Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

TECO Energy, (NYSE:TE)

Q2 2011 Earnings Call, Aug 04, 2011

August 04, 2011 9:00 am ET

Executives

Mark M. Kane - Director of Investor Relations

John Ramil - Chief Executive Officer, President, Director and Member of Finance Committee

Sandra W. Callahan - Chief Financial Officer, Chief Accounting Officer and Senior Vice President of Finance & Accounting

Analysts

Dan Eggers - Crédit Suisse AG, Research Division

Maurice E. May - Ticonderoga Securities LLC, Research Division

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

Greg Gordon - ISI Group Inc., Research Division

Paul T. Ridzon - KeyBanc Capital Markets Inc., Research Division

Chris Shelton -

Unknown Analyst -

James D. von Riesemann - UBS Investment Bank, Research Division

Operator

Good morning. My name is Wendy, and I'll be your conference operator today. At this time, I would like to welcome everyone to the TECO Energy's Second Quarter Results and 2011 Outlook Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Mark Kane, Director of Investor Relations. Sir, you may begin your conference.

Mark M. Kane

Thank you, Wendy. Good morning, everyone, and thank you for joining us for TECO Energy Second Quarter Results Conference Call and Webcast. We know we're competing against several other companies at this time slot, so thank you for joining us.

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 slides for this presentation are available on our website at tecoenergy.com. Presentation will be available for replay through the website approximately 2 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 and beyond. There are a number of factors that could cause our actual results to differ materially from those that we'll discuss as our results 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, 2010. Also today, we'll be using non-GAAP measures in the course of the presentation. There are reconciliations to the nearest GAAP measure contained in the appendix today -- to today's presentation.

On our call today, Sandy Callahan, our Chief Financial Officer, will cover second quarter results and update our outlook for the remainder of the year. Also with us today, to participate in answering your questions is John Ramil, our President and Chief Executive Officer. Now I'll turn it over to Sandy.

Sandra W. Callahan

Thank you, Mark. Good morning, everyone, and thank you for joining us. I know it's a crowded day for utility earnings calls, and so I will keep my formal remarks brief and focused, and we'll allow plenty of time for Q&A. I'll cover second quarter results, provide an update on the economy, and our service area, and then comment on our outlook for the remainder of this year.

In the first quarter, GAAP net income was $77.5 million or $0.36 a share, compared to $75.5 million or $0.35 in 2010. The non-GAAP comparison for 2010, is $79.6 million or $0.37, which excludes a $4.1 million charge for debt retirement premiums. On a year-to-date basis, GAAP net income in 2011 was $129.2 million or $0.60 per share, compared to $131.3 million or $0.61 in 2010. And the 2010 non-GAAP results for the 6 months, were $152.5 million or $0.71 a share, excluding charges of $21.1 million, which again, were primarily for debt retirement premiums.

You'll recall that in the 2010 year-to-date period, Tampa Electric had the benefit of very favorable weather, but didn't reach the regulatory agreement that resulted in a $24 million pretax refund until the third quarter. We covered the result's drivers for the quarter and year-to-date periods extensively in our earnings release, so I won't go through all the details again. I do want to point out though, that we were pleased to see our seventh consecutive quarter of customer growth at the Florida utilities. And the customer growth we saw at Peoples Gas was particularly encouraging, as we typically see a drop-off in growth there in the second quarter as when our residents depart.

For the unregulated companies, TECO Coal sales volumes were below last year at 2.1 million tons and the average selling price for the quarter rose to more than $89 a ton. As we expected, as the new 2011 contract prices became fully effective. The all-in cost of production this quarter was above guidance at $79 a ton. Production costs reflects the same factors that we've been discussing, competition for contract miners, the productivity impact of increased MSHA activities, the selling price effect on royalty and severance fees and the cost of moving coal, an overburden further due to surface mining permit delays.

In addition, though, in the second quarter, we saw higher oil prices affecting cost components that we can't hedge, such as lubricants, explosive, tires and conveyor belts. We also lost production at several mines due to violent spring storms causing power outages at some deep mines and flooding at some surface mines. And production costs included the cost associated with some expanded reserve exploration activity on properties that we control as we seek to grow the proportion of specialty coals in our reserve base.

