Business context and reporting period
Entergy Texas, Inc. (ETI) is a regulated electric utility serving customers in Texas. This summary covers the unaudited quarter and six months ended June 30, 2022, compared with the same 2021 periods. The filing is a combined Entergy report; ETI reports its own results separately within it.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Operating revenue | $564.6 million | $430.4 million | $1,037.1 million | $910.7 million |
| Operating income | $133.0 million | $67.4 million | $205.5 million | $142.2 million |
| Net income | $97.5 million | $44.8 million | $147.9 million | $94.8 million |
| Operating margin | 23.6% | 15.7% | 19.8% | 15.6% |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $171.7 million | $119.5 million |
At June 30, 2022, cash was $22.6 million, total assets were $6.66 billion, and long-term debt was $2.61 billion, including $312.1 million of securitization bonds. ETI reported a 49.9% debt-to-capital ratio, or 46.7% excluding non-recourse securitization bonds; net debt to net capital excluding those bonds was 46.5%, versus 48.2% at year-end 2021. Six-month cash flows were $326.4 million used in investing and $177.2 million provided by financing. The filing does not provide a standalone quarterly cash-flow statement for ETI.
Material changes versus the prior comparable period
- Q2 net income rose $52.7 million year over year; six-month net income rose $53.0 million.
- ETI attributed the improvement mainly to higher usage and favorable weather, higher retail electric prices, and recognition of the equity component of storm restoration carrying costs following April’s securitization.
- Q2 retail electricity sales increased 15% to 5,547 GWh; six-month retail sales increased 12% to 10,394 GWh. Revenue growth also included fuel and rider revenues that generally have offsetting expenses and do not significantly affect net income.
- Six-month operating cash flow increased $52.2 million, while investing cash outflow fell $23.9 million. Financing cash flow improved from a $17.8 million use to $177.2 million provided, primarily reflecting the storm bond issuance.
Outlook, management commentary, and key risks
- Storm-cost financing: In April 2022, ETI subsidiary Entergy Texas Restoration Funding II issued $290.85 million of senior secured system restoration bonds: $100 million at 3.051% and $190.85 million at 3.697%. Customer system-restoration charges began in May and are expected to continue for up to 15 years. The bonds are non-recourse to ETI; ETI’s obligation is to remit customer collections.
- Fuel recovery: ETI sought recovery of approximately $51.7 million of under-recovered fuel and purchased-power costs, largely related to Winter Storm Uri. An unopposed settlement was filed in July; interim rates were approved effective with the first September 2022 billing cycle, subject to PUCT final approval.
- Rates: In July, ETI filed a base-rate case seeking approximately $131.4 million in increased rates; a hearing was scheduled for December 2022. PUCT-approved transmission and distribution recovery riders also supported current-period revenue.
- Capital plans: Planned construction and capital investments are $555 million in 2022, $905 million in 2023, and $1.095 billion in 2024. The 1,215 MW Orange County Advanced Power Station was initially estimated at $1.2 billion; an updated fixed-price option was $1.58 billion. PUCT action was expected in Q4 2022, with service targeted by the end of 2026, subject to approvals and permits.
- Execution and cost risks: Management cited increased project costs, supply-chain disruption, and potential solar-panel tariffs. The filing identifies permitting, contractor and labor availability, project delays or overruns, and regulatory cost recovery as risks. ETI’s Orange County proposal also faced opposition, including to hydrogen co-firing.
- Other exposures: ETI posted $30 million in cash collateral to support MISO obligations and had $79.6 million of letters of credit outstanding under its uncommitted MISO facility. The filing describes storm restoration-cost recovery and fuel-cost timing as significant cash-flow influences.
Most important facts for investors to verify
- Whether the PUCT ultimately approves the $131.4 million base-rate request and the fuel-surcharge settlement, and the timing and amount of resulting collections.
- Final Orange County project pricing, PUCT approval, permitting, construction schedule, and rate-recovery terms, given the updated $1.58 billion option versus the earlier $1.2 billion estimate.
- Actual project spending against ETI’s 2022–2024 capital plan and the effect of supply constraints and tariffs on cost and timing.
- Performance of customer collections and fuel-cost recovery, including the effect of high fuel costs and storm-related spending on liquidity.
- Debt and liquidity trends, including the non-recourse nature and servicing of the $290.85 million restoration bonds and ETI’s MISO collateral requirements.