Entergy Texas, Inc. — Q1 2019 10-Q
Business context and period. Entergy Texas, Inc. (ETI) is a regulated electric utility serving customers in Texas. This summary covers the three months ended March 31, 2019, compared with the same quarter of 2018. The filing is a combined report for several Entergy registrants; figures below are ETI-specific unless noted otherwise.
Key financial metrics
| Metric | Q1 2019 | Q1 2018 / prior date |
|---|---|---|
| Operating revenue | $340.5 million | $348.9 million |
| Operating income | $16.7 million | $41.1 million |
| Net income | $21.3 million | $17.4 million |
| Operating cash flow | $42.7 million | $1.0 million |
| Capital expenditures | $176.2 million | $94.1 million |
| Cash and cash equivalents | $22.2 million | $0.1 million at Dec. 31, 2018 |
| Long-term debt | $1.681 billion | $1.014 billion at Dec. 31, 2018 |
| Debt to capital ratio | 53.9%; 49.7% excluding securitization bonds | 51.6%; 46.4% excluding securitization bonds |
Performance and changes versus prior year
- Revenue declined about 2.4%. Retail electricity usage fell 4% (160 GWh); lower residential and commercial usage, including less favorable weather, contributed to the decline.
- Net revenue decreased from $144.9 million to $132.0 million. The $22.3 million return of unprotected excess deferred income taxes to customers and a $3.5 million volume/weather decline were partly offset by a $10.6 million retail price increase, mainly reflecting the October 2018 base-rate increase.
- Despite higher net income, operating income fell by about $24.3 million. Net income benefited substantially from an income-tax benefit: ETI reported an $18.1 million income-tax benefit and a reported effective tax rate of negative 554.5%, primarily due to amortization of excess deferred income taxes. The reported net-income increase therefore does not reflect stronger operating income.
- Operating cash flow increased year over year, primarily due to timing of fuel and purchased-power cost recovery. Investing cash outflow rose to $163.9 million, largely reflecting higher construction spending, including the Montgomery County Power Station and transmission work. Financing provided $143.4 million.
- In January 2019, ETI issued $300 million of 4.0% first-mortgage bonds due 2029 and $400 million of 4.5% bonds due 2039. Proceeds partly repaid $500 million of 7.125% bonds that matured in February; net new bond issuance was $200 million.
Liquidity, outlook, risks, and contingencies
- ETI had a $150 million credit facility expiring in September 2023, with no cash borrowings and $1.3 million of letters of credit outstanding at quarter-end. A separate uncommitted facility had $11.7 million of letters of credit posted for MISO obligations.
- Management reported no ETI-specific earnings guidance in the provided filing text. The filing notes that interim results are seasonal and should not be used as a basis for estimating full-year results.
- ETI requested a distribution cost recovery factor designed to collect about $3.2 million annually; a hearing was scheduled for June 2019. Its proposed transmission cost recovery factor was designed to collect about $2.7 million annually. Parties proposed a load-growth adjustment that would fully offset the request; the matter was pending, with permanent implementation deferred until July 2019 unless the PUCT acted earlier.
- ETI sought $7.2 million in rate-case expenses related to its 2018 base-rate case. Parties recommended disallowing $3.2 million to $4.2 million; a hearing was scheduled for June 2019.
- Key exposures include regulatory approval and recovery of costs, weather-related demand changes, capital-project execution and spending, and the timing of fuel and purchased-power recovery. Management stated there were no material changes to the risk factors in the 2018 Form 10-K.
Important facts for investors to verify
- Whether the PUCT approved the pending distribution and transmission recovery riders and how the rate-case expense request was resolved.
- Whether reported earnings improvement persists after separating tax-related benefits from underlying operating performance.
- Progress, total cost, and in-service timing for the Montgomery County Power Station and other significant construction projects.
- ETI’s debt and liquidity position following the 2019 bond issuance and repayment, including available credit capacity and future refinancing needs.
- The effects of continued customer usage trends, weather, and fuel-cost recovery timing on revenue and cash flow.