Consolidated Edison, Inc. — Q3 2015 Form 10-Q
Business context and period. This combined, unaudited filing covers the quarter and nine months ended September 30, 2015, for Con Edison and wholly owned utility subsidiary CECONY. Con Edison’s businesses include regulated electric, gas and steam utilities, Orange and Rockland (O&R), and competitive energy operations, including renewable generation. Unless identified otherwise, financial figures below are for Con Edison consolidated and are in millions of dollars.
Key financial results
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Operating revenues | $3,443 | $3,390 | $9,847 | $10,091 |
| Operating income | $830 | $819 | $2,028 | $1,959 |
| Net income for common stock | $428 | $436 | $1,017 | $1,010 |
| Diluted EPS | $1.45 | $1.48 | $3.46 | $3.44 |
| Dividends declared per share | $0.65 | $0.63 | $1.95 | $1.89 |
- Operating margin, calculated as operating income divided by revenue, was approximately 24.1% in Q3 2015 versus 24.2% a year earlier, and 20.6% for the first nine months versus 19.4%.
- Nine-month operating cash flow was $2,199, up from $1,751. Investing used $2,687, including $1,838 of utility construction spending and $286 for renewable project investments/acquisitions. Financing used $118; cash and temporary investments ended at $91, excluding $2 held for sale.
- At September 30, Con Edison had $12,282 of long-term debt including current maturities, $1,160 of commercial paper outstanding and $91 of cash excluding held-for-sale cash. Current assets were $3,505 against current liabilities of $4,429. No loans were drawn under the credit agreement.
- Total assets were $44,971 and equity was $13,049. The common equity ratio was 53.1%, compared with 52.0% at year-end 2014; the nine-month earnings-to-fixed-charges ratio was 3.9.
Changes versus the prior comparable period
- Q3 revenue rose 1.6%, but net income declined $8 and diluted EPS fell $0.03. Higher operating income was more than offset by lower other income and higher net interest expense.
- For the first nine months, revenue declined 2.4%, while net income increased $7 and diluted EPS rose $0.02. Lower purchased-power, fuel and gas costs reduced reported revenue and expenses; regulated utility operating income improved, while competitive energy operating income declined.
- CECONY’s nine-month net income rose to $935 from $905, supported by rate-plan revenues and lower operating and energy costs. Higher depreciation, property taxes and interest expense partly offset those benefits. Gas delivery volumes benefited from oil-to-gas conversions.
- Con Edison’s nine-month cash from operations improved mainly because of lower income taxes paid, net of refunds, partly offset by increased pension contributions. Investment outflows rose with utility construction and renewable project spending.
Outlook, management commentary and material items
- Rate regulation: CECONY’s approved 2016 electric rate plan has no base-rate increase or decrease and includes $123 of additional revenue from amortization of net regulatory liabilities. O&R’s new New York electric and gas rate plans took effect in November 2015. Rate plans include performance targets and potential penalties.
- Investment and demand: Management increased competitive-energy capital expenditure estimates to $835 for 2015 and $985 for 2016, reflecting renewable development. CECONY’s proposed advanced-metering plan would require about $1.3 billion over six years beginning in 2017, subject to regulatory approval. The company reduced its forecast of average annual electric peak-demand growth at design conditions to 0.2% for 2016–2020.
- Portfolio changes: Con Edison began marketing its retail electric supply business for sale, expected within 12 months. O&R agreed to sell Pike for $16, subject to approvals; a $5 impairment charge was recorded. Con Edison Development acquired interests in additional solar and wind projects.
- Regulatory and legal contingencies: A proposed settlement of the CECONY construction-prudence proceeding, subject to NYSPSC approval, requires a $116 customer credit and foregone recovery of $55 over 2017–2044. The company reported $1,889 collected subject to potential refund in the proceeding as of quarter-end; the proposed settlement would remove that refund exposure if approved. The 2014 Park Avenue gas explosion has pending lawsuits; CECONY had not accrued a liability because it could not estimate the possible loss. The filing also discloses environmental remediation and asbestos exposures, some of which could exceed recorded accruals.
- Other risks: The filing highlights extensive regulation, rate-plan outcomes, reliability and cyber risks, environmental obligations, pension and postretirement liabilities, capital-market access, energy-market disruptions and counterparty credit risk. The Clean Power Plan could entail substantial costs. Management reported disclosure controls as effective and no material change in internal control over financial reporting.
- No companywide earnings guidance is stated in the supplied filing text. Management describes its strategy as pursuing dividend growth supported by regulated utility earnings and contracted assets.
Important facts for investors to verify
- Whether the NYSPSC approves the construction-prudence settlement and the resulting customer credit and refund treatment.
- Potential liability, insurance coverage and regulatory outcomes related to the Park Avenue explosion, gas-safety matters and environmental remediation.
- Progress and sale terms for the retail electric supply business and Pike, including required approvals and any further accounting effects.
- Funding, returns and regulatory approvals for the expanded renewable investment program and proposed CECONY metering deployment.
- Liquidity and refinancing needs, including commercial paper balances, near-term debt maturities, capital spending and pension contributions.
- How rate-plan mechanisms, demand trends and energy-cost movements affect future utility earnings and cash flows.