Business context and reporting period
Entergy Texas, Inc. is a regulated electric utility serving customers in Texas. This summary focuses on Entergy Texas and its subsidiaries’ unaudited results for the three and six months ended June 30, 2018, compared with the same periods in 2017. The combined filing also reports other Entergy entities; their figures are not included below.
Financial performance and liquidity
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Operating revenue | $403.5 million | $378.5 million | $752.4 million | $742.4 million |
| Operating income | $58.6 million | $47.8 million | $99.7 million | $86.9 million |
| Net income | $30.8 million | $21.1 million | $48.1 million | $32.0 million |
| Operating margin | 14.5% | 12.6% | 13.3% | 11.7% |
Margins are calculated as operating income divided by operating revenue. Q2 and first-half net income increased approximately 46% and 51%, respectively. Management attributed the increases primarily to higher net revenue and lower effective income tax rates, partly offset by higher operating and maintenance and depreciation expenses; first-half results also reflected higher taxes other than income taxes.
- Revenue drivers: Net revenue rose $16.9 million in Q2 and $21.6 million for the first half. Higher usage and favorable weather contributed; billed electricity sales increased 137 GWh (3%) in Q2 and 524 GWh (6%) for the first half. Management cited additional industrial demand, including new chemical and wood-products customers. Lower purchased-power capacity costs also supported Q2 net revenue.
- Cash flow: For the first six months, operating cash flow was $90.5 million, down from $132.4 million; investing cash use was $124.9 million, versus $140.9 million; and financing used $40.7 million, versus providing $3.4 million. Cash declined $75.1 million to $40.4 million. Management cited timing of fuel and purchased-power cost recovery as the main reason for lower operating cash flow.
- Balance sheet and debt: At June 30, total assets were $4.23 billion. Long-term debt was $1.05 billion and currently maturing long-term debt was $500 million, for total reported debt of approximately $1.55 billion. Debt to capital was 54.2%, or 48.4% excluding non-recourse securitization bonds; net debt to net capital excluding those bonds was 47.6%, compared with 46.9% at year-end 2017.
- Liquidity: Current assets were $384.6 million and current liabilities $896.8 million. The $150 million revolving credit facility had no cash borrowings; $24.4 million of letters of credit were outstanding under it. A separate uncommitted facility supported $12.5 million of letters of credit for MISO obligations.
Material changes, outlook, and risks
- In May 2018, Entergy Texas filed a base-rate case with the PUCT seeking about $166 million in base and rider increases. Of this, $48 million reflects moving existing rider costs into base rates; the stated incremental revenue requirement is approximately $118 million. The filing also proposed returning about $202 million of unprotected excess deferred income taxes to customers over two years after PUCT approval. A hearing was scheduled for August 2018; the filing does not report the outcome.
- A $500 million long-term debt amount was classified as currently maturing at June 30, 2018, versus none at December 31, 2017. Investors should assess the repayment or refinancing plan; the provided text does not clearly specify the maturity date or plan for this amount.
- The Fifth Circuit reversed a lower-court ruling favorable to Entergy Texas in the dispute over an additional $10.9 million refund of 2006 bandwidth-remedy payments, reinstating the PUCT’s refund decision. Entergy Texas had already refunded that amount in 2016; its state-court appeal remained pending.
- Remediation of a 2016 transformer-oil release at the Hartburg substation was estimated at $2.2 million, but costs could change depending on remediation and wetland mitigation requirements. TCEQ requested further assessments and sampling in June 2018, and Entergy Texas reported that it was implementing a response plan.
- Management provided no specific Entergy Texas earnings guidance in the included text. It cautioned that utility results are seasonal and interim results should not be used as a basis for estimating full-year results. The filing reported no material changes to risk factors from the 2017 Form 10-K.
Important facts for investors to verify
- PUCT decisions on the base-rate case, including the allowed revenue increase and customer tax-benefit refunds.
- The repayment or refinancing arrangements for the $500 million current debt maturity.
- The progress and final cost of the Hartburg site remediation and any required wetland mitigation.
- The status and potential financial effect of the remaining state-court appeal concerning the bandwidth-remedy refund.
- Whether fuel-cost recovery timing and elevated customer usage persist, and how they affect operating cash flow and earnings.