Entergy Texas, Inc. — Form 10-Q Summary
Scope and period: This is a combined Entergy filing, but the figures below are for Entergy Texas, Inc. and subsidiaries unless noted otherwise. The report covers the quarter and nine months ended September 30, 2011; financial statements are unaudited. Management notes that utility results are seasonal, with peak periods in the third quarter.
Financial performance
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Electric operating revenue | $557.0 million | $514.8 million | $1,350.3 million | $1,322.1 million |
| Net revenue | $181.8 million | $162.9 million | $451.1 million | $423.7 million |
| Operating income | $86.8 million | $72.5 million | $190.1 million | $168.2 million |
| Net income | $40.9 million | $31.1 million | $79.7 million | $65.9 million |
| Operating cash flow | Not separately presented | Not separately presented | $106.0 million | $(0.3) million |
Q3 revenue rose about 8%, while net income increased $9.7 million. For the nine-month period, revenue increased about 2% and net income rose $13.8 million. Operating margin was approximately 15.6% in Q3 and 14.1% for the nine months, compared with 14.1% and 12.7%, respectively, in 2010.
Cash flow and liquidity: Nine-month investing cash use was $120.7 million, versus $76.8 million in 2010; financing provided $20.6 million, compared with $77.9 million used in 2010. Cash and cash equivalents were $41.2 million at September 30, 2011, versus $35.3 million at year-end 2010. Current assets were $500.4 million and current liabilities $334.8 million at quarter-end. The company had a $100 million credit facility, unused at September 30 and scheduled to expire in August 2012.
Debt and capital: Long-term debt was $1.687 billion, including $759.2 million of securitization bonds. The reported debt-to-capital ratio was 65.3%; excluding securitization bonds, it was 50.8%, and net debt to net capital excluding those bonds was 49.7%. Entergy Texas issued $75 million of 4.10% first mortgage bonds due 2021 in September 2011.
Material changes and drivers
- Net revenue increased $18.9 million in Q3 and $27.4 million for the nine months. Drivers included rate increases, higher usage, and favorable weather in Q3; nine-month billed electricity usage increased 680 GWh, or 5%.
- Rate actions included an annual base-rate increase of approximately $59 million effective August 2010 and an additional increase of approximately $9 million beginning May 2011, following the prior rate-case settlement.
- Management attributed higher taxes other than income taxes partly to a provision for sales and use taxes. Lower operating and maintenance expense partly offset this increase.
- Operating cash flow improved sharply year over year, primarily because fuel-cost refunds were lower: $73.4 million in the first nine months of 2011 versus $145.8 million in the comparable 2010 period.
Outlook, risks, and contingencies
- Entergy Texas anticipated $664 million of capital investment during 2012–2014, including approximately $388 million for maintenance; the remainder was for items including environmental compliance, plant and transmission upgrades, and system improvements. This is a preliminary plan, not earnings guidance.
- In March 2011, the PUCT approved a fuel-cost over-collection refund of approximately $73 million, including interest, covering collections through November 2010; most refunds were made over three billing cycles beginning in February 2011.
- Entergy’s utility companies proposed joining MISO, targeting implementation in December 2013. Entergy estimated transition and implementation costs of up to $105 million across the participating utility companies, with additional costs possible if litigation continues; Entergy Texas’s individual share is not specified here.
- Key disclosed uncertainties include regulatory approval and recovery of costs, fuel and purchased-power costs, weather and storms, environmental compliance, and the outcome of proceedings affecting the System Agreement and transmission arrangements. The filing reports no material change to the risk factors in the 2010 Form 10-K.
- A Texas power-price lawsuit involving historic customer bills remained pending; a class-certification decision had not been issued. The filing does not provide a clear estimate of any potential financial exposure.
Important facts for investors to verify
- Whether the reported earnings improvement persists after considering rate-case effects, weather, usage growth, and fuel-cost refunds.
- The timing and outcome of regulatory proceedings, including fuel-cost recovery, MISO participation, and Entergy Texas’s share of any transition costs.
- Execution and funding of the $664 million 2012–2014 investment plan, and the effect of capital spending on debt and liquidity.
- Any material developments in the Texas power-price lawsuit and environmental compliance requirements.
- The credit facility’s renewal before its August 2012 expiration and compliance with applicable debt covenants.