Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITIONS & RESULTS OF OPERATIONS

OVERVIEW

At December 31, 2025, TEC served approximately 866,000 customers in a 2,000-square-mile service area in West Central Florida and had electric generating plants with a winter peak generating capacity of 6,771 MW.

TEC is a wholly owned subsidiary of TECO Holdings, and TECO Holdings is a wholly owned subsidiary of Emera. Therefore, TEC is an indirect, wholly owned subsidiary of Emera. See Note 10to the 2025 Annual TEC Financial Statements for information regarding related party transactions.

TEC's financial statements have been prepared in accordance with U.S. GAAP. TEC's reported operating results are affected by several critical accounting estimates (see theCritical Accounting Policies and Estimatessection).

OUTLOOK

TEC's earnings are most directly impacted by the allowed rate of return on equity and the capital structures approved by the FPSC, the prudent management of operating costs, the approved recovery of regulatory deferrals, weather and its impact on energy sales, and the timing and amount of capital expenditures.

TEC anticipates earning within its allowed ROE range in 2026. Earnings are expected to be higher in 2026 than 2025 as a result of new base rates effective January 1, 2026, and continued customer growth.

On September 4, 2025, TEC petitioned the FPSC to increase base revenue by $88 million to reflect the 2026 adjustment in accordance with its 2024 rate case decision. On November 4, 2025, the FPSC approved the adjustment, with new rates becoming effective January 1, 2026.

On February 3, 2025, the FPSC issued the final order approving the rate case decision, effective January 1, 2025. For additional details on the rate case decision, see Note 3to the 2025 Annual TEC Financial Statements.In February 2025, a motion for reconsideration on certain aspects of the final order was filed by an intervening party with the FPSC. On May 6, 2025, the FPSC denied the motion for reconsideration, except with respect to immaterial calculation corrections, and the final order was issued on June 11, 2025. In March 2025, two intervening parties each filed a notice of appeal to the Florida Supreme Court regarding the outcome of TEC's 2024 base rate proceeding. On January 12, 2026, the intervening parties filed their briefs related to the appeal. To date, the FPSC has not responded to the briefs.

On February 4, 2025, the FPSC approved TEC's petition for the recovery of $466 million of costs associated with Hurricane Idalia, Hurricane Debby, Hurricane Helene and Hurricane Milton, and the associated interest to replenish the storm reserve over an 18-month recovery period, which began in March 2025. The amount of cost-recovery is subject to a true-up mechanism with the FPSC. For additional details on the storm reserve, see Note 3to the 2025 Annual TEC Financial Statements.

In 2026, TEC expects to invest approximately $1.8 billion, including AFUDC, in capital projects. Capital projects include generation investments, grid modernization, storm hardening investments, and transmission expansion. See Capital Investments below for further information.

These forecasts are based on our current assumptions described in the operating company discussion, which are subject to risks and uncertainties (see the Risk Factorssection).

OPERATING RESULTS

All amounts included in this MD&A are pre-tax, except net income and income taxes.

See below for detail on the results of operations at TEC during 2025 compared to 2024. For information regarding 2024 results as compared to 2023, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of TEC's Annual Report on Form 10-K for the year ended December 31, 2024.

TEC's net income in 2025 was $607 million, compared with $468 million in 2024. Results primarily reflected higher base revenues resulting from the 2024 rate case and customer growth, combined with the benefit from production tax credits, and additional storm protection plan return on investment. These increases were partially offset by higher operations & maintenance, depreciation and interest expenses. Base revenues are energy sales excluding revenues from clauses, gross receipts taxes and franchise fees. Clauses, gross receipts taxes and franchise fees do not have a material effect on net income as these revenues substantially represent a dollar-for-dollar recovery of clause and other pass-through costs. See the Operating Revenuesand Operating Expenses sections below for additional information.

TEC's regulated operating statistics for the years ended December 31, 2025, 2024 and 2023 were as follows.

