Consolidated Edison, Inc. — Q1 2020 Form 10-Q
Business context and period: Unaudited quarter ended March 31, 2020; comparison is with Q1 2019. This combined filing covers Consolidated Edison, Inc. (Con Edison) and its wholly owned utility subsidiary, Consolidated Edison Company of New York (CECONY). Con Edison’s businesses include regulated utilities, clean energy projects and transmission investments. Unless noted otherwise, financial amounts below are in millions of dollars.
Key financial results
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Operating revenue | $3,234 | $3,514 |
| Operating income | $808 | $786 |
| Net income | $392 | $445 |
| Net income for common stock | $375 | $424 |
| Diluted earnings per share | $1.12 | $1.31 |
| Cash from operating activities | $412 | $464 |
| Cash used in investing activities | $(968) | $(888) |
- Revenue declined about 8%, while operating income increased about 3%; operating margin was approximately 25.0%, versus 22.4%.
- Common-stock earnings fell about 12%. Net interest expense rose to $322 from $247, primarily reflecting Clean Energy Businesses’ unrealized losses on interest-rate swaps.
- Con Edison ended the quarter with $1,395 of cash and temporary cash investments and $179 of restricted cash. Current assets were $5,026 versus current liabilities of $6,311.
- Long-term debt, including the current portion, was $21,516 at quarter-end, compared with $19,973 at December 31, 2019; commercial paper outstanding was $1,208. Common equity was 48.7% of capitalization, down from 49.6% year-end.
- Capital spending and other investing outflows exceeded operating cash flow. Financing cash flow was $913, supported by $1,600 of CECONY debt issuance and $88 from Con Edison share issuance.
Material changes and drivers
- CECONY reported net income of $406, versus $412. New electric and gas rate plans contributed to earnings, and lower pension and other operating costs helped; warmer winter weather reduced steam earnings, while depreciation and property taxes increased.
- Con Edison revenue fell mainly due to lower energy costs passed through to customers and lower Clean Energy Businesses revenue. CECONY steam revenue declined $71, primarily from warmer weather and lower fuel costs; utility delivery volumes were generally subject to rate-plan decoupling or weather-normalization mechanisms.
- The Clean Energy Businesses’ net loss for common stock widened to $82 from $35. Q1 2020 included $63 of after-tax mark-to-market losses, principally related to interest-rate swaps. Renewable generation volumes increased 11.5% year over year.
- Cash from operations declined by $52, reflecting changes in pension and retiree-benefit obligations and lower accounts payable, partly offset by lower customer tax benefits under the Tax Cuts and Jobs Act.
Outlook, risks and unusual items
- COVID-19: Management warned that an extended economic slowdown could materially affect liquidity, financial condition and results, with the extent not yet predictable. Utilities suspended disconnections and certain collection activity and fees; CECONY’s historically collected fees were approximately $6 per month, and O&R’s approximately $0.4 per month. The duration was uncertain. CECONY’s customer-credit-loss allowance increased $5, substantially all attributable to CECONY.
- Lower customer collections and higher uncollectible accounts could pressure utility liquidity despite New York revenue-decoupling mechanisms. Management said commercial paper remained available. Con Edison signed an additional $750 revolving credit agreement in April 2020, unused as of the filing; the companies also had a $2,250 revolving credit agreement with no borrowings.
- Moody’s downgraded Con Edison senior unsecured debt to Baa2 from Baa1 and CECONY to Baa1 from A3 in March 2020; commercial-paper ratings were affirmed at P-2.
- The CARES Act enabled a $2.5 tax refund and a $4 income-tax benefit tied to a 2018 net operating loss carryback. The companies intended to defer approximately $73 of employer payroll taxes for April–December 2020, with repayment in 2021 and 2022.
- PG&E exposure: Contracts covering 680 MW of Con Edison renewable projects are with PG&E, which was in bankruptcy. Related project debt was $980; project distributions were restricted, and lenders could seek repayment or foreclose. Management assumed the PPAs would not be rejected and recorded no impairment, but rejection could cause a material impairment. The bankruptcy plan remained subject to approvals and confirmation.
- Other contingencies include environmental remediation liabilities of $737 for Con Edison and $657 for CECONY, with potential additional remediation costs not presently determinable. The filing also describes asbestos claims and investigations or proceedings related to storms, a steam-main rupture, outages and gas-safety matters; some possible losses could not be estimated.
- No new numerical earnings guidance is provided in the supplied filing text. Management emphasized uncertainty around the pandemic and its potential effects.
Important facts for investors to verify
- Whether pandemic-related payment extensions, suspended collections and customer credit losses materially affect cash collections and future regulatory recovery.
- How the PG&E bankruptcy and PPA status affect restricted project cash, debt remedies and potential asset impairments.
- Whether swap-related mark-to-market losses recur, and how they affect Clean Energy Businesses’ earnings and consolidated interest expense.
- Debt maturities, refinancing needs, credit ratings and availability or terms of the supplemental and revolving credit facilities.
- Developments and potential costs in environmental, asbestos, gas-safety, storm-response and outage proceedings, including matters for which losses are not estimable.