Business context and reporting period
Entergy Texas, Inc. (ETI) filed this annual report for the fiscal year ended December 31, 2015. ETI is a regulated electric utility serving parts of eastern Texas; its retail rates are primarily overseen by the Public Utility Commission of Texas. This summary focuses on ETI’s separate financial statements, not Entergy Corporation’s consolidated results. Deloitte & Touche issued an unqualified opinion on ETI’s financial statements.
Financial performance and liquidity
Amounts below are in millions of dollars unless otherwise noted.
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Operating revenue | $1,707.2 | $1,852.0 | Down $144.8 (7.8%) |
| Operating income | $183.6 | $208.7 | Down $25.1 |
| Net income | $69.6 | $74.8 | Down $5.2 (6.9%) |
| Net cash from operating activities | $284.3 | $315.2 | Down $30.9 |
| Cash used in investing activities | $(315.3) | $(186.5) | Greater outflow |
| Cash from (used in) financing activities | $2.8 | $(144.7) | Improved |
| Year-end cash and cash equivalents | $2.2 | $30.4 | Down $28.3 |
Calculated operating and net margins were approximately 10.8% and 4.1%, respectively, compared with 11.3% and 4.0% in 2014. Capital expenditures were $320.4 million, exceeding operating cash flow by approximately $36.1 million. At year-end, total assets were $3.90 billion and long-term debt was $1.45 billion, including $497.0 million of securitization bonds. Management reported a 60.2% debt-to-capital ratio, or 49.8% excluding non-recourse securitization bonds; net debt-to-net capital excluding those bonds was also 49.8%. Cash was limited, but ETI had a $150 million credit facility with no borrowings and $1.3 million of letters of credit outstanding. The calculated current ratio was approximately 0.96.
Material changes versus the prior comparable period
- Despite lower reported revenue, net revenue increased from $611.7 million to $637.2 million, supported mainly by $17.1 million of volume/weather benefit and $11.4 million from retail electric prices. The company reported a 51 GWh increase in billed sales; industrial usage declined, partly offset by residential and commercial growth.
- Net income fell as higher net revenue was more than offset by increased operating costs and a $23.5 million pre-tax write-off of the Spindletop gas-storage regulatory asset. The write-off followed the impending termination of related power-purchase agreements when the System Agreement ends.
- Operating cash flow declined, while investing outflows rose with higher construction spending, including transmission and information-technology projects. Cash at year-end fell to $2.2 million from $30.4 million.
- ETI issued $250 million of 5.15% first-mortgage bonds in May 2015 and repaid $200 million of 3.60% bonds at maturity. Long-term debt excluding current maturities rose to $1.452 billion from $1.269 billion.
Outlook, commentary, risks and unusual items
- Planned construction and other capital investment is $290 million in 2016, $295 million in 2017, and $580 million in 2018. The estimates may change with regulatory outcomes, project plans, environmental requirements, market conditions, and access to capital.
- ETI withdrew its 2015 rate case and its application to acquire a Union Power Station power block after opposition at the PUCT; it recorded a $4.7 million write-off of related rate-case and acquisition costs. The block was reassigned to Entergy New Orleans. The broader Union Station transaction remained subject to FERC approval at filing, with closing expected after approval.
- The System Agreement is scheduled to terminate in its entirety on August 31, 2016. Management identifies uncertainty around the resulting operating and cost arrangements. Related FERC proceedings, including possible customer refunds or intercompany adjustments, remain relevant.
- Rate recovery remains central to ETI’s financial results. A PUCT order in January 2016 affirmed an ALJ recommendation that ETI refund an additional $10.9 million of bandwidth remedy payments; ETI’s motion for rehearing was denied. A transmission cost recovery factor request for a $13 million increase remained pending, while the PUCT approved an amended distribution cost recovery factor with an $8.65 million annual revenue requirement effective January 2016.
- Key broader risks include regulatory delays or cost disallowances, MISO market and transmission-cost exposure, severe weather and storm restoration, environmental compliance, nuclear safety and decommissioning obligations elsewhere in the Entergy system, commodity and interest-rate volatility, pension funding, litigation, and access to capital. Management reported effective internal control over financial reporting for the registrants.
Important facts for investors to verify
- FERC’s decision and closing status for the Union Power Station purchase, including ETI’s final role and the regulatory treatment of associated costs.
- Final outcomes and customer impacts of the $10.9 million bandwidth refund issue and other outstanding System Agreement proceedings as termination approaches.
- PUCT disposition of ETI’s transmission cost recovery filing and any further rate or fuel-cost reconciliation adjustments.
- ETI’s ability to sustain liquidity and fund the 2016–2018 investment plan given year-end cash of $2.2 million, the operating-cash-flow/capital-spending gap, and reliance on credit facilities and intercompany funding.
- Whether the Spindletop write-off fully captures the effect of ending the related agreements and whether any additional regulatory or recovery adjustments arise.