Consolidated Edison, Inc. (Con Edison) — 2019 Form 10-K
Business context and reporting period. This combined filing covers Con Edison and its wholly owned regulated utility subsidiary, Consolidated Edison Company of New York (CECONY), for the fiscal year ended December 31, 2019. Con Edison provides regulated electric, gas and steam delivery through CECONY and Orange and Rockland (O&R), and also owns renewable-energy businesses and transmission investments. Utilities generated 93% of revenue and 98% of net income for common stock in 2019.
Financial performance and position
| Metric | 2019 | 2018 |
|---|---|---|
| Operating revenue | $12.574 billion | $12.337 billion |
| Operating income | $2.676 billion | $2.664 billion |
| Net income for common stock (GAAP) | $1.343 billion | $1.382 billion |
| Diluted EPS (GAAP) | $4.08 | $4.42 |
| Adjusted earnings (non-GAAP) | $1.438 billion; $4.38 per share | $1.349 billion; $4.33 per share |
| Cash flows from operating activities | $3.134 billion | $2.695 billion |
| Total assets | $58.079 billion | $53.920 billion |
| Long-term debt, balance-sheet amount | $18.527 billion | $17.495 billion |
| Equity | $18.213 billion | $16.839 billion |
Revenue increased 1.9% and operating income was nearly flat. GAAP common earnings fell 2.8%, while adjusted earnings rose 6.6%. Adjusted earnings exclude specified items and are not a substitute for GAAP results. The 2019 operating margin was approximately 21.3%, versus 21.6% in 2018; net income for common stock was approximately 10.7% of revenue, versus 11.2%.
Net cash used in investing activities was $3.782 billion, including $3.238 billion of utility construction expenditures and $205 million invested in transmission projects. Financing activities provided $859 million. Year-end cash and temporary cash investments were $981 million, with a further $236 million of restricted cash. Con Edison had $1.692 billion of commercial paper outstanding; CECONY accounted for $1.137 billion. The companies reported compliance with significant debt covenants.
Con Edison declared dividends of $2.96 per common share in 2019, up from $2.86 in 2018. Its common equity ratio was 49.6% at year-end, compared with 49.0% in 2018.
Material changes versus the prior comparable period
- Con Edison’s GAAP common income declined by $39 million, while adjusted earnings increased by $89 million. The 2019 result included $74 million after tax of income attributable to tax-equity investors under the HLBV method and $21 million after-tax of Clean Energy Businesses mark-to-market losses.
- Clean Energy Businesses’ common-stock result shifted from $145 million income in 2018 to an $18 million loss in 2019. Higher renewable-project revenues following the 2018 Sempra Solar acquisition were offset by higher depreciation and interest, HLBV allocations and the absence of the prior-year $131 million acquisition gain.
- Cash from operations rose $439 million, reflecting, among other items, lower benefit contributions and storm costs and Puerto Rico restoration-cost reimbursements; higher TCJA-related customer benefits partly offset the increase.
- Utility capital investment continued to expand. Net utility plant increased to $39.751 billion from $37.580 billion; long-term debt and total assets also increased.
Fourth-quarter context: 2019 quarterly revenue was $2.951 billion, operating income $565 million, net income $295 million and diluted EPS $0.88. For fourth-quarter 2018, the corresponding reported figures were $2.949 billion, $657 million, $331 million and $1.05.
Outlook, management commentary and key risks
- Investment and funding: Estimated capital expenditures are $3.944 billion in 2020, $3.937 billion in 2021 and $3.792 billion in 2022. The company expects to fund capital needs and maturities with internally generated funds, long-term debt and common equity. Planned issuance includes $1.5–$2.0 billion of long-term debt and up to $600 million of common equity in 2020; approximately $1.8 billion of debt and $1.1 billion of equity in aggregate in 2021–2022. The filing provides no clear company-wide EPS guidance for those years.
- Rates: In January 2020, the NYSPSC approved CECONY electric and gas rate plans for 2020–2022. The plans establish rate changes, investment recovery and performance incentives and penalties; actual returns remain subject to operating results and regulatory mechanisms.
- PG&E bankruptcy: Long-term PPAs for 680 MW of renewable capacity are with PG&E. At year-end, related balances included $1.057 billion of PPA intangible assets, $819 million of net project plant and $1.001 billion of non-recourse project debt. No impairment was recorded based on management’s assumption that the PPAs were not likely to be rejected. Rejection could cause material impairment, restrict distributions from projects and expose lenders to acceleration and foreclosure remedies. PG&E’s proposed reorganization plan was not yet approved.
- Regulatory and operating matters: Investigations cover CECONY’s July 2019 outages and its response to 2018 storms; the company recorded $15 million of negative revenue adjustments for 2019 outages. A separate gas-operator qualification matter carried a $10 million accrued liability. The filing says possible additional losses for several investigations cannot be estimated.
- Environmental and legal contingencies: CECONY’s estimated undiscounted potential liability for known MGP-site investigation and cleanup, excluding Astoria, ranged from $466 million to $2.208 billion; Astoria was estimated at $172 million to $517 million. The filing also identifies substantial uncertainty at the Gowanus Canal and Newtown Creek Superfund sites, for which CECONY could not estimate its exposure. Asbestos claims may exceed accrued amounts, but the possible excess loss could not be estimated.
- Climate and supply: A CECONY climate-vulnerability study estimated $1.8–$5.2 billion of potential targeted adaptation investment by 2050; a climate implementation plan was expected by the end of 2020. Gas supply constraints prompted a temporary moratorium on new firm gas-service applications in most of Westchester County beginning in March 2019.
- Pipeline project: Mountain Valley Pipeline faced agency and court challenges and a federal investigation; its operator forecast late-2020 service and a $5.3–$5.5 billion project cost. Con Edison Transmission’s ownership was expected to decline from 12.5% to about 10% after limiting contributions to approximately $530 million.
The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. The report identifies regulatory accounting and recoverability of the PG&E-related assets as critical audit matters. Adoption of lease accounting in 2019 added $857 million of operating lease right-of-use assets and $874 million of operating lease liabilities to Con Edison’s balance sheet.
Most important facts for investors to verify
- Reconcile the decline in GAAP EPS with growth in adjusted earnings, including HLBV allocations, mark-to-market effects and the prior-year Sempra acquisition gain.
- Monitor PG&E’s bankruptcy outcome, PPA treatment, project cash restrictions and debt-lender rights, and assess impairment sensitivity.
- Review the approved 2020–2022 CECONY rate plans and the assumptions behind planned debt and equity issuance, capital spending and dividend growth.
- Track regulatory investigations, outage-related penalties and the unestimated exposure at Gowanus Canal, Newtown Creek and asbestos proceedings.
- Assess the scale, timing and regulatory recovery of climate adaptation spending, and the implications of Westchester gas constraints and Mountain Valley Pipeline delays.