Consolidated Edison, Inc. — Q1 2022 Form 10-Q
Business context and period. Unaudited results cover the three months ended March 31, 2022, compared with Q1 2021. Con Edison is a holding company whose businesses include regulated electric, gas and steam utilities, renewable energy and transmission. CECONY is its wholly owned New York utility subsidiary; the filing presents both registrants’ results.
Key financial results
| Metric | Con Edison | CECONY |
|---|---|---|
| Operating revenue | $4.060 billion, up 10.4% year over year | $3.517 billion, up 9.7% |
| Operating income | $799 million, down from $860 million | $711 million, down from $786 million |
| Net income | $554 million, versus $420 million | $475 million, versus $465 million |
| Net income for common stock / diluted EPS | $602 million / $1.70, versus $419 million / $1.22 | Not applicable; CECONY is wholly owned |
| Cash from operating activities | $473 million, versus $289 million | $477 million, versus $220 million |
Earnings quality and margins. Con Edison’s operating margin declined to approximately 19.7% from 23.4%, despite higher revenue, as operating expenses rose faster. Common earnings increased substantially in part because Q1 2021 included a $172 million pre-tax impairment loss on the Stagecoach investment. Q1 2022 Clean Energy Businesses common earnings were $107 million and included $51 million after-tax of mark-to-market effects and $36 million after-tax from HLBV accounting for tax equity investments. CECONY’s net income was modestly higher, while operating income fell.
Cash flow and investment. Con Edison used $952 million in investing activities, including $837 million of utility construction expenditures; operating cash flow therefore did not cover investment outlays. Cash, temporary cash investments and restricted cash ended the quarter at $197 million, including $89 million restricted; unrestricted cash and temporary investments were $108 million, down from $992 million at year-end. Management attributed much of CECONY’s cash decline to the January payment of New York City semiannual property taxes.
Capital, liquidity and debt
At March 31, Con Edison reported $22.583 billion of long-term debt, plus $439 million due within one year and $1.313 billion of commercial paper. CECONY reported $18.384 billion of long-term debt and $1.061 billion of commercial paper. Con Edison’s current assets and current liabilities were $5.462 billion and $5.415 billion, respectively. Common equity was 47.7% of total capitalization for Con Edison and 47.5% for CECONY.
Con Edison and the Utilities had a $2.25 billion revolving credit agreement; CECONY also entered a separate $750 million, 364-day revolving credit agreement in March. Neither facility had outstanding loans at quarter-end. In April, FERC increased CECONY’s authorized short-term debt limit from $2.25 billion to $3.0 billion, effective May 2022.
Material changes, outlook and risks
- Regulated utility results: CECONY’s gas and electric rate base and rates supported earnings, but higher pension-related costs, commodity costs, depreciation and taxes weighed on operating income. CECONY’s electric operating income fell $77 million year over year; gas operating income increased $12 million, while steam operating income decreased $10 million.
- Rate cases: In April 2022, CECONY reduced its requested January 2023 electric rate increase to $1.038 billion and gas increase to $402 million. Further illustrated increases were also requested for 2024 and 2025. These requests require NYSPSC approval; the authorized rates and plan terms will affect future results and liquidity. O&R’s new New York electric and gas rate plans were approved in April.
- Customer collections: COVID-19-related payment difficulties and higher energy prices continued to affect receivables and collection timing. CECONY customer receivables, net of allowance, were $2.026 billion at March 31, with $1.348 billion more than 60 days in arrears. A New York State budget provides $250 million statewide for eligible residential utility arrears, but the amount allocated to the Utilities was not yet known.
- Strategic and project uncertainty: Con Edison was evaluating strategic alternatives for the Clean Energy Businesses. Its 10% interest in Mountain Valley Pipeline had a $111 million carrying value; permitting and litigation challenges could delay completion, increase costs, reduce its ownership interest or cause further impairment. In May 2022, the project operator targeted service in the second half of 2023 and estimated total cost of approximately $6.6 billion, excluding AFUDC.
- Other risks and contingencies: The filing identifies regulatory and rate-setting risk, severe weather and reliability, climate transition, cyber and operational risks, inflation and supply-chain disruptions, and capital-market access. Environmental remediation liabilities were approximately $934 million for Con Edison. The Utilities said additional remediation exposure could be material but was not presently determinable. Management reported no material change in risk factors from the 2021 Form 10-K.
Guidance and controls. The filing does not provide a clear full-year earnings or EPS guidance figure. Management describes future results as dependent on rate-case outcomes, collections, execution of clean-energy and transmission strategies, and regulatory and project developments. Management concluded disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- How the NYSPSC resolves CECONY’s electric and gas rate requests, and the timing and allowed returns in the resulting rate plans.
- Whether customer arrears improve and how much of the statewide arrears funding is ultimately allocated to CECONY and O&R.
- How much of Q1 earnings growth is repeatable, given the prior-year Stagecoach impairment and current Clean Energy Businesses mark-to-market and HLBV effects.
- Whether Con Edison’s strategic review of the Clean Energy Businesses results in a transaction or changes to capital needs and earnings.
- Mountain Valley Pipeline permitting, cost, schedule and impairment exposure, along with environmental and other contingent liabilities.
- Cash requirements for utility construction, seasonal tax payments, dividends and commercial-paper refinancing.