CONSOLIDATED EDISON INC quarterly report, Q3 FY2020

Consolidated Edison, Inc. — Q3 2020 Form 10-Q

Business context and reporting period. The combined, unaudited filing covers the quarter and nine months ended September 30, 2020, with comparisons to 2019. Con Edison is a holding company whose businesses include regulated utilities—principally CECONY—renewable energy and energy services, and transmission investments. Unless noted, figures below are for Con Edison consolidated and in millions of dollars.

Financial performance and position

Metric	Q3 2020	Q3 2019	Nine months 2020	Nine months 2019
Operating revenue	$3,333	$3,365	$9,286	$9,623
Operating income	$860	$867	$2,147	$2,111
Net income for common stock	$493	$473	$1,058	$1,048
Diluted EPS	$1.47	$1.42	$3.16	$3.19
Operating cash flow	Not provided by quarter in the filing text	$1,368	$1,960

Q3 operating margin was approximately 25.8%, broadly unchanged year over year; nine-month operating margin increased to approximately 23.1% from 21.9%. These percentages are calculated from reported operating income and revenue.
Nine-month revenue fell 3.5%; operating income rose 1.7%, while common-stock net income rose 1.0%. Diluted EPS declined 0.9%, reflecting, among other factors, higher average shares outstanding.
Nine-month operating cash flow fell $592 million. The company invested $2,984 million in total; utility construction expenditures were $2,346 million and non-utility construction expenditures were $414 million. Financing cash flow was $713 million, including $731 million of common dividends.
At September 30, total assets were $59,595 million, current assets $4,204 million, and current liabilities $7,160 million. Cash and temporary investments were $153 million, with another $161 million restricted.
Reported long-term debt was $19,206 million, alongside $1,965 million of long-term debt due within one year, an $820 million term loan, and $1,009 million of notes payable. The term loan matures March 29, 2021. Con Edison’s common equity ratio was 49.3%, versus 49.6% at year-end 2019.

Material changes and management commentary

Lower operating and maintenance costs—especially pension and postretirement costs and regulatory assessments—supported earnings. These benefits were partly offset by higher depreciation, property taxes, and other taxes.
CECONY’s nine-month steam revenue declined $84 million, with warmer winter weather and lower customer usage contributing. Clean Energy Businesses revenue fell $130 million, mainly from lower wholesale revenues, but segment operating income rose $5 million. Con Edison’s nine-month common-stock income also benefited from lower tax-equity investor losses than in 2019.
COVID-19 reduced commercial activity and utility deliveries; weather-adjusted CECONY electric delivery volumes declined 5.6% year over year for the nine-month period. Customer protections and suspended late charges and fees contributed to estimated foregone utility revenues of $46 million for Con Edison and $44 million for CECONY over nine months. Customer credit-loss allowances increased, and management cautioned that weaker collections could pressure liquidity.
The Utilities’ New York revenue-decoupling mechanisms generally reduce the effect of delivery-volume changes on net income, but can affect cash-flow timing. Certain COVID-related costs and credit-loss reserves were deferred for possible recovery under rate plans; recovery depends on regulatory provisions and outcomes.
Management said the Companies continued issuing commercial paper during the pandemic. A $2.25 billion revolving credit agreement was available and had no loans outstanding. At September 30, commercial paper outstanding was $1,009 million for Con Edison.
Clean Energy Businesses expected 2020 and 2021 capital requirements of $600 million and $250 million, respectively, revised from $400 million for each year; $150 million of projects were accelerated into 2020 and another $50 million added to 2020 requirements.

Outlook, risks, contingencies, and unusual items

The filing provides no specific consolidated earnings or EPS guidance. CECONY estimated approximately $860 million over four years for potential local electric reliability work associated with possible generating-unit retirements; recovery in customer rates is expected if the work is required. Costs for potential bulk-system reliability work were not estimable.
A gas-service moratorium in much of Westchester County remained in place pending added pipeline capacity or reduced peak demand. The relevant Tennessee pipeline project was expected, subject to approvals, to be completed by November 2023.
Tropical Storm Isaias caused outages affecting approximately 330,000 CECONY and 200,000 O&R customers. By September 30, reported costs were $142 million for CECONY and $30 million for O&R. New York regulators issued notices alleging possible emergency-response-plan violations; the companies could not estimate possible additional losses, and the notices referenced potential penalties and certificate consequences.
In October 2020, CECONY accrued a $40 million liability and a matching $40 million insurance receivable for damages related to the 2014 Manhattan explosion and fire. The filing text does not quantify any net exposure after insurance.
Con Edison reported $726 million of accrued Superfund and environmental costs, substantially matched by $723 million of regulatory assets. The filing cites a 2019 estimated potential range of up to $2.8 billion for Con Edison’s manufactured-gas-plant investigation and remediation liabilities; actual costs may differ materially. The companies also reported possible asbestos losses beyond accrued amounts but could not estimate the range.
PG&E emerged from bankruptcy in July 2020 and assumed the Clean Energy Businesses’ related power purchase agreements; previously restricted project distributions resumed and past-due receivables were paid.
Other risks include regulatory and rate-plan outcomes, severe weather, cybersecurity, pension and postretirement obligations, commodity and interest-rate exposure, environmental liabilities, and the uncertain duration and financial effects of COVID-19. Management reported effective disclosure controls and no material quarterly change in internal control over financial reporting.

Important facts for investors to verify

Whether customer collections, credit-loss allowances, and COVID-related regulatory deferrals develop as expected and are ultimately recoverable through rates.
The funding and refinancing plan for the $820 million term loan due March 2021 and other near-term debt maturities.
Regulatory findings, potential penalties, and any further costs associated with Tropical Storm Isaias and other reliability events.
Actual capital spending and regulatory approvals for electric reliability projects, gas capacity, and the Clean Energy Businesses’ revised capital program.
Potential environmental and asbestos liabilities, insurance recoveries, and the assumptions supporting related regulatory assets.
Whether reported earnings trends persist after considering weather, pension-cost reconciliation, tax effects, and clean-energy mark-to-market and tax-equity accounting.