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ENTERGY TEXAS, INC. (ETI-P)·Q3 2023 Earnings Summary

Executive Summary

  • Q3 2023 delivered strong EPS: $3.14 as-reported and $3.27 adjusted, aided by extreme heat (weather benefit estimated at $0.64/share) and constructive regulatory outcomes; Entergy narrowed FY23 adjusted EPS guidance to $6.65–$6.85 (from $6.55–$6.85 in Q2) and raised its quarterly dividend 6% to $1.13 .
  • For Texas specifically, the PUCT approved Entergy Texas’s base rate case settlement (rates effective retroactive to Dec-2022) and management recorded regulatory provisions related to the relate‑back; Texas also passed the Texas Resiliency Act enabling accelerated resiliency plans and recovery mechanisms .
  • Strategic de‑risking progressed: SERI litigation settled in principle in Arkansas (and previously Mississippi), FERC rehearing on sale‑leaseback reduced uncertainty, and Entergy agreed to sell its gas distribution business for ~$484M with proceeds expected to support debt reduction and capex needs (target close ~Q3 2025) .
  • Operations were robust during record heat: 13 new peak-demand days, nuclear fleet capability factor of 99%, and sustained investment in grid reliability/resilience, with Texas participating in DOE’s “High Velocity Hydrogen Hub” (potential incremental industrial load) .

What Went Well and What Went Wrong

  • What Went Well

    • Record heat drove higher retail volumes and allowed “flex spend” into reliability and vegetation management while keeping full‑year EPS trajectory intact; weather impact was $0.64/share in Q3 and management raised the bottom of FY23 guidance by $0.10 .
    • Regulatory momentum: PUCT approved Entergy Texas’s base rate case settlement; E‑TX relate‑back provision recorded; SERI settlements with Arkansas and Mississippi reduce 2/3 of litigation risk and add clarity to future cash flows .
    • Strategic portfolio action: Agreement to sell the gas distribution business (~$484M) to lower leverage and fund growth; management reiterated no incremental equity needs for 2024–2026 given asset sale and sales growth .

  • What Went Wrong

    • Higher interest expense (rate and balance driven) pressured earnings; depreciation increased on new assets (including updated E‑TX rates), partially offset by SERI depreciation rate adjustment .
    • Industrial sales ex‑weather were modestly down in the quarter due to outage timing and weakness at certain large customers (petrochemicals, pulp & paper, ag chemicals), though management still expects ~2% industrial growth for FY23 .
    • E‑AR recorded a $78M pre‑tax write‑off related to the 2013 ANO stator incident (excluded from adjusted EPS), highlighting tail-end legacy risk clean-up (non-cash, but an item affecting as-reported results) .

Financial Results

EPS progression (oldest → newest)

MetricQ1 2023Q2 2023Q3 2023
As-Reported EPS ($)$1.47 $1.84 $3.14
Adjusted EPS ($)$1.14 $1.84 $3.27
Estimated Weather Impact ($/sh)$(0.22) $0.07 $0.64

Segment earnings – Q3 year over year

Segment (After-tax, $mm)Q3 2022Q3 2023
Utility (as-reported)672 752
Utility (adjusted)672 810
Parent & Other (as-reported)(112) (85)
Parent & Other (adjusted)(92) (117)
Consolidated (as-reported)561 667
Consolidated (adjusted)580 694

Utility sales mix – Q3 year over year (GWh)

CategoryQ3 2022Q3 2023YoY %
Residential11,272 12,661 12.3%
Commercial8,223 8,648 5.2%
Industrial13,926 13,781 (1.0)%
Governmental702 700 (0.3)%
Wholesale4,809 3,916 (18.6)%
Total Sales38,932 39,706 2.0%

Notes:

  • Management attributed the Q3 volume strength primarily to record heat; ex‑weather, retail sales declined ~1.1% in the quarter .
  • Entergy Texas (E‑TX) had base rate relate‑back and other regulatory adjustments reflected in Q3 variance analysis .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EPSFY 2023$6.55–$6.85 (affirmed in Q2) $6.65–$6.85 Raised bottom by $0.10
Dividend (quarterly)Ongoing—$1.13 per share (declared; +6%) Increased

