Business context and reporting period
Entergy Texas, Inc. is a regulated electric utility serving customers in Texas. This summary covers the unaudited quarter and nine months ended September 30, 2022, compared with the same 2021 periods. The filing is a combined Entergy report; figures below are for Entergy Texas unless otherwise stated.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Operating revenue | $659.6 million | $541.6 million | $1,696.6 million | $1,452.3 million |
| Operating income | $158.3 million | $128.9 million | $363.8 million | $271.1 million |
| Operating margin | 24.0% | 23.8% | 21.5% | 18.7% |
| Net income | $118.0 million | $94.8 million | $265.9 million | $189.7 million |
| Earnings applicable to common stock | $117.5 million | $94.4 million | $264.3 million | $188.3 million |
| Operating cash flow | Not separately stated for quarter | Not separately stated for quarter | $224.7 million | $255.0 million |
| Construction expenditures | Not separately stated for quarter | Not separately stated for quarter | $469.6 million | $541.2 million |
At September 30, cash and cash equivalents were $214.1 million, versus $28 thousand at December 31, 2021. Long-term debt was $2.908 billion, including $287.2 million of securitization bonds; total assets were $7.098 billion and equity was $2.748 billion. Debt to capital was 51.5%, or 48.9% excluding non-recourse securitization bonds; net debt to net capital excluding those bonds was 46.8%. The $150 million revolving credit facility had no cash borrowings and $1.1 million of letters of credit outstanding.
Material changes versus the prior comparable period
- Revenue rose 21.8% in Q3 and 16.8% for the nine-month period. Management attributed the increase primarily to higher electricity usage and retail prices, plus fuel and rider revenues that generally have offsetting expenses and do not significantly affect net income.
- Retail electric sales increased 7% in Q3 and 10% year to date; total electric sales were flat in Q3 and up 3% year to date. Usage growth reflected weather, customer growth, industrial demand and comparison with 2021 pandemic-related impacts.
- Net income increased 24.4% in Q3 and 40.2% year to date. Year-to-date earnings benefited from higher usage and rates and $21.7 million of system-restoration carrying-cost revenue recognized with the April securitization.
- Operating cash flow declined $30.2 million year to date, primarily because of the timing of fuel and purchased-power cost recovery. Construction spending was lower than in 2021, which included more storm restoration work and construction of Montgomery County Power Station.
- Fuel and purchased-power expenses together were $678.0 million for nine months, compared with $695.1 million in 2021; however, deferred fuel costs on the balance sheet increased to $321.9 million from $48.3 million at year-end.
Outlook, commentary, risks and unusual items
- Rates and fuel recovery: Entergy Texas filed a base-rate case seeking a net annual increase of approximately $131.4 million. PUCT staff later recommended a $50.7 million reduction to the requested cost of service; a hearing was scheduled for December 2022, with a decision expected in Q2 2023 if no settlement is reached. The utility also obtained interim approval for a fuel surcharge tied to approximately $51.7 million of prior under-recovered costs. Its fuel reconciliation filing reported an approximately $103.1 million cumulative under-recovery through March 2022; a PUCT decision was expected in September 2023.
- Storm securitization: In April 2022, a consolidated subsidiary issued $290.85 million of senior secured restoration bonds for storm costs. Customer charges are intended to service the bonds and may continue for up to 15 years. The bonds are non-recourse to Entergy Texas, apart from its obligation to remit collections.
- Capital plan: Entergy Texas preliminarily anticipates $3.4 billion of capital investment in 2023–2025, including generation, transmission and distribution projects. Estimates may change with regulatory requirements, project costs, market conditions and access to capital.
- Orange County Advanced Power Station: The proposed 1,215 MW project’s initial estimate was $1.2 billion; an updated fixed-price option was approximately $1.55 billion. An administrative-law-judge proposal recommended approval with a $1.37 billion rate-recovery cap and other conditions. PUCT approval, permitting and final cost recovery remained uncertain; service was targeted by the end of 2026.
- Execution and cost risks: Management cited supply-chain disruption and possible increased tariffs on imported solar panels. The filing also identifies risks from project delays and overruns, regulatory decisions and cost recovery, fuel prices, storms, inflation and financing conditions.
- Unusual item: The $21.7 million system-restoration carrying-cost revenue was recorded in connection with securitization. Fuel and rider revenue increases largely pass through to expenses and should not be interpreted as equivalent earnings growth.
Important facts for investors to verify
- Track the PUCT’s final decisions on the $131.4 million base-rate request, the staff’s proposed reduction and the fuel reconciliation balance.
- Confirm the amount and timing of recovery of deferred fuel costs and the resulting customer-bill impact.
- Check final approval, cost cap, permits, financing and schedule for the Orange County station, particularly against the updated $1.55 billion pricing option.
- Monitor whether capital spending, storm restoration costs and fuel-cost timing affect operating cash flow and liquidity; nine-month construction expenditures exceeded operating cash flow.
- Review debt maturities and financing needs alongside the planned $3.4 billion 2023–2025 investment program.