Consolidated Edison, Inc. — Q2 2016 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2016. This combined filing covers Consolidated Edison, Inc. (Con Edison) and its wholly owned subsidiary Consolidated Edison Company of New York, Inc. (CECONY). Unless noted, figures below are for Con Edison and are in millions of dollars, except per-share data.
Financial results and liquidity
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Operating revenue | $2,794 | $2,788 | $5,950 | $6,404 |
| Operating income | $515 | $472 | $1,157 | $1,198 |
| Net income | $232 | $219 | $542 | $589 |
| Diluted EPS | $0.77 | $0.74 | $1.82 | $2.01 |
| Dividend declared per share | $0.67 | $0.65 | $1.34 | $1.30 |
- For the six months, operating cash flow was $1,631, investing cash outflow was $2,986, and financing cash inflow was $1,273. Cash and temporary investments ended at $862, down from $944 at year-end 2015.
- At June 30, long-term debt carrying value, including amounts due within one year, was $14,493, versus $12,745 at year-end; commercial paper outstanding was $708. Common equity was 50.4% of total capitalization, compared with 52.1% at year-end.
- Con Edison reported total assets of $47,270 and current liabilities of $3,903. The filing does not provide a single summary liquidity ratio.
Material changes versus the prior comparable periods
- Q2 net income increased 6% year over year, while six-month net income fell 8%. Six-month revenue decreased 7%, largely reflecting lower energy costs passed through to customers and reduced steam revenue amid warmer weather.
- CECONY’s net income declined to $161 from $211 in Q2 and to $472 from $559 for the first half. Its six-month operating income fell $110, including a $62 decline in steam operating income; CECONY cited weather effects on steam revenue, lower energy costs and higher depreciation and property taxes.
- Competitive energy businesses’ Q2 net income rose to $72 from $17, including $58 of after-tax mark-to-market gains versus a loss in the prior-year quarter. Six-month net income increased to $42 from $19, including $20 of after-tax mark-to-market gains. These effects make reported results sensitive to market valuations.
- Con Edison issued about 10 million shares for net proceeds of $702 and issued $500 of 2.00% debentures due 2021. CECONY issued $550 of 3.85% debentures due 2046. Con Edison also borrowed $400 under a bank agreement due 2018.
Outlook, management commentary, risks and unusual items
- Con Edison raised its estimated 2016 capital requirements to $6,117 from $4,892, principally reflecting the gas pipeline and storage joint venture investment and additional renewable project development. It planned to fund requirements with internally generated cash and securities issuance. No earnings guidance is stated in the supplied filing text.
- In June, a CET Gas subsidiary substantially completed its purchase of a 50% interest in Stagecoach, a gas pipeline and storage joint venture, for $945, subject to closing adjustments. Con Edison also acquired a 12.5% interest in the proposed Mountain Valley Pipeline project. Texas Solar 7 was acquired for $227; its expected total project cost is approximately $375.
- CECONY’s updated rate filings sought a $498 electric rate increase and a $125 gas rate increase effective January 2017; these were requests, not approved rates. NYSPSC staff supported an electric increase of $45 and a gas decrease of $25. The filing also describes regulatory changes under New York’s Reforming the Energy Vision initiative and approval of CECONY’s advanced-metering plan, subject to a $1,285 capital expenditure cap.
- After quarter-end, Con Edison Solutions agreed to sell its retail electric supply business for approximately $200, subject to adjustments, with closing expected by year-end. The earnings impact was not yet determinable. O&R’s proposed sale of Pike for $16 remained subject to regulatory approvals.
- Material contingencies include the 2014 Manhattan gas explosion: about 70 suits were pending, the company had not accrued damages, and it could not estimate possible losses; it believed insurance would cover amounts above a non-material retention. Separately, the company accrued $758 for Superfund and environmental costs, while potential manufactured-gas-site liability was estimated in 2015 at up to $2.8 billion for Con Edison; actual costs could differ materially and further accruals may be needed.
- Other notable exposures include the $116 customer credit required under an approved prudence settlement, with $97 remaining as a regulatory liability; gas-safety investigations with possible additional losses not estimable beyond an $18 regulatory liability; and asbestos claims with possible exposure above accrued amounts that the companies could not estimate.
- Management identified extensive regulation, rate-plan outcomes, facility reliability, cybersecurity, environmental obligations, pension and postretirement liabilities, capital-market access and energy-market disruption among key risks. The filing reported no material change in risk factors from the 2015 Form 10-K and stated that disclosure controls were effective.
Important facts for investors to verify
- How much of the Q2 and first-half earnings change reflects recurring utility performance versus competitive-business mark-to-market gains?
- What final electric and gas rates will regulators approve, and how will the REV framework and clean-energy requirements affect costs and returns?
- How will the $6.1 billion 2016 capital program and new transmission and pipeline investments be funded, and what will they do to leverage and equity capitalization?
- What are the eventual proceeds and earnings effects of the retail electricity and Pike divestitures?
- How might the Manhattan explosion, gas-safety proceedings, environmental remediation and asbestos litigation affect liabilities, insurance recoveries or customer rates?