Consolidated Edison, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. This combined filing covers Con Edison and its wholly owned utility subsidiary, Consolidated Edison Company of New York (CECONY). Unless noted, financial amounts below are for Con Edison and in millions of dollars.
Financial performance and liquidity
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Operating revenue | $3,156 | $3,616 |
| Operating income | $642 | $726 |
| Net income | $310 | $370 |
| Diluted EPS | $1.05 | $1.26 |
| Dividends declared per share | $0.67 | $0.65 |
| Operating cash flow | $524 | $559 |
| Cash used in investing activities | $(1,118) | $(667) |
| Cash used in financing activities | $(287) | $(474) |
Cash and temporary cash investments were $61 at March 31, 2016, down from $944 at year-end 2015. Long-term debt, including current maturities, was $12,961; commercial paper outstanding was $1,199. No loans were outstanding under the credit agreement. The common equity ratio was 51.9%, compared with 52.1% at year-end.
Utility construction expenditures were $603; Con Edison also spent $210 on non-utility construction and $247 on renewable and gas-transmission investments or acquisitions. CECONY reported revenue of $2,632 and net income of $310, versus $3,010 and $348 in Q1 2015.
Material changes and operating drivers
- Con Edison revenue fell 12.7% and net income fell 16.2% year over year. Management attributed results primarily to unusually warm weather reducing steam revenue compared with the colder first quarter of 2015, and to competitive-energy mark-to-market effects.
- CECONY net income declined $38, including a $35 adverse steam-weather impact. CECONY operating income decreased $44; lower steam operating income was partly offset by improved gas operating income and rate-plan changes.
- Competitive energy businesses recorded a $30 net loss, versus $2 net income in the prior-year quarter. This included $38 of after-tax mark-to-market losses. Lower retail electric prices and wholesale sales also weighed on revenue.
- Operating cash flow decreased $35. Investing outflows increased $451, principally reflecting greater renewable-energy and gas-transmission investment and development spending.
- Con Edison’s Texas Solar 7 subsidiary issued $218 of 4.21% senior notes due 2041. The project’s total cost is estimated at approximately $375.
Outlook, regulation, risks and unusual items
- No earnings or EPS forecast is provided in the supplied filing text. Con Edison estimated 2016 capital requirements at $5,867, increased from $4,892 after agreeing to acquire a 50% interest in Stagecoach Gas Services for $975, subject to closing adjustments. The transaction was expected to be substantially completed in Q2 2016.
- To fund capital needs, the company planned internally generated funds and securities issuance, including approximately $500 of common equity and $500 of long-term debt associated with the Stagecoach purchase; an additional $1,000–$1,800 of long-term debt, mostly at the utilities; and approximately $200 of additional common equity, apart from specified employee and dividend plans.
- CECONY’s preliminary electric rate request sought a $480 increase effective January 2017, with illustrated increases of $177 in 2018 and $141 in 2019. Its preliminary gas request sought $159 in 2017, with illustrated increases of $93 in 2018 and $104 in 2019. These were requests, not approved rates.
- The NYSPSC approved CECONY’s advanced-metering plan, subject to a $1,285 capital-expenditure cap and a six-year deployment. A separate approved joint proposal requires $116 of customer credits and bars recovery of an aggregate $55 related to certain capital-expenditure returns during 2017–2044; $98 remained recorded as a regulatory liability at quarter-end.
- CECONY had not accrued a liability for the 2014 Manhattan gas explosion and fire; the company said it could not estimate the possible loss. Approximately 70 suits were pending. A separate gas-safety regulatory proceeding also had an unestimable possible loss.
- Con Edison reported $767 of accrued Superfund and environmental liabilities. Its 2015 estimate of potential undiscounted remediation liability for manufactured-gas-plant sites was up to $2.8 billion for Con Edison; actual costs could differ materially. The filing also notes possible asbestos-related loss above accrued amounts, which it could not estimate.
- Other stated risks include regulation and rate-plan outcomes, facility reliability and safety, cyberattack, environmental obligations, pension and postretirement liabilities, capital-market access, and commodity and counterparty exposures. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the lower year-over-year earnings are primarily weather- and mark-to-market-related, and how competitive-energy results develop after the planned retail-supply-business sale.
- Regulatory outcomes and timing for CECONY’s proposed rate increases, customer credits, gas-safety matters and transmission charges.
- Funding and execution of the revised 2016 capital plan, including the Stagecoach transaction, planned equity and debt issuance, and project spending.
- Cash availability and commercial-paper refinancing needs, given quarter-end cash of $61 and planned substantial capital requirements.
- Potential exposure from the Manhattan explosion, environmental remediation and asbestos proceedings, including liabilities that the company says cannot currently be estimated.