And to complete the summary of second quarter drivers, the impact of the sale of DECA II last year on TECO Guatemala result, was largely offset by the lower interest expense at TECO Energy parent, because of the debt that we retired in December with those sale proceeds.

Now turning to what we're seeing in the local and state economies and the recovery that's underway. The unemployment rates in both the state and local areas are improving compared to 12% and 11.6% in December of last year, respectively. This quarter, the state unemployment rate was fairly steady, but the local rate did tick up slightly.

Year-to-date, Florida has added over 85,000 jobs, which is one of the best job growth rates in the country. The unemployment growth -- the employment growth has been in the sectors that are shown here in on the slide, and surprisingly, even construction has show some job growth. June was the sixth consecutive month that Florida has added jobs.

In the same period, the Tampa metropolitan area, that's defined by the U.S. Bureau of Labor Statistics, added 6,000 new jobs in the sectors that are shown here. And like the state, even construction picked some jobs. The expectation is for modest improvement for the remainder of the year, but probably, at a slower rate than we previously expected, which is reflective of national trend.

This slide, comparing unemployment rates illustrates the downward trend that we were on for several months. The sector influencing the Tampa area uptick in June with government workers. We've seen this same sharp decline in government workers in June and July repeatedly over the years. We see this same trend at the Metropolitan area level across the state, but we don't see it reflected in the state level numbers. This graph shows taxable sales in Hillsborough County, Tampa Electric's primary service area. It might be a little difficult to see the pattern with the normal seasonal spikes in here, but it appears to have bottomed out in late 2009, and has since been trending up.

And for the 12 months ended May 2011, the average monthly taxable sales are more than 4% higher than they were in the 12 months ended May 2010, so a definite positive sign. The housing market continues to improve compared to last year. Year-to-date, existing home resales were 8% higher than the same period last year, particularly notable when you consider that last year included the Homebuyer Tax Credit program.

The Case-Shiller Home Price Indices are probably one of the most common comparisons used to measure year-over-year price changes, but a different look at sequential month changes. And on a sequential month basis, existing home resale prices, as are measured by the Greater Tampa Association of Realtors, has risen for 6 consecutive months. The inventory of existing homes on the market here was down to less than 6 months, and that's compared to 8 months at the end of the year, and it was 25 months at the deepest point of the downturn. This 6 months of inventory level, is a level that's considered healthy real estate market by economists. That being said, inventory only includes homes that are actively on the market, and we know that foreclosed properties that have not yet come to market are likely to influence the real estate market and prices in the future.

This slide shows existing home resales specific to the Tampa area. You can see the fall-off in sales activity following the expiration of the Homebuyer Tax Credit in 2010, and then the clear upward trend so far this year. This is the graphical representation of the sequential month's home selling prices, and a clearly improving trend. This data is the Greater Tampa area, so it's a little more local than Case-Shiller uses. And it can be influenced by sales of very high-priced homes in any even month, but if the really high-priced homes are moving, that's a good thing. Even the new single-family construction permits are continuing to show positive trends. Now this is still a low level of activity when we compare it to prior years, but it has helped contribute to some increased construction employment. And this level of permit activity reflects an annual rate of over 3,200 new single-family residences.

Moving to outlook. Our earnings per share guidance for the year remains unchanged in a range between $1.25 and $1.40 per share, without any non-GAAP charges or gains. Factors for the Florida utilities also remain unchanged. We expect to earn our allowed returns on equity at both companies. And that assumes normal weather, modest customer growth continued to -- similar to 2010, and continued economic recovery, all of which, we have experienced in the first half of the year. And we have no major regulatory activities planned in 2011.

TECO Coal now expects sales to be between 8.2 million and 8.5 million tons at an average price of $88 per ton. That price is more than $1 per ton higher than when we provided original guidance in February for TECO Coal, due to the product mix moving more to the specialty coal market. For the full year, we expect more than 45% of our sales to go to the met and PCI markets. The lower tonnage estimate is primarily a function of first half events, which have affected production. This includes delays in bringing on surface mines, which produce steam coal.

