Entergy Texas, Inc. — Q1 2013 Form 10-Q
Business context and reporting period
Entergy Texas is a regulated electric utility serving customers in Texas. This summary covers the unaudited three months ended March 31, 2013, compared with the same period in 2012. The filing is a combined report for Entergy and its subsidiaries; figures below are for Entergy Texas unless identified otherwise. Management cautions that results are seasonal and interim results should not be used to estimate full-year performance.
Financial results and liquidity
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Operating revenue | $306.2 million | $326.9 million |
| Net revenue | $120.8 million | $117.4 million |
| Operating income | $26.3 million | $25.1 million |
| Net income | $0.9 million | $1.7 million |
| Cash from operating activities | $(25.1) million | $79.0 million |
| Cash and cash equivalents at quarter-end | $0.1 million | $99.6 million |
- Operating margin was approximately 8.6%, versus 7.7% in Q1 2012; net margin was approximately 0.3%, versus 0.5%.
- Investing cash outflow was $13.1 million, including $43.4 million of construction expenditures. Financing cash outflow was $21.9 million, largely reflecting debt retirement.
- At March 31, 2013, total assets were $3.88 billion, long-term debt was $1.60 billion (including $668.4 million of securitization bonds), and common equity was $855.1 million. Debt to capital was 65.1%, or 52.0% excluding non-recourse securitization bonds; net debt to net capital excluding those bonds was also 52.0%.
- Entergy Texas had a $150 million credit facility, scheduled to expire in March 2018, with no borrowings outstanding. The company also participates in Entergy’s intercompany money pool.
Material changes versus the prior period
- Revenue declined 6.3%, but net revenue increased about 2.9% to $120.8 million. The revenue decline primarily reflected $58.7 million less fuel-cost recovery revenue due to lower fuel rates; these revenues generally track recoverable costs.
- Retail electric revenue fell 21%, while retail billed usage rose 3% to 3,731 GWh. The company attributed net revenue growth in part to a $28 million annual base-rate increase effective July 2012 and lower reserve-equalization expense.
- Net income fell about 47%, despite higher operating income. Higher depreciation and amortization and a higher effective tax rate were principal offsets to improved net revenue. The reported effective tax rate was 76.4% in Q1 2013 versus 53.3% in Q1 2012.
- Operating cash flow swung from $79.0 million provided to $25.1 million used. The company cited $86.1 million of fuel-cost refunds in Q1 2013 versus $35.8 million in Q1 2012, along with the absence of a $43 million System Agreement remedy payment received in January 2012. Quarter-end cash consequently declined to $0.1 million.
Outlook, risks, contingencies, and unusual items
- Rates and cost recovery: A PUCT order produced a $28 million annual base-rate increase effective July 2012. Entergy Texas sought special recovery of capacity costs under two power purchase agreements; PUCT staff and intervenors moved to dismiss the request, and the matter remained pending. The PUCT was considering a purchased-capacity rider, with a final decision then expected by the end of May 2013; if adopted, Entergy Texas could use the rider or pursue a base-rate proceeding.
- MISO and System Agreement: Entergy’s proposal for utility-company integration into MISO and potential changes to System Agreement participation remained subject to regulatory review. Entergy proposed pursuing a filing to address Entergy Texas’s termination notice and sought efforts toward an earlier exit; outcomes and timing were uncertain.
- Cash-flow and operating sensitivity: Fuel-refund timing, purchased-power and natural-gas prices, weather, customer demand, and regulatory cost recovery can affect reported results and cash flows. Retail usage growth did not translate into higher reported retail revenue this quarter.
- System-wide event: A March 31 lifting-apparatus collapse at Arkansas Nuclear One caused a fatality, injuries, plant damage, and replacement-power costs. The incident involved another Entergy subsidiary, not Entergy Texas; the filing did not establish a direct Entergy Texas loss.
- Management reported no material change in the risk factors described in Entergy’s 2012 Form 10-K. The filing provides no specific Entergy Texas full-year earnings guidance.
Key facts for investors to verify
- Whether the PUCT adopted the capacity-cost recovery rider and how Entergy Texas ultimately recovers the costs of its power purchase agreements.
- Progress, timing, and financial effects of Entergy Texas’s proposed MISO integration and potential System Agreement exit.
- Whether low quarter-end cash is temporary and how fuel refunds, money-pool balances, and operating cash flows develop in subsequent quarters.
- Whether the $28 million annual base-rate increase and other regulatory recoveries support earnings after depreciation, interest, and taxes.
- Changes in debt, securitization obligations, and access to the $150 million credit facility; the filing reports debt-to-capital of 65.1% including securitization bonds.