Entergy Texas, Inc. — Form 10-Q Summary
Business context and period. Entergy Texas is a regulated electric utility serving customers in Texas. This combined Entergy quarterly report covers the three and nine months ended September 30, 2015; the financial statements are unaudited. Comparisons are with the corresponding 2014 periods.
Key financial metrics
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Operating revenue | $498.2m | $528.5m | $1,312.4m | $1,451.7m |
| Net revenue | $196.3m | $183.2m | $493.5m | $472.7m |
| Operating income | $86.6m | $82.9m | $174.7m | $179.1m |
| Net income | $43.3m | $39.6m | $74.8m | $71.3m |
| Operating cash flow | Not separately provided | Not separately provided | $185.7m | $225.7m |
- Q3 net income rose about 9.5%; nine-month net income rose about 4.9%.
- Nine-month construction expenditures were $210.6m. Cash and cash equivalents at September 30 were $5.2m, down from $30.4m at year-end 2014.
- At September 30, long-term debt was $1,475.1m, including $512.0m of securitization bonds; no long-term debt was currently maturing. Common equity was $966.6m.
- Debt to capital was 60.4%, or 49.9% excluding non-recourse securitization bonds; net debt to net capital excluding those bonds was 49.8%.
- Entergy Texas issued $250m of 5.15% first mortgage bonds due 2045 in May, using proceeds in part to repay $200m of 3.60% bonds at maturity.
- It had a $150m credit facility with no cash borrowings outstanding and $1.3m of letters of credit issued under that facility. A separate uncommitted MISO letter-of-credit facility had $31m outstanding.
Changes versus prior period
- Q3 revenue fell 5.7% and nine-month revenue fell 9.6%, while net revenue increased 7.1% for Q3 and 4.4% for the nine-month period.
- Q3 billed retail electricity sales increased 5% to 5,274 GWh. Nine-month retail sales were essentially flat at 13,561 GWh; industrial usage declined 3%.
- Management attributed higher net revenue to usage/customer growth, rate and rider changes, higher wholesale capacity revenue, and increased MISO transmission revenue. Nine-month gains were partly offset by higher purchased-power capacity costs and lower right-of-way rental revenue.
- Nine-month operating cash flow decreased by $40.0m year over year, while investing cash use increased by $78.9m, primarily reflecting greater transmission and fossil-generation construction activity.
Outlook, risks and unusual items
- Management’s preliminary 2016–2018 capital investment estimate for Entergy Texas is $1.2bn. The estimate may change with regulatory requirements, project plans, market and economic conditions, and access to capital.
- Entergy Texas withdrew its 2015 base-rate case and its application to acquire a Union Power Station block after opposition to the transaction and its proposed rate treatment. It wrote off $4.3m of related rate-case and acquisition costs. The block was proposed for acquisition by Entergy New Orleans, subject to approvals and other closing conditions; the larger Union Power transaction remained subject to regulatory and other approvals.
- A September filing sought a $6.5m increase in the distribution cost recovery rider, to $10.1m annually; staff and intervenors opposed part of the request. A separate filing sought a $13m increase in the transmission cost recovery rider. Decisions were pending.
- An administrative law judge recommended an additional $10.9m refund to retail customers related to 2006 System Agreement bandwidth payments; the PUCT was scheduled to consider the recommendation in December 2015.
- The company had previously refunded approximately $24.6m of over-collected fuel costs; the PUCT approved that refund as final in March 2015.
- Management identified the proposed System Agreement settlement, including termination for remaining parties on August 31, 2016, as subject to required regulatory approvals. Regulatory outcomes and MISO-related costs remain relevant uncertainties.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing states there were no material changes to the risk factors discussed in the 2014 Form 10-K.
Important facts for investors to verify
- Track PUCT decisions on the distribution and transmission riders and the recommended $10.9m refund, including any effect on cash flow or customer rates.
- Confirm the status, final ownership allocation, approval requirements, and cost recovery for the Union Power Station transaction.
- Assess whether planned capital spending, construction cash needs, and low period-end cash are adequately supported by operating cash flow and available credit facilities.
- Review the eventual outcome and economics of the System Agreement settlement and related MISO transmission arrangements.
- Check whether reported net-revenue growth translates into sustained earnings and operating cash flow, given lower nine-month operating cash flow and higher investment spending.