Entergy Texas, Inc. — Q1 2018 Form 10-Q Summary
Business context and reporting period
Entergy Texas is a regulated electric utility serving customers in Texas. This summary focuses on its standalone results for the three months ended March 31, 2018, compared with the same period in 2017, and its balance sheet at March 31, 2018, compared with December 31, 2017. Amounts below are in U.S. dollars; financial amounts are in millions unless otherwise noted.
Key financial metrics
| Metric | Q1 2018 | Q1 2017 or prior date | Change or context |
|---|---|---|---|
| Operating revenue | $348.9 | $363.9 | Down $15.0, or about 4% |
| Net revenue | $144.9 | $140.3 | Up $4.6; higher retail price and volume/weather were partly offset by lower net wholesale revenue |
| Operating income | $41.1 | $38.6 | Up $2.5 |
| Net income | $17.4 | $10.9 | Up $6.5; management attributed the increase to higher net revenue and a lower effective tax rate, partly offset by higher depreciation |
| Effective income tax rate | 22.2% | 43.2% | Lower rate materially supported earnings growth |
| Operating cash flow | $1.0 | $59.6 | Down $58.5, primarily reflecting timing of fuel and purchased-power cost recovery |
| Capital expenditures | $94.1 | $68.8 | Higher spending included the Lewis Creek Dam restoration project |
| Cash and cash equivalents | $39.0 | $115.5 at December 31, 2017 | Down $76.5 during the quarter |
| Long-term debt | $1,062.6 | $1,587.2 at December 31, 2017 | $500.0 was classified as currently maturing at March 31, 2018 |
| Debt to capital, excluding securitization bonds | 49.0% | 49.4% at December 31, 2017 | Net debt to net capital, excluding securitization bonds, was 48.2%, versus 46.9% |
Retail billed electric usage increased 10% to 4,459 GWh. Residential usage rose 22%, commercial 8%, and industrial 2%. The filing provides no separate profit-margin measure; calculated operating margin was approximately 11.8%, versus 10.6% in Q1 2017.
Material changes, outlook, risks, and unusual items
- Retail electric price added approximately $6 million to net revenue, mainly from previously approved increases in transmission and distribution cost recovery riders. Volume and weather added approximately $5 million. Lower net wholesale revenue, primarily from increased purchased-power capacity costs, reduced net revenue by approximately $6 million.
- Operating cash flow fell sharply year over year. The filing identifies timing of fuel and purchased-power cost recovery as the primary reason. Investing cash use was $52.1 million, while financing used $25.5 million; the cash decline also reflects these financing and investment flows.
- The $500 million current maturity is a near-term refinancing or repayment item for investors to monitor. Entergy Texas reported no cash borrowings under its $150 million credit facility; $24.4 million of letters of credit were outstanding under that facility, with a further $25.6 million letter of credit under its uncommitted MISO facility.
- In April 2018, the Fifth Circuit reversed a lower-court ruling and reinstated a PUCT decision concerning an additional $10.9 million refund of 2006 bandwidth remedy payments. Entergy Texas had already refunded the amount to customers in 2016, is considering its legal options, and has a separate state-court appeal pending.
- The PUCT approved a fuel refund of approximately $30.5 million for May through October 2017; customer refunds were generally reflected in bills from January through March 2018.
- Following the federal Tax Cuts and Jobs Act, $41.3 million of unprotected excess accumulated deferred income taxes was classified as a current liability at March 31, 2018. The filing describes ongoing regulatory responses to the tax law but does not provide a specific Texas customer-refund schedule in the supplied text.
- Management provided no specific Entergy Texas earnings or revenue guidance in the supplied filing text. Forward-looking results remain subject to regulatory decisions, fuel and purchased-power recovery, weather, operating costs, and broader utility and MISO risks.
Most important facts for investors to verify
- The maturity date, repayment plan, and available funding for the $500 million current debt maturity.
- The drivers and expected persistence of the lower operating cash flow, particularly fuel and purchased-power recovery timing.
- The outcome and potential customer or financial effects of the Fifth Circuit decision and remaining Texas court proceedings concerning the $10.9 million refund.
- The amount, timing, and regulatory treatment of customer benefits from excess deferred taxes in Texas.
- Whether higher retail usage, approved rider rates, and purchased-power costs continue to support net revenue and earnings.