Operating Revenues

Revenues were $589 million higher in 2025 than in 2024 primarily driven by higher storm surcharge revenue (offset in O&M expense), higher base revenues due to new base rates as a result of the 2024 rate case, customer growth and favorable weather, and increased regulatory deferral revenue, partially offset by lower average customer usage. Total degree days (a measure of heating and cooling demand) in Tampa Electric's service area in 2025 were 6% above normal (a 20-year statistical degree day average) and 2% above 2024 reflecting favorable weather in 2025 compared to 2024. Total net energy for load, which is a calendar measurement of energy output, in 2025 was consistent with 2024.

Customer and Energy Sales Growth Outlook

Population growth in the area is forecasted to continue to be a major driver of customer growth. In 2026, energy sales volumes are expected to be similar to 2025 levels. In 2025, energy sales benefited from weather that was warmer than normal. Normalizing 2025 for weather, 2026 energy sales volumes are expected to be above 2025 levels due to customer growth. TEC expects 2026 customer growth to be approximately 1.6% and to continue at approximately that level annually over the next few years.

Operating Expenses

In 2025, O&M expense was $246 million higher than in 2024 due to increased storm cost recognition of $234 million related to storm surcharge revenue (offset in revenue) and increased operations and maintenance expenses of $56 million, partially offset by decreased regulatory deferrals of $44 million. The decrease in regulatory deferrals is primarily driven by the $53 million benefit from production tax credits, partially offset by amortization related to the Polk Power Station Unit 1 retirement as a result of the 2024 rate case. The increase in operating expenses was primarily associated with higher costs for employee benefits, operations related to solar investments, and software maintenance. During 2022 through 2024, TEC recorded a regulatory liability of $57 million to defer the benefit of PTCs. Starting in 2025, the deferred PTC benefit is being amortized over a three-year period (see Note 3to the 2025 Annual TEC Financial Statementsfor further information). O&M related to PTC regulatory deferrals decreased by $53 million in 2025 due to the absence of the $34 million deferral of benefits from PTCs in 2024 and the $19 million amortization of the regulatory liability in 2025. Depreciation and amortization expense increased $50 million in 2025 compared to 2024 as a result of additions to facilities and the in-service of capital projects.

O&M expense in 2026 is expected to increase compared to 2025 due to inflation. In 2026, depreciation expense is expected to increase compared to 2025 due to several major projects and plant additions.

Fuel Expense, Purchased Power and Fuel Cost Recovery

Total fuel expense increased in 2025 from 2024 primarily due to higher purchased power costs due to unfavorable hot weather that impacted the eastern U.S. and an increase in days with outages in 2025 compared to 2024. Total 2026 fuel and purchased power costs are expected to be higher than in 2025 due to higher natural gas prices.

On January 23, 2023, TEC requested an adjustment to its fuel charges to recover the $518 million final 2022 fuel under-recovery over a period of 21 months. The request also included an adjustment to 2023 projected fuel costs to reflect the reduction in natural gas prices since September 2022 for a projected reduction of $170 million for the balance of 2023. The changes were approved by the FPSC on March 7, 2023, effective April 1, 2023.

On April 2, 2024, TEC requested a mid-course adjustment to its fuel and capacity charges, reflecting a $138 million reduction over 12 months, from June 2024 through May 2025. The requested reduction is due to a significant decrease in actual and projected 2024 natural gas prices since TEC submitted its projected 2024 costs in the fall of 2023. On May 7, 2024, the FPSC approved the mid-course adjustment.

In December 2025 and 2024, the FPSC approved cost-recovery rates for fuel and purchased power, capacity, environmental, conservation and storm protection plan costs for 2026 and 2025, respectively. The rates include the expected cost for natural gas and coal in the following year. These rates are typically set annually, based on information provided in September of the year prior to the year the rates take effect.

OTHER ITEMS IMPACTING NET INCOME

Other Income

For the years 2025 and 2024, TEC's other income was $60 million and $48 million, respectively, which included AFUDC-equity of $35 million and $30 million, respectively, and other income of $25 million and $18 million, respectively. The increase in AFUDC-equity in 2025 compared to 2024 is primarily due to the timing of solar, resiliency and other projects and an increase in the applicable AFUDC rate. On April 24, 2025, the FPSC approved to change the rate used to account for AFUDC from 6.07% to 6.65% effective January 1, 2025.

AFUDC-equity is expected to increase in 2026 due to the timing of construction of capital projects, including solar generation.

