Consolidated Edison, Inc. (ED) — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. This combined filing covers Con Edison and its wholly owned utility subsidiary, CECONY; figures below are primarily Con Edison consolidated unless otherwise noted. Amounts are in millions of dollars except per-share data.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Operating revenue | $2,719 | $2,744 | $5,953 | $6,258 |
| Operating income | $479 | $458 | $1,287 | $1,244 |
| Net income for common stock | $190 | $152 | $565 | $576 |
| Diluted EPS | $0.57 | $0.46 | $1.69 | $1.77 |
| Operating margin | 17.6% | 16.7% | 21.6% | 19.9% |
Q2 revenue declined about 1%, while common-stock net income increased about 25%. For the first half, revenue declined about 5% and common-stock net income fell about 2%. Operating income increased in both comparisons; lower operating and maintenance costs helped, while depreciation and property taxes rose. The six-month earnings comparison also reflected lower steam revenue, warmer winter weather, and higher pension-related deductions. Clean Energy Businesses reported a six-month common-stock loss of $49 million, including $65 million of after-tax mark-to-market losses.
Cash flow, debt and liquidity
- First-half operating cash flow was $1,180 million, down from $1,538 million. Investing cash outflow was $1,932 million, including $1,528 million of utility construction expenditures and $258 million of non-utility construction expenditures. Financing provided $880 million; cash, temporary investments and restricted cash ended at $1,345 million.
- At June 30, cash and temporary investments were $1,144 million; restricted cash was another $201 million. Current assets were $4,564 million versus current liabilities of $6,705 million.
- Long-term debt, including current maturities, was $21,114 million, compared with $19,973 million at year-end 2019. Commercial paper outstanding was $1,813 million. The common equity ratio was 49.1%, down from 49.6% at year-end.
- CECONY issued $1.6 billion of debentures in March, due 2030 and 2050. In July, after quarter-end, Con Edison borrowed $820 million under a variable-rate term loan maturing March 29, 2021, partly to repay variable-rate short-term debt.
Material changes, outlook and risks
- COVID-19: Economic disruption reduced commercial activity and utility delivery volumes. Adjusted CECONY electric deliveries fell 8.0% in Q2 and 3.9% in the first half; adjusted steam deliveries fell 20.0% and 5.9%, respectively. Revenue decoupling mechanisms limit the impact of delivery-volume changes on certain utility revenues, but delayed collections and higher uncollectible accounts can pressure liquidity.
- Utilities suspended disconnections and certain fees and extended payment deadlines. Estimated foregone late-payment and other fee revenue was $24 million for Con Edison and $23 million for CECONY in the first half. COVID-related increases to customer credit-loss allowances were $18 million and $16 million, respectively. New York’s residential disconnection prohibition was scheduled to expire March 31, 2021.
- CECONY’s summer cooling credit program is estimated to cost $70.6 million, recoverable over five years beginning in 2021. CECONY also expected to defer a total of $58 million in higher summer generation-capacity costs for recovery from November 2020 through April 2021. Utilities requested regulatory authority to defer COVID-related costs; recovery is not assured by the filing.
- Management provided no specific earnings or EPS guidance in the supplied filing text. It reported that commercial paper markets remained accessible and that it had no significant supply-chain shortages; however, the company warned that a prolonged economic slowdown could materially affect liquidity, financial condition and results.
- PG&E’s reorganization became effective in July 2020; it assumed the Clean Energy Businesses’ related power-purchase agreements, past-due receivables were paid, and restricted project distributions resumed. Tropical Storm Isaias caused outages in August 2020; restoration costs and any potential loss were not yet estimable.
- Contingencies include environmental remediation, asbestos claims, utility outage investigations and litigation. The utilities reported $734 million of Con Edison and $654 million of CECONY accrued Superfund and environmental liabilities, largely offset by regulatory assets, while noting possible additional material remediation costs. The filing says the potential loss above asbestos reserves and damages from the 2014 Manhattan explosion could not be estimated.
- Other notable exposures include Mountain Valley Pipeline timing and cost uncertainty, commodity and interest-rate risks, and the risk that COVID-19-related customer payment difficulties persist. The filing reports effective disclosure controls and no material quarterly change in internal control over financial reporting.
Key facts for investors to verify
- Whether utility regulators approve recovery of deferred pandemic-related costs and the timing of collections, particularly as customer arrears and credit-loss reserves evolve.
- How operating cash flow, capital spending and financing needs develop, including the July $820 million loan’s variable-rate terms and repayment or refinancing plan.
- Whether reported earnings trends persist after pension, tax, weather, and Clean Energy Businesses mark-to-market and tax-equity accounting effects.
- Progress and cost outlook for Mountain Valley Pipeline, and the financial implications of PG&E’s post-bankruptcy performance under the assumed contracts.
- Developments in Isaias restoration costs, regulatory investigations, environmental remediation and asbestos or explosion-related claims.