Business context and reporting period
Entergy Texas, Inc. is a regulated electric utility serving customers in Texas. This summary covers the unaudited quarter and nine months ended September 30, 2021, compared with the same periods in 2020. The filing is part of Entergy’s combined 10-Q, but the figures below are specific to Entergy Texas unless noted otherwise.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Operating revenue | $541.6 million | $494.9 million | $1,452.3 million | $1,206.5 million |
| Operating income | $128.9 million | $108.3 million | $271.1 million | $200.8 million |
| Net income | $94.8 million | $92.2 million | $189.7 million | $171.7 million |
| Earnings applicable to common stock | $94.4 million | $91.7 million | $188.3 million | $170.3 million |
| Operating cash flow | Not presented as a quarter-only figure | $255.0 million | $294.3 million |
- Nine-month operating margin was approximately 18.7%, up from 16.7% in 2020, calculated as operating income divided by revenue. Q3 margin was approximately 23.8%, versus 21.9%.
- Nine-month cash used in investing was $479.2 million, compared with $657.4 million in 2020; construction expenditures were $541.2 million versus $703.7 million.
- Financing used $24.4 million of cash in the first nine months, compared with providing $350.3 million in 2020. Cash and cash equivalents fell from $248.6 million at year-end 2020 to $25,000 at September 30, 2021.
- At September 30, current assets were $399.9 million and current liabilities were $395.7 million. Long-term debt was $2.354 billion, with no current portion reported. Debt to capital was 49.3%; excluding securitization bonds, debt to capital was 48.7% and net debt to net capital was 48.7%.
- Entergy Texas had a $150 million credit facility, with no cash borrowings and $1.3 million of letters of credit outstanding. It also had $12 million of letters of credit under an uncommitted facility for MISO obligations, and a $20.1 million payable to the Entergy System money pool.
Material changes versus the prior comparable periods
- Nine-month revenue grew about 20% and net income about 10%. Management attributed the earnings increase primarily to higher retail electric prices and usage; rider and fuel-related revenue recoveries also increased revenue but generally have offsetting expenses.
- Q3 revenue increased about 9% and net income about 3%. The retail price increase reflected the Montgomery County Power Station generation-cost recovery rider and transmission and distribution recovery riders. Q3 billed retail sales rose 5%; industrial sales increased 16%.
- Nine-month fuel expense increased to $269.3 million from $186.0 million, while purchased power rose to $425.8 million from $383.3 million. The company reported approximately $185 million of fuel and purchased-power costs in February 2021 during Winter Storm Uri, versus $50 million in February 2020.
- Nine-month depreciation and amortization increased to $159.2 million from $131.6 million, partly reflecting the Montgomery County Power Station entering service in January 2021. Other income declined materially, including lower allowance for equity funds used during construction.
- Other taxes increased to $73.0 million from $55.4 million over nine months, including a Q3 sales-tax audit assessment and higher ad valorem and local franchise taxes. The nine-month effective income tax rate was 11.3%, compared with 5.3% in 2020; Q3 rates were 13.7% and 10.9%, respectively.
Outlook, risks, contingencies and unusual items
- Storm restoration and recovery: Entergy Texas estimated approximately $250 million of restoration costs for Hurricanes Laura and Delta and Winter Storm Uri, including about $200 million in capital costs. The company sought regulatory approval and securitization financing; recovery and the amount and timing remain subject to PUCT review. Storm spending also affected cash flows.
- Capital plans: Entergy Texas anticipated approximately $2.5 billion of capital investments for 2022–2024, excluding Hurricane Ida spending. These estimates may change with regulatory decisions, project costs, market conditions, and access to capital.
- Generation projects: In September 2021, Entergy Texas sought approval for the proposed 1,215 MW Orange County Advanced Power Station, estimated to cost $1.19 billion and expected to enter service by May 2026, subject to approvals. The PUCT denied the Liberty County Solar Facility application in October 2021; the company was evaluating its options.
- Asset transactions: Entergy Texas purchased the 147 MW Hardin County Peaking Facility for approximately $36.7 million in June 2021 and sold a 7.56% interest in the Montgomery County Power Station for approximately $67.9 million.
- Fuel-cost recovery: The company withdrew its proposed approximately $75 million fuel refund application after Winter Storm Uri changed its over-recovery position. It continued evaluating the fuel balance and said it would file a refund or surcharge application consistent with PUCT rules.
- Other risks: Management identified regulatory recovery, severe weather, fuel and purchased-power costs, COVID-19-related collection and operating effects, and capital-market access as risks. A $12.8 million COVID-19 regulatory asset remained subject to future regulatory review.
Most important facts for investors to verify
- Whether and when the PUCT approves recovery or securitization of the approximately $250 million of storm restoration costs.
- How Entergy Texas funds its capital program given cash of only $25,000 at quarter-end, including reliance on parent contributions, money-pool borrowing, and credit facilities.
- Whether higher rider revenues and industrial usage persist, and how fuel and purchased-power costs affect cash flow and customer rates.
- Final regulatory outcomes for the Orange County station, Montgomery County cost recovery, Hardin County recovery, and the denied Liberty County solar proposal.
- Whether the reported tax-rate benefit and earnings growth are sustainable; nine-month tax rates were affected by tax and utility-plant accounting differences.