On the costs side, total cost in the second quarter was above the top of our guidance range of $79 per ton, for the reasons that I discussed earlier. For the full year, we expect our average cost of production to be at the high-end of the guidance range at $78 per ton, where we are year-to-date.

And here's a little more color on the oil price influence I noted in the quarter. At the time that TECO Coal developed its business plan and cost estimates and we developed our 2011 guidance, the average oil price was $85 per barrel and futures were in line with the stock prices. In the second quarter of 2011, the average oil price was $102 and at times, approaching $115 a barrel. We hedged the diesel that we consume directly on our strip mining operation, bringing [ph] production volumes that aren't covered by oil price escalators in the sales contracts But higher oil prices also impact the cost of other components that we can't hedge, such as the lubricants, explosives, tires and conveyor belts. TECO Coal is focused on controlling costs and believes that, with the receipt of mine plan approval and now having contract miners in play, the $78 per ton full year cost is achievable.

The contracting slide has changed since the last one we showed you. We've sold additional steam tons in 2012, and are making good progress on contracting steam tons in 2013. Now with the recent steam coal contracts signed at attractive levels, and the shift to higher levels of sales to specialty coal markets, we have most of our 2012 steam coal contracted. So in essence, we have already replaced the expiring 600,000 tons below market steam contract at market prices. As we look to our 2012 contract cycle, we do plan to take advantage of the continuing strength of the met and PCI coal markets, and sell a higher percentage of our tons into those markets, approaching our goal of 50% of sales to the higher-margin Met, PCI and Sterco [ph] coal markets.

The outlook for TECO Guatemala remains essentially unchanged, with improved results at the San José Power Station coming from normal capacity payments and tire spot energy sales. Spot sales pricing has been helped by high residual fuel oil prices, which is the fuel that sets the market clearing price in Guatemala. And of course, the substantially lower interest expense at TECO Energy parent will continue to benefit results in 2011.

And I'll close with our investor communication plans over the next several months. We'll be in Boston next week at the Williams conference. In mid-September, we'll be meeting with investors in Montréal, Toronto and Boston. And the following week, will be at the Bank of America Merrill Lynch Conference in New York. And now, I will turn it over to the operator to open the line for your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Greg Gordon.

Greg Gordon - ISI Group Inc., Research Division

Can you go over again with us what the sort of the different sort of rotating contracting schedules are for steam and the different grades of met, so that we can kind of get comfort as to when you lock in pricing or get -- at least get a better beat on what's your all in margin per ton would look like for next year?

Sandra W. Callahan

Yes, steam is not on any specific contracting cycle. And as you saw on the chart, we're pretty much contracted for steam volumes for 2012. On the met and PCI side, typically by the end of the year, domestic met and PCI sales are contracted for the following year. And those contracts typically begin January 1. The European contract cycle typically begins on April 1, and run through March 31. And so that contracting can be late in the current year, or it can go into early next year. We typically try to get things wrapped up as close to the end of the year as we can, so we have some price certainty as we move into the new fiscal year for us.

Mark M. Kane

And, Greg, as you've seen in prior years, depending on the buyer's market perception, it can be earlier or later depending where they think pricing is going.

Greg Gordon - ISI Group Inc., Research Division

Okay, and in terms of what you guys have done with the balance sheet, I know you termed out the parent, some of that parent maturities, and you've got a pretty good, and what would be an improving cash position as a result. Can you review sort of what you're hoping, sort of the optionality -- your option value of that cash might be as we go into next year in terms of your hopes about where you might be asked to deploy that capital in the utility business? I mean, I'm talking about maybe the renewable initiatives that you've been monitoring in the legislature?

John Ramil

Greg, this is John Ramil. Let me just start to answer that. Sandy, chime in, as you think. We do have plans to put more equity into the electric company as it needs if it needs it, it's been in good shape cash-wise. But we think we'll start to deploy some of that into the utility second half of the year. In addition to our ongoing CapEx needs and the utility, we are looking to make some investments in improving the system, doing a few things that would fall into the smart grid category, but very smart investments will start to have a payoff right away to help the system, we think that's a good idea. We expect the renewables legislation will be back before the legislature again next year. You may recall that we have the utilities supported a modest amount of renewables with a price cap to customers. And we think that, that conversation will pick up again in the session next year.

