to Sandy.

Sandy Callahan

Good morning, and thank you for joining us. Sherrill Hudson would normally be with us on the call to participate in answering questions, but he wasn't able to join us today. He did however ask me to tell you that he is very proud of our results in 2009, especially considering the tough economic conditions our company has dealt with and that he is optimistic about a successful 2010 as well.

Today, I will cover our fourth-quarter results and business drivers, and then I will discuss our guidance for 2010 and the business drivers behind that guidance, and what we are seeing in the Florida and local economies.

In the fourth quarter, our GAAP net income was $53.5 million, compared to $22 million in 2008. Earnings per share were $0.25 in the fourth quarter, compared to $0.10 in 2008. The net income included $400,000 of charges at Tampa Electric and Peoples Gas related to the third quarter restructuring actions. The $20.3 million of net charges in the fourth quarter of 2008 were primarily related to taxes on cash repatriated from Guatemala. Excluding charges, non-GAAP results were 25% higher than last year at $53.9 million or $0.25 on a per share basis, compared to $42.3 million or $0.20 a share in 2008.

For the full year, GAAP net income was $213.9 million, compared to $162.4 million in 2008. Non-GAAP results for the year, excluding charges and gains were $230 million, compared to $183 million in 2008. On a per-share basis, our full-year non-GAAP results were $1.08 compared to $0.87 in 2008. Charges and gains for the full year included restructuring charges totaling $15.8 million that were related to the management changes that we announced at the end of July to combine the operation for Tampa Electric and Peoples Gas. We also included a $5.2 million charge to write off project development costs, primarily related to the base load ITCC [ph] unit, planned for the (inaudible) power station, evaluation adjustments to student loan securities, and the gain on the sale of our interest in the Guatemalan telecommunications provider Navega that was $8.7 million. There are tables in the appendix to this presentation that provide a reconciliation between GAAP net income and earnings per share and these non-GAAP measures.

We covered the quarter and full-year drivers in detail in our release this morning. So I will just recap the highlights here.

Tampa Electric reported quarter and full-year results substantially above last year, although GAAP results were affected by the charges I mentioned. New base rates, which were effective for Tampa Electric in May, added $25 million to base revenues in the quarter and $72 million for the year. Retail sales increased 1.1% in the quarter, reflecting better weather. And we saw the first quarterly increase in customers in 18 months, with 0.2% customer growth. Commercial and non-phosphate industrial sales were down due to the economy and sales to phosphate customers declined due to planned outages at their facilities. Total degree days were above normal, and above 2008 fourth quarter, due to hotter weather in October, which drove higher sales to the weather-sensitive residential customers.

Also contributing to higher earnings at Tampa Electric this year has been the elimination of a water-borne transportation disallowance, which had reduced Tampa Electric’s net income by about $10 million annually for the past five years. Non-fuel operations and maintenance expenses were slightly higher this quarter, and depreciation expense increased from normal additions to facilities to serve customers.

The gas company reported higher results for the quarter and the year. Peoples Gas results also benefited from the new base rate that became effective in June. Peoples Gas had fewer average customers this quarter compared to last year at this time, but benefited in the quarter from higher firm sales to commercial customers. The commercial increase reflects former propane gas users that converted over to natural gas. Operations and maintenance expense increased, primarily from higher pipeline integrity costs and higher depreciation expense reflected routine capital additions for our pipeline system.

For the unregulated company, TECO Coal’s results for the quarter were well above last year, reflecting higher selling prices across all products. Sales volumes were slightly lower at 1.9 million tons, compared to 2.3 million tons in the fourth quarter of 2008. Volumes this quarter were affected by a snowstorm in December that shut down rail service, caused power outages, and generally hindered mining activities. The average selling price for the quarter increased 22% over last year to more than $73 per ton due to higher prices for metallurgical coal. Production costs increased 16% as expected. The higher costs were driven primarily by reclamation activities at mines that were closed earlier in 2009, lower productivity due to increased safety inspections, and the lower tons in lost productivity due to the December snowstorm.

TECO Coal’s effective income tax rate varies from quarter to quarter due to the mine-specific effects of percentage depletion. It was 12% in the fourth quarter, which is significantly lower than our normal expectation of about 20% to 25%.

