Entergy Texas, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Entergy Texas is a regulated electric utility serving customers in Texas. Comparisons below are with Q1 2020 unless noted.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Operating revenue | $480.2 million | $339.3 million | +$140.9 million |
| Operating income | $74.9 million | $36.1 million | +$38.8 million |
| Net income | $50.1 million | $32.7 million | +$17.4 million |
| Earnings applicable to common stock | $49.6 million | $32.2 million | +$17.4 million |
| Operating margin | 15.6% | 10.6% | +5.0 percentage points |
| Cash from operating activities | $(28.9) million | $37.1 million | $(66.0) million |
| Construction expenditures | $238.9 million | $237.0 million | +$1.9 million |
Revenue growth reflected $105.9 million in fuel, rider, and other revenues that generally do not significantly affect net income, as well as higher retail electric prices and favorable weather. Retail electricity sales rose 6%; residential sales increased 16% and industrial sales 2%. Management attributed the $17.4 million increase in net income primarily to higher retail prices and volume/weather, partly offset by higher taxes and depreciation and lower other income. The effective tax rate was 9.1%, versus (14.8%) in Q1 2020.
Liquidity, debt, and capital
- Cash and cash equivalents were just $25,000 at March 31, 2021, down from $248.6 million at year-end 2020. Operating cash flow was negative, largely reflecting Winter Storm Uri fuel costs, storm spending, and working-capital movements.
- Long-term debt was approximately $2.466 billion, including $200 million of current maturities. Debt to capital was 52.8%; excluding non-recourse securitization bonds, it was 51.9%. Net debt to net capital, excluding those bonds, was also 51.9%.
- Entergy Texas had a $150 million revolving credit facility with no cash borrowings and $1.3 million of letters of credit outstanding. It also had $30.2 million of letters of credit outstanding under an uncommitted facility supporting MISO obligations.
- Q1 financing cash flow was $4.0 million, including a $30.9 million increase in the amount payable to the Entergy money pool. No long-term debt was issued during the quarter; $28.0 million of long-term debt was retired.
Material changes, outlook, and risks
- Winter Storm Uri: February 2021 fuel and purchased-power costs were approximately $185 million, compared with $50 million in February 2020. Recovery through customer rates is subject to regulatory processes. Entergy Texas withdrew a previously proposed approximately $75 million fuel refund after reassessing the impact of the winter storm; it said it would evaluate its fuel balance and make a later refund or surcharge filing as appropriate.
- Storm restoration: In April 2021, Entergy Texas sought PUCT approval for approximately $250 million of restoration costs related to Hurricanes Laura and Delta and Winter Storm Uri—about $200 million capital and $50 million non-capital. The filing includes only part of Uri costs; the company expected to pursue securitization of approved costs later in 2021. Recovery and cost prudence remain subject to regulatory review.
- Rate recovery: Generation, transmission, and distribution cost-recovery riders were contributing to higher retail prices. Interim rates under distribution and transmission rider proceedings began in March 2021; final PUCT orders remained pending. The generation rider for Montgomery County Power Station was approved on an interim basis, with an updated application under review.
- Capital projects: The PUCT approved a settlement for the interdependent Hardin County Peaking Facility acquisition and partial sale of Montgomery County Power Station interest; closing was expected in June 2021. Entergy Texas’s proposed acquisition of a 100 MW Liberty County solar facility remained subject to regulatory review, with closing expected in 2023.
- Other exposures: Entergy Texas recorded a $10.7 million regulatory asset for COVID-19-related costs; future recovery is subject to PUCT review. Management also cited bad-debt costs associated with the pandemic. The filing provides no specific company earnings or cash-flow guidance for the year.
Important facts for investors to verify
- Whether regulators approve recovery and financing of storm restoration and Uri-related fuel costs, including the additional Uri costs not included in the April application.
- How quickly Entergy Texas’s very low quarter-end cash balance is replenished and whether money-pool funding or other financing needs increase.
- Final PUCT decisions and resulting customer-rate impacts for the distribution, transmission, and generation recovery riders.
- Completion, economics, and regulatory conditions for the Hardin County/Montgomery County transactions and Liberty County solar project.
- Whether higher reported revenue translates into sustained earnings growth, given the large pass-through component and the quarter’s negative operating cash flow.