Business context and reporting period
This is Entergy Texas, Inc. and subsidiaries’ portion of Entergy Corporation’s combined Form 10-K, covering the fiscal year ended December 31, 2013, with comparisons to 2012 and 2011. Entergy Texas is a regulated electric utility serving parts of eastern Texas; it reported approximately 422,000 electric customers at year-end. The filing also includes parent and affiliate information, which should not be confused with Entergy Texas stand-alone results.
Key financial metrics
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Operating revenue | $1.729 billion | $1.581 billion | +9.3% |
| Operating income | $174.1 million | $169.8 million | +2.5% |
| Net income | $57.9 million | $42.0 million | +37.9% |
| Operating margin (derived) | 10.1% | 10.7% | Down 0.6 percentage points |
| Net margin (derived) | 3.3% | 2.7% | Up 0.7 percentage points |
| Total assets | $3.922 billion | $4.026 billion | -2.6% |
Revenue and operating-income figures are from Entergy Texas’s statements; margins and percentage changes are derived. Revenue growth reflected higher fuel-cost recovery, favorable usage/weather, the prior-year base-rate increase, and other items. Fuel recovery is largely a pass-through and does not necessarily translate into higher earnings. Net income improved in part because the effective tax rate fell to 34.2% from 44.1%.
Year-end cash and cash equivalents were $46.5 million, compared with $60.2 million in 2012. Current assets were $486.5 million and current liabilities $330.2 million, for a derived current ratio of about 1.47. Long-term debt was $1.557 billion, including $629.3 million of securitization bonds described as non-recourse. The company reported debt-to-capital of 63.7%, or 51.1% excluding securitization bonds, and net debt-to-net capital of 49.8% excluding those bonds. The provided filing text does not give clear Entergy Texas stand-alone cash-flow totals for operating, investing, or financing activities.
Material changes versus the prior period
- Net income rose, but operating income grew more slowly than revenue and operating margin declined.
- Retail electric usage increased 2.8% (470 GWh) from 2012; more favorable weather and higher industrial usage contributed. The prior year had lower usage, including effects attributed to weather and industrial outages.
- Entergy Texas integrated into MISO on December 19, 2013. It gave notice to terminate participation in the System Agreement after the proposed 60-month notice period, or another period approved by FERC; the timing and terms remained subject to regulatory action.
- Cash declined year over year, while total assets and reported debt-to-capital also declined. Excluding securitization bonds, the reported debt-to-capital ratio improved from 52.1% to 51.1%.
Outlook, commentary, risks and unusual items
- Rates and fuel reconciliation: In September 2013, Entergy Texas requested a $38.6 million base-rate increase and a 10.4% return on equity. Its filing also sought reconciliation of approximately $0.9 billion in fuel and purchased-power costs and revenues for July 2011–March 2013, including about $22 million of purchased-power capacity costs. PUCT staff recommended a $0.3 million rate reduction and a 9.2% return on equity in January 2014. In February 2014, the procedural schedule was abated while settlement discussions continued. No final outcome is reported in the filing.
- Capital spending: Planned construction and capital investment was $210 million in 2014, $280 million in 2015, and $260 million in 2016, principally for generation, transmission, distribution, reliability, and compliance work. These are plans, not guarantees.
- Regulatory and market transition: MISO participation changes transmission planning, congestion management, and wholesale market operations. Entergy Texas’s future System Agreement exit and related power-purchase-agreement effects remain regulatory and market uncertainties.
- Litigation: A Texas power-price class action alleges customer overcharges and seeks damages. Plaintiffs’ experts estimated a range of $153 million to $972 million under different scenarios; defendants disputed the assumptions and calculations. Class certification was appealed, and district-court proceedings were stayed pending the appeal. The filing does not provide a clear estimate of Entergy Texas’s probable exposure.
- Other risks: The filing highlights rate recovery and regulatory lag, fuel and purchased-power costs, storm restoration, environmental compliance, interest rates, pension funding, and access to capital. Utility-wide forward-looking risks also include MISO transition and unresolved System Agreement proceedings.
Important facts for investors to verify
- Outcome and timing of the Entergy Texas base-rate case, fuel reconciliation, and any related customer refunds or recovery.
- Regulatory approval and effective date of Entergy Texas’s System Agreement termination notice, and the resulting costs, benefits, or contract changes under MISO.
- Latest status of the Texas power-price class-action appeal and any change in the estimated potential exposure.
- Progress against the 2014–2016 capital plan, liquidity and debt maturities, and the distinction between recourse debt and securitization bonds.
- Cash-flow statement details and any later developments: the provided text does not show clear stand-alone Entergy Texas cash-flow totals. Deloitte & Touche issued an unqualified opinion on the financial statements and internal control over financial reporting.