Fourth-quarter net income at TECO Guatemala was in line with non-GAAP results last year. The San Jose power station was returned to service in early July, after extended unplanned outages in the first six months of the year and fourth quarter results include a net $1.7 million insurance recovery that was related to that outage. The capacity payments for San Jose are calculated on a rolling 12 month availability factor and their reduced effect factor falls below 85%. Results for the quarter reflect $2 million lower capacity payments as a result of those outages.

Results for the DECA II company, which include the regulated distribution company EEGSA and its unregulated affiliates, reflect the benefits of customer growth, higher energy sales and cost control measures to partially offset the impacts of the lower distribution tariff or VAD that became effective in August of 2008.

For 2010, we are establishing our earnings per share guidance to be in a range between $1.20 and $1.35 per share, excluding any charges and gains. We are providing the range to accommodate variability in factors such as weather, where we have already seen an extreme variation from normal early this year, the timing and strength of an economic recovery in Florida, which I will discuss further, and deliveries under our coal contracts, which can be affected by utility inventories, the economy, and natural gas prices, among other things.

In 2010, those utilities will have a full year of the new base rates authorized in 2009. We will have almost a half year effect at each company, including the higher usage winter heating season at Peoples Gas. In addition, $26 million of base rates approved by the Florida Commission last December became effective January 1. This amount relates to Tampa Electric’s five combustion turbines and the rail coal unloading facilities that entered commercial operation in 2009. The rates were effective January 1, but are subject to refund pending a hearing before the Florida Commission. That hearing is focused on the final cost of the projects, whether all of the facilities were in commercial operation by December 31, and that the CTs are needed to serve customers. We spent less on the CTs and more on the rail facilities than we originally projected. All of the facilities were in service before year-end. And the CT has ramped 15% in 2009 and also extensively as we met record lows in January in the cold weather.

In parallel with the hearing at the Commission, the interveners filed notice that they intend to appeal the 2010 increase with the Florida Supreme Court and they are expected to file that appeal with the Court later this month. This would be followed by a period of filing brief by both sides, before the court even decides that they will hear the case. Timing is uncertain, but the last time we had an issue go before the Supreme Court, it was about a year before we had a decision.

The utilities are focused on managing costs to offset the revenue shortfall between their respective rate case filings and the current level of energy sales. At the time we prepared our rate filing, our forecast was for moderate customer and energy sales growth in 2008 and 2009. In fact, we have had two years of no growth to negative growth and lower energy sales than were assumed in the case. At Tampa Electric, the resulting difference is about $40 million. So the companies have worked hard to align costs with this economic reality. The 2009 restructuring action and the 225% reduction in force was a significant component of this and the team was charged with focusing on all other areas of cost as well. As a result, 2010 levels of O&M are expected to be approximately the same as 2008, as are the energy sales that we are forecasting for 2010. With expenses better aligned with expected energy sales, we expect both utilities to be able to earn their authorized returns in 2010.

The overall economic conditions in Florida and the Tampa area are more stable, but remain weak. For the state, at 11.8%, unemployment is higher than the national level, but it does appear to be leveling out. Tampa area unemployment is higher than the state, at 12.4%, but it too appears to be leveling. In the last six months of 2009, job losses in the Tampa area were about 40% of what the area experienced in the last six months of 2008. We are also seeing some improvement in the housing market for both existing home resale and new single-family building permits. Even with the potential early signs of improvement in the housing market though, our forecast and the forecasts of others anticipate a slow recovery.

For 2010, Tampa Electric expects to have the seasonal influx of winter residents, which will give us a first-quarter boost, but for the year, we are planning for the likelihood that the number of customers remains essentially unchanged. We expect slightly lower energy sales in 2010 due to the effects of the economy, as residential customers continue to watch their energy dollars, except when it is very hot or very cold and we expect that sales to commercial and industrial customers could remain soft. We think the sales to phosphate customers may improve in 2010 however, as they are forecasting a better year for their products.

These next two slides graphically show some of the trends that lead us to believe that the economy and housing markets in particular are bottoming, but they are not clear signs of recovery yet. The first slide updates you on our customer additions. From the sequential monthly additions, you can see that there really isn’t a strong pattern for a recovery yet, which is driving our forecast. You can clearly see the seasonal drop in customers, when our winter residents return to their northern homes at the end of the spring. The graph on the right, the cumulative customer additions, shows a more stable environment than a year ago and a slightly positive trend. An important point is actually the node to the graph. The decline in total customers since the peak is less than 0.2% since that peak, and the peak did include the normal seasonal increase from our winter residents.

