Business context and reporting period
Entergy Texas, Inc. is a regulated electric utility serving parts of Texas. This filing is part of Entergy’s combined Form 10-K and reports the fiscal year ended December 31, 2016, with comparisons to 2015 and 2014. The period is annual, not a standalone fourth-quarter filing.
Financial performance and liquidity
| Metric | 2016 | 2015 | Change |
|---|---|---|---|
| Operating revenue | $1,615.6 million | $1,707.2 million | Down 5.4% |
| Operating income | $245.6 million | $183.6 million | Up 33.7% |
| Net income | $107.5 million | $69.6 million | Up 54.5% |
| Operating margin | 15.2% | 10.8% | Up 4.4 percentage points |
| Net cash from operating activities | $306.6 million | $284.3 million | Up $22.3 million |
| Cash from investing activities | $(330.2) million | $(315.3) million | Greater outflow |
| Cash from financing activities | $27.6 million | $2.8 million | Up $24.8 million |
| Cash and cash equivalents, year-end | $6.2 million | $2.2 million | Up $4.0 million |
| Total assets, year-end | $4,033.1 million | $3,898.6 million | Up 3.4% |
| Long-term debt, excluding current maturities | $1,508.4 million | $1,452.0 million | Up $56.4 million |
Net revenue, defined in the filing as revenue less fuel, purchased power, and other regulatory charges, rose to $644.2 million from $637.2 million. Retail electric sales were 18,182 GWh, up from 17,749 GWh. The filing reports a 58.5% debt-to-capital ratio, 50.2% excluding securitization bonds, and a 50.1% net debt-to-net capital ratio excluding those bonds.
Material changes versus 2015
- Revenue declined, while earnings improved. Management attributed the higher net income primarily to lower operation and maintenance expenses, the absence of the 2015 Spindletop gas-storage receivable write-off, and higher net revenue.
- The $23.5 million Spindletop-related write-off was recorded in 2015 after termination of the System Agreement ended the related recovery mechanism; it was not a 2016 charge.
- Higher retail rates and transmission recovery supported net revenue, while lower net wholesale revenue—principally after termination of purchased-power agreements with Entergy Louisiana in August 2016—offset some of the increase.
- Retail electric sales rose about 2.4%, but total operating revenue fell, reflecting the importance of revenue mix and cost-recovery pass-throughs.
Outlook, risks and unusual items
- Capital program: Planned construction and capital investment is $350 million in 2017, $515 million in 2018, and $735 million in 2019. This includes the proposed Montgomery County Power Station, a 993 MW combined-cycle project estimated at $937 million. PUCT action was expected by October 2017; commercial operation was targeted for mid-2021, subject to approvals.
- Rates and fuel recovery: Entergy Texas refunded approximately $68 million of over-recovered fuel costs beginning in July 2016. A separate fuel-reconciliation settlement proposed a $6 million disallowance and a further $21 million customer refund, with PUCT action pending. A proposed transmission cost recovery factor of approximately $29.5 million annually was also subject to approval.
- System Agreement: Entergy Texas ended participation in the System Agreement in August 2016. Management cited related changes in transmission, reserve-equalization, and purchased-power revenues and costs; further regulatory proceedings could affect allocation and recovery.
- Liquidity and financing: Year-end cash was $6.2 million. Entergy Texas had a $150 million credit facility expiring in August 2021, with no cash borrowings and $4.7 million of letters of credit outstanding. The filing identifies access to capital, regulatory recovery timing, weather and storms, fuel costs, and credit-rating or collateral requirements as risks.
- Contingencies: Fuel-cost prudence reviews, rate proceedings, litigation, environmental compliance, and storm-related costs could affect results or cash flows. The filing describes the Texas power-price lawsuit as dismissed in December 2016, but certain rate and fuel-recovery matters remained pending or subject to appeal.
- The filing gives no specific Entergy Texas earnings guidance. It describes planned investment and project timing, which depend on regulatory approvals and may change.
Most important facts for investors to verify
- Whether PUCT approval was obtained for the proposed $29.5 million annual transmission recovery and the fuel-reconciliation settlement, including the proposed customer refund and disallowance.
- Whether the Montgomery County Power Station received required approvals, and how its final cost, schedule, and rate recovery compare with the estimates.
- How the System Agreement’s termination affects Entergy Texas’s ongoing costs, revenues, and customer recovery mechanisms.
- Whether operating cash flow and available financing remain sufficient as planned capital spending rises substantially through 2019.
- How customer load, fuel and purchased-power costs, storm exposure, and regulatory decisions affect margins and liquidity.
The filing’s financial statements received an unqualified audit opinion. The disclosed metrics above are for Entergy Texas unless otherwise stated.