Consolidated Edison, Inc. — Q3 2013 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2013, compared with the corresponding 2012 periods. The combined filing covers Con Edison and its subsidiary CECONY; figures below are primarily for Con Edison on a consolidated basis. Amounts are in millions of dollars except per-share data.
Financial performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Operating revenue | $3,484 | $3,438 | $9,487 | $9,287 |
| Operating income | $855 | $851 | $1,767 | $1,886 |
| Net income for common stock | $464 | $440 | $828 | $931 |
| Diluted EPS | $1.58 | $1.49 | $2.81 | $3.16 |
| Dividends declared per share | $0.615 | $0.605 | $1.845 | $1.815 |
- Q3 revenue rose 1.3% and common earnings rose 5.5%; operating income was nearly flat. Nine-month revenue rose 2.2%, while common earnings fell 11.1% and operating income declined 6.3%.
- Calculated from reported figures, operating margin was approximately 24.5% in Q3 2013 versus 24.8% a year earlier, and 18.6% for the first nine months versus 20.3% in 2012. Net margin was approximately 13.3% and 8.7%, respectively.
- Utility revenue growth included higher gas and steam revenues, partly reflecting pass-through energy costs and, for steam, colder weather. Nine-month results also reflected higher depreciation and property taxes. Regulated utility revenue decoupling and cost-recovery mechanisms generally reduce the effect of delivery-volume and purchased-energy-cost changes on earnings.
Cash flow, debt and liquidity
- For the first nine months, operating cash flow was $1,238, down from $1,638 in 2012. Investing used $1,895, including $1,701 of utility construction expenditures; financing provided $337. Cash and temporary cash investments ended at $74, versus $394 at year-end 2012.
- The lower operating cash flow reflected, among other items, tax-agency deposits associated primarily with the LILO transactions and increased pension contributions. Con Edison reported $878 of pension contributions during 2013 through September.
- At September 30, long-term debt, including current maturities, was $10,976; commercial paper outstanding was $1,220, up from $539 at year-end 2012. The commercial paper weighted-average rate was 0.3%. No credit-agreement loans were outstanding; the filing reports approximately $2.1 billion of commitments extended to October 2017 for participating lenders.
- Con Edison’s common equity ratio was 53.7%, compared with 54.1% at December 31, 2012. Its current assets of $3,704 were below current liabilities of $4,373; cash was $74, with $375 of special deposits also reported.
Material changes and unusual items
- LILO tax matter: Following an appeals-court decision disallowing tax losses on the 1997 transaction, Con Edison recorded a $150 after-tax charge in Q1. It terminated the 1999 and 1997 transactions in June and August, respectively, receiving net cash proceeds of $108 and $92 and recording after-tax gains of $29 and $26. The filing reports a net $95 after-tax charge for the LILO transactions for the nine months, but a $26 after-tax gain in Q3. IRS audits for tax years 1998–2011 were completed in Q3; Con Edison expected to apply remaining tax deposits to federal and state liabilities.
- Segment mix: Competitive energy businesses reported a $55 net loss for the first nine months, versus $65 of net income a year earlier. The filing attributes the decline principally to lower net revenues and mark-to-market effects, as well as the LILO impact.
- Cash-flow presentation revision: Con Edison disclosed that its Q2 2013 cash-flow statement incorrectly classified $108 of proceeds from termination of the 1999 LILO transaction between operating and financing activities. It said the revision would be made in a later filing and was not material to the six-month financial statements.
Outlook, regulation and risks
- No formal earnings guidance is stated in the supplied filing text. CECONY’s pending rate case sought electric and gas increases of $375 and $25 annually and a $5 steam decrease, using a requested 10.35% return on common equity. NYSPSC staff proposed decreases across all three services; CECONY’s reply brief sought increases. Settlement discussions were underway, and a decision deadline was extended by one month with a make-whole provision.
- CECONY reported a record electric peak demand of 13,322 MW in July 2013. The company estimated the 2013 peak at 13,500 MW under design weather conditions and forecast average annual peak-demand growth of about 1.4% over the following five years. The filing also describes two proposed CECONY transmission projects with estimated aggregate cost of $371, subject to further authorizations.
- Superstorm Sandy interrupted service to approximately 1.4 million customers. By September 30, CECONY and O&R had incurred $471 and $92, respectively, in response and restoration costs; much of the non-capitalized cost was deferred for potential recovery through rates. Regulatory investigations and potential penalties remain risks following findings of storm-response deficiencies and new state oversight requirements.
- In a separate CECONY expenditure-prudence proceeding, a NYSPSC consultant estimated $208 of possible overcharges, an estimate the company disputes. CECONY had collected an estimated $1,318 from customers subject to potential refund; its recorded regulatory liability was $16, and the company said any required refund could range from that amount up to an amount based on the consultant’s estimate.
- Environmental matters include CECONY’s potential liability at the Gowanus Canal Superfund site. The EPA estimated the selected remedy at $506.1, but CECONY said it could not predict its exposure. The filing also identifies potentially material future remediation costs at other sites, pension and postretirement obligations, and risks from regulation, capital-market access, energy markets, cyber attacks, and safe and reliable operations.
Important facts for investors to verify
- Progress and final outcomes of CECONY’s rate case, including approved rates and allowed return on equity.
- Final tax liabilities, use of remaining LILO deposits, and the effect of the disclosed cash-flow reclassification.
- Refund exposure in the expenditure-prudence proceeding and developments in storm-response investigations and cost recovery.
- Capital spending, transmission-project approvals, and the funding implications of higher commercial paper and low period-end cash.
- Exposure and recoverability for Superfund remediation, pension obligations, and other contingencies.