Consolidated Edison, Inc. (Con Edison) — Q1 2021 Form 10-Q
Business context and period. The combined, unaudited filing covers the three months ended March 31, 2021, and reports separately for Con Edison and its wholly owned utility subsidiary, Consolidated Edison Company of New York (CECONY). Con Edison’s operations include regulated electric, gas and steam utilities, renewable-energy businesses and transmission investments.
Financial performance
| Con Edison, $ millions except per-share data | Q1 2021 | Q1 2020 |
|---|---|---|
| Operating revenue | 3,677 | 3,234 |
| Operating income | 860 | 808 |
| Net income | 420 | 392 |
| Net income attributable to common stock | 419 | 375 |
| Diluted EPS | $1.22 | $1.12 |
| Operating margin | 23.4% | 25.0% |
| Operating cash flow | 289 | 412 |
| Capital investment cash outflow | (1,096) | (968) |
Revenue rose 13.7%, while operating income increased 6.4%; operating margin narrowed. Higher utility rate-plan revenues and colder winter weather supported results. Con Edison’s Clean Energy Businesses earned $49 million for common stock, versus an $82 million loss in the prior-year quarter, while Con Edison Transmission recorded a loss of $122 million, principally reflecting the Stagecoach impairment.
CECONY revenue was $3.205 billion, operating income $786 million and net income $465 million, compared with $2.854 billion, $742 million and $406 million, respectively, in Q1 2020. Its operating margin was 24.5%, versus 26.0%. CECONY’s electric operating income fell $35 million, while gas and steam operating income rose $70 million and $9 million.
Liquidity, debt and capital
- At March 31, Con Edison had $76 million of cash and temporary cash investments and $81 million of restricted cash, versus $1.272 billion and $164 million, respectively, at year-end. Cash, temporary cash investments and restricted cash totaled $157 million.
- Long-term debt, including current maturities, was $21.916 billion, down from $22.349 billion at December 31. Commercial paper outstanding was $1.581 billion; a Clean Energy Businesses construction loan had $472 million outstanding. The company repaid a $675 million term loan during the quarter.
- Operating cash flow declined $123 million year over year, primarily because of higher customer receivables. Utility construction expenditures and other investing uses contributed to negative free cash flow.
- Con Edison’s common equity ratio was 48.3%, unchanged from year-end. Management estimated capital requirements of $6.015 billion in 2021, $4.644 billion in 2022 and $5.385 billion in 2023, with plans to fund these through internal funds, debt and equity. Planned 2021 issuance includes $1.9–$2.6 billion of long-term debt and up to $800 million of common equity.
Material changes, outlook and risks
- Stagecoach impairment: Con Edison recorded a $172 million pre-tax ($120 million after-tax) loss on its 50% investment after Stagecoach recognized a goodwill impairment. The investment’s carrying value fell from $839 million to $667 million. Con Edison found no further impairment at quarter-end, but a further decline remains possible as it considers strategic alternatives.
- Renewables and market effects: Clean Energy Businesses’ results benefited from higher renewable-project and wholesale revenue and lower unrealized losses on interest-rate swaps. Management’s segment analysis attributes $49 million of after-tax mark-to-market income to this business in Q1 2021.
- COVID-19: Customer collection delays, elevated uncollectible-account reserves, and waived late-payment charges and fees pressured utility liquidity. The filing estimates unbilled fees of $17 million for CECONY and $1 million for O&R in the quarter. New York regulatory recovery mechanisms and a proposed surcharge were pending; recovery is not assured by the filing.
- Regulatory investment: In April 2021, the NYSPSC approved recovery of approximately $780 million for CECONY’s Reliable Clean City transmission projects. The approval increased estimated capital requirements. The company also planned a $500 million term loan to repay debentures maturing in May 2021.
- Contingencies: CECONY faced potential penalties of up to $24.8 million relating to 2019 outages. For Tropical Storm Isaias, regulators proposed penalties of up to $102.3 million for CECONY and $19 million for O&R; hearings were scheduled for September 2021. No liability was accrued for these proceedings, and outcomes could not be determined. Environmental remediation and asbestos exposures also remain, including potential MGP-site liabilities estimated in 2020 at up to $2.7 billion for Con Edison and $2.6 billion for CECONY; these are estimates, not accrued amounts.
- Guidance: The filing provides capital plans but no specific full-year earnings or EPS guidance. Management cautions that a continued pandemic-related downturn could increase utility capital needs and financing costs. Forward-looking results are also exposed to regulation, customer collections, capital-market access, weather, environmental obligations and commodity and investment risks.
Investor verification priorities
- Track customer arrears, uncollectible reserves, fee deferrals and regulatory approval or recovery of COVID-related costs.
- Review Stagecoach strategic alternatives and any subsequent impairment assessment.
- Monitor Isaias and 2019 outage proceedings, potential penalties and hearing outcomes.
- Assess execution, cost recovery and financing for the $780 million Reliable Clean City projects and the 2021–2023 capital program, including planned equity issuance.
- Compare operating cash generation and liquidity with capital spending, debt maturities and environmental and pension funding needs.