This slide shows the existing home resale activity and the single-family building permit activity in our area. We think that the dip that occurs here in the fall of 2009 in both charts is due to anticipation of the expiration of the first-time home buyer tax credit that was originally scheduled to expire in November. The pickup in both existing home sales and building permits appears to be a function of the extension of that tax credit through the end of June 2010. Another positive sign in the existing home market is that prices have stabilized and actually improved in two of the past four months as reported by the Case Shiller index.

In addition, we have seen a slight decline in the number of foreclosed properties in our area. According to Realty Track, the number of homes in foreclosure in the Tampa area has declined from 16,400 in late July to 15,200 last week.

Now, turning to our unregulated operations. At TECO Coal, we expect improved results in 2010 from better margins, but on slightly lower production. We expect to sell between 8.3 million and 8.7 million tons, all of which is contracted at an average price of more than $75 per ton. This price is for a mix of steam, met, PCI and the small amount of stoker coal that we expect to sell in 2010 and reflect carryover tons from 2009 and contracts signed in the fourth quarter of 2009.

In 2010, our production mix will reflect a little more than one third specialty coals and our major steam. The all-in total cost is expected to be between $65 and $69 per ton. Diesel costs are hedged at significantly lower prices than last year, but this could be offset in part by higher royalties and severance taxes that are a function of the selling price, lower productivity due to the more frequent safety inspections and the higher manpower and equipment cost that is associated with compliance with the Miner Act safety requirements. These include underground communication systems and miner tracking, refuge chambers and the personnel to operate and maintain these incremental new systems. We support a safe work environment in the coal company and we have an outstanding safety record, but the new requirements do add to the cost of production.

This bar graph shows our contracted and priced positions through time. You can see that we are fully contracted for this year and almost 50% contracted and priced for 2011. The 2011 contracted and priced segment is primarily seen, but it does include a small amount of net under a carryover contract. The contracted un-priced segment is coal that is subject to price negotiations at the market at the time of renewal. If a price can’t be agreed upon, it goes into the un-contracted category. We have a large open position in 2012, and a big positive here is that the larger of our two below-market legacy contracts rolls off at the end of 2011.

At TECO Guatemala, we expect the San Jose power station to operate more nominally in 2010, following the unplanned outages that we experienced in 2009. As a result of those outages, the capacity payments, which are calculated on a 12 month rolling average availability, will be lower in the first half of the year, until the outage month rollout of that calculation. In 2009, the lower capacity payments reduced net income about $4 million in the second half of the year. We expect the capacity payments to return to the normal contract level in the second half of 2010.

With normal operation, San Jose will have the opportunity in the next spot energy sales in 2010. With oil prices in the $70 to $80 per barrel range, margins for spot energy sales can be about $20 per megawatt hour. And we have 10 megawatts of capacity above our contract generation that is available for spot sales.

With improved operations and financial performance, we expect San Jose to represent somewhere between 50% and 60% of the net income from TECO Guatemala over the next several years. At the Alberrata [ph] power station, we are in negotiations with the Guatemalan regulators to extend the current contract, which expires in September, for five years. The earnings contribution from Alberrata typically constitutes about 15% to 20% of TECO Guatemala’s total results.

At DECA II, which is the entity that holds our interest in EEGSA, the VAD remains unresolved with no definitive timeframe for its revolution, despite our continued efforts to resolve it amicably. Our ultimate option is to file under the Dominican Republic Central American Free Trade Agreement, CAFTA, but this is not a quick solution. Iberdrola, our partner, is already in international arbitration under the bilateral trade agreement between Spain and Guatemala. Their estimates are that it will take more than a year to reach a resolution in an international arbitration.

In the meantime, the management at EEGSA has taken steps to reduce costs to partially mitigate the effect of the lower VAD and EEGSA continues to experience customer and energy sales growth. We also have the small unregulated companies at DECA II that continue to contribute good earnings. We expect to DECA II companies to contribute about 20% to 30% to net income over time.

In conclusion, our earnings guidance range is $1.20 to $1.35 per share this year, based on the business drivers I have covered today. We expect the earnings contribution from the utilities to grow in 2010, which will mitigate some of the variability that we have experienced in coal earnings over the past several years. Longer term, we do expect growth to return to Florida, although we don't anticipate the robust 2.5% to 3.0% growth that we experienced for many years.

