Entergy Texas, Inc. — Form 10-Q Summary
Business context and reporting period
Entergy Texas, Inc. and subsidiaries reported for the quarter and nine months ended September 30, 2012, with comparisons to 2011. The company is a regulated electric utility; figures below are for Entergy Texas, not Entergy Corporation on a consolidated basis.
Key financial metrics
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Operating revenue | $489.1 million | $557.0 million | $1,174.1 million | $1,350.3 million |
| Operating income | $61.2 million | $86.8 million | $135.3 million | $190.1 million |
| Net income | $19.2 million | $40.9 million | $37.2 million | $79.7 million |
| Cash from operating activities | — | $172.0 million | $106.0 million | |
| Cash and cash equivalents at period end | — | $64.4 million | $41.2 million |
Q3 revenue fell about 12% and net income about 53% year over year; nine-month revenue and net income declined about 13% and 53%, respectively. Calculated operating margin was approximately 12.5% in Q3 2012 versus 15.6% in Q3 2011, and 11.5% for the first nine months versus 14.1% in 2011.
Nine-month cash flow from investing was a use of $65.5 million, compared with $120.7 million in 2011; financing used $107.3 million, compared with providing $20.6 million. The company reported $2.20 billion in total assets and $879.1 million in common equity at September 30. Long-term debt was $1.628 billion, including $700.5 million of securitization bonds. Debt to capital was 64.9%, or 51.3% excluding securitization bonds; net debt to net capital excluding those bonds was 49.5%. The $150 million credit facility was undrawn.
Material changes versus prior comparable periods
- Management attributed lower earnings to reduced net revenue, higher operation and maintenance costs, and lower other income; the nine-month comparison also reflected higher depreciation and amortization.
- Retail billed electricity use declined 5% in both Q3 and the first nine months. Q3 volume was down 255 GWh; nine-month volume was down 651 GWh, reflecting milder weather and, for the nine-month period, an unplanned outage at a large industrial customer.
- Nine-month operating cash flow increased by $66 million, mainly due to System Agreement remedy receipts, fuel-related cash-flow timing, and lower pension contributions. Investing cash use decreased, while financing shifted to a cash outflow, including $57.4 million of common dividends versus $5.8 million in the prior-year period.
Outlook, management commentary, risks and unusual items
- In September 2012, the PUCT approved a $28 million base-rate increase effective July 2012 and found a 9.80% return on equity reasonable. The order also disallowed or reduced recovery of certain costs. Entergy Texas recorded an approximately $24 million Q3 charge for assets and costs it concluded were no longer probable of recovery; it disputed aspects of the order and sought rehearing. The filing reports that the PUCT later denied rehearing of substantive issues.
- Entergy Texas completed a $67 million fuel-cost refund to customers in May 2012. In October it requested approval to refund approximately $78 million of further fuel over-collections, proposed over six months beginning with January 2013 bills. A separate approximately $37.5 million customer credit tied to a FERC System Agreement order began in October 2012.
- Management’s preliminary 2013–2015 capital investment plan for Entergy Texas is $726 million, including approximately $394 million for maintenance and $332 million for specific projects. This is a planning estimate, not earnings guidance.
- The PUCT approved transfer of Entergy Texas transmission functional control to MISO in October 2012, subject to conditions. The filing also describes a proposed transmission-business spin-off and merger with an ITC subsidiary, which remained subject to regulatory approvals.
- The filing identifies regulatory recovery, fuel and purchased-power costs, weather, MISO transition, transmission-transaction approvals, and capital-project execution as risks. Management cautions that interim results are seasonal and should not be treated as a full-year forecast. No specific earnings guidance for Entergy Texas is provided.
Most important facts for investors to verify
- Final treatment and any remaining financial effects of the PUCT rate-case order and the approximately $24 million charge.
- Approval, amount, and timing of the proposed $78 million fuel refund and the System Agreement customer credit.
- Actual capital spending against the $726 million 2013–2015 preliminary plan, and the funding and rate-recovery implications.
- Conditions and completion status for MISO integration and the proposed transmission spin-off/merger.
- Debt maturities, securitization-bond obligations, and cash-flow sustainability given the reported $64.4 million cash balance and nine-month dividend payments.