Business context and reporting period
Consolidated Edison, Inc. (Con Edison) filed a combined Form 10-K with its wholly owned subsidiary Consolidated Edison Company of New York, Inc. (CECONY) for the fiscal year ended December 31, 2021. Con Edison operates regulated electric, gas and steam utilities through CECONY and Orange and Rockland (O&R), alongside renewable-energy businesses and electric and gas transmission investments. The Utilities are expected to provide substantially all of Con Edison’s earnings over the next several years.
Unless otherwise noted, figures below are for consolidated Con Edison and in U.S. dollars; the filing also presents separate CECONY financial statements.
Financial performance and position
| Metric | 2021 | 2020 |
|---|---|---|
| Operating revenue | $13.676 billion | $12.246 billion |
| Operating income | $2.826 billion | $2.654 billion |
| Operating margin | 20.7% | 21.7% |
| Net income for common stock (GAAP) | $1.346 billion | $1.101 billion |
| Basic earnings per share (GAAP) | $3.86 | $3.29 |
| Adjusted earnings (non-GAAP) | $1.528 billion; $4.39 per share | $1.399 billion; $4.18 per share |
| Cash from operating activities | $2.733 billion | $2.198 billion |
| Cash used in investing activities | $3.484 billion | $4.224 billion |
| Cash from financing activities | $461 million | $2.245 billion |
| Cash, temporary cash investments and restricted cash, year-end | $1.146 billion | $1.436 billion |
| Long-term debt, including current portion | $23.044 billion | $22.349 billion |
| Commercial paper outstanding | $1.488 billion | $1.705 billion |
| Common equity ratio | 47.4% | 48.3% |
Utility capital investment totaled $3.635 billion; total capital investment across the businesses was $3.964 billion. Con Edison paid $3.10 per share in dividends in 2021, up from $3.06 in 2020. Its $2.25 billion revolving credit agreement was undrawn at year-end. Management said it expects to meet reasonably likely cash requirements and retain capital-market access, while noting financing cost and availability depend on market conditions and credit ratings.
Material changes versus the prior comparable period
- Revenue rose 11.7% and GAAP net income for common stock rose 22.3%. The operating margin declined to 20.7% from 21.7% as operating expenses grew faster than revenue.
- Operating cash flow increased $535 million, primarily reflecting a smaller increase in customer receivables, among other working-capital and cost changes. Customer-collection pressures nevertheless remained a liquidity concern.
- Clean Energy Businesses’ net income for common stock increased to $266 million from $24 million, with higher renewable-project and energy-services revenue, but also higher operating and maintenance costs and significant HLBV and mark-to-market effects.
- Con Edison Transmission reported a $316 million net loss for common stock, compared with a $175 million loss in 2020. 2021 included substantial investment impairments, partly offset by the absence of the larger 2020 MVP impairment.
- Long-term debt including current maturities increased, while the common equity ratio declined. Con Edison issued $775 million net proceeds from a public common-share offering and CECONY issued $2.25 billion of debentures.
Outlook, commentary, risks and unusual items
- Investment and funding: Utilities’ planned capital investments are $4.134 billion in 2022, $5.015 billion in 2023 and $5.203 billion in 2024. Con Edison planned $800 million to $1.4 billion of long-term debt issuance and up to $850 million of common equity in 2022; plans for 2023–2024 include about $2.5 billion of debt and $750 million of common equity in aggregate. These financing estimates exclude any effects of strategic alternatives for the Clean Energy Businesses.
- Rate cases: CECONY filed for electric and gas rate increases of $1.199 billion and $503 million, respectively, effective January 2023; NYSPSC approval is required. O&R’s proposed 2022–2024 New York rate plans were subject to NYSPSC approval in the filing. RECO’s $9.65 million electric rate increase took effect January 2022.
- Clean energy and portfolio: Con Edison is evaluating strategic alternatives for the Clean Energy Businesses. The business installed 446 MW of renewable capacity in 2021 and reported year-end installed capacity of 3,061 MW, with annual production exceeding 7.5 TWh. New York decarbonization laws and electrification may increase electric demand while reducing gas and steam use; the Utilities’ long-term gas-business outlook is uncertain.
- Investment impairments and sale: Con Edison recorded a $231 million pre-tax impairment on its MVP investment, reducing its carrying value to $111 million, and a $212 million pre-tax impairment related to Stagecoach before completing the sale of its 50% interest for $629 million. MVP remains exposed to legal and regulatory challenges, delays, cost increases and further impairment risk. A $5 million goodwill impairment was also recorded for CET Gas’s Honeoye investment.
- Customer credit and COVID-19: The customer-account allowance for uncollectible accounts rose to $317 million from $148 million at Con Edison; CECONY’s allowance rose to $304 million from $138 million. Pandemic-related arrears, collection timing, write-offs and supply-chain cost pressures could continue to affect liquidity and results. Regulatory recovery of certain deferred costs and fees does not eliminate collection risk.
- Regulatory and operating exposure: A NYSPSC audit is examining an inadvertent understatement of part of the Utilities’ federal income-tax expense calculation for ratemaking. The amount may be material, but the Utilities could not estimate a possible loss and had accrued no liability. A 2021 settlement resolved specified steam-incident and outage matters for $75.1 million for CECONY and $7.0 million for O&R, with additional commitments including foregone customer recovery of certain returns and ongoing storm-response spending.
- Environmental contingencies: Con Edison accrued $940 million for Superfund liabilities at year-end, mostly for manufactured-gas-plant sites, and estimated potential undiscounted liability of up to $2.980 billion for investigation and remediation of its manufactured-gas sites, including Astoria. CECONY reported an estimated range of $630 million to $2.390 billion for MGP sites excluding Astoria and $175 million to $582 million for Astoria. The Gowanus Canal and Newtown Creek exposures could not be estimated; actual remediation costs may differ materially. Recovery of some utility remediation costs through rates is permitted, subject to regulatory terms.
- Other risks: Severe weather and climate impacts, service reliability, cyber threats, commodity and interest-rate exposure, pension assumptions, capital-market access, and regulatory decisions could materially affect results. The filing reports effective internal control over financial reporting and unqualified audit opinions; the auditor identified regulatory accounting, HLBV accounting and the MVP impairment as critical audit matters.
Important facts for investors to verify
- Track the NYSPSC’s decisions on CECONY’s requested 2023 electric and gas rates, the O&R rate proposal, and the income-tax ratemaking audit.
- Assess cash collection, customer arrears and allowance adequacy against the Utilities’ regulatory recovery mechanisms and actual write-offs.
- Review funding needs, planned debt and equity issuance, capital-spending execution, leverage and the effect of reduced equity capitalization.
- Monitor MVP permits, construction prospects, project cost and the possibility of additional impairment; confirm proceeds and final adjustments from the Stagecoach sale.
- Evaluate the Clean Energy Businesses’ strategic review, earnings variability from HLBV and mark-to-market accounting, and renewable-project performance.
- Follow developments in environmental remediation estimates, storm-related commitments, climate regulation and service-reliability requirements.