Interest Expense

For the years 2025 and 2024, TEC's interest expense, including interest expense to affiliates and excluding AFUDC-debt, was $232 million and $203 million, respectively. The increase is due to higher borrowings, primarily resulting from storm costs incurred in 2024 and support of TEC's capital program.

Interest expense is expected to increase in 2026, reflecting higher outstanding debt balances (see Note 6to the 2025 Annual TEC Financial Statementsfor further detail).

Income Taxes

The provision for income taxes increased in 2025 compared to 2024 primarily as a result of higher pre-tax income, partially offset by higher production tax credits and amortization of deferred investment tax credits related to solar facilities. Income tax expense as a percentage of income before taxes was 14.1% in 2025 and 12.7% in 2024. TEC expects the 2026 annual effective tax rate to be approximately 12%.

TEC is included in a consolidated U.S. federal income tax return with EUSHI and its subsidiaries. TEC's income tax expense is based upon a standalone return method, modified for the benefits-for-loss allocation in accordance with EUSHI's tax sharing agreement. The cash (refunds) payments for federal income taxes and state income taxes made under those tax sharing agreements totaled $117 million and $(3) million in 2025 and 2024, respectively.  

For more information on TEC's income taxes, including a reconciliation between the statutory federal income tax rate, the effective tax rate and impacts of tax reform, see Note 4to the 2025 Annual TEC Financial Statements. 

LIQUIDITY, CAPITAL RESOURCES

Balances as of December 31, 2025

Cash from Operating Activities

Cash flows from operating activities in 2025 were $886 million, a decrease of $278 million compared to 2024. The decrease to cash from operations was primarily due to higher fuel costs driving under-recoveries and changes in accounts receivable balances resulting from increased revenue reflected on customer bills.

Cash from Investing Activities

Cash flows from investing activities in 2025 resulted in a net use of cash of $1.5 billion, which primarily reflects TEC's investment in capital. See the Capital Investmentssection for additional information.

Cash from Financing Activities

Cash flows from financing activities in 2025 resulted in net cash inflows of $651 million. TEC received $530 million of equity contributions from Parent, $593 million proceeds from the issuance of long-term debt and a $137 million increase in short-term debt with maturities of less than 90 days. These increases in cash flows were partially offset by dividend payments to Parent of $606 million.

Cash and Liquidity Outlook

TEC's tariff-based gross margins are the principal source of cash from operating activities. A diversified retail customer mix, primarily consisting of rate-regulated residential, commercial, and industrial customers, provides TEC with a reasonably predictable source of cash. In addition to using cash generated from operating activities, TEC uses available cash, equity contributions from Parent, credit facility and commercial paper borrowings, transactions with affiliates, and debt issuances to support normal operations and capital expenditure requirements. TEC may reduce short-term borrowings with cash from operations, long-term borrowings, or capital contributions from Parent. TEC expects to make significant capital expenditures in 2026 (see Capital Investments section below for further detail on TEC's projected capital expenditures). Debt raised is subject to applicable regulatory approvals and TEC is required to maintain a capital structure as allowed by the regulator.

As noted earlier, cash from operating activities and short-term borrowings are used to fund normal operations and capital expenditures, which may result in periodic working capital deficits. The working capital deficit as of December 31, 2025 was primarily caused by short-term borrowings and periodic fluctuations in assets and liabilities related to FPSC clauses and riders. At December 31, 2025, TEC's unused capacity under its credit facilities was $426 million. 

TEC has a credit facility utilized with commercial paper that provides $1.2 billion of credit, maturing in 2030. See Note 6 to the2025 Annual TEC Financial Statementsfor additional information regarding the credit facilities and commercial paper. TEC expects that its liquidity will be adequate for both the near and long term, given its expected operating cash flows, capital expenditures and related financing plans.

TEC expects cash from operations in 2026 to be higher than 2025 primarily due to lower cash outflows for 2024 storm costs that were paid in 2025 and higher base revenues due to the 2026 subsequent year adjustment effective in January 2026 (see Note 3 to the 2025 Annual TEC Financial Statements). TEC plans to use cash in 2026 to fund capital spending and to pay dividends to its shareholder. Dividends are paid at the discretion of TEC's Board of Directors.