Operator

Your next question comes from the line of Daniel Eggers.

Dan Eggers - Crédit Suisse AG, Research Division

Just kind of following up maybe on the coal business a little bit, the production costs, is there a way to think about kind of the unhedgeable pieces sensitively to oil prices, so if oil was $102 in the second quarter that'd put the price up to $79 as its come back down into the $90s. Does that mean that -- is there some linearity we can assume or some rule of thumb we should follow?

Sandra W. Callahan

Not necessarily. It's certainly not a direct impact as is the price of diesel. And it also tends to have a little bit of a lag associated with it.

Dan Eggers - Crédit Suisse AG, Research Division

Okay. So that -- do you mean to assume that there's propositive, you've reading that shaping it for the year the third quarter probably books highlight the second quarter and the fourth quarter would come down is that kind of the lagging nature we should think about?

Sandra W. Callahan

Yes, with respect to those particular components of cost.

Dan Eggers - Crédit Suisse AG, Research Division

Okay. And then on the -- the kind of on the permitting side, do you guys have -- you're continuing challenges getting permits. And can you just give a little contacts to color on but what's going on as far as the approvals or lack thereof, and kind of when that becomes a bigger issue to hitting volume targets?

John Ramil

Dan, this is John. Let me just add to your previous question. We'll still see the impacts of full prices up or down on those secondary items that we purchased that are affected by oil prices. Hopefully, we won't see the flooding issues, the power outage issues and the delay of the mine approvals that we saw in the second quarter. Those are hopefully behind us. But the permitting issues remain, the ones that have been there for a while and they're related to the surface permits that are issued by EPA and the water quality standards. And they remain kind of in a logjam and we do not have the insight as to when those will clear up yet.

Mark M. Kane

Our folks -- Dan, this is the Mark. The folks at TECO Coal are continuing to work with core of engineers and EPA. Their water quality standards that they are requiring exceed what exists currently so they're going back and forth on counterproposals, but it will be months before there's any resolutions.

John Ramil

And what we do, Dan, is we look at how we can work around that, how we can extend the lives of mines, how we can change our mining plans to make up for the volumes at other areas.

Dan Eggers - Crédit Suisse AG, Research Division

You mean, John, when do you -- there's workarounds for a period in time, but eventually the workarounds you needed become cost prohibitive or they kind of start to functionally go away. Is there -- if you think about looking at the '12 volume numbers, if they're still slow on permitting, can you get to a '12 volume number like this year with workarounds? Or does it start to eat into natural volumes?

John Ramil

We think we can manage the workarounds this year and next year. It really -- we see it starting to affect our volume in '13. Our contingency plans on that, is to hopefully, have our production scale back on the steam side of this and keep up the volumes where we're most profitable, obviously. And that's in the PCI and met sales.

Dan Eggers - Crédit Suisse AG, Research Division

So do you have a -- with a good make shift, you guys have been able to accomplish the 45% specialty coals. Do you think that's durable even with the challenges on the permitting side?

John Ramil

Yes, remember that only about 30% of our production is surface, so it still is a volume to manage but it's less than 1/3 of all we produce.

Dan Eggers - Crédit Suisse AG, Research Division

Maybe just one last question, on the surface -- is the surface mining that you have, more expensive, less expensive, the same cost as the underground?

Mark M. Kane

It's very mining-specific.

John Ramil

Yes, it varies from mine to mine.

Mark M. Kane

In general, it's lower cost, Dan. Because the skill set for the miners is less. There's surface equipment operators. Your underground miners, it's a much higher skill set. While MSHA is active on the surface mines, they are not -- they are much more active on the underground mines. So it's a very different set of circumstances, and it's very mine-specific. Generically, if you're not moving the overburden as we are in the couple of mines, it should be lower cost.

Operator

Your next question comes from the line of Andrew Levi [ph].

