Entergy Texas, Inc. — Q1 2011 Form 10-Q Summary
Reporting period: Three months ended March 31, 2011; comparisons are with Q1 2010. The filing is a combined Entergy report; the figures below are for Entergy Texas unless identified otherwise.
Business context and financial performance
Entergy Texas is a regulated electric utility serving customers in Texas. Its earnings depend substantially on regulated rates, fuel and purchased-power cost recovery, and its access to generation and transmission resources.
| Metric | Q1 2011 | Q1 2010 / comparison |
|---|---|---|
| Electric operating revenue | $348.9 million | $336.2 million; up 3.8% |
| Net revenue (revenue less fuel, purchased power and regulatory charges/credits) | $127.2 million | $121.1 million; up $6.1 million |
| Operating income | $45.6 million | $42.1 million |
| Net income | $15.7 million | $12.4 million; up $3.3 million |
| Operating margin | 13.1% | 12.5% (calculated as operating income divided by electric revenue) |
| Operating cash flow | $(11.0) million | $(39.9) million |
| Capital expenditures | $32.3 million | $34.1 million |
| Cash and cash equivalents, March 31 | $1.8 million | $35.3 million at December 31, 2010 |
Retail electric sales were 3,891 GWh, up 1%; industrial sales increased 11% while residential usage declined 8%. The net-revenue increase reflected a $10.5 million retail-price benefit, including the annual base-rate increase effective August 2010, and a $3.8 million volume/weather benefit. These were partly offset by $6.4 million of higher purchased-power capacity costs.
Debt, liquidity and cash flow
- At March 31, total assets were $3.71 billion; current assets were $300.5 million and current liabilities were $277.1 million.
- Long-term debt was $1.638 billion, including $786.0 million of securitization bonds. The reported debt-to-capital ratio was 66.1%; excluding non-recourse securitization bonds it was 50.4%. Net debt to net capital excluding those bonds was 50.3%.
- Cash fell by $33.6 million during the quarter to $1.8 million. Operating and investing activities used cash; financing activities also used $14.8 million, including $21.1 million of securitization-bond retirement. The company reported no borrowing under its $100 million credit facility at quarter-end.
- Operating cash use was lower than in Q1 2010, principally because fuel refunds were $57.9 million versus $99 million in the prior-year quarter. The company was refunding approximately $72.7 million of fuel over-collections, with refunds to most customers over three billing cycles beginning in February 2011.
Material changes, outlook and risks
- Management attributed the $3.3 million increase in net income mainly to higher net revenue and a lower effective tax rate, partly offset by higher operation and maintenance expense. The effective tax rate was 37.9%, versus 43.0% in Q1 2010.
- Management did not provide specific full-year earnings guidance in the supplied filing text. It cautioned that utility results are seasonal, with peak periods in the third quarter, and that interim results should not be used to estimate full-year results.
- Fuel-cost refunds, regulatory rate decisions, purchased-power costs and transmission/system arrangements are important uncertainties. Entergy Texas’s 2010 fuel-rate refund stipulation was approved by the PUCT in March 2011.
- Entergy-wide, management proposed joining MISO, targeting December 2013 implementation, subject to regulatory review. This is a system-wide proposal, not a completed Entergy Texas transaction.
- The filing reports a Texas power-price class action involving the predecessor Entergy Gulf States, Inc.; a class-certification hearing was scheduled for August 2011. It also describes environmental proceedings, including a preliminary Entergy-wide estimate of less than $1 million for Entergy’s share of remediation at the SESCO site.
- Management reported that disclosure controls were effective and that no material change in internal control over financial reporting occurred during the quarter.
Important facts for investors to verify
- Whether the $72.7 million fuel over-collection refund was completed as scheduled and its effect on subsequent cash flows and customer bills.
- Whether the August 2010 base-rate increase and continuing cost-recovery mechanisms adequately offset purchased-power and operating-cost pressures.
- Entergy Texas’s liquidity position after quarter-end, given only $1.8 million of reported cash and negative operating cash flow.
- Debt maturities, securitization-bond repayment requirements, and the impact of excluding non-recourse bonds when assessing leverage.
- Developments in the Texas power-price lawsuit, fuel-cost proceedings, and Entergy’s proposed MISO transition.