We believe that we are well positioned after 2010. Our major regulatory activities are complete, and our cost structure is aligned with slower growth. Our capital spending is well-defined and we have the flexibility to invest in new technologies at the utilities as policy direction indicates that investment. And when Tampa Electric’s final NOx control project is complete this spring, we will be state of the art for emissions control on all of our coal-fired generation.

And now, I will turn it over to the operator to open up the lines for your questions.

Question-and-Answer Session

Operator

(Operator instructions).

Your first question comes from the line of Lasan Johong from RBC Capital.

Lasan Johong -- RBC Capital Markets

Thank you. You had mentioned that in 2012, a lot of coal contracts are running off that were at a lower price. Can you kind of give us a range of what that price rolling off looks like?

John Ramil

Lasan, this is John Ramil. That contract is about 6% of our production, and we have talked about that contract being in terms of the price that starts with a three. So it is in the 30-s.

Lasan Johong -- RBC Capital Markets

Really?

John Ramil

Yes. So it is a significantly little number compared to our $75 per ton price estimate for 2010.

Kim Caruso

That is the contract we have been in Court over, Lasan, it has been written up in a lot of the trade publications.

Lasan Johong -- RBC Capital Markets

I like that dynamic. The second question I had was demographically -- historically, you said you have been tracking 2.5% to 3%. Why would you assume that going forward you will not return to those numbers, especially as the generation baby-boomers continue to retire their higher and higher rates?

John Ramil

Lasan, I think we see at least three major factors affecting that. We think that the recovery is going to be long and slow and more of a glide path upward rather than a steep slope upward, number one. Number two, there are factors out there, including a lot of things in the past requiring more efficient appliances at this facility, as older stock of appliances get replaced out the consumption will be lower. And number three, we don't have a lot of data to support this but just interacting with our customers; we think that there is just much more awareness of law issues and environmental issues and people are paying more attention to all of their consumption, including energy.

Lasan Johong -- RBC Capital Markets

I see. On the coal front, again, there was a bunch of mine closures last year and there is a lot of talk about coal prices running up. If we do see that kind of pops that a lot of people are expecting, do you have the flexibility to open up some of the mines that you have closed?

John Ramil

We do, and we did close some last year and replaced it with contract production. We do have that ability. We will have to spend a little capital and do a little work to do it, but we did retain that ability.

Operator

Your next question comes from Ali Agha from SunTrust Robinson Humphrey.

Ali Agha -- SunTrust Robinson Humphrey

Thank you, good morning. Going back to the hearings that are expected at the Florida PSC for the step-up in the rates at Tampa Electric, given what you know of that process and factoring that in, should we assume that that is just a formality or is there any level of uncertainty because of the change in the Commission composition that we should be thinking about?

John Ramil

Ali, let me address that and Sandy may want to add to it or add some color. First of all, there is no decrease in rates. The revenue to cover the coal facilities and the air derivative combustion turbines are already reflected in our rates. And the narrowly defined scope of that hearing is a cost of those projects and as Sandy mentioned, we are in good shape with respect to those. And two, are the combustion turbines needed? And again, we are in good shape on that one. In fact, in my career, it is probably the strongest case we ever had for new generation. They are in service, as Sandy mentioned, through part of the summer last year and the balance of the year, they ran at an average capacity factor of about 15%, and literally helped keep the lights on this past January, when we saw record winter demands on our system. And they are clearly providing both fuel -- because they are very efficient. Fuel benefits to our customers and capacity benefits in meeting those peak demands.

Ali Agha -- SunTrust Robinson Humphrey

Okay. And then, if I have a second question on the coal front, what effective tax rate should we assume in 2010? And related to that, John, you talked about the below-market contract expiring. Can you give us some sense of pricing trends for 2011 and 2012, or some data points we should be considering?

John Ramil

In the industry, it is hard to project out that far. You know, when you look at the prices that we have in our current contract mix, excluding those legacy contracts, we have steam coal price between $70 and $80 a ton that we did when the market was fairly robust a few month ago. And we have some just a little bit lower than that. But in any event, we expect it to be significantly stronger pricing than those legacy contracts. Sandy, I will let you address the tax issue.

