Business context and reporting period
Entergy Texas, Inc. and Subsidiaries reported unaudited results for the three months ended March 31, 2023, compared with the same period in 2022. The company is an electric utility operating in Texas; its results are subject to regulation and fuel and purchased-power costs are generally recovered through regulatory mechanisms.
Key financial metrics
Amounts are in U.S. dollars; financial statement figures below are rounded to millions unless noted.
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Operating revenue | $507.5 million | $472.5 million |
| Operating income | $69.5 million | $72.5 million |
| Operating margin | 13.7% | 15.4% |
| Net income | $41.7 million | $50.4 million |
| Earnings applicable to common stock | $41.2 million | $49.9 million |
| Net margin | 8.2% | 10.7% |
| Cash flow from operations | $198.1 million | $82.3 million |
| Capital expenditures | $205.2 million | $155.9 million |
| Cash and cash equivalents, March 31 | $92.2 million | $26 thousand |
At March 31, 2023, total assets were $7.03 billion, long-term debt was $2.90 billion (including $275.2 million of securitization bonds), and equity was $2.72 billion. The reported debt-to-capital ratio was 51.6%; excluding non-recourse securitization bonds, it was 49.1%, and net debt to net capital on that basis was 48.3%. Current assets of $557.0 million exceeded current liabilities of $400.8 million; the approximate current ratio was 1.39. The filing reports no current-maturities-of-long-term-debt line for Entergy Texas.
Material changes versus the prior comparable period
- Revenue increased $35.0 million, while net income declined $8.7 million. Retail electric prices rose, but total electricity sales fell 10%; retail sales fell 6%, including a 15% decline in residential sales. Management attributed the volume effect primarily to less favorable weather.
- Fuel and fuel-related expenses rose $93.6 million to $167.5 million; purchased-power expense fell $53.3 million to $107.8 million. These cost movements are generally subject to recovery through regulatory mechanisms.
- Operating income fell $3.1 million. Higher taxes other than income taxes, depreciation and interest expense more than offset revenue growth and lower operation and maintenance expense.
- Operating cash flow increased $115.8 million, primarily due to the timing of fuel-cost recovery and higher customer collections. Investing cash use decreased to $108.0 million despite higher construction expenditures, supported by money-pool activity.
Outlook, regulatory matters and risks
- Fuel-cost reconciliation: Entergy Texas sought approval to carry forward an approximately $103.1 million cumulative under-recovery from April 2019 through March 2022. Municipal intervenors proposed a $5.2 million disallowance related to Winter Storm Uri fuel purchases; PUCT staff proposed no disallowance. A hearing was scheduled for May 2023, with a PUCT decision expected in September 2023.
- Hardin County Peaking Facility: The PUCT approved in April 2023 an approximately $5.7 million relate-back rider for revenue requirement and carrying costs for the period before the updated generation cost recovery rider took effect.
- COVID-19 regulatory asset: The balance was $10.4 million at March 31, 2023. Recovery remains subject to regulatory review; Entergy Texas requested recovery over three years beginning December 2022.
- Capital investment: Construction expenditures were $205.2 million in the quarter, including higher spending on the Orange County Advanced Power Station and transmission work. The filing refers to the 2022 Form 10-K for multi-year capital plans and does not provide a clear updated Entergy Texas capital-spending forecast here.
- Financing and liquidity: Entergy Texas had no cash borrowings under its $150 million credit facility, which expires in June 2027, and had $1.1 million of letters of credit under it. It also had $8.8 million of letters of credit outstanding under an uncommitted facility for MISO obligations. The company cited its August 2022 $325 million, 5.00% mortgage-bond issuance and April 2022 issuance of $290.85 million of system restoration bonds as contributing to higher interest expense.
- The filing identifies regulatory cost recovery, weather and storms, fuel and power prices, capital-project execution, financing costs, and environmental and regulatory changes among relevant risks. It states there were no material changes to risk factors from the 2022 Form 10-K. No specific Entergy Texas earnings guidance is provided.
Important facts for investors to verify
- Outcome of the PUCT fuel-cost reconciliation, including whether any Winter Storm Uri costs are disallowed and how the under-recovery is ultimately recovered.
- Whether higher fuel, purchased-power, tax, depreciation, and interest costs continue to pressure margins despite regulatory recovery mechanisms.
- Actual sales and weather trends, particularly residential usage, and the timing and adequacy of customer collections.
- Capital spending, project timing and costs, and the company’s ability to fund investment while maintaining liquidity and debt metrics.
- Terms, customer-charge recovery, and non-recourse status of securitization bonds, and the effect of outstanding debt and preferred dividends on cash available to common shareholders.