TEC's credit facilities contain certain financial covenants (see Significant Financial Covenants section). TEC estimates that it could fully utilize the total available capacity under its facilities in 2026 and remain within the covenant restrictions.

Short-Term Borrowings

(2) On November 20, 2025, TEC amended the credit facility agreement to increase the capacity amount from $800 million to $1.2 billion and extend the maturity date to November 20, 2030. At December 31, 2025, TEC also had an active commercial paper program for up to $800 million, of which the full amount outstanding is backed by TEC's credit facility. The amount of commercial paper issued results in an equal amount of its credit facility being considered drawn and unavailable. On January 22, 2026, TEC amended the commercial paper program to increase the amount to $1.2 billion from $800 million.

At December 31, 2025, the credit facility required a commitment fee of 12.5 basis points. The weighted average interest rate on outstanding amounts payable under the credit facilities and commercial paper program at December 31, 2025 and 2024 was 4.0% and 4.8%, respectively. For a complete description of the credit facilities see Note 6to the 2025 Annual TEC Financial Statements.

Significant Financial Covenants

In order to utilize its bank credit facilities, TEC must meet certain financial tests as defined in the applicable agreements. In addition, TEC has certain restrictive covenants in specific agreements and debt instruments. At December 31, 2025, TEC was in compliance with all applicable financial covenants. The table that follows lists the significant financial covenants and the performance relative to them at December 31, 2025. Reference is made to the specific agreements and instruments for more details.

Credit Ratings at December 31, 2025

S&P, Moody's and Fitch describe credit ratings in the A3 or A category as having a strong capacity to meet its financial commitments. Ratings in the BBB or Baa category are described as representing adequate capacity for payment of financial obligations. The lowest investment grade credit rating for S&P is BBB-, for Moody's is Baa3 and for Fitch is BBB-; thus, the three credit rating agencies assign TEC's senior unsecured debt investment-grade credit ratings.

A credit rating agency rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency. TEC's access to capital markets and cost of financing, including the applicability of restrictive financial covenants, are influenced by the ratings of its securities. In addition, certain of TEC's derivative instruments contain provisions that require TEC's debt to maintain investment grade credit ratings.

Summary of Contractual Obligations

The following table lists the contractual obligations of TEC, including cash payments to repay long-term debt, interest payments, lease payments and unconditional commitments related to capital expenditures.

Contractual Cash Obligations at December 31, 2025

See Notes 3, 4, 5 and 12to the 2025 Annual TEC Financial Statementsfor information regarding additional obligations related to regulatory liabilities, taxes, employee postretirement benefits and asset retirement obligations.

Off-Balance Sheet Arrangements and Contingent Obligations

TEC does not have any material off-balance sheet arrangements or contingent obligations not otherwise included in the Financial Statements as of December 31, 2025.

Capital Investments

TEC intends to invest approximately $571 million in 372 MW of new utility-scale solar photovoltaic projects in 2024 through 2026 (solar wave III) with spend to date of $457 million as of December 31, 2025, approximately $801 million in 455 MW of new utility-scale solar photovoltaic projects in 2026 through 2028 (solar wave IV), and approximately $531 million in 298 MW of new utility-scale solar photovoltaic projects in 2029 through 2030 (solar wave V). In 2025 through 2027, TEC expects to spend approximately $615 million in capital for the storm protection plan, $437 million in grid modernization, $704 million towards 1,096 MW of generation capacity expansion, including $385 million for 670 MW related to two new combustion turbines, and $200 million for 195 MW of energy storage. Additionally, transmission expansions are also expected to require $217 million in capital during 2025 through 2027. AFUDC will be earned on eligible capital projects during the construction periods and return on investment will be earned on capital projects running through certain recovery mechanisms.

TEC's 2025 capital expenditures included solar generation projects, storm hardening for the transmission and distribution systems, new technology for distribution system grid modernization, energy storage, maintenance and refurbishment of existing generating facilities, a generation capacity expansion project and the construction of a new headquarters and operations center to improve building resilience. In 2026, TEC expects capital expenditures to include generation investments, grid modernization, storm hardening investments, and transmission expansion.

