Consolidated Edison, Inc. — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. This combined filing covers Consolidated Edison, Inc. (Con Edison) and its subsidiary Consolidated Edison Company of New York, Inc. (CECONY). Fourth-quarter figures are unaudited.
Business context
Con Edison is a holding company whose regulated utilities—CECONY and Orange and Rockland (O&R)—deliver electricity, gas and steam in New York and nearby areas. The regulated utilities generated 98% of Con Edison’s 2011 net income. Competitive energy businesses provide retail and wholesale supply and energy-related services.
Financial highlights
| Con Edison, $ millions except per-share data | 2011 | 2010 | Change |
|---|---|---|---|
| Operating revenues | 12,938 | 13,325 | (2.9%) |
| Operating income | 2,239 | 2,120 | 5.6% |
| Net income for common stock | 1,051 | 992 | 5.9% |
| Diluted EPS | $3.57 | $3.47 | 2.9% |
| Cash dividends per share | $2.40 | $2.38 | 0.8% |
| Operating cash flow | 3,137 | 2,381 | 756 |
Annual operating margin was approximately 17.3%, compared with 15.9% in 2010. Lower purchased-power, fuel and gas-resale costs reduced reported revenue but generally do not determine utility earnings because these costs are largely passed through to customers.
Fourth quarter: Revenue was $2,967 million, operating income $459 million, net income $193 million, common-stock income $190 million, and diluted EPS $0.65. Compared with fourth-quarter 2010, revenue decreased from $3,140 million, operating income from $494 million, common-stock income from $233 million, and EPS from $0.80.
Balance sheet and liquidity: At year-end, total assets were $39.214 billion, cash and temporary investments $648 million, current assets $3.638 billion, and current liabilities $2.987 billion. Long-term debt was $10.143 billion, with $530 million due within one year; long-term debt including its current portion was $10.673 billion. Shareholders’ equity was $11.649 billion. The company reported a 52.5% common-equity ratio and a 3.6 ratio of earnings to fixed charges.
Investing cash outflow was $2.150 billion, including $1.887 billion of utility construction expenditures and $80 million of non-utility construction expenditures. Financing cash outflow was $677 million. Con Edison issued no long-term debt in 2011; commercial paper was zero at year-end. Its revolving credit agreement provides up to $2.25 billion, with no borrowing outstanding.
Material changes versus 2010
- Con Edison common-stock income rose 5.9%, principally as utility rate plans increased net revenues. Utility operating and maintenance expenses, depreciation, and taxes also increased.
- CECONY net income for common stock increased to $978 million from $893 million. CECONY operating income rose $161 million: electric and steam operating income improved, while gas operating income declined.
- Competitive energy businesses’ net income fell to $32 million from $66 million. Lower retail margins and adverse mark-to-market results contributed; their operating income declined $52 million.
- Operating cash flow increased by $756 million, mainly reflecting lower net income-tax payments, lower year-end cash collateral and $150 million of World Trade Center cost recoveries.
- Con Edison’s year-end pension and retiree-benefit liability increased to $4.835 billion from $3.287 billion, largely reflecting actuarial changes. The related regulatory asset for unrecognized benefit costs rose to $5.852 billion.
Outlook, risks and contingencies
- Investment and financing: Estimated 2012 utility construction expenditures are $2.090 billion; utility plans call for substantial investment over the following years. The utilities expect to fund 2012 external requirements, including maturities, with up to $750 million of long-term debt. Con Edison said it did not expect to need additional common equity in 2012.
- Benefits: Management estimated 2012 pension and other postretirement benefit costs would increase by $243 million for Con Edison and $228 million for CECONY versus 2011. Expected 2012 pension-plan contributions total $759 million; expected other postretirement contributions are $100 million.
- Regulation and customer refunds: CECONY’s electric, gas and steam rate plans provide for rate increases and cost-reconciliation mechanisms. CECONY had collected an estimated $816 million subject to potential refund in the NYSPSC expenditure-prudence proceeding. The company recorded an $11 million regulatory liability for that matter and could not estimate any additional refund exposure.
- Environmental matters: Con Edison reported $489 million of accrued liabilities for Superfund sites and $681 million of related regulatory assets. Potential exposure at the Gowanus Canal and Flushing River sites was not estimable in the filing and could be substantial. Recovery of remediation costs through rates is subject to regulatory processes.
- Tax dispute: The IRS challenged deductions associated with the company’s lease-in/lease-out transactions. Con Edison reported $236 million of cumulative tax savings through 2011 and estimated interest of up to $111 million, net of tax, if it had to repay amounts. The IRS appealed a court decision favorable to the company.
- Other risks: The filing identifies operating and service-reliability failures, major storms, construction execution, regulatory changes, wholesale-energy disruption, pension funding, capital-market access, cyberattacks, and environmental compliance as risks. A steam-main rupture resulted in pending lawsuits; the company had not accrued a liability and could not estimate its costs.
No specific 2012 earnings-per-share guidance is stated in the filing text. Management said it expected the Utilities’ resources to be adequate to meet customer electricity requirements in 2012 and believed the companies could meet reasonably likely cash requirements and continue accessing capital markets.
Important facts for investors to verify
- Whether the $816 million collected subject to potential refund, and the $11 million recorded liability, adequately reflect the outcome of the NYSPSC prudence proceeding.
- Updated pension and retiree-benefit assumptions, 2012 contributions, and the extent to which related costs remain recoverable through rates.
- Developments and potential cost exposure at the Gowanus Canal, Flushing River, manufactured-gas-plant sites, and other environmental matters.
- Progress and cash-flow effects of the IRS LILO dispute and other uncertain tax positions.
- Execution of the planned utility investment program, debt maturities and financing plans, and the sustainability of dividend coverage.
- Whether the competitive energy businesses can restore margins and reduce exposure to mark-to-market volatility.