Unknown Analyst -

I'm just kind of sticking on the coal theme. I guess, there were 6 permits that you are looking to get renewed in Kentucky, if I wasn't mistaken reading your 10-K. And I think, 3 of them that you pulled back on, but there were 3 still outstanding at Premiere Elkhorn and Clintwood Elkhorn if I'm not mistaken, can you just give us an update on those?

John Ramil

Yes, you're right, we had fold 3 of them. Two of them kind of affect the shorter-term one affects a little bit longer-term. And those permits affect about 300,000 tons of production, and that's where we're having the workaround, to replace that amount of production.

Unknown Analyst -

So weren't there -- I think at the end of the first quarter, there's still being 3 permits outstanding. Are those still kind of outstanding, and you're waiting for EPA on that or...

John Ramil

Yes, Andy, we are in the same position as the rest of the industry in all of our prior discussion with Dana [ph] on permit supplies for those 3 permits.

Unknown Analyst -

Got it. And then, just to understand, so I guess, looking at the production numbers for this year and the pricing, I'm looking at kind of year-to-date target, it's very possible that TECO Coal will probably have a down year earnings-wise. And I guess, that probably leaves you kind on the low end of guidance for the year or is there other ways to make that up?

Mark M. Kane

No, I don't think that's a good assumption at all. I think, we reaffirmed our guidance range. And if you look at -- with the increase in pricing we have on coal and the upper end even of the cost range that they were at, you'd calculate an increase performance in coal. 2010 to 2011, that should be the expectation.

Unknown Analyst -

Okay, I have to run through my numbers, I apologize.

Mark M. Kane

Andy, this is Mark. Call me afterwards, I'll step you through the arithmetic.

Operator

Your next question comes from the line of Maurice May.

Maurice E. May - Ticonderoga Securities LLC, Research Division

A couple of questions, first on the utility. When you say that you're going to earn the authorized ROEs at the electric and gas utilities, do you mean that you're going to earn the midpoints or do you mean, you're going to earn some place in the 200 basis points range?

Sandra W. Callahan

Maurice, we're generally talking about somewhere around the midpoint.

Maurice E. May - Ticonderoga Securities LLC, Research Division

Okay, good. And then, the second question is actually back to coal. 2012, you said I think, you have sold most of the steam production, is that correct?

John Ramil

That's right.

Maurice E. May - Ticonderoga Securities LLC, Research Division

Okay. And the 600,000 tons that your contract with Orlando that ends at this year, did you pick up that incremental $40 a ton that you've been talking about?

John Ramil

We've picked up in that range. We haven't disclosed that, but I'll just tell you that we did respond to a round of RFPs from utilities, and we were very pleased with the outcome of that. We signed up contracts for the next couple of years that will be profitable steam sales contracts. And we'll be selling our highest sulphur products in that mix, so that's a very, very positive thing for us. And if you think about the last rounds of steam contracts that we signed where range is in the upper 70s to the lower-80s, we're in that ballpark. And given where that legacy contract was, we've gone from a mid-30s kind of number to somewhere north of the mid -- to high-70s, actually.

Maurice E. May - Ticonderoga Securities LLC, Research Division

So that sounds like you picked up just a little bit more than $40 a ton.

John Ramil

Well,we have estimated before in answers to questions that when we look at the coal business, you could expect an EBITDA of about $130 million or so this year. And when we work ourselves out of the legacy contracts for 2012, we picked up another $24 million or so EBITDA, and I think we've done that or better.

Mark M. Kane

Maurice, that $40 benchmark was based off of a NYMEX spot at the time of our last call.

Operator

Your next question comes from the line of Caroline Bunk [ph].

Unknown Analyst -

With regard to the additional cost you are incurring to expand your specialty coal reserves, are you capitalizing any of these costs?