The forecasted capital expenditures shown above are based on current estimates and assumptions. Actual capital expenditures could vary materially from these estimates due to changes in and timing of projects and changes in costs for materials or labor (see the Risk Factorssection).

Capital Structure

At December 31, 2025, TEC's year-end capital structure was 48% debt and 52% common equity. At December 31, 2024, TEC's year-end capital structure was 46% debt and 54% common equity.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements requires management to make various estimates and assumptions that affect revenues, expenses, assets, liabilities and disclosures. The policies and estimates identified below are, in the view of management, the more significant accounting policies and estimates used in the preparation of our financial statements. These estimates and assumptions are based on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates and judgments under different assumptions or conditions. SeeNote 1to the 2025 Annual TEC Financial Statements for a description of TEC's significant accounting policies and the estimates and assumptions used in the preparation of the financial statements.

Regulatory Accounting

TEC's retail business and the prices charged to customers are regulated by the FPSC. TEC's wholesale business is regulated by the FERC. As a result, TEC qualifies for the application of accounting guidance for certain types of regulation. This guidance recognizes that the actions of a regulator can provide reasonable assurance of the existence of an asset or liability. Regulatory assets and liabilities arise as a result of a difference between U.S. GAAP and the accounting principles imposed by the regulatory authorities. Regulatory assets generally represent incurred costs that have been deferred, as their future recovery in customer rates is probable. Regulatory liabilities generally represent obligations to make refunds to customers from previous collections for costs that are not likely to be incurred.

TEC regularly assesses the probability of recovery of the regulatory assets by considering factors such as regulatory environment changes, recent rate orders to other regulated entities in the same jurisdiction, the current political climate in the state, and the status of any pending or potential deregulation legislation. The assumptions and judgments used by regulatory authorities will continue to have an impact on the recovery of costs, the rate earned on invested capital and the timing and amount of assets to be recovered.

TEC's most significant regulatory liability relates to non-ARO costs of removal and regulatory tax liability. The non-ARO costs of removal represent estimated funds received from customers through depreciation rates to cover future non-legally required cost of removal of property, plant and equipment upon retirement. TEC accrues for removal costs over the life of the related assets based on depreciation studies approved by the FPSC. The costs are estimated based on historical experience and future expectations, including expected timing and estimated future cash outlays. The regulatory tax liability is the offset to the adjustment to the deferred tax liability remeasured as a result of tax reform. See Note 4to the 2025 Annual TEC Financial Statements for further information.

The application of regulatory accounting guidance is a critical accounting policy and estimate since a difference in these assumptions and actual results may result in a material impact on reported assets and the results of operations (see Note 3to the 2025 Annual TEC Financial Statements).

Income Taxes

TEC uses the asset and liability method in the measurement of deferred income taxes. Under the asset and liability method, TEC estimates the current tax exposure and assesses the temporary differences resulting from differing treatment of items, such as depreciation, for financial statement and tax purposes. These differences are reported as deferred taxes measured at enacted rates in the financial statements. Management reviews all reasonably available current and historical information, including forward-looking information, to determine if it is more likely than not that some or the entire deferred tax asset will not be realized. If TEC determines that it is likely that some or all of a deferred tax asset will not be realized, then a valuation allowance is recorded to report the balance at the amount expected to be realized. At December 31, 2025, TEC does not have a valuation allowance. At December 31, 2025, TEC had a net deferred income tax liability of $969 million, attributable primarily to property-related items. See further discussion of uncertainty in income taxes, impacts of tax reform and other tax items in Note 4to the 2025 Annual TEC Financial Statements.

Employee Postretirement Benefits

In 2024, TEC was a participant in the comprehensive retirement plans of TECO Energy, LLC (formerly known as TECO Energy, Inc. prior to April 1, 2024). Effective January 1, 2025, the comprehensive retirement plans were transferred to TECO Holdings. TECO Holdings sponsors a defined benefit pension plan (pension plan), a fully-funded non-qualified, non-contributory supplemental executive retirement benefit plan available to certain members of senior management and an unfunded non-qualified, non-contributory Restoration Plan that allows certain members of senior management to receive an additional benefit to restore what is limited by the IRS under the pension plan. TEC recognizes in its statement of financial position the over-funded or under-funded status of its allocated portion of TECO Holdings' postretirement benefit plans. The accounting related to employee postretirement benefits is a critical accounting estimate for TEC for the following reasons: 1) a change in the estimated benefit obligation could have a material impact on reported assets, liabilities and results of operations; and 2) changes in assumptions could change the annual pension funding requirements, which could have a significant impact on TEC's annual cash requirements.

