Con Edison, Inc. 2020 Form 10-K Summary
Business context and reporting period
This combined annual report covers the fiscal year ended December 31, 2020, and reports separately for Consolidated Edison, Inc. (Con Edison) and its wholly owned utility subsidiary, Consolidated Edison Company of New York, Inc. (CECONY). Con Edison is a regulated-utility-focused holding company; its businesses include CECONY, Orange and Rockland (O&R), renewable-energy and energy-services operations, and transmission and gas-pipeline investments. The Utilities are expected to provide substantially all of Con Edison’s earnings over the next few years.
Financial results and key metrics
| Con Edison, consolidated (millions, except per-share amounts) | 2020 | 2019 |
|---|---|---|
| Operating revenues | $12,246 | $12,574 |
| Operating income | $2,654 | $2,676 |
| Net income for common stock (GAAP) | $1,101 | $1,343 |
| Diluted EPS (GAAP) | $3.28 | $4.08 |
| Adjusted earnings (non-GAAP) | $1,399 | $1,438 |
| Adjusted EPS (non-GAAP) | $4.18 | $4.38 |
| Operating cash flow | $2,198 | $3,134 |
| Capital expenditures | $4,085 | $3,676 |
- GAAP net income declined 18% year over year; adjusted earnings declined about 3%. The $320 million pre-tax ($223 million after-tax) impairment of the Mountain Valley Pipeline (MVP) investment was the main unusual charge. Adjusted results exclude this impairment and certain other items; adjusted earnings are a non-GAAP measure.
- Operating margin was approximately 21.7%, compared with 21.3% in 2019; net margin was approximately 9.0%, compared with 10.7%.
- At year-end, total assets were $62.9 billion, long-term debt was $20.4 billion, and total equity was $19.1 billion. Cash and temporary cash investments were $1.27 billion; the additional $164 million of restricted cash brought reported cash, temporary investments and restricted cash to $1.44 billion.
- Current liabilities were $7.35 billion versus current assets of $5.30 billion. Year-end commercial paper outstanding was $1.71 billion for Con Edison, including $1.66 billion under CECONY’s program; the companies reported no borrowings under their $2.25 billion revolving credit agreement.
- Operating cash flow fell by $936 million, primarily reflecting higher customer receivables and other working-capital effects. Investing cash outflow was $4.22 billion; financing cash inflow was $2.25 billion. Year-end cash increased by $219 million.
- CECONY reported 2020 revenue of $10.65 billion and net income of $1.19 billion, compared with $10.82 billion and $1.25 billion in 2019.
Material changes versus the prior comparable period
- Lower earnings reflected the MVP impairment, lower CECONY steam results, and increased depreciation and property taxes. CECONY’s steam operating income fell to $5 million from $62 million, with warmer weather and pandemic-related reductions in customer usage contributing to lower revenue.
- CECONY electric delivery volumes decreased 6.5%; steam deliveries decreased 16.4%. COVID-19-related changes in customer activity and weather were among the factors affecting volumes. Revenue decoupling mechanisms mitigate some volume effects on eligible utility delivery revenues.
- Con Edison’s long-term debt rose from $18.5 billion to $20.4 billion, and total assets increased from $58.1 billion to $62.9 billion. The company issued common shares and debt during the year; CECONY issued $2.2 billion of debentures.
- Renewable generation expanded: Clean Energy Businesses’ operating utility-scale capacity reached 2,809 MW, and production rose to 7.124 billion kWh from 6.839 billion kWh. The businesses’ 2020 net income for common stock was $24 million, versus a loss of $18 million in 2019.
- Con Edison’s common share price fell 20.1% during 2020, and shareholder total return, including dividends, was negative 17%.
Outlook, commentary, risks and contingencies
- Investment and funding: Planned total capital expenditures are $4.02 billion in 2021, $3.94 billion in 2022 and $4.17 billion in 2023. Management expects to fund requirements through internal cash generation and debt and equity issuance. Plans include up to $800 million of common equity in 2021 and approximately $700 million in aggregate in 2022–2023; planned utility long-term debt issuance is $1.9–$2.6 billion in 2021 and approximately $1.4 billion in aggregate over 2022–2023.
- Dividend: Con Edison declared $3.06 per share for 2020 and declared a quarterly dividend of $0.775 per share in January 2021. Future dividends remain subject to board approval and financial, business and regulatory considerations.
- COVID-19: The Utilities suspended certain disconnections, collection activity, late charges and fees. The company reported $61 million of estimated foregone CECONY revenues and $3 million for O&R in 2020, alongside increased uncollectible-account reserves. The pandemic reduced liquidity through slower customer collections; future effects remain uncertain.
- Regulatory and service risks: New York regulators issued show-cause orders concerning Tropical Storm Isaias outages and 2019 outages in Manhattan and Brooklyn. Potential penalties cited include up to $102.3 million for CECONY and $19 million for O&R related to Isaias, and up to $24.8 million for CECONY related to the 2019 outages. The companies had not accrued liabilities for these matters and said outcomes could not be determined.
- Pipeline investments: MVP’s permits and completion remain uncertain. Con Edison reduced the investment’s carrying value from $662 million to $342 million and warned of potential further or full impairment. Con Edison is also considering strategic alternatives for its 50% Stagecoach Gas Services interest.
- Environmental exposure: Accrued Superfund liabilities were $857 million for Con Edison, with $865 million of related regulatory assets. Estimated undiscounted potential cleanup costs for known and assumed contamination at manufactured-gas and Astoria sites are substantial; actual costs may differ, and some site exposures remain unestimable. The report also identifies unquantified potential asbestos exposure beyond accrued amounts.
- Other risks: Climate-related extreme weather, cyber incidents, pension funding and assumptions, rate-case outcomes, gas-supply constraints, and changes in clean-energy policy may affect costs, earnings or investment needs. A gas-service moratorium remained in place in most of Westchester County pending additional pipeline capacity or reduced peak demand.
- No specific 2021 earnings or EPS guidance is provided in the filing text summarized here. Management’s forward-looking statements are subject to risks and assumptions.
Important facts for investors to verify
- Review the full reconciliation of GAAP earnings to adjusted earnings, including the MVP impairment and Clean Energy Businesses’ mark-to-market and tax-equity accounting effects.
- Track cash collections, uncollectible-account reserves, regulatory deferrals and the timing or recovery of pandemic-related costs.
- Monitor the NYSPSC investigations, potential penalties and any changes to utility operating certificates or recovery of storm-response costs.
- Assess MVP permitting, project completion assumptions and possible further impairment, as well as any decision regarding Stagecoach.
- Compare planned capital spending and debt and equity issuance with actual funding needs, leverage, liquidity and dividend capacity.
- Review environmental remediation estimates and regulatory recoverability, particularly for manufactured-gas, Astoria, Gowanus Canal and Newtown Creek sites.