Business context and reporting period
Consolidated Edison, Inc. (Con Edison) filed this combined Form 10-K with its wholly owned subsidiary, Consolidated Edison Company of New York, Inc. (CECONY), for the fiscal year ended December 31, 2014. The filing is annual, not a standalone fourth-quarter report. Con Edison is a holding company whose regulated utilities, CECONY and Orange and Rockland (O&R), provide nearly all earnings; other businesses sell energy and develop renewable projects.
Financial performance and position
| Con Edison consolidated, $ millions except per-share data | 2014 | 2013 | Change |
|---|---|---|---|
| Operating revenue | $12,919 | $12,354 | +4.6% |
| Operating income | $2,209 | $2,244 | -1.6% |
| Net income for common stock | $1,092 | $1,062 | +2.8% |
| Diluted EPS | $3.71 | $3.61 | +2.8% |
| Operating cash flow | $2,831 | $2,552 | +$279 |
| Capital expenditures | $2,721 | $2,648 | +$73 |
| Cash dividends per share | $2.52 | $2.46 | +$0.06 |
- Operating margin was approximately 17.1%, versus 18.2% in 2013; net margin was approximately 8.5%, versus 8.6%.
- Management’s non-GAAP earnings from ongoing operations were $1,140 million, or $3.89 per share, versus $1,112 million, or $3.80, in 2013. This measure excludes the solar-project sale gain, LILO effects, and competitive-business mark-to-market effects.
- For Q4 alone, Con Edison reported revenue of $2,829 million, operating income of $250 million, net income of $81 million, and diluted EPS of $0.28. Q4 2013 comparatives were $2,868 million, $477 million, $234 million, and $0.79, respectively.
- At year-end, total assets were $44.3 billion and total equity was $12.6 billion. Long-term debt was $11.6 billion; adding current maturities and notes payable gives approximately $13.0 billion of debt. Cash was $699 million, current assets $3.9 billion, and current liabilities $3.8 billion.
- Con Edison’s 2014 operating cash flow exceeded reported capital expenditures by approximately $110 million, before dividends, debt transactions, and other investing or financing needs. Common dividends paid were $739 million.
- CECONY generated $1,058 million of net income for common stock, up from $1,020 million. CECONY’s operating revenue was $10,786 million and operating income $2,139 million.
Material changes versus 2013
- Regulated rate-plan changes were the largest positive earnings driver, adding an estimated $125 million to CECONY’s earnings. CECONY net income rose $38 million; O&R net income fell $5 million.
- CECONY electric operating income increased $117 million, while gas operating income declined $48 million, reflecting higher operating and purchased-gas costs. Steam operating income increased $10 million; colder weather supported steam deliveries, but lower fuel costs and rate-plan effects reduced revenue.
- Competitive energy businesses recorded a $17 million net loss versus a $23 million loss in 2013. Results included $73 million of after-tax net mark-to-market losses, partly offset by a $26 million after-tax gain on a solar-project sale. In 2013, LILO transactions caused a $95 million after-tax charge.
- Con Edison’s operating cash flow increased, principally reflecting lower pension contributions. CECONY’s operating cash flow declined by $213 million, chiefly because of higher income-tax payments, partly offset by lower pension contributions.
- Year-end long-term debt increased from $10.5 billion to $11.6 billion. Con Edison’s common equity ratio was 52.0%, compared with 53.9% in 2013.
Outlook, risks, contingencies and unusual items
- The companies estimated 2015 capital expenditures of $2.912 billion and expected to fund capital needs, including maturing securities, with internal funds and $1.0–$1.5 billion of long-term debt. Con Edison did not expect to issue common equity in 2015 beyond employee, dividend-reinvestment, and incentive plans.
- In January 2015, CECONY requested a $368 million electric rate increase effective January 2016, proposing a 10% return on equity. O&R had requested New York electric and gas rate increases of $33.4 million and $40.7 million, respectively, effective November 2015. Regulatory outcomes remain uncertain.
- Management forecast average annual peak-demand growth over five years of about 0.9% for CECONY electricity and 2.8% for CECONY gas; steam peak demand was expected to decline about 0.8% annually. O&R forecasts were about 0.9% for electricity and 0.6% for gas.
- The NYSPSC’s Reforming the Energy Vision proceeding could change utility regulation and the role of distributed energy resources; the companies said its outcome and impact could not yet be predicted.
- A March 2014 gas explosion and fire destroyed two buildings, killing eight people and injuring more than 48. The NTSB and NYSPSC were investigating; lawsuits were pending. Con Edison could not estimate possible loss and had not accrued a liability at year-end.
- In a separate construction-procurement prudence proceeding, approximately $1.675 billion of customer collections remained subject to potential refund. A NYSPSC consultant estimated $208 million of possible overcharges, an estimate the company disputed; Con Edison had accrued a $105 million regulatory liability.
- Environmental exposures include estimated undiscounted potential investigation and cleanup costs for manufactured-gas sites and Astoria of up to $2.7 billion for Con Edison and $2.5 billion for CECONY. These are estimates, not expected near-term cash payments; recovery through rates is available for certain costs. CECONY could not estimate its exposure at the Gowanus Canal site.
- Pension obligations increased significantly after lower discount rates and revised mortality assumptions. Con Edison estimated 2015 pension and postretirement costs would rise $148 million versus 2014 and expected pension contributions of $756 million, including $703 million from CECONY.
- Other material risks include extensive regulatory oversight and potential penalties, severe weather and infrastructure damage, cyber events, wholesale energy-market disruption, substantial benefit obligations, capital-market access, and environmental regulation. The filing reports no material impact from experienced cyber attacks.
Important facts for investors to verify
- Review the full audited statements and notes for cash-flow quality, debt maturities, credit facilities, and the distinction between Con Edison consolidated and CECONY-only results.
- Track the outcomes of CECONY’s and O&R’s rate cases, the construction-prudence proceeding, and investigations and litigation related to the 2014 gas explosion.
- Assess the range, timing, and regulatory recoverability of environmental obligations, and the sensitivity of pension costs and funding needs to actuarial assumptions.
- Separate recurring utility earnings from solar-sale gains, LILO adjustments, and competitive-business mark-to-market effects; ongoing-operations earnings are a non-GAAP measure.
- Confirm that planned capital spending, debt issuance, dividend growth, and projected demand remain consistent with actual financing needs and regulatory developments.