Sandy Callahan

Yes, that depletion moves around from quarter to quarter, but in general, we look at it as being in the 20% to 25% area. That would be considered normal.

Ali Agha -- SunTrust Robinson Humphrey

Thank you.

Operator

(Operator instructions).

Your next question comes from Timothy Yee from KeyBanc.

Timothy Yee -- KeyBanc

Yes. I wanted to ask you about the coal commentary. You had talked about the production amounts for 2010 and that included some of the carryover and 4Q signings. Now, you had talked about the 700,000 tons deferred from last year. So should we kind of view that as most of that was deferred and the contract signings are still slow from fourth quarter, or are you still seeing some customers wanting to defer?

John Ramil

We have reflected the deferred sales in the amounts we have given you, and --

Timothy Yee -- KeyBanc

(inaudible) was 7.8, so that kind of gets us right to the midpoint of your new guidance.

John Ramil

And all that we are guiding you is totally contracted, and I don’t think you can do that math the way you are doing it.

Timothy Yee -- KeyBanc

Okay.

Kim Caruso

Yes, the 7.8 that we gave in November, Tim, did have already rollover tons that we knew about.

Timothy Yee -- KeyBanc

Okay.

Kim Caruso

So the difference is not just rollover tons. The difference is actually new contracts.

Timothy Yee -- KeyBanc

Okay, so we should see that as new contract signings.

Sandy Callahan

And we are providing a range of 8.32 million to 8.7 million tons. All of those sales are contracted and the reason for the range is that there is some variability in the timing of taking those tons. But it is fully contracted and all of those things are baked in.

Timothy Yee -- KeyBanc

Okay, understood. And just wanted to get a little bit of your perspective, given the Florida political environment; I know you are saying that you can earn at your authorized this year with some of the things you are doing, how long do you think you can stay out for your next rate case?

John Ramil

Well, we don't have an estimate of that, Timothy, but let me kind of run through our thinking a little bit on where we ended up with rate gain.

As Sandy mentioned, we have had new ROE points, except for the electric company. But really, the rates that we were given were stepped too low to support that by about $40 million, because the sales forecast was much higher than what actually turned out, because we had no growth during the extensive time period the rate case goes on. When we received that decision, our thought process was, well, the Commission has spoken, and this economy is very tough on everybody. So let us put our plans in place to live within those means that the Commission provides. And indeed, we have those plans in place, and that is reflected in the guidance we have given you for this year.

Further, looking at what we think the economic recovery is going to be, it is not a stagnant plan. We are planning to keep working to look for more efficiencies and cost reductions moving ahead to match up our costs with a slower growth profile and do everything we can before considering going back and looking for new rates.

Timothy Yee -- KeyBanc

Okay. And just one last question on Peoples Gas. Just I noticed in the release that was talk about a $4 million favorable tax adjustment in the quarter. Could you maybe just discuss like when those deferred tax balances were referred to or what that was about?

Sandy Callahan

Yes, those were existing deferred tax balances that dated back a bit. And so that was really an adjustment that you wouldn’t expect to see recur.

Timothy Yee -- KeyBanc

Okay. All right, great. Thank you very much.

Operator

Your next question comes from Gavin Tan [ph] from Macquarie.

Gavin Tan -- Macquarie

Good morning. Just wanted to make sure that I understand, so there is 7.8 million tons that you referred to on your last quarterly call; is that the production run rate from now on, I mean going forward. So when I look at your 2011 and 2012 coal contracts, would it be based on that 7.8 million number?

Kim Caruso

No, Gavin, that was what we -- the 7.8 is what we had contracted and priced the first week of November. That is what that 7.8 million number is. The 2010 run rate is that 8.3 million to 8.7 million. If the market improves, that run rate would come up, we would add the people and the facilities to meet the market demand. But the 2010 run rate is the 8.3 million to 8.7 million.

John Ramil

I would just add, Gavin, that when we look at the market right now, and we look at optimizing our reserves, you know, we wanted to maximize our margin there, that roughly 8.3 million to 8.7 million looks like the right amount of production sales for this year. We think of our business as being able to move more into the 9 million to 10 million ton range, you know, should the market dictate that.

Gavin Tan -- Macquarie

Okay, and then, a follow up question. In this slide, I see $95 million in unregulated CapEx. I was wondering if you could break that out, how much is for TECO Coal, Guatemala, and then I guess the SECO pipeline.

