Entergy Texas, Inc. — FY 2020 Form 10-K Summary
Business context and reporting period
Entergy Texas, Inc. (ETI), a wholly owned Entergy Corporation subsidiary, is a regulated electric utility serving parts of eastern Texas. This summary covers the year ended December 31, 2020; the filing was signed February 26, 2021. Figures below are ETI-specific unless noted.
Key financial metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Operating revenue | $1.587 billion | $1.489 billion |
| Operating income | $246.8 million | $146.5 million |
| Net income | $215.1 million | $159.4 million |
| Operating cash flow | $375.3 million | $286.7 million |
| Cash used in investing | $848.6 million | $878.3 million |
| Cash provided by financing | $709.0 million | $604.4 million |
| Cash and cash equivalents at year-end | $248.6 million | $12.9 million |
| Total assets | $6.227 billion | $5.071 billion |
| Long-term debt, including current maturities | $2.494 billion | $1.923 billion |
| Debt to capital | 53.7% | 51.7% |
| Net debt to net capital, excluding securitization bonds | 49.7% | 48.7% |
Operating margin was approximately 15.5% versus 9.8% in 2019; net margin was approximately 13.5% versus 10.7%. These are calculations from reported operating income, net income, and revenue.
Material changes versus 2019
- Revenue rose about 6.6%, while net income rose about 34.9%. Management attributed the earnings improvement mainly to higher retail electric prices, higher other income, lower operating and maintenance costs, and a lower effective tax rate, partly offset by higher depreciation.
- Retail electric price contributed $28.1 million to the revenue change; volume and weather contributed $7.0 million. The revenue bridge also included $58.6 million from a lower return of unprotected excess deferred taxes to customers. Customer usage was affected by COVID-19, weather, and storm outages.
- Operating cash flow increased about $88.6 million. Investing cash outflow remained high, reflecting capital spending and storm restoration; financing included substantial debt issuance and a $175 million parent capital contribution.
- Year-end debt-to-capital increased as ETI issued debt. ETI issued $600 million of 1.75% mortgage bonds and $175 million of 3.55% mortgage bonds in 2020, and repaid $135 million of 5.625% bonds. The balance sheet also reports $35 million of 5.375% cumulative preferred stock.
Outlook, risks, and unusual items
- Hurricanes: Laura and Delta restoration costs for ETI were estimated at approximately $300 million, including $245 million capital and $55 million non-capital. Recovery and timing remain subject to regulatory review; management cannot assure the amount ultimately recovered. ETI expected to pay about $180 million of already-accrued storm-related capital costs in 2021.
- February 2021 winter storm: ETI estimated crew mobilization and restoration costs at approximately $12 million. Natural gas purchases for February 1–25, 2021 were about $155 million, versus $10 million for February 2020. Fuel recovery mechanisms apply, but ETI was working with regulators on customer-bill impacts.
- COVID-19: ETI recorded a $12.9 million regulatory asset for pandemic-related costs, subject to future PUCT review and approval. The allowance for doubtful accounts rose to $16.8 million from $0.5 million; the filing attributes much of the increase to pandemic-related customer credit risk.
- Generation and investment: Montgomery County Power Station entered service January 1, 2021. Its estimated total cost, including transmission upgrades, is about $921 million; approximately $756 million was eligible for generation cost recovery. A settlement established an interim annual recovery requirement of approximately $86 million, subject to further filings and regulatory process. Planned routine capital investment was $510 million in 2021, $525 million in 2022, and $1.015 billion in 2023.
- Other rate and resource proceedings: A proposed $75 million fuel refund was filed in February 2021, primarily reflecting MISO settlements related to Hurricane Laura; ETI moved to pause the proceeding to reassess the effect of the winter storm. The PUCT also had pending or interim proceedings involving transmission and distribution cost-recovery riders, Montgomery County recovery, and the proposed Hardin County Peaking Facility acquisition. The Liberty County solar acquisition remained subject to approval.
- Tax effects: ETI reported $3.0 million of income tax expense in 2020 versus a $53.9 million tax benefit in 2019; its effective tax rate was 1.4% versus (51.1%). These unusual rates reflect tax and regulatory items, so reported earnings comparisons should be considered in that context.
- The filing identifies regulatory recovery, storm financing, customer collections, fuel and power costs, interest rates, nuclear-related matters, and capital-project execution as risks. ETI’s financial statements received an unqualified audit opinion. Management reported effective internal control over financial reporting for the registrants.
Most important facts for investors to verify
- Progress and final regulatory recovery of ETI’s hurricane restoration costs, including the amount and timing of any securitization or rate recovery.
- Actual cost, performance, and rate recovery for Montgomery County Power Station, and the terms and approvals for the Hardin County and Liberty County projects.
- Resolution of the 2021 fuel refund proceeding after the February winter storm and the ultimate customer recovery of elevated gas costs.
- Customer arrears, bad-debt allowance, and whether deferred COVID-19 costs are approved for recovery.
- Debt maturities, financing needs, and liquidity after the increase in debt and planned capital investment.