Entergy Texas, Inc. — Q2 2021 Form 10-Q Summary
Business context and period: Entergy Texas, Inc. (ETI) is a regulated electric utility serving customers in Texas. This summary covers the quarter and six months ended June 30, 2021; financial comparisons are with the corresponding 2020 periods. The filing was signed August 6, 2021.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Operating revenue | $430.4 million | $372.2 million | $910.7 million | $711.5 million |
| Operating income | $67.4 million | $56.4 million | $142.2 million | $92.5 million |
| Net income | $44.8 million | $46.9 million | $94.8 million | $79.6 million |
| Earnings applicable to common stock | $44.3 million | $46.4 million | $93.9 million | $78.6 million |
| Cash from operating activities | Not separately presented | Not separately presented | $119.5 million | $170.5 million |
- Revenue and earnings: Q2 revenue rose 16%, but net income declined about $2.1 million. For the first half, revenue rose about 28% and net income increased about $15.3 million. Revenue growth reflected rate recovery mechanisms and higher retail electric prices; first-half usage also increased.
- Cash flow and investment: First-half investing cash outflow was $350.3 million, versus $464.8 million in 2020, mainly reflecting lower generation and transmission construction spending, partly offset by distribution and storm-related spending. Financing used $17.8 million, compared with $323.6 million provided in the prior-year period.
- Liquidity: Cash and cash equivalents were $25,000 at June 30, compared with $248.6 million at year-end 2020. ETI had a $150 million revolving credit facility, with no cash borrowings and $1.3 million of letters of credit outstanding under that facility. It also had $18.2 million of letters of credit outstanding under a separate uncommitted MISO facility.
- Debt and capital: Long-term debt was $2.249 billion, with $75 million of current maturities. Debt to capital was 49.9% (53.7% at December 31, 2020); net debt to net capital, excluding non-recourse securitization bonds, was 49.1% (49.7% at year-end).
Material changes and developments
- ETI’s Q2 retail electric price increased, primarily due to the generation cost recovery rider for the Montgomery County Power Station and increases in transmission and distribution recovery riders. In the first half, total retail billed usage increased 5% to 9,207 GWh.
- Q2 net income fell despite higher revenue, primarily because of higher operating and depreciation costs, lower other income, and lower volume/weather effects. First-half earnings improved mainly on higher retail electric prices and usage.
- Fuel and purchased power costs associated with Winter Storm Uri were approximately $185 million for February 2021, compared with approximately $50 million in February 2020. Management cited these costs and increased storm spending as factors reducing first-half operating cash flow.
- In June, ETI acquired the 147 MW Hardin County Peaking Facility for approximately $36.7 million and sold a 7.56% interest in the Montgomery County Power Station for approximately $67.9 million. ETI also received an $85 million parent capital contribution.
Outlook, regulation, and risks
- ETI sought regulatory recovery for approximately $250 million of restoration costs from Hurricane Laura, Hurricane Delta, and Winter Storm Uri, including about $200 million of capital costs. The filing covered only part of Uri-related costs. ETI subsequently sought approval to securitize eligible restoration costs; recovery and financing remained subject to PUCT review.
- ETI withdrew its application for a planned refund of approximately $75 million of fuel over-recoveries after Uri changed its fuel position. It said it would continue evaluating the balance and file a later refund or surcharge application as appropriate.
- The PUCT approved ETI’s distribution and transmission cost recovery settlements. A proceeding to update the Montgomery County generation cost recovery rider was ongoing, with the parties reporting an agreement in principle in July 2021. The PUCT also approved an application related to the Hardin facility, with ETI later filing to recover its actual investment.
- For the proposed 100 MW Liberty County Solar Facility, administrative law judges recommended denial in July 2021; the PUCT had not issued its final decision. The filing expected a decision in September 2021.
- Risks include regulatory approval and timing of storm and fuel cost recovery, customer arrearages and bad debt, severe weather, and the economic and operating effects of COVID-19. ETI reported a $14.2 million regulatory asset for COVID-19-related costs, subject to future regulatory review and recovery.
- No specific earnings guidance for ETI is provided in the supplied filing text. Management notes that interim results are seasonal and should not be used alone to estimate full-year results.
Important facts for investors to verify
- PUCT decisions on storm restoration cost recovery and securitization, including the amount of Uri costs ultimately eligible for recovery.
- ETI’s updated fuel balance and whether it files a customer refund or surcharge after the Uri-related reassessment.
- Final terms and rate effects of the Montgomery County generation rider proceeding and actual recovery for the Hardin County facility.
- The final PUCT outcome for Liberty County Solar and whether the project proceeds.
- How ETI’s very low reported cash balance, operating cash flow, planned capital spending, and reliance on credit and intercompany funding evolve.