Consolidated Edison, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. This combined filing covers Con Edison and its wholly owned subsidiary CECONY; Con Edison’s results also include O&R, the Clean Energy Businesses, and Con Edison Transmission. Unless noted, figures below are Con Edison consolidated and dollars are in millions.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Operating revenues | $4,165 | $3,613 | $11,639 | $10,261 |
| Operating income | $889 | $850 | $2,074 | $2,129 |
| Net income for common stock | $613 | $538 | $1,470 | $1,122 |
| Diluted EPS | $1.72 | $1.52 | $4.13 | $3.23 |
| Operating cash flow | — | $2,618 | $1,712 | |
| Cash used in investing | — | $(3,346) | $(2,437) |
For the nine months, utility construction expenditures were $2,844 million and non-utility construction expenditures were $210 million. Common dividends paid were $812 million.
At September 30, 2022, total assets were $65,763 million, current assets $5,733 million, and current liabilities $6,890 million. Cash and temporary cash investments were $78 million; a further $163 million was restricted cash, principally at renewable project subsidiaries. Long-term debt was $22,350 million, with $323 million due within one year; commercial paper was $1,941 million and a $550 million term loan was outstanding. The common equity ratio was 48.4%, versus 47.4% at year-end 2021.
Material changes and operating results
- Q3 revenue rose about 15% year over year and common-stock net income rose about 14%; nine-month revenue rose about 13% and common-stock net income about 31%. Diluted EPS increased from $1.52 to $1.72 for Q3 and from $3.23 to $4.13 year to date.
- Nine-month operating income declined to $2,074 million from $2,129 million despite higher revenue. Higher purchased-power, fuel, gas, operating and maintenance, depreciation, and tax costs weighed on results. Utility commodity costs are generally recovered under rate mechanisms, so revenue increases can reflect higher pass-through energy costs rather than equivalent earnings growth.
- CECONY’s nine-month operating income fell to $1,729 million from $1,836 million. Its electric operating income declined by $104 million and steam shifted to a $15 million operating loss from $9 million income; gas operating income increased by $21 million. Con Edison’s year-to-date comparison also benefited from the absence of a $211 million pre-tax Stagecoach impairment recorded in 2021.
- Clean Energy Businesses’ year-to-date common-stock income was $293 million versus $223 million, including $121 million of after-tax mark-to-market effects in 2022. Con Edison Transmission reported $2 million of common-stock income, compared with a $142 million loss in 2021, which included the Stagecoach impairment.
- Operating cash flow improved year over year, in part due to lower pension contributions, higher deferred taxes, and working-capital timing. Investing outflows increased, partly because 2021 included proceeds from asset and renewable-project sales. Cash declined by $905 million during the first nine months.
Outlook, management commentary, and notable items
- Clean Energy Businesses sale: On October 1, 2022, Con Edison agreed to sell the business to RWE Renewables Americas for $6.8 billion, subject to closing adjustments and regulatory and other conditions. Closing was expected in the first half of 2023. The sale was not classified as a discontinued operation. Management intended to use proceeds to repay $1.05 billion of parent debt in 2023, invest in the Utilities, and potentially repurchase shares subject to board approval; it also intended to forgo common equity issuance in 2022 and 2023.
- The company expected $50–$60 million of pre-tax sale costs, mostly in 2022; approximately $60 million of fourth-quarter 2022 depreciation and amortization would not be recorded. It also estimated a fourth-quarter deferred tax expense increase of approximately $100–$140 million, net of federal taxes. These are estimates, not reported Q3 results.
- CECONY rate cases: CECONY requested rate increases effective January 2023 of $1,038 million for electric and $402 million for gas. NYSDPS testimony supported increases of $278 million and $164 million, respectively, and referenced an 8.80% return on equity and 48% common equity ratio. Final NYSPSC outcomes were pending; the filing provides no company earnings guidance.
- Management cited inflation, higher interest rates, supply-chain disruption, customer arrears, climate and severe-weather costs, and regulatory outcomes as risks. Higher commodity prices may slow collection of customer receivables. CECONY’s net customer receivables were $1,982 million at September 30, 2022, up from $1,841 million at year-end 2021.
- CECONY’s electric and gas rate plans largely decouple delivery revenue from volumes, and utilities generally recover prudent energy supply costs. Even so, collection timing, unrecovered costs, and customer affordability remain relevant risks. New York COVID-19 arrears programs issued substantial customer credits during the period, with portions funded by state support and portions recoverable through surcharges.
- Con Edison’s investment in Mountain Valley Pipeline had a $111 million carrying value and remained exposed to permitting, legal, cost, and completion uncertainty; further impairment was possible. Environmental remediation liabilities were $923 million consolidated, and asbestos-related exposure could exceed accrued amounts, although the company could not estimate the possible excess loss. The filing also identifies unresolved regulatory and tax matters for which possible losses were not estimable.
Important facts for investors to verify
- Whether the Clean Energy Businesses sale closes, its final net proceeds after adjustments and costs, and the resulting debt repayment, utility investment, and any share repurchase.
- The NYSPSC’s final CECONY electric and gas rate decisions compared with both the company’s requests and NYSDPS recommendations.
- Whether operating cash generation and customer collections keep pace with capital spending, elevated receivables, and short-term borrowing needs.
- How much of reported earnings growth reflects recurring regulated returns versus clean-energy mark-to-market and tax-equity accounting effects, and the prior-year Stagecoach impairment comparison.
- Developments in Mountain Valley Pipeline permitting and completion prospects, environmental and asbestos exposures, and other contingencies the company says cannot currently be quantified.