Sandy Callahan

We will have that in our upcoming 10-K disclosure, but I think recent disclosures have talked about TECO Coal as being somewhere in the $40 million range. TECO Guatemala capital requirements are very small and the remainder is effectively related to the SECO pipeline.

Gavin Tan -- Macquarie

Okay, thank you.

Operator

Your next question comes from Maurice May from Power Insights.

Maurice May -- Power Insights

Yes, good morning folks. I want to focus on TECO Guatemala, because last year on a non-GAAP basis it earned about $30 million and a couple of years back, it was earning in the plus or minus $40 million range for several years. You know, since that, we have had the problem with EEGSA and also the capacity payments at San Jose. And you gave us percentages of the breakdown of the earnings sources from three sources and I was just wondering whether those percentages applied to the old $40 million level or the 2009 $30 million level.

Sandy Callahan

2009 is an anomaly. So let us kind of take that out of the equation, and really, the percentages, I was trying to give you a sense for how it might look going forward. I would say that probably 2008 is a more indicative year of normal operations for that business with the caveat that that performance from EEGSA in 2008 only reflected half a year of the regulatory decision on the VAD.

Maurice May -- Power Insights

In 2008, you all earned $46.5 million in non-GAAP in Guatemala. Is that correct?

John Ramil

That is (inaudible).

Maurice May -- Power Insights

Yes, I mean, so what you are saying is that going forward, you expect earnings in Guatemala to rise 50% from last year.

John Ramil

Well, don’t forget, we sold Navega, which was $3 million of net income.

Maurice May -- Power Insights

Right. So that would still get us back into the 40s?

John Ramil

Maury, let me say what I think of Guatemala from a broad perspective, and Sandy may want to add. If you look back, we were earning $40 million to $45 million roughly in net income in that business, and we have talked about the EEGSA VAD paying being about $10 million of net income per year. And I still think of it that way.

Maurice May -- Power Insights

Okay, so EEGSA was $10 million and now it is what, essentially breakeven?

John Ramil

It is a little bit better than that, because of, as Sandy mentioned, we worked with the management team that is down there. But we also sold Navega and that took away some earnings.

Sandy Callahan

That was about $3 million.

Maurice May -- Power Insights

That was about $3 million, okay. So for 2010, where can you guide us? We are going to have a bounce back in capacity payments in the second half of 2010 from San Jose, and we are going to have hopefully a little more than breakeven from EEGSA. So we are looking in the -- what the $30 million to $35 million range in 2010?

Sandy Callahan

Well, you know, I think if you start with 2008 and think about the things that we just talked about here that there is Navega is sold and that was reflected in the 2008 number, the San Jose outage will have some impact in 2010 as we talked about, because we have that trailing capacity issue. And then the EEGSA VAD issue, you can probably estimate and I think that sounds like that is what you did in effect.

Maurice May -- Power Insights

Okay, I think I can do that, Sandy. Thank you very much for your comments.

Operator

(Operator instructions).

Your next question comes from Lasan Johong from RBC Capital Markets.

Lasan Johong -- RBC Capital Markets

Thank you. My question has been asked and answered.

Operator

You have a question from Ali Agha.

Ali Agha -- SunTrust Robinson Humphrey

Yes, just one clarification, John and Sandy. If I heard you right, are you fairly comfortable today given the cost reduction moves that you have made, that $40 million revenue shortfall you referred to, that has pretty much with the impact of these cost reductions. Is that fair to say?

John Ramil

Yes, we have mitigated that with what we have done.

Ali Agha -- SunTrust Robinson Humphrey

Okay, thank you.

Operator

Your next question comes from Scott Senchak from Decade Capital.

Scott Senchak -- Decade Capital

Good morning. 2011 looks like you have about 50% contracted and priced. I was just wondering if you can give us a sense of the price level a little bit higher or lower than 2010?

John Ramil

Probably in line with 2010 to just a hair lower, because it doesn’t have much math in it yet, Scott.

Scott Senchak -- Decade Capital

Okay, great. That is all I got. Thanks a lot.

Operator

And I am showing no further questions at this time. Are there any closing remarks?

Sandy Callahan

No. Thank for joining us on the call.

John Ramil

Thanks, everybody.

Kim Caruso

Thank you.

Operator

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.

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Source: TECO Energy, Inc. Q4 2009 Earnings Call Transcript
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