Several statistical and other factors which attempt to anticipate future events are used in calculating the expenses and liabilities related to these plans. Key factors include assumptions about the expected rates of return on plan assets, discount rates and mortality rates. TECO Holdings determines these factors within certain guidelines and with the help of external consultants. TECO Holdings considers market conditions, including but not limited to, changes in investment returns and interest rates, in making these assumptions.

Pension plan assets (plan assets) are invested in a mix of equity and fixed-income securities. The expected return on asset assumption was based on expectations of long-term inflation, real growth in the economy, fixed income spreads and equity premiums consistent with the company's portfolio, with provision for active management and expenses paid from the trust that holds the plan assets. The expected return on assets was 7.05%, 7.05% and 7.05% as of January 1, 2025, 2024 and 2023, respectively. Given recent capital market returns and market expectations for long-term interest rates, TECO Holdings expects the expected return on assets to be 7.30% for 2026 (based on 20-year expected market returns). Actual returns in 2025 were 16.17%.

The discount rate assumption used to measure benefit expense was an above-mean yield curve. The above-mean yield curve technique matches the yields from 100 high-quality (AA-rated, non-callable) corporate bonds to the company's projected cash flows for the plans to develop a present value that is converted to a discount rate assumption, which is subject to change each year.

Holding all other assumptions constant, a 1% decrease in the assumed rate of return on qualified pension plan assets or the discount rate assumption would have had in 2025 and is anticipated to have in 2026 the following impact on TEC's after-tax pension cost:

Unrecognized actuarial gains and losses for the pension plan are being recognized over a period of approximately 11 to 12 years, which represents the expected remaining service life of the employee group. Unrecognized actuarial gains and losses arise from several factors including experience and assumption changes in the obligations and from the difference between expected return and actual returns on plan assets. These unrecognized gains and losses will be systematically recognized in future net periodic pension expense in accordance with applicable accounting guidance for pensions.

The key assumptions used in determining the amount of obligation and expense recorded for postretirement benefits other than pension (OPEB), under the applicable accounting guidance, include the assumed discount rate and the assumed rate of increases in future health care costs. TECO Holdings determines the discount rate for the OPEB's projected benefit cash flows. In estimating the health care cost trend rate, TECO Holdings considers its actual health care cost experience, future benefit structures, industry trends, and advice from our outside actuaries.

See the discussion of employee postretirement benefits in Note 5to the 2025 Annual TEC Financial Statements.

RECENTLY ISSUED ACCOUNTING STANDARDS

Income Tax Disclosures

TEC adopted ASU 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures, effective December 31, 2025. The standard enhances the transparency, decision usefulness and effectiveness of income tax disclosures by requiring consistent categories and greater disaggregation of information in the reconciliation of income taxes computed using the enacted statutory income tax rate to the actual income tax provision and effective income tax rate, as well as the disaggregation of income taxes paid (refunded) by jurisdiction. Adoption of the standard resulted in additional disclosures provided in Note 4.

Disaggregation of Income Statement Expenses

In November 2024, the FASB issued ASU 2024-03, Income Statement Reporting-Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40), Disaggregation of Income Statement Expenses. The standard update improves the disclosures about a public business entity's expenses by requiring more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation and amortization) included within income statement expense captions. The guidance will be effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The standard updates are to be applied prospectively with the option for retrospective application. TEC is currently evaluating the impact of adoption of the standard update on its financial statement disclosures.

Targeted Improvements to the Accounting for Internal-Use Software

In September 2025, the FASB issued ASU 2025-06, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. The standard update modernizes accounting for internal-use software by eliminating references to project stages and clarifying the threshold to begin capitalizing costs. The standard update also specifies that the disclosure requirements under ASC 360, Property, Plant and Equipment, apply to capitalized software costs accounted for under ASC 350-40. The guidance will be effective for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. Early adoption is permitted. The standard updates are to be applied using either a prospective, retrospective, or modified transition approach. TEC is currently evaluating the impact of adoption of the standard update on its financial statements.