John Ramil

Caroline, this is John. We've expensed those costs, and we estimate them to be about $0.35 a ton, it's in that number that you see. And we think that, that was the conservative way to go with it, and that's what we've done. And just a little expansion on that, we've had several drilling rigs working for a few months on our properties that we control. We have more work to do drilling over the next several weeks, and then a lot of work to do analyzing the data and getting all the data certified. But our positive trend so far lead us to be optimistic, although cautiously optimistic. We typically would refer to the 266 million tons of reserves that we had. Generally, the makeup for the quality of reserves would be about our sales mix. That sales mix has shifted over time to what Sandy said earlier, or 45% of the sales are specialty coal. We think and we've challenge our team to get that to 50%. We think some of the outcome of our work will verify, that indeed, some of our existing reserves, the 266 million, is more like 50% specialty and 50% steam, rather than more steam as we thought in the past. Plus, we believe that there's a possibility that through this work, we will find additional PCI, met reserves on the properties that we control. A lot of work still will be done, a lot of verifications to take place before we can really claim those as reserves, but that work is well underway.

Unknown Analyst -

And then, I guess, did any of last year's cost reflect any of this spending or is this only year-to-date?

John Ramil

No, it's pretty much this year. And I'll go back, we're doing everything we can on the cost of things that we can control. The very frustrating things are those related to oil prices and things mother nature throws at us. But we also have buried in there about $0.35 a ton from this exploration. And then remember, when prices go up, as they have gone up for us, which is a good thing, our royalty payments and taxes go up. And they go up at the rate of about $1.20 per $10 of price increase. And if you just think about the $4 dollars of price increase we've had, that's about $0.50 a ton on the cost side. So those factors, just the royalties and severance taxes and the drilling that we're doing, it's somewhere about $0.85 a ton on that pricing method.

Unknown Analyst -

Maybe just one more question, I just want to confirm that, I mean, going forward, we should be assuming that 45% of about 800,500 maybe 1 million tons per year is specialty coal, and then that maybe ramps over time to about 50%?

John Ramil

That's our target.

Operator

Your next question comes from the line of Andrew Weissl.

Unknown Analyst -

Just a quick one, I noticed a sentence was removed from the guidance that you had in the last quarter about Peoples Gas expecting slower growth in Tampa Electric. So I was wondering if you can give any, just more detail on is it -- did you remove that because Peoples Gas is picking up or because Tampa Electric is slowing down relative to your expectations a quarter ago?

John Ramil

Let me take a shot at it. Mark, you may want to jump in. But as Sandy said earlier, we did see a nice surprise in the quarter on Peoples Gas where we have -- typically have a little bit of shift down in customers in the quarter, because the people are moving back north. We did not see that. We actually saw a 0.7% increase, which puts it right in line with what we've seen consistently over the past several quarters for Tampa Electric.

Operator

Your next question comes from the line of Jim von Riesemann.

James D. von Riesemann - UBS Investment Bank, Research Division

I have 2 questions. One, I'm going to beat the coal horse here for a second. And the second one is on weather, so let me ask them both if you don't mind. Following up on Dan Eggers' question, can you just help me out in terms of thinking about your expected cost, production costs or escalation and production costs next year, and maybe in 2013 based upon this revised tonnage? And then the second question is on weather, and that -- with respect to Emily, which it looks like you guys are going to dodge. But can you refresh our memories as to what all the recovery mechanisms are in Florida for storms, et cetera, given that we're in hurricane season now?

Sandra W. Callahan

All right, we can deal with cost first, I guess on coal. And then, we can deal with the recovery under the store mechanism. For coal cost, we'll look closely at that as we get towards the end of the year on our business planning cycle, but it's driven by a lot of different things. I mean, as John pointed out, there's certain aspects of selling price that affect cost. Contract miners and what the demand is out there for contract miners, which tends to be driven by how hot the market is. And then things like oil price, which we hedged for direct usage and has some effect on the things that I mentioned earlier in a more indirect way. And it's very hard to say right now, because there's not much we can look at to forecast where that would be. But we'll get our arms around that, the closer we get to the end of the year. But there are some aspects of where the market is that will influence that. And with respect to storm costs recovery in Florida, we have a storm reserve, a storm damage reserve that we accrue to on an annual basis, and that was included in our rates and annual accrual is $8 million. And it builds up a reserve against which, we would first charge any damage that we incurred in a storm, any costs associated with recovery that happened as a result of the storm. And our reserve balance, I believe, is about $40-some million. And so to the extent that we incurred damage during a storm that was less than that, we would simply charge it against that reserve. And there are very specific rules about what kinds of costs are allowable to be charged, so that you're not recovering cost that you would have normally incurred anyway. And over that amount, it then becomes an item that we would go to the Commission about. And what you've seen happen in circumstances where the other utilities experienced substantial damage in their service territories in the 2004, 2005 timeframe, is amounts that exceeded what was in the reserve. The Commission did allow a short-term period of time where there was a storm surcharge, and the companies were able to recover that. So that's kind of the picture on the storm recovery.

