Entergy Texas, Inc. 10-Q Summary (Period Ended June 30, 2009)
Business Context and Reporting Period
This is a combined Quarterly Report on Form 10-Q for Entergy Corporation and its Registrant Subsidiaries, including Entergy Texas, Inc. The report covers the quarterly period ended June 30, 2009, and the six months ended June 30, 2009. Entergy operates primarily through two segments: Utility (electric and natural gas distribution in Arkansas, Louisiana, Mississippi, and Texas) and Non-Utility Nuclear (wholesale power generation). Entergy Texas operates as a vertically integrated utility in Texas following a jurisdictional separation from Entergy Gulf States, Inc.
Key Financial Metrics
Consolidated Entergy Corporation Results (Six Months Ended June 30, 2009):
- Net Income: $472.1 million (down from $589.7 million in 2008).
- Operating Revenues: $5.31 billion (down from $6.13 billion in 2008).
- Operating Cash Flow: $1.02 billion (up from $914 million in 2008).
- Capital Structure: Net debt to net capital ratio was 53.0% as of June 30, 2009 (down from 55.6% at year-end 2008).
- Liquidity: Cash and cash equivalents totaled $1.28 billion. Entergy Corporation has a $3.5 billion credit facility with $1.04 billion available.
Entergy Texas Specifics:
- Storm Cost Recovery: Entergy Texas filed for recovery of $577.5 million in Hurricane Ike and Gustav restoration costs. An unopposed settlement agreement submitted in August 2009 allows for the recovery of $566.4 million plus carrying costs via securitization, offset by $70 million in anticipated insurance proceeds.
- Debt Issuance: Issued $500 million of 7.125% Series Mortgage Bonds in January 2009 and $150 million of 7.875% Series Mortgage Bonds in May 2009.
- Regulatory Status: Texas legislation enacted in June 2009 requires Entergy Texas to cease activities related to its transition to competition. Entergy Texas withdrew its transition plan in June 2009.
Material Changes vs. Prior Period
- Revenue Decline: Consolidated net revenue decreased primarily due to lower volume in the Non-Utility Nuclear segment (due to refueling outages) and lower industrial electricity usage in the Utility segment (down 10% in Q2 2009) driven by the weak economy.
- Non-Utility Nuclear Performance: Net revenue for Non-Utility Nuclear decreased 11% in Q2 2009 due to lower volume from refueling outages and unplanned outages. However, the average realized price per MWh increased to $59.22 from $58.22.
- Storm Costs: Significant restoration spending related to Hurricanes Gustav and Ike and the January 2009 Arkansas ice storm impacted cash flows and capital expenditures. Entergy Arkansas incurred an estimated $120-$140 million in ice storm damages.
- Impairment Charges: Non-Utility Nuclear recorded $69 million in charges in Q2 2009 (and $85 million for the six months) related to other-than-temporary impairments of equity securities in decommissioning trust funds.
Guidance, Outlook, and Risks
- Non-Utility Nuclear Spin-off: Entergy is pursuing a tax-free spin-off of its Non-Utility Nuclear business. The company filed a motion with the New York Public Service Commission (NYPSC) in July 2009 to expedite the process, proposing enhancements to the financial strength of the new entity (Enexus), including a $1.0 billion reduction in long-term bonds and increased liquidity reserves.
- Storm Cost Recovery: Entergy Texas expects the Public Utility Commission of Texas (PUCT) to approve the securitization of storm costs in late August 2009. Entergy Gulf States Louisiana and Entergy Louisiana are pursuing recovery of storm costs in Louisiana, with hearings scheduled for March 2010.
- Capital Projects: The Little Gypsy repowering project in Louisiana was suspended for three years or more by the LPSC in May 2009 due to economic viability concerns and lower natural gas prices. Entergy Louisiana estimates total costs for the suspension at approximately $300 million.
- Risks: Key risks include the resolution of pending rate cases, the success of the Non-Utility Nuclear spin-off, volatility in energy commodity prices, and the ability to recover storm restoration costs. The company also faces potential increased capital expenditures due to new NRC security requirements and transmission reliability standards.
Key Facts for Investor Verification
- Storm Cost Recovery Approval: Verify the final approval of the $566.4 million securitization for Entergy Texas storm costs by the PUCT and the timing of the financing.
- Non-Utility Nuclear Spin-off Timeline: Monitor the NYPSC and FERC proceedings regarding the Enexus spin-off, specifically the approval of the amended petition and the final regulatory orders.
- Industrial Demand Trends: Assess the continued impact of the economic downturn on industrial electricity usage, which declined 10% in Q2 2009, and its effect on future revenue guidance.
- Little Gypsy Project Status: Track the filing by Entergy Louisiana regarding the recovery of the estimated $300 million in costs associated with the suspension of the Little Gypsy repowering project.
- Decommissioning Trust Fund Performance: Review the ongoing performance of decommissioning trust funds and the potential for further impairment charges given market volatility.