8-K: Con Edison Reports Mixed Second Quarter Earnings Amidst Regulatory Challenges

Con Edison reported a decrease in second quarter net income compared to the previous year, while reaffirming its full-year adjusted earnings per share guidance.

Summary

• Consolidated Edison, Inc. reported a second quarter 2024 net income of $202 million, or $0.58 per share, down from $226 million, or $0.65 per share, in the same quarter of 2023.
• Adjusted earnings for the second quarter were $203 million, or $0.59 per share, compared to $210 million, or $0.61 per share, in the prior year.
• For the first six months of 2024, net income was $922 million, or $2.67 per share, a decrease from $1,658 million, or $4.74 per share, in the first six months of 2023.
• However, adjusted earnings for the first six months of 2024 increased to $945 million, or $2.73 per share, from $856 million, or $2.45 per share, in the same period last year.
• The company reaffirmed its 2024 adjusted earnings per share guidance range of $5.20 to $5.40.
• The results were impacted by the denial of a request to capitalize costs for a new customer billing system, which resulted in a $37 million negative impact for the quarter and a $37 million negative impact for the first six months of the year.
• Con Edison's capital investments are projected to be $28 billion from 2024 to 2028, with a target of 6.4% annual rate base growth through 2028.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative due to the decrease in net income and the regulatory setback regarding the billing system costs. However, the reaffirmation of the earnings guidance and the company's focus on long-term growth and clean energy initiatives provide some positive aspects.

Positives

• Con Edison was recognized for providing the most reliable electric service in New York State.
• The company is making significant investments in infrastructure to support the clean energy transition.
• Con Edison is maintaining its 2024 adjusted earnings per share guidance range.
• The company anticipates growth in electric volumes due to the transition from fossil fuels.
• Con Edison has a long history of strong, stable returns for investors.
• The company has a strong focus on supporting a diverse, talented workforce.
• Con Edison has a 50 year history of consecutive dividend increases.
• The company is actively participating in projects to integrate offshore wind into the energy grid.

Negatives

• Second quarter net income and earnings per share decreased compared to the same period last year.
• The denial of the request to capitalize costs for the new customer billing system negatively impacted earnings by $37 million for the quarter and $37 million for the first six months of the year.
• Customer accounts receivable balances, including aged accounts, have increased significantly since February 2020.
• The company has decreased its forecast for average annual growth of firm peak gas demand due to the phase-out of natural gas.

Risks

• Con Edison's subsidiaries are extensively regulated and subject to substantial penalties.
• The company's utility subsidiaries' rate plans may not provide a reasonable return.
• Changes to the utility subsidiaries' rate plans could adversely affect the company.
• Failure of or damage to the company's facilities could adversely affect it.
• Cyber-attacks could adversely affect the company.
• The company is exposed to risks from the environmental consequences of its subsidiaries' operations, including increased costs related to climate change.
• The company's ability to pay dividends or interest depends on dividends from its subsidiaries.
• Changes to tax laws could adversely affect the company.
• The company requires access to capital markets to satisfy funding requirements.
• Disruptions in wholesale energy markets, increased commodity costs, or failure by an energy supplier or customer could adversely affect the company.
• The company faces risks related to health epidemics and other outbreaks.
• The company's strategies may not be effective to address changes in the external business environment.
• The company faces risks related to supply chain disruptions and inflation.

Future Outlook

Con Edison expects electric volumes to grow as New Yorkers transition from fossil fuels to heat their buildings and power their vehicles, providing attractive investment opportunities. The company is maintaining its 2024 adjusted earnings per share guidance range of $5.20 to $5.40.

Management Comments

• We are proud that our regulators annual report on utility performance once again showed that we provide customers with the most reliable electric service in the state, said Tim Cawley, the chairman and CEO of Con Edison.
• We continue to deliver strong financial results, notwithstanding the impact of the denial of our request to capitalize incremental costs for the successful implementation of our new customer billing and information system, said Kirk Andrews, senior vice president and CFO of Con Edison.
• We remain confident in our outlook for the year and are maintaining our 2024 adjusted earnings per share guidance range.

Industry Context

The announcement reflects the ongoing transition in the energy sector towards clean energy and electrification, with Con Edison positioning itself to capitalize on these trends. The company's focus on infrastructure investments and participation in offshore wind projects aligns with broader industry efforts to reduce carbon emissions and enhance grid reliability. The regulatory challenges faced by Con Edison are also indicative of the complex landscape in the utility sector.

Comparison to Industry Standards

• Con Edison's reliability performance, as recognized by New York State regulators, positions it favorably compared to other utilities in the region.
• The company's capital investment plans of $28 billion over the next five years are substantial, reflecting a commitment to modernizing its infrastructure, which is comparable to other large utilities in the US.
• The target of 6.4% annual rate base growth is a key metric that investors will compare to peers such as NextEra Energy (NEE) and Southern Company (SO), which also have significant capital expenditure programs.
• The company's adjusted EPS guidance of $5.20 to $5.40 is a benchmark that will be compared to the performance of other regulated utilities like Duke Energy (DUK) and Dominion Energy (D), which also operate in regulated markets.
• The impact of the denial of the capitalization of the new billing system costs is a unique challenge for Con Edison, but other utilities have faced similar regulatory hurdles in the past, such as cost recovery disputes with regulators.

Stakeholder Impact

• Shareholders may be concerned about the decrease in net income and the regulatory challenges, but reassured by the reaffirmed earnings guidance and long-term growth prospects.
• Employees are covered by a new four-year collective bargaining agreement.
• Customers will benefit from the company's focus on reliability and the clean energy transition, but may be impacted by rate changes.
• Suppliers and creditors will be impacted by the company's capital investment plans and financing activities.

Next Steps

• The company will continue to pursue its rehearing petition with the NYSPSC regarding the denial of the capitalization of the new customer billing system costs.
• Con Edison will continue to invest in infrastructure to support the clean energy transition.
• The company will continue to participate in competitive solicitations to develop additional electric projects.
• The NYISO is expected to release preliminary results of the viability and sufficiency assessments and facility characterizations for the New York City Public Policy Transmission Need by the close of Q3 2024, with its final report following in Q4 2024.
• The final project selection decision for the New York City Public Policy Transmission Need is expected to be made by Q2 Q3 2025.
• Stage 2 compliance filings are due January 9, 2025 for UTEN pilot projects.

Key Dates

Keywords

Consolidated Edison, Con Edison, Earnings, Utilities, Rate Base, Energy, Electric Service, Gas Service, Clean Energy, Transmission, Regulation, Infrastructure, Dividends, Offshore Wind, Mountain Valley Pipeline