Consolidated Edison, Inc. 2009 Form 10-K Summary
Business context and reporting period. This combined annual filing covers Consolidated Edison, Inc. (Con Edison) and its subsidiary Consolidated Edison Company of New York, Inc. (CECONY) for the fiscal year ended December 31, 2009. Con Edison is primarily a regulated utility holding company: CECONY delivers electricity, gas and steam in New York City and Westchester County, and Orange and Rockland (O&R) provides electric and gas service in nearby areas. Competitive energy businesses supply electricity and energy services. The filing also reports fourth-quarter results; it is not a standalone quarterly filing.
Financial results and key metrics
| Con Edison, $ millions except per-share data | 2009 | 2008 | Change |
|---|---|---|---|
| Operating revenues | 13,032 | 13,583 | (4.1%) |
| Operating income | 1,899 | 1,920 | (1.1%) |
| Income from continuing operations | 879 | 933 | (5.8%) |
| Net income for common stock | 868 | 1,196 | (27.4%) |
| Diluted EPS from continuing operations | $3.14 | $3.36 | (6.5%) |
| Cash dividends per common share | $2.36 | $2.34 | +$0.02 |
- The sharp decline in common net income versus 2008 largely reflects that 2008 included a $274 million after-tax gain and income from discontinued generation assets. Continuing-operations income for common stock was $868 million in 2009 versus $922 million in 2008.
- Fourth-quarter 2009 revenue was $3,273 million, operating income $423 million, continuing-operations income $205 million and diluted EPS $0.73. Fourth-quarter 2008 figures were $2,998 million, $381 million, $163 million and $0.58, respectively.
- Energy costs (purchased power, fuel and gas purchased for resale) fell to $6,242 million from $7,584 million. These costs are generally recoverable from customers and their reduction does not translate directly into higher profit.
- Operating income was $1,899 million, or about 14.6% of revenue, compared with about 14.1% in 2008. CECONY operating income rose $49 million to $1,716 million; O&R operating income was $92 million, down $1 million.
- Operating cash flow was $2,466 million, compared with $640 million in 2008. Investing cash outflow was $2,360 million, including $2,184 million of utility construction expenditures; financing provided $80 million. Year-end cash and temporary investments were $260 million.
- At year-end, total assets were $33,873 million, long-term debt was $9,854 million, debt due within one year was $731 million, and shareholders’ equity was $10,462 million. Common equity was 50.5% of capitalization; earnings to fixed charges were 3.0 times.
- Con Edison had no commercial paper outstanding at year-end and had not borrowed under its revolving credit agreement; the facility provided up to $2.25 billion of committed credit. The filing states management believes the companies can meet reasonably likely short- and long-term cash needs.
Material changes versus the prior comparable period
- Lower commodity costs reduced reported revenue, while utility net revenues increased. Utility rate changes, revenue decoupling and cost-recovery provisions supported results; higher operations and maintenance, depreciation and property taxes offset much of the benefit.
- Con Edison’s operating cash flow improved substantially, partly because of the timing of New York City property-tax payments and other working-capital movements. Construction spending declined from 2008 but remained significant.
- CECONY electric deliveries declined 2.8%, gas sold to customers increased 1.2%, and steam deliveries declined 4.0%. O&R total electric deliveries fell 5.6%.
- Con Edison’s competitive energy businesses earned $59 million in 2009 versus $73 million in 2008. Improved mark-to-market results and retail margins were outweighed by the absence of the 2008 generation-asset sale gain and discontinued-operations income.
- Con Edison’s pension and retiree-benefit liability declined from 2008, primarily as plan asset values recovered; however, management estimated 2010 pension and other postretirement benefit costs would rise by $181 million for Con Edison.
Outlook, management commentary, risks and unusual items
- Rates and investment: A CECONY electric-rate Joint Proposal, subject to NYSPSC approval when described in the filing, provided for annual base-rate increases of $420 million in April 2010, $420 million in April 2011 and $287 million in April 2012, plus a $133 million surcharge in the rate year ending March 2013. Estimated 2010–2012 regulated utility construction expenditures total about $6.4 billion. The 2010 capital plan also included competitive-business investments.
- Financing plans: Management expected Con Edison to issue $300–$500 million of common shares in 2010, in addition to employee and dividend-reinvestment issuances. The Utilities expected to issue $600–$900 million of long-term debt, in addition to debt for $680 million of maturities.
- Regulatory and operating exposure: Utility earnings depend on regulator-approved rates, cost recovery and performance standards. The companies cite service reliability and safety, construction execution, supplier and wholesale-market disruptions, economic conditions, weather, access to capital and substantial pension obligations as key risks.
- Contingencies: CECONY’s 2007 Manhattan steam-main rupture has about 100 pending suits; the company had not accrued a liability, and potential costs could be substantial, although it expected insurance to cover most costs. A contractor kickback investigation is ongoing; $210 million of CECONY revenue had been collected subject to possible customer refund, and the company could not estimate any refund.
- Environmental matters: Superfund and manufactured-gas-site remediation liabilities remain uncertain. CECONY could not predict its exposure at the Gowanus Canal; the company also could not estimate potential Flushing River cleanup liability. Proposed environmental enforcement actions could lead to penalties and compliance costs that may be substantial.
- Tax and unusual items: The IRS disallowed $416 million of net deductions relating to lease-in/lease-out transactions for 1998–2007 and $42 million for 2008. Con Edison recorded no reserve; it estimated $205 million of related tax savings through 2009 and potential interest repayment of up to $62 million after tax. A court ruled in the company’s favor on the 1997 transaction, subject to possible appeal.
- Other notable item: CECONY recorded a $24 million regulatory liability related to review of 2005–2008 capital expenditures and recognized a $14 million after-tax charge in 2009; a proposed settlement was subject to NYSPSC approval.
Most important facts for investors to verify
- Whether the proposed CECONY electric-rate Joint Proposal received NYSPSC approval, and the final terms and timing of rate increases.
- The final outcome and any refund or disallowance from the capital-expenditure and contractor-payment proceedings, including the treatment of amounts collected subject to refund.
- Updated estimates, insurance recoveries and regulatory recovery for steam-main, environmental and other legal contingencies.
- Developments in the IRS disputes over lease-in/lease-out transactions, including appeals, settlements, taxes and interest.
- Whether 2010 capital spending, planned equity and debt issuance, and pension contributions matched management’s estimates, and the resulting effect on leverage and liquidity.
- Quarterly figures are unaudited; the audited annual financial statements and related notes should be consulted for full definitions, reconciliations and the detailed basis of reported amounts.