Entergy Texas, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2023; filed November 2, 2023. The filing is a combined report, but the figures below are for Entergy Texas and its subsidiaries, not Entergy Corporation on a consolidated basis.
Business context and financial performance
Entergy Texas is a regulated electric utility serving customers in Texas. Revenues and expenses for fuel and purchased power are substantially subject to cost-recovery mechanisms, so changes in those pass-through amounts generally do not affect net income.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Operating revenue | $616.6 million | $659.6 million | $1,588.5 million | $1,696.6 million |
| Operating income | $205.3 million | $158.3 million | $403.5 million | $363.8 million |
| Net income | $150.1 million | $118.0 million | $280.2 million | $265.9 million |
| Earnings applicable to common stock | $149.6 million | $117.5 million | $278.7 million | $264.3 million |
| Operating margin | 33.3% | 24.0% | 25.4% | 21.5% |
Operating margins are calculated as operating income divided by operating revenue. Revenue fell year over year, primarily because of lower fuel, rider, and other pass-through revenues. Higher retail electric prices and favorable weather partly offset that decline. Q3 retail electricity sales increased 5%; nine-month retail sales decreased 1%.
Cash flow, debt, and liquidity
- Nine-month cash flow: Operating cash flow was $498.5 million, compared with $224.7 million in 2022. Investing cash outflow was $608.9 million, versus $487.7 million; financing cash inflow was $357.8 million, versus $477.1 million. Cash increased $247.3 million to $250.8 million.
- Capital investment: Construction expenditures were $711.4 million for the nine months. Higher spending included the Orange County Advanced Power Station and transmission reliability projects.
- Balance sheet at September 30: Total assets were $7.82 billion; cash and cash equivalents were $250.8 million; current assets were $897.1 million and current liabilities $422.6 million.
- Debt and capitalization: Long-term debt was $3.23 billion, including $266.5 million of securitization bonds. Debt to capital was 52.3%; excluding non-recourse securitization bonds it was 50.1%. Net debt to net capital, excluding those bonds, was 47.9%.
Material changes, outlook, and risks
- Net income rose 27% in Q3 and 5% for the first nine months. Higher retail rates and sales supported results; lower pass-through revenue did not have a comparable net-income effect. Higher depreciation and interest expense partly offset operating improvement.
- The PUCT approved the settlement of Entergy Texas’s 2022 base-rate case in August. It provides a net annual base-rate increase of $54 million, in addition to costs realigned from riders; interim rates began in June 2023. A separate proceeding addresses electric-vehicle charging infrastructure.
- In October 2023, Entergy Texas requested a surcharge of approximately $24.6 million, including carrying costs, to recover the relate-back revenue requirement over six months beginning January 2024. A final PUCT decision was expected in the first quarter of 2024.
- The PUCT approved the fuel-cost reconciliation settlement in September 2023. It allows no fuel-cost disallowance and permits Entergy Texas to retain $9.3 million in off-system sales margins; the resulting under-recovery balance was approximately $99.7 million, including interest.
- Management’s preliminary 2024–2026 capital investment plan for Entergy Texas is approximately $4.7 billion, including the Orange County Advanced Power Station and grid reliability, resilience, and growth investments. Estimates may change with regulatory outcomes, project plans, market conditions, and access to capital. This is a capital plan, not earnings guidance.
- Other notable items included a $21.9 million reversal of regulatory liabilities after certain affiliated-PPA receipts were resolved, and a $6.9 million gain on a partial service-center sale. The August 2023 issuance of $350 million of 5.80% mortgage bonds helped fund Orange County project construction and general corporate purposes.
- Key risks include regulatory recovery and rate-case outcomes, execution and financing of substantial capital projects, higher borrowing costs, severe weather and storm restoration, and evolving environmental requirements. The combined filing reports no material changes to the risk factors previously disclosed in the 2022 Form 10-K.
Important facts for investors to verify
- Progress and final PUCT decisions on the base-rate relate-back surcharge and the separate electric-vehicle charging proceeding.
- Recovery timing and carrying costs for the approximately $99.7 million fuel under-recovery balance.
- Whether the $4.7 billion preliminary capital plan, especially Orange County, remains on schedule and within budget, and how it will be funded.
- Debt maturities, interest costs, and the effect of future borrowing on leverage and earnings.
- Whether rate recovery and reliability investments adequately address storm, environmental, and customer-affordability risks.