Operator

Your next question comes from the line of Chris Shelton.

Chris Shelton -

I had a quick question. I'm just trying to forecast the cost a little bit. So for the quarter, it was $79, but the range, it's still kind of high-end. What cost can you control, I guess, in the second half, to be able to bring that in the range?

Mark M. Kane

About some of it, Chris -- this is Mark. We don't expect some of the drivers in the second quarter such as the impact of all the weather that we have, the power outages, the flooding of the surface mines, we don't expect those to recur. We're expecting production to pick up now that we've had some of the mine plans approved, and we have the contract miners in place, so we'll be spreading the fixed cost over more tons. So there's a number of small factors that we think are all going to compile to contribute to get us back to that $78 a ton number.

Chris Shelton -

Okay, I see. And then, I guess, on the tonnage, is that also true for the tonnage guidance, I guess, as well? Or are you trying to think about the run rate of 8.5 million to 9 million tons for next year? Or is this really more of a weather-related, I guess? Or is it something we should look at for next year as well?

John Ramil

We think, right now, our expectation is next year, we'll be back to the original range that we gave you this year. Because of the things that affect us this year, one of the big ones was the delay with the approval of the mine plans.

Operator

[Operator Instructions] Your next question comes from the line of Paul Ridzon.

Paul T. Ridzon - KeyBanc Capital Markets Inc., Research Division

As you move to a 50-50 blend in the coal, how does that impact tonnage? Does it kind of stay the same or does the steam volume stay the same? Therefore, the total increases as well?

John Ramil

No. The total tonnage will remain about the same. And just more will be going to the higher-priced sales.

Operator

Your next question is a follow-up from the line of Andrew Levi.

Unknown Analyst -

Just to understand back to the permitting issues, so it's really not until 2013, I think you said, right? That there's a chance of lower production if you don't get certain permits in Kentucky, is that correct?

John Ramil

Correct.

Operator

And there are no further questions at this time. I'm sorry, you do now have a question from the line of Ali Agha.

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

John, I just wanted to -- longer-term, I just think you're thinking again on the coal business. And you may have addressed this earlier. Again, at the right price, we should still assume that this is an asset that could be monetized from the TECO portfolio?

John Ramil

At the right price is the key term. Again, the utility business is our core business, and coal is a valuable business to us. But if it's more valuable to somebody else's hands, we would consider that.

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

And related to that, from the work you guys have obviously, do internally and what you see from your customers, et cetera. If you look at the coal price cycle right now, when do you think we'd reach sort of a plateau in pricing, is this a 2013 or '14 timeframe? Or could it keep going further, I think, to next several years?

John Ramil

We think that the specialty coal prices are going to stay strong, maybe not quite at the peak with the flooding and other things in Australia have caused. But we think they're going to stay strong, and especially strong versus our contracting patterns for last year, we may have -- still have some upside on pricing going from '11 to '12.

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

But beyond that, any thoughts?

John Ramil

We think they're going to stay strong for a good while. The thing that could change dynamics is more supply coming online, and that's a pretty good ways up.

Operator

And there are no further questions at this time.

John Ramil

Thank you, operator. I'd like to thank all of you for joining us on our call this morning. This concludes our call. Thank you.

Operator

This concludes today's conference call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: TECO Energy,'s CEO Discusses Q2 2011 Results - Earnings Call, Aug 04, 2011 Transcript
This Transcript
All Transcripts