Accounting for Government Grants Received by Business Entities

In December 2025, the FASB issued ASU 2025-10, Government Grants (Topic 832) - Accounting for Government Grants Received by Business Entities. The ASU adds guidance to Accounting Standards Codification 832 on the recognition, measurement, and presentation of government grants. The guidance will be effective for annual reporting periods beginning after December 15, 2028, and interim reporting periods within those annual reporting periods. Early adoption is permitted. The standard updates are to be applied using either a modified prospective, modified retrospective, or full retrospective approach, as detailed in the ASU. TEC is currently evaluating the impact of adoption of the standard update on its financial statements.

ENVIRONMENTAL COMPLIANCE

Environmental Matters

TEC has significant environmental considerations. TEC operates stationary sources with air emissions regulated by the Clean Air Act. Its operations are also impacted by provisions in the Clean Water Act and federal and state legislative initiatives on environmental matters.

Carbon Reductions and GHG

TEC has historically supported voluntary efforts to reduce carbon emissions and has taken significant steps to reduce overall emissions at TEC's facilities. Since 2000, TEC has reduced its system-wide emissions of CO2by more than 50%, bringing emissions to below 1990 levels. TEC CO2emissions continue to remain below 1990 levels. TEC substantially reduced CO2emissions by significantly expanding the use of solar power, repowering Big Bend Unit 1 steam turbine, and retiring Big Bend Unit 2 and Unit 3. The Big Bend Unit 1 modernization project is capable of producing 1,090 MWs of power and will continue to lead to lower system-wide emissions. See Capital Investmentsabove for information regarding TEC's solar projects.

On April 24, 2024, the EPA issued its final power plant rules for electric generating units, including (i) new GHG standards and (ii) Mercury and Air Toxics Standards (MATS). The new MATS will not have a material impact on TEC. The new GHG standard applies only to existing coal-fired and new natural gas electric generating units and will therefore have limited impact on TEC generating units. Big Bend Unit 4 is the only unit affected. As written, the rule would require Big Bend Unit 4 to retire in 2039 without major enhancements to the unit, instead of the current planned retirement date of 2040. On March 12, 2025, the EPA announced that this rule was under reconsideration. On June 11, 2025, the EPA announced a proposal to repeal all "greenhouse gas" emissions standards for the power sector under Section 111 of the Clean Air Act (CAA) and to repeal amendments to the 2024 MATS that directly result in coal-fired power plants having to shut down.

On August 1, 2025, the EPA released a proposal for the Reconsideration of 2009 Endangerment Finding and Greenhouse Gas Vehicle Standards. This finding has been the basis for the regulation of greenhouse gas emissions from motor vehicles and has been a critical component of the federal government's climate regulation efforts. If the Endangerment Finding is repealed, it could have significant implications for the power industry, as it would remove the legal authority for the EPA to regulate greenhouse gas emissions from power plants and other sources. 

Coal Combustion Residuals Recycling and Regulation

TEC produces ash and other by-products, collectively known as CCRs at its Big Bend Power Station. Greater than 90% of all CCRs produced at this facility are marketed to customers for beneficial use in commercial and industrial products. The EPA's final CCR rule became effective on October 19, 2015, and regulates CCRs as non-hazardous solid waste. In 2016 and 2017, the FPSC approved Environmental Cost Recovery for capital and O&M expenses associated with various projects proposed as part of  TEC's CCR compliance program. The final project required for compliance with the CCR Rule at Big Bend is the North Gypsum Stackout Area Drainage Improvements Project, which was completed in 2025. FDEP has revised the existing state solid waste regulation to incorporate Florida CCR permit requirements for regulated units and these new requirements will operate in lieu of the Federal permitting program. However, TEC is largely exempt from the state permitting requirements because it completed its mandatory closure projects prior to the state rule's passage.

