Entergy Texas, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. This summary focuses on Entergy Texas, Inc. and its subsidiaries; the filing is a combined report that also contains results for other Entergy registrants. Entergy Texas operates a regulated electric utility in Texas.
Financial performance
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Operating revenue | $339.3 million | $340.5 million | Down $1.1 million |
| Operating income | $36.1 million | $16.7 million | Up $19.3 million |
| Income before income taxes | $28.5 million | $3.3 million | Up $25.2 million |
| Net income | $32.7 million | $21.3 million | Up $11.4 million |
| Earnings applicable to common stock | $32.2 million | $21.3 million | Up $10.9 million |
| Operating margin (operating income/revenue) | 10.6% | 4.9% | Improved |
| Cash from operating activities | $37.1 million | $42.7 million | Down $5.5 million |
Higher operating income primarily reflected lower fuel and purchased-power expenses, increased allowance for equity funds used during construction, and other operating factors. Depreciation and amortization rose to $42.6 million from $37.0 million. Income taxes were a benefit of $4.2 million, compared with a benefit of $18.1 million a year earlier; the reported effective tax rate was negative 14.8%.
Retail revenue was approximately flat. Retail electric sales volume was 4,287 GWh, versus 4,299 GWh. Residential and commercial usage declined, while industrial usage increased; overall revenue benefited from rate and volume/weather effects. Total electric sales, including resale, were 4,616 GWh, down 4%.
Cash flow, liquidity and debt
- Cash from investing activities was a use of $232.7 million, mainly reflecting $237.0 million in construction expenditures. Cash from financing activities was $342.3 million; cash and cash equivalents ended the quarter at $159.7 million, versus $12.9 million at year-end 2019.
- Financing included a $175 million parent capital contribution and issuance of $175 million of 3.55% mortgage bonds due 2049. The contribution helped fund planned expenditures, including the Montgomery County Power Station.
- At March 31, total assets were $5.38 billion, long-term debt was $2.09 billion, and equity was $2.01 billion, including $35 million of preferred stock. No borrowings were outstanding under the $150 million credit facility; $1.3 million of letters of credit was outstanding under that facility.
- Debt to capital was 50.7%; excluding non-recourse securitization bonds, it was 48.4%. Net debt to net capital, excluding those bonds, was 46.3%, down from 48.7% at December 31, 2019.
- Current assets were $462.4 million and current liabilities were $340.4 million. The filing reports no separate current-ratio measure.
Material changes, outlook and risks
- Management attributed the $11.4 million increase in net income mainly to higher retail electric price, higher volume/weather, higher other income and a lower effective tax rate, partly offset by higher depreciation.
- Management said COVID-19 had minimal effect on first-quarter results but expected lower 2020 sales, particularly from commercial and industrial customers, and possible deterioration in customer payment patterns, operating cash flow and uncollectible accounts. The full duration and financial impact were uncertain. Service disconnections were suspended, and regulators authorized deferral of certain COVID-related costs, subject to later review and approval of recovery.
- The PUCT approved an amended transmission cost recovery rider, implemented January 23, 2020, designed to collect about $19.4 million annually. Entergy Texas also requested a distribution cost recovery rider designed to collect about $23.6 million annually, including $20.4 million of incremental annual revenue; the filing does not report a final decision on that request.
- In a fuel-cost reconciliation covering April 2016 through March 2019, Entergy Texas reported an estimated $25.8 million under-recovery. An intervenor proposed disallowing $2 million of replacement-power costs and $24.4 million related to the Spindletop gas-storage facility; Entergy Texas disputed the proposals. A hearing was scheduled for May 2020.
- Construction spending increased, including investment in distribution infrastructure and the Port Arthur and Montgomery County Power Station projects. Delays, cost recovery and project execution remain relevant risks.
- The filing provides no specific full-year earnings guidance for Entergy Texas. Its forward-looking statements identify regulatory outcomes, customer demand and collections, capital-market access, weather, project execution and COVID-19 effects as risks.
Most important facts for investors to verify
- Whether COVID-19-related sales declines, delayed customer payments or bad debt materially affect subsequent-quarter revenue and operating cash flow.
- The PUCT’s decision and ultimate revenue recovery for the requested distribution cost recovery rider.
- The outcome of the fuel-cost reconciliation, including any disallowance of the disputed $26.4 million of costs.
- Capital spending, financing needs and progress on the Montgomery County Power Station and other projects.
- Whether the first-quarter earnings improvement and lower net-debt ratio persist after accounting for the $175 million parent contribution and unusual tax effects.