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q3 2023)Trend
Resilience and Reliability capexQ2: Texas Resiliency Act enables resiliency plans and recovery options . Q1: E‑LA completed major reliability project; E‑TX broke ground on Orange County Advanced Power Station .Emphasis on flex spend into vegetation and T&D maintenance after record heat; ongoing resilience filings in New Orleans and Louisiana; Texas resiliency filing expected in 2024 .Accelerating; pathway for recovery clarifying
Regulatory settlements (SERI)Q2: FERC/settlement-related provisions and positions detailed .Settlement in principle with Arkansas; 2/3 of SERI litigation risk resolved; FERC rehearing order provided clarity .De-risking improving
Industrial load growthQ2: Pipeline expanding despite macro headwinds . Q1: Multiple large clean-energy/manufacturing announcements in footprint (incl. Texas) .Strong pipeline reiterated; Q3 industrial down modestly on outages; still expects ~2% industrial growth FY23 .Positive medium-term
Texas regulatory cadenceQ2: E‑TX base rate case settlement filed; Texas Resiliency Act .PUCT approved E‑TX base rate case settlement; rates retroactive to Dec-2022; relate‑back provision in Q3 .Constructive
Portfolio optimization—Sale of gas distribution business for ~$484M; proceeds to debt reduction/funding; expected close ~Q3’25 .Balance sheet-friendly
Clean hydrogen opportunity (TX)—E‑TX participating in DOE “High Velocity Hydrogen Hub” ($1.2B award); potential incremental load .Emerging upside

Management Commentary

  • “Our adjusted earnings per share was $3.27… record temperatures with an estimated impact of $0.64, which has given us the opportunity to flex our spending plans to invest in key areas that benefit our customers, derisk 2024 and support our goal to deliver steady, predictable results.” — CEO Drew Marsh .
  • “In Texas, the PUCT approved our rate case settlement. New rates as well as new depreciation and amortizations, are effective retroactive to December 2022.” — CEO Drew Marsh .
  • “Our system faced extreme heat… 13 days that surpassed previous peak demand records… our nuclear fleet was online throughout the quarter with a fleet capability factor of 99%.” — CEO Drew Marsh .

Q&A Highlights

  • 2023 O&M and 2024 de‑risking: Weather upside in Q3 funded additional vegetation, T&D maintenance, and generation upkeep to derisk 2024 earnings profile .
  • Equity and financing plan: Gas business sale supports incremental capital in 2024–2026; no incremental equity planned over that period; details at EEI conference .
  • SERI litigation: FERC’s August order reduced uncertainty; settlements in MS and AR derisk exposure; pursuing constructive outcomes in remaining jurisdictions .
  • Industrial backdrop: Pipeline of projects continues to grow; management confidence maintained; Q3 softness linked to outages and specific sectors .
  • Resilience filings: Alignment with regulators on need; debate centers on scope, pace, and affordability; goal is recovery mechanism that supports credit and access to capital .

Estimates Context

  • Wall Street consensus (S&P Global Capital IQ) could not be retrieved due to API request limits at query time; therefore, no estimate vs. actual comparison is provided. Values will be incorporated in an update once access is restored (S&P Global data) [GetEstimates error noted].

Key Takeaways for Investors

  • Texas regulatory environment is constructive: E‑TX base rate settlement approved (retroactive), with resiliency framework (Texas Resiliency Act) paving the way for incremental reliability investments and potential accelerated recovery .
  • Litigation de‑risking and portfolio actions are reducing uncertainty and supporting balance sheet capacity (SERI settlements in MS/AR; ~$484M gas distribution sale targeted close ~Q3’25) .
  • Operations executed through record heat (99% nuclear capability factor) and management flexed spend to improve system reliability without derailing FY EPS targets; FY23 adjusted EPS narrowed to $6.65–$6.85 .
  • Industrial growth pipeline remains robust across Gulf Coast verticals; Q3 dip reflects outage timing rather than structural demand change; medium-term load growth (including hydrogen hub) supports rate base expansion .
  • Headwinds include higher interest expense and depreciation from new assets; however, SERI depreciation rate relief and regulatory mechanisms offset some pressure .
  • Dividend growth (6% increase to $1.13 quarterly) and narrowed guidance reinforce the “steady, predictable” return profile while the company advances grid hardening and clean-energy investments .

Additional Texas-specific notes

  • E‑TX regulatory provisions in Q3 included relate‑back for the base rate case; PUCT approval provides visibility into earnings cadence and recovery .
  • Texas resiliency plan rules are being developed; Entergy expects to file in 2024, positioning E‑TX to accelerate grid hardening under supportive recovery constructs .

Citations:

  • Q3 2023 8‑K/press release and appendices .
  • Q3 2023 earnings call transcript .
  • Q2 2023 8‑K/press release .
  • Q1 2023 8‑K/press release .
  • Oct 30 2023 8‑K on ANO write‑off settlement disclosure .
  • Gas distribution sale 8‑K (purchase agreement excerpts) –.