The legacy rule finalized in May 2024 covers any landfill or impoundment in existence at an inactive power facility but not receiving CCRs as of 2015 (not applicable to Big Bend), or any CCR placed into the environment for beneficial use. TEC is currently evaluating the impact of the rule at the Big Bend Power Station and will be required to perform site evaluations in 2026 to determine the presence of any regulated CCR management units. The report for this first phase of the evaluations will be submitted by February 9, 2027. If determined to be present, additional groundwater monitoring for these units would begin to determine the need for additional corrective actions, possibly including CCR management unit remediation and closure. It is possible that the new EPA Administration may make revisions to the CCR Rules in general and the above rule deadlines. However, it is prudent for TEC to proceed with required compliance activities until such revisions occur.

TEC expects that the costs to comply with the new environmental regulations would be eligible for recovery. If approved as prudent, the costs would be reflected in customers' bills, recovered through either the environmental cost recovery clause or base rates.   

Water Supply and Quality

The EPA's final rule under 316(b) of the Clean Water Act (effective October 2014) addresses perceived impacts to aquatic life by cooling water intakes and is applicable to TEC's Bayside and Big Bend Power Stations. Polk Power Station is not covered by this rule since it does not operate an intake on "waters of the United States". TEC has two ongoing projects (one for Bayside and one for Big Bend) that require compliance with the rule. Compliance includes the completion of the biological, technical, and financial study elements required by the rule. These study elements have been completed and submitted for Bayside and were used by FDEP to determine the necessity of cooling water system retrofits. FDEP agreed with TEC's proposed plan for Bayside and TEC completed a multi-year construction project to install new fish-friendly modified traveling screens and a fish return. TEC is negotiating an alternative schedule for Big Bend (as allowed by the rule) but completed a portion of the compliance requirements with the Big Bend modernization project with the installation of fish-friendly modified traveling screens and a fish return on modernized Unit 1. The remainder of the compliance requirements are to be determined and completed at a later date. The full impact of the new regulations on TEC will depend on the study elements performed as part of the rules' implementation, and the actual requirements established by FDEP.

The final EPA rule for existing steam electric effluent limit guidelines (ELGs) became effective January 4, 2016 and establishes limits for wastewater discharges from flue gas desulfurization (FGD) processes, fly ash and bottom ash transport water, leachate from ponds and landfills containing coal combustion residuals, gasification processes, and flue gas mercury controls. The new ELGs will not have a material impact on TEC. Big Bend completed construction of a deep injection well system in December 2023 for disposal of FGD wastewater, bottom ash transport water and other process wastewaters rather than discharge to surface waters. Since Polk Power Station also uses a deep injection well rather than discharging it to surface water, the effluent limitations will no longer apply to either power station. The referenced wastewaters at each power station will be regulated under the Underground Injection Control program rather than the NPDES program. On March 12, 2025, the EPA announced that this rule was under reconsideration but this is not anticipated to have a material impact on TEC operations.

EPA Waters of the US

In 2023, the EPA and Department of the Army issued a final rule amending the definition of "waters of the United States". On November 20, 2025, the EPA and the U.S. Army Corps of Engineers released a proposed rule revising the definition of "waters of the United States" applicable to all Clean Water Act programs. The final rule is expected to have environmental permitting implications for new TEC solar sites, transmission and distribution infrastructure, and permitting renewals for existing facilities requiring approved jurisdictional determinations.

Ozone

On December 31, 2020, the EPA published a final rule to retain the national ambient air quality standards (NAAQS) for photochemical oxidants including ozone, originally adopted in 2012. Under the Clean Air Act, the EPA is required to review the NAAQS every five years and, if appropriate, revise it. The EPA has announced that the NAAQS is currently under review, which could result in revisions to the standard affecting compliance in TEC's service territory. The impact of this potential new standard on the operations of TEC will depend on the standard that is ultimately adopted and on the outcome of any related litigation or other developments.

TEC expects that the costs to comply with the new environmental regulations would be eligible for recovery. If approved as prudent, the costs would be reflected in customers' bills, recovered through either the environmental cost recovery clause or base rates.   

REGULATION

See Business-Regulation and Note 3 to the 2025 Annual TEC Financial Statements for a description of base rates, cost-recovery clauses and competition.