CONSOLIDATED EDISON INC quarterly report, Q2 FY2023

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Business context and reporting period

Consolidated Edison, Inc. (Con Edison) filed this unaudited combined Form 10-Q with its wholly owned utility subsidiary, Consolidated Edison Company of New York (CECONY), for the quarter and six months ended June 30, 2023. Con Edison primarily operates regulated electric, gas and steam utilities through CECONY and Orange and Rockland (O&R), plus transmission investments. On March 1, 2023, Con Edison sold substantially all of its Clean Energy Businesses to RWE; results include those businesses only through the sale date.

Key financial metrics

Con Edison consolidatedQ2 2023Q2 2022Six months 2023Six months 2022
Operating revenues$2.944B$3.415B$7.347B$7.475B
Operating income$284M$387M$2.022B$1.185B
Net income for common stock$226M$255M$1.658B$857M
Diluted EPS$0.65$0.72$4.72$2.41
  • Six-month results include a preliminary $867M pretax gain ($804M after tax) on the Clean Energy Businesses sale. The gain is subject to final purchase-price adjustments; the filing does not provide a finalized amount.
  • Six-month operating cash flow was $1.164B, versus $1.957B. Utility construction expenditures were $2.097B. Investing cash flow was positive $1.452B, including $3.927B net proceeds from the sale; financing cash flow was negative $2.190B.
  • At June 30, cash and temporary cash investments were $1.955B. Long-term debt, including current maturities, was $21.297B; commercial paper outstanding was $1.953B. Con Edison’s common equity ratio was 50.2%, compared with 50.9% at year-end 2022.
  • CECONY six-month net income was $793M, up from $645M; Q2 net income was $189M, up from $170M. Its six-month steam operating income fell to $5M from $51M.

Material changes versus prior periods

  • Q2 consolidated revenue declined 14% and net income for common stock declined 11% year over year. Results reflect the absence of Clean Energy Businesses after the sale, as well as changes in energy costs and utility operations.
  • For the first half, consolidated net income for common stock nearly doubled, primarily due to the sale gain. The filing attributes $2.24 per share of the year-over-year EPS increase to the gain and related sale impacts; reported diluted EPS rose by $2.31.
  • Underlying utility performance was mixed: CECONY’s first-half earnings increased, while O&R’s remained $39M. CECONY electric and gas earnings benefited from rate-plan increases; steam earnings were pressured by weather, fuel costs and operating expenses.
  • Operating cash flow decreased year over year, partly reflecting lower regulatory-liability and accounts-payable balances. The sale proceeds materially increased investing cash flow. Con Edison also completed a $1.0B accelerated share repurchase and CECONY issued $500M of 5.20% debentures due 2033.

Outlook, management commentary and risks

  • The NYSPSC approved CECONY’s 2023–2025 electric and gas rate plans in July 2023, after quarter-end. They provide a 9.25% return on common equity and 48% equity ratio; new base rates were implemented August 1, with make-whole recovery for the January–July period through surcharges. CECONY’s requested $141M steam rate increase effective November 2023 remained under review; NY staff supported $94M.
  • Con Edison expects to fund 2023–2025 capital needs with internally generated funds, sale proceeds and debt and equity issuance. It plans no common equity issuance in 2023–2024 and up to $900M in 2025; planned utility long-term debt issuance is up to $1.4B in 2023 (including $500M issued in the first half) and approximately $2.6B in aggregate during 2024–2025, including maturities. Estimated capital requirements were increased to $5.120B for 2024 and $4.987B for 2025.
  • Management identifies aged receivables and slower cash collection as liquidity risks. CECONY had $1.875B in customer receivables, including $1.031B over 60 days past due; recovery mechanisms and customer assistance programs mitigate, but do not eliminate, the risk.
  • Other material exposures include regulatory uncertainty, climate-transition and electric-reliability investment needs, higher financing costs, cyber risk, and environmental and legal matters. Con Edison’s investment in Mountain Valley Pipeline had a $111M carrying value and remains exposed to legal and regulatory challenges. The sale agreement leaves Con Edison with potential battery-project costs of up to approximately $172M; no liability was recorded at June 30.
  • Environmental remediation liabilities were $994M, largely offset by regulatory assets. The Companies also disclose possible additional exposure at manufactured-gas-plant sites and asbestos matters for which excess loss cannot be estimated. The Manhattan gas explosion matter carries a $40M estimated liability and matching insurance receivable.
  • No material changes to the risk factors in the 2022 Form 10-K were reported. The filing provides no specific earnings-per-share guidance.

Important facts for investors to verify

  1. Final sale proceeds and gain adjustments, and the timing of transfer of the remaining Broken Bow II project and outstanding Clean Energy Businesses guarantees.
  2. Whether aged customer receivables and arrears assistance translate into improved cash collections, and the extent of future write-offs or regulatory recovery.
  3. Final outcomes of CECONY’s steam rate case and recovery of the electric and gas rate-plan make-whole amounts.
  4. Execution and funding of the 2023–2025 capital program, including planned debt issuance and the 2025 equity issuance.
  5. Developments in Mountain Valley Pipeline litigation, environmental remediation, asbestos claims, and the battery-project indemnity exposure.