Consolidated Edison, Inc. (Con Edison) — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. This combined filing presents Con Edison and its wholly owned utility subsidiary, Consolidated Edison Company of New York (CECONY), separately. Unless noted, figures below are for Con Edison consolidated and are in millions of dollars except per-share data.
Financial performance and position
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Operating revenues | $3,514 | $3,364 |
| Operating income | $786 | $755 |
| Net income | $445 | $428 |
| Net income attributable to common stock | $424 | $428 |
| Diluted EPS | $1.31 | $1.37 |
| Operating cash flow | $464 | $143 |
| Cash, temporary cash investments and restricted cash at period end | $474 | $683 |
- Revenue rose 4.5%, while common-stock net income fell 0.9% and diluted EPS declined 4.4%. Average diluted shares increased to 323.4 million from 311.6 million.
- Utility construction expenditures were $783 million; investing cash outflow was $888 million. Net cash used in financing was $108 million, including $226 million of common dividends and $425 million from settling forward share-sale agreements.
- At March 31, total assets were $55.1 billion, long-term debt including current maturities was $19.0 billion, and commercial paper outstanding was $1.4 billion. The common equity ratio was 50.8%, up from 49.0% at year-end 2018. Operating lease liabilities were $875 million following adoption of the new lease standard.
- CECONY reported revenue of $3,039 million and net income of $412 million, compared with $2,884 million and $389 million, respectively, in Q1 2018.
Material changes and drivers
- CECONY net income increased $23 million, primarily reflecting higher revenue under electric and gas rate plans. Higher operating and property-tax costs partly offset the benefit; warmer-than-normal winter weather reduced steam revenue.
- Clean Energy Businesses reported a $35 million net loss attributable to common stock, versus $6 million of income a year earlier. Lower engineering, procurement and construction activity, higher depreciation and interest following the Sempra Solar acquisition, and $16 million of after-tax income allocated to a tax-equity investor under HLBV contributed to the comparison.
- O&R net income rose to $32 million from $23 million. Con Edison Transmission net income was $13 million versus $11 million.
- Operating cash flow improved substantially year over year, principally because of the timing of pension and retiree-benefit contributions, lower storm-restoration and MTA reliability costs, and the absence of Puerto Rico restoration cash payments. Higher customer credits for federal tax-law benefits partly offset these factors.
Outlook, risks and contingencies
- The filing provides no specific company-wide earnings or EPS guidance. CECONY’s preliminary April 2019 rate-case updates sought electric rate increases of $473 million for January 2020, with illustrative increases of $359 million in 2021 and $249 million in 2022; gas requests were $201 million, $124 million and $154 million, respectively. These requests remained subject to regulatory review.
- PG&E’s Chapter 11 filing triggered a default under power-purchase agreements covering 680 MW of Con Edison renewable projects. Con Edison had $1.108 billion of related PPA intangible assets and $1.041 billion of related non-recourse project debt; the debt was reclassified as due within one year. Distributions from affected projects were suspended. Management recorded no impairment based on its expectation that the PPAs would not be rejected, but rejection could result in a material impairment; lenders may seek repayment or foreclosure.
- Contingencies include investigations and potential penalties concerning storm response, gas operator qualifications, subway power reliability and other regulatory matters. The company had not accrued liabilities for several matters where losses could not be estimated, including the MTA matter, the 2018 storm investigation and gas-safety allegations.
- Environmental exposure remains significant: Con Edison’s accrued Superfund liability was $776 million, with regulatory assets of $798 million. Estimated potential undiscounted liability for manufactured-gas-plant sites could range up to $2.8 billion; actual costs may differ materially. Asbestos suits also present possible exposure beyond accrued amounts that the company could not estimate.
- Other material matters include unresolved claims related to the 2014 Manhattan gas explosion and the 2018 Manhattan steam-main rupture; no damages liability had been accrued for either at March 31, 2019. Management identified no material change in disclosed risk factors from the 2018 Form 10-K.
- Management reported disclosure controls and procedures were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether PG&E assumes or rejects the relevant power contracts, and the resulting project cash flows, debt remedies and impairment exposure.
- Progress and outcomes of CECONY’s pending rate cases and regulatory investigations, including potential penalties and recovery of deferred costs.
- Whether the improvement in operating cash flow is sustainable, given its reliance on timing-related changes and substantial capital investment needs.
- Clean Energy Businesses’ post-acquisition earnings, financing costs, tax-equity allocations and project performance.
- Potential environmental, asbestos, explosion, steam-main and storm-related liabilities beyond amounts accrued or recoverable through rates.