Business context and reporting period
Entergy Texas, Inc. (ETI) is a regulated electric utility serving customers in Texas. This summary focuses on ETI’s results within Entergy’s combined Form 10-Q for the quarter and nine months ended September 30, 2013. Financial statements are unaudited; the filing notes that utility results are seasonal, with peak periods in the third quarter, and interim results should not be used alone to estimate full-year performance.
Financial performance and liquidity
| Metric | Third quarter 2013 | Third quarter 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Operating revenue | $527.0 million | $489.1 million | $1,288.3 million | $1,174.1 million |
| Net revenue | $180.8 million | $161.7 million | $445.9 million | $421.6 million |
| Operating income | $79.4 million | $61.2 million | $144.1 million | $135.3 million |
| Net income | $35.8 million | $19.2 million | $47.7 million | $37.2 million |
| Operating cash flow | Not presented by quarter | Not presented by quarter | $167.3 million | $172.0 million |
- Third-quarter net income increased $16.6 million year over year; nine-month net income increased $10.5 million. Higher net revenue drove the improvement, with higher operating and other costs partly offsetting it.
- Nine-month capital expenditures were $133.5 million, versus $128.2 million in 2012. Investing cash outflow was $130.0 million, compared with $65.5 million, primarily reflecting money-pool activity and higher transmission construction spending.
- Cash and cash equivalents were $21.7 million at September 30, 2013, down from $60.2 million at December 31, 2012. Financing cash outflow was $75.7 million, including $50.6 million of debt retirement and $25.0 million of common dividends.
- Long-term debt was $1.568 billion, including $639.8 million of securitization bonds. Debt-to-capital was 64.1%; excluding non-recourse securitization bonds, debt-to-capital was 51.4% and net debt-to-net capital was 50.8%.
- ETI had a $150 million credit facility with no borrowings outstanding and FERC authorization for up to $200 million of short-term borrowings. Nine-month income tax refunds under Entergy’s intercompany tax allocation agreement were $94.2 million.
Changes versus the prior comparable period
- Third-quarter net revenue rose $19.1 million, reflecting fuel recovery, the prior-year Hurricane Rita regulatory-asset adjustment, and higher usage. Billed electricity usage increased 4% in the quarter; nine-month usage increased 1%.
- Nine-month net revenue rose $24.3 million. A $14.5 million retail price increase, including the base-rate increase effective July 2012, and higher fuel recovery were partly offset by $10.0 million of additional purchased-power capacity costs.
- Nine-month operating cash flow declined $4.7 million. Fuel refunds were $86.1 million, compared with $67.2 million in 2012; the comparison also reflects $43 million of System Agreement remedy payments received in January 2012. These pressures were substantially offset by a $94.2 million income tax refund in 2013, versus $6.0 million of tax payments in 2012.
Outlook, regulatory matters, and risks
- Rates: In September 2013, ETI filed a PUCT rate case seeking a $38.6 million base-rate increase and a 10.4% return on common equity. The filing also seeks reconciliation of $0.9 billion of fuel and purchased-power costs and revenues, including approximately $22 million of capacity costs. Hearings were scheduled for January 2014; if approved, new rates could take effect as early as April 2014.
- System Agreement and MISO: On October 18, 2013, after the reporting date, ETI gave notice to terminate System Agreement participation after the proposed 60-month notice period, or another period approved by FERC. The filing describes ongoing regulatory and cost-allocation uncertainty associated with the proposed MISO transition.
- Transmission transaction: The proposed spin-off and merger of Entergy’s transmission business with ITC was not expected to close in 2013, and a 2014 closing date had not been settled. ETI’s Texas application was refiled after withdrawal of the earlier application; a PUCT decision was expected in January 2014. Retail approvals, conditions, and rate impacts remained uncertain.
- Capital plans: ETI anticipated $748 million of capital investment during 2014–2016, including transmission reliability, economic-development, and compliance spending.
- Other risks: Results remain exposed to fuel and purchased-power prices, weather and demand, regulatory recovery, System Agreement and MISO outcomes, environmental requirements, pension and benefit costs, and financing conditions. The filing reports no material changes to the risk factors in the 2012 Form 10-K.
Important facts for investors to verify
- Progress, requested relief, and final outcome of ETI’s $38.6 million PUCT rate case and fuel-cost reconciliation.
- FERC’s decision on the proposed System Agreement notice period and the timing, terms, and cost effects of ETI’s planned exit and MISO participation.
- Whether the ITC transmission transaction receives required approvals, and the resulting customer-rate and financing effects.
- ETI’s ability to maintain liquidity and fund its capital plan given lower cash balances, debt levels, and capital spending needs.
- Whether reported revenue and earnings growth is sustained after considering fuel-cost pass-throughs, purchased-power capacity costs, and regulatory adjustments.