10-Q: Consolidated Edison Reports Third Quarter 2024 Results, Navigating Regulatory Landscape and Clean Energy Transition

Consolidated Edison's third quarter 2024 results show a complex picture of increased revenues offset by higher expenses and the ongoing impact of regulatory changes and strategic shifts.

Summary

• Consolidated Edison, Inc. (Con Edison) and its subsidiary, Consolidated Edison Company of New York, Inc. (CECONY), released their combined quarterly report for the period ending September 30, 2024.
• Con Edison's net income for common stock was $588 million, or $1.70 per basic share, compared to $526 million, or $1.53 per basic share, for the same period in 2023.
• For the nine months ended September 30, 2024, Con Edison's net income for common stock was $1,510 million, or $4.37 per basic share, compared to $2,185 million, or $6.27 per basic share, for the same period in 2023.
• CECONY's net income was $537 million for the quarter, compared to $515 million in the same period last year, and $1,417 million for the nine months ended September 30, 2024, compared to $1,308 million for the same period in 2023.
• The report highlights the impact of regulatory matters, including ongoing rate case proceedings for O&R, and the implementation of a new customer billing system at CECONY.
• The company is also navigating the transition to clean energy, with a focus on electric transmission projects and the long-term role of natural gas.
• Aged accounts receivable balances continue to be a concern, impacting the company's liquidity, despite regulatory mechanisms in place for recovery.
• The report also details the financial impact of the sale of the Clean Energy Businesses in 2023, including adjustments to the gain on sale.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While the company shows some positive results in revenue and net income for the quarter, the overall picture is mixed due to increased expenses, regulatory challenges, and the impact of the sale of the Clean Energy Businesses. The company also faces significant risks and uncertainties.

Positives

• Con Edison and CECONY both experienced increased net income for the quarter and nine months ended September 30, 2024.
• Electric operating revenues for both Con Edison and O&R increased, driven by rate plan adjustments.
• Con Edison Transmission's investment in MVP is generating positive earnings.
• CECONY and O&R have successfully issued long-term debt, securing capital for operations and investments.
• The company is actively engaged in developing electric transmission projects to support the clean energy transition.

Negatives

• Con Edison's net income for the nine months ended September 30, 2024 was lower than the same period in 2023, primarily due to the gain on the sale of the Clean Energy Businesses in 2023.
• CECONY's operating expenses increased, including higher costs for operations and maintenance, depreciation, and taxes.
• Aged accounts receivable balances continue to rise, impacting the company's liquidity.
• The NYSPSC denied CECONY's petition to capitalize costs for its new customer billing system, resulting in a $51 million expense.
• The company faces ongoing regulatory uncertainty, including rate case proceedings and investigations into gas and steam main welds.

Risks

• The company is subject to extensive regulation and potential penalties.
• Rate plans may not provide a reasonable return, and changes to rate plans could adversely affect the company.
• Failure or damage to facilities, cyber attacks, and system failures could negatively impact operations.
• Environmental consequences of operations, including climate change, pose significant risks.
• The company's ability to pay dividends depends on dividends from its subsidiaries.
• Changes to tax laws could adversely affect the company.
• Disruptions in wholesale energy markets, increased commodity costs, or failure by suppliers or customers could impact the company.
• Supply chain disruptions and inflation pose ongoing challenges.
• The long-term future of the gas business is uncertain due to climate goals.
• The company faces risks related to health epidemics and other outbreaks.

Future Outlook

The company expects electric usage to increase and gas and steam usage to decrease in their service territories as federal, state and local laws and policies are enacted and implemented that aim to reduce the carbon intensity of the energy that is consumed in their respective jurisdictions. The Utilities and their regulators efforts to maintain electric reliability in their service territories as electric usage increases may also impact the Companies future financial condition. The long-term future of the Utilities gas businesses depends upon the role that natural gas or other gaseous fuels will play in facilitating New York States and New York Citys climate goals.

Management Comments

• Con Edison seeks to provide shareholder value through continued dividend growth, supported by earnings growth in regulated utilities and contracted electric transmission assets.
• Con Edison invests to provide reliable, resilient, safe and clean energy critical for its New York and New Jersey customers.
• Con Edison is a responsible neighbor, helping the communities it serves become more sustainable.

Industry Context

This announcement reflects the broader trends in the utility industry, including the transition to renewable energy, the impact of regulatory changes, and the need to manage financial risks in a changing market. The company's focus on electric transmission projects and its efforts to address climate change align with industry-wide goals.

Comparison to Industry Standards

• Con Edison's performance is comparable to other large, regulated utilities in the United States, particularly those operating in the Northeast.
• The company's focus on renewable energy and grid modernization is consistent with industry trends.
• The challenges faced by Con Edison, such as managing aged accounts receivable and navigating regulatory complexities, are common among utilities.
• The company's investment in electric transmission projects is similar to other utilities seeking to integrate renewable energy sources.
• The company's financial metrics, such as revenue growth and profitability, are within the range of industry benchmarks for regulated utilities.

Legal Proceedings

• Lawsuits are pending against CECONY seeking damages for wrongful death, personal injury, property damage and business interruption related to the 2014 Manhattan explosion and fire.
• CECONY is cooperating with the NYSDPS on its investigation of non-conforming gas and steam main welds.
• A PRP filed a lawsuit against other PRPs, including CECONY, with respect to the Gowanus Canal Superfund Site.

Related Party Transactions

• CECONY and O&R have joint gas supply arrangements in connection with which CECONY sold to O&R, $14 million of natural gas for the three months ended September 30, 2024 and 2023 and $52 million and $60 million for the nine months ended September 30, 2024 and 2023, respectively.
• CECONY's net receivable from Con Edison for income taxes were $452 million and $110 million, respectively, at September 30, 2024 and December 31, 2023.
• The Utilities perform work and incur expenses on behalf of New York Transco, a company in which Con Edison Transmission has a 45.7 percent interest.
• CECONY has a 20-year transportation contract with MVP, in which Con Edison Transmission has an expected 6.6 percent interest.

Stakeholder Impact

• Shareholders may be concerned about the lower net income for the nine months ended September 30, 2024 compared to 2023, but may be encouraged by the increased net income for the quarter.
• Employees may be affected by the ongoing regulatory changes and the company's efforts to manage costs.
• Customers may be impacted by potential rate increases and the company's efforts to transition to clean energy.
• Suppliers and creditors may be affected by the company's financial performance and its ability to meet its obligations.
• Communities served by the company may be impacted by the company's efforts to address climate change and improve infrastructure.

Next Steps

• The company will continue to pursue regulatory approvals for rate increases and other matters.
• Con Edison will continue to develop electric transmission projects and explore opportunities in renewable energy.
• The company will continue to monitor and manage its aged accounts receivable balances.
• CECONY will continue to investigate and remediate non-conforming gas and steam main welds.
• The company will continue to assess the impacts of the IRA on their financial statements and will update estimates based on future guidance to be issued by the Department of the Treasury.

Key Dates

Keywords

Consolidated Edison, CECONY, Utilities, Electric, Gas, Steam, Rate Case, Regulatory, Clean Energy, Transmission, Financial Results, Earnings, Accounts Receivable, Debt, Operating Expenses, Climate Change, Renewable Energy, Mountain Valley Pipeline, NYISO, NYSPSC