Entergy Texas, Inc. — Q1 2022 Form 10-Q Summary
Business context and reporting period
Entergy Texas is a regulated electric utility serving customers in Texas. This summary focuses on Entergy Texas, Inc. and subsidiaries for the three months ended March 31, 2022, compared with the same period in 2021. The filing is a combined report for multiple Entergy registrants; the figures below are Entergy Texas-specific unless noted otherwise. Financial statements are unaudited.
Key financial and operating metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Operating revenue | $472.5 million | $480.2 million | Down $7.7 million |
| Operating income | $72.5 million | $74.9 million | Down $2.3 million |
| Net income | $50.4 million | $50.1 million | Up $0.3 million |
| Earnings applicable to common stock | $49.9 million | $49.6 million | Up $0.3 million |
| Operating cash flow | $82.3 million | $(28.9) million | Improved $111.2 million |
| Construction expenditures | $155.9 million | $238.9 million | Down $83.0 million |
Retail electric sales rose 10% to 4,847 GWh, including industrial sales up 15%, commercial up 5%, and residential up 5%. Sales for resale fell 45%. The company attributed the modest revenue decline to lower fuel, rider, and other pass-through revenues, partly offset by a $20.5 million retail electric price increase; pass-through revenue changes generally have little effect on net income.
At March 31, 2022, Entergy Texas reported $26,000 of cash, $6.31 billion of total assets, $2.33 billion of long-term debt, and $2.53 billion of equity. Its debt-to-capital ratio was 47.9%, or 47.7% excluding securitization bonds, compared with 48.7% and 48.2%, respectively, at year-end 2021. It had a $150 million committed credit facility with no cash borrowings and $1.3 million of letters of credit outstanding; $79.6 million of letters of credit were outstanding under an $80 million uncommitted facility for MISO collateral. The filing reports a $171.4 million payable to the Entergy System money pool.
Material changes versus the prior comparable period
- Net income was nearly unchanged despite lower operating income. Higher retail pricing and a much lower effective income tax rate (9.3% versus 9.1%, both below the 21% federal statutory rate) contributed to the result.
- Operating cash flow improved from a use of cash to a source of cash, mainly reflecting the timing of fuel-cost recovery, vendor payments, and customer collections, including comparison with Winter Storm Uri-related costs in 2021.
- Capital spending declined, primarily because storm-restoration and other construction expenditures were lower than in Q1 2021.
- Quarter-end cash remained minimal. Financing cash flow was supported in part by a $91.8 million increase in the payable to the money pool.
Outlook, management commentary, risks, and unusual items
- Storm-cost recovery: The PUCT issued a financing order in January 2022 for eligible restoration costs related to Hurricanes Laura and Delta and Winter Storm Uri. Entergy Texas reclassified $153 million from utility plant to regulatory assets in Q1 following the order. In April 2022, a consolidated, wholly owned financing subsidiary issued $290.85 million of system-restoration bonds; customer recovery through a system restoration charge began with the first billing cycle of May and may continue for up to 15 years. The bonds are non-recourse to Entergy Texas, apart from its obligation to remit charge collections.
- Generation investment: The proposed Orange County Advanced Power Station is a 1,215 MW combined-cycle facility with an initially estimated cost of $1.2 billion and an expected in-service date of May 2026, subject to approvals and permits. Intervenors opposed the project or its hydrogen co-firing element, and PUCT staff proposed a possible recovery cap. A final PUCT order was expected in Q3 or Q4 2022.
- Rate mechanisms: The PUCT approved the distribution cost recovery rider settlement in March 2022; the filing describes a $40.2 million annual revenue requirement, including $13.9 million in incremental annual revenues. An updated generation cost recovery rider for the Hardin County Peaking Facility was the subject of an April 2022 unanimous settlement filing proposing an annual revenue requirement of approximately $92.8 million; that filing does not report final approval.
- Other regulatory matters: Entergy Texas had a $10.4 million regulatory asset for COVID-19-related costs at March 31, 2022; recovery remains subject to future PUCT review. A proposed settlement for voluntary renewable-option tariffs was awaiting PUCT consideration.
- Key risks: Results and liquidity depend on timely regulatory decisions and recovery of fuel and storm costs. Project execution, construction costs, permitting, supply-chain disruptions, labor and material costs, extreme weather, MISO collateral requirements, and the potential for cost overruns or disallowed recovery are additional risks identified in the filing.
The filing provides no Entergy Texas-specific earnings guidance. Management cautions that interim results are seasonal and should not be used as a basis for estimating full-year results.
Important facts for investors to verify
- Progress and terms of PUCT review for the Orange County project, including any cost-recovery cap, final approved cost, and schedule.
- Actual recovery of storm-restoration costs through securitization and customer charges, and any remaining costs or prudence reviews.
- Final approval and effective rates for the Hardin County generation cost recovery rider and the treatment of the requested relate-back recovery.
- Funding and liquidity needs given the very low quarter-end cash balance, money-pool borrowing, and substantial use of the MISO letter-of-credit facility.
- Whether the $10.4 million COVID-19 regulatory asset and other deferred costs are ultimately approved for customer recovery.