Entergy Corporation — Q1 2012 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2012; comparisons are with Q1 2011. Entergy operates regulated electric and gas utilities across several southern states and Entergy Wholesale Commodities (EWC), which sells power from nuclear and other generation assets. This combined filing also includes separate reports for Entergy’s utility subsidiaries.
Financial results and liquidity
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Operating revenue | $2.384 billion | $2.541 billion |
| Operating income (loss) | ($56.9 million) | $510.9 million |
| Consolidated net income (loss) | ($146.7 million) | $253.7 million |
| Net income (loss) attributable to Entergy | ($151.7 million); diluted EPS ($0.86) | $248.7 million; diluted EPS $1.38 |
| Operating cash flow | $600.5 million | $323.1 million |
Revenue fell about 6%. The reported operating loss reflects a $355.5 million pre-tax ($223.5 million after-tax) impairment of Vermont Yankee and related assets. Utility net income was $67.2 million versus $168.7 million; EWC recorded a $168.5 million net loss versus $123.2 million of income. The reported operating margin was approximately negative 2.4%, compared with 20.1% a year earlier, principally reflecting the impairment.
Investing cash use was $749.3 million, including $563.5 million of construction and capital expenditures; financing provided $139.6 million. Cash and cash equivalents ended at $685.0 million, down from $694.4 million at year-end 2011. Long-term debt, including the currently maturing portion, was approximately $12.44 billion. Debt to capital was 57.8% (55.7% excluding specified securitization bonds); net debt to net capital excluding those bonds was 54.2%. Entergy reported $2.027 billion available under its $3.5 billion credit facility and compliance with its debt covenant.
Changes versus the prior comparable period
- Utility net revenue declined $42 million to $1.106 billion, primarily because milder weather reduced residential and commercial sales; increased weather-adjusted industrial usage partly offset the decline.
- EWC net revenue fell $73 million, or 14%, to $452 million, mainly from lower realized power prices and more planned and unplanned nuclear outage days. Average realized price was $49.68/MWh versus $56.98; nuclear fleet capacity factor was 88% versus 91%.
- Operating cash flow improved by $277 million, primarily due to $172 million lower pension contributions and increased deferred-fuel cost collections.
- The consolidated effective tax rate was 0.11%, versus 39.3%. A $46.3 million tax expense associated with correction of an overstated Entergy Gulf States Louisiana regulatory tax asset partly offset the tax benefit otherwise associated with the consolidated pre-tax loss.
Outlook, commentary, risks and unusual items
- The filing provides no clear company-wide earnings guidance. Management cautions that utility results are seasonal, with peak periods in Q3, and that interim results should not be used to estimate full-year results.
- Management expects EWC nuclear realized prices to remain under pressure: 89% of planned nuclear output for the remainder of 2012 was sold forward at an average contracted energy price of $48/MWh; 84% of planned 2013 output was contracted at $45–$50/MWh. A $10/MWh change in annual average energy prices was estimated to affect 2012 pre-tax net income by $41 million.
- Vermont Yankee’s carrying value was reduced from $517.5 million to estimated fair value of $162.0 million amid lower forward power prices and uncertainty over continued operation. Vermont-related regulatory and legal proceedings remained ongoing.
- Grand Gulf’s planned uprate estimate increased to approximately $874 million, including SMEPA’s share; completion was expected in summer 2012, subject to continuing work and NRC review. NRC post-Fukushima orders may increase nuclear operating and capital costs, but Entergy could not estimate the amount.
- Key execution and regulatory uncertainties include the proposed transmission-business spin-off and merger with ITC, utility-company proposals to join MISO, rate proceedings, fuel-cost recovery, and System Agreement cost-allocation proceedings. Entergy Texas’s requested base-rate increase was revised to $105 million; a decision was pending.
- A Texas power-price lawsuit was certified as a class action in April 2012. Plaintiffs’ experts estimated damages across scenarios at $153 million to $972 million; Entergy disputes the claims. The filing also reports a $625,000 civil penalty, $600,000 environmental-benefit payment, and conditional $275,000 payment under an Indian Point settlement.
- The Board declared a quarterly dividend of $0.83 per share. Entergy made no common-stock repurchases during the quarter.
Most important facts for investors to verify
- Whether the Vermont Yankee impairment or its operating outlook changes as power prices and regulatory proceedings evolve.
- Progress, final cost and schedule for the Grand Gulf uprate, and any additional NRC-driven costs.
- Outcomes and customer-cost effects of the MISO, transmission-spinoff, rate-case and System Agreement proceedings.
- Whether EWC’s contracted prices, outage performance and collateral requirements materially affect earnings or liquidity; reported EWC liquidity exposure under guarantees was $271 million.
- Developments in the certified Texas class action and the potential exposure; the filing does not establish a probable loss amount.