Entergy Texas, Inc. — 2019 Form 10-K Summary
Business context and reporting period
Entergy Texas, Inc. (ETI) is a regulated electric utility serving parts of eastern Texas. It generates, transmits, and distributes electricity and participates in the MISO market. This summary focuses on ETI’s separate financial statements in Entergy Corporation’s combined Form 10-K for the fiscal year ended December 31, 2019, filed February 21, 2020; consolidated Entergy Corporation figures are not ETI figures.
Financial performance and position
- Revenue: $1.489 billion, down $116.9 million (7.3%) from $1.606 billion in 2018. Lower fuel, rider, and other pass-through revenues and the return of excess deferred taxes to customers more than offset a $41.0 million retail price increase. Management said these pass-through and tax-refund revenue movements generally did not affect net income.
- Profit and margins: Net income was $159.4 million, down $2.8 million from $162.2 million. Operating income fell to $146.5 million from $206.4 million; operating margin was approximately 9.8%, versus 12.9% in 2018. The 2019 effective tax rate was negative 51.1%, principally reflecting excess deferred tax amortization and utility-plant tax differences; reported earnings therefore include significant tax-related effects.
- Cash flow: Operating cash flow was $286.7 million, down $45.0 million year over year. Investing cash outflow was $878.3 million, including $898.1 million of construction expenditures. Financing provided $604.4 million, and cash ended the year at $12.9 million, versus $0.1 million in 2018.
- Debt and liquidity: Long-term debt was $1.923 billion, including $206.3 million of securitization bonds. The reported debt-to-capital ratio was 51.7%; excluding non-recourse securitization bonds, it was 48.9%, and net debt-to-net capital was 48.7%. ETI had a $150 million credit facility with no cash borrowings at year-end and $1.3 million of letters of credit outstanding. The filing also reports $185 million of parent capital contributions during 2019.
- Assets and equity: Total assets were $5.071 billion, up from $4.400 billion. Net utility plant was $4.189 billion. Equity was $1.799 billion, including $35 million of newly issued 5.375% Series A preferred stock.
Material changes versus 2018
- Operating revenue and operating income declined, while net income was broadly stable. The $72.8 million reduction in revenue from returning unprotected excess accumulated deferred income taxes to customers was offset in income taxes and had no net-income effect, according to the filing.
- ETI issued $700 million of mortgage bonds in 2019 and repaid $500 million of 7.125% bonds at maturity. Capital spending accelerated: construction expenditures rose to $898.1 million from $452.0 million, largely reflecting the Montgomery County Power Station and transmission and distribution work.
- Retail electric usage was slightly higher overall: billed retail sales were 19,008 GWh versus 19,220 GWh, a decrease of about 1.1%; management’s revenue discussion cites a positive $3.3 million volume/weather variance, primarily from unbilled usage.
Outlook, risks, contingencies, and unusual items
- Capital plan: Planned construction and capital investment totals $765 million in 2020, $605 million in 2021, and $715 million in 2022. The 993 MW Montgomery County combined-cycle project is under construction, with estimated cost of $937 million and commercial operation expected by mid-2021. Generation construction cost recovery is capped at $831 million under the approved settlement, subject to specified exclusions; transmission and related costs are outside that cap.
- Rates and recovery: The 2018 base-rate settlement approved a $53.2 million base-rate increase, alongside customer tax credits and return of excess deferred taxes. The PUCT approved a distribution cost recovery rider and, in January 2020, approved a settlement for a transmission cost recovery rider of approximately $19.4 million annually. These mechanisms remain subject to regulatory terms, review, and—in some cases—later prudence determinations.
- Open regulatory matters: ETI’s September 2019 fuel reconciliation filing for April 2016–March 2019 reported an estimated $25.8 million under-recovery; the proceeding remained pending. A customer appeal challenged a transmission rider order over a load-growth adjustment. The PUCT approved a settlement of ETI’s 2018 rate-case expenses in February 2020, including a $1.4 million disallowance.
- Operational and external risks: The filing highlights dependence on regulatory approval and timely cost recovery, construction execution and cost control, storms and weather, fuel and purchased-power prices, MISO market and transmission costs, environmental requirements, and access to capital. ETI also identified uncertainty in tax positions and regulatory treatment. Management states that estimates and future regulatory outcomes could materially affect results.
- Audit and controls: Deloitte issued an unqualified opinion on ETI’s financial statements. ETI’s separate statements were not subject to an auditor opinion on internal control over financial reporting; management reported effective controls.
Most important facts for investors to verify
- Whether the $25.8 million fuel under-recovery and any other pending cost-recovery claims are approved, and the timing and terms of recovery.
- Montgomery County project spending, schedule, final cost, and whether recoverable costs remain within the approved cap and exclusions.
- ETI’s ability to fund its capital program while maintaining liquidity, including credit-facility availability, parent contributions, debt maturities, and future borrowing costs.
- How the PUCT’s later prudence reviews and any changes to rate riders affect allowed returns and recovery of transmission, distribution, and generation investment.
- The impact of excess deferred tax amortization, customer refunds, and the company’s tax positions on future earnings and cash flows; the filing does not provide a clear standalone ETI cash-flow forecast.