8-K: Consolidated Edison Subsidiary Reaches Agreement on New Rate Plans

Orange and Rockland Utilities, a subsidiary of Consolidated Edison, has agreed to a joint proposal with the New York State Department of Public Service for new electric and gas rate plans spanning 2025-2027, pending regulatory approval.

Summary

• Orange and Rockland Utilities (O&R), a subsidiary of Consolidated Edison, has reached a joint proposal with the New York State Department of Public Service (NYSDPS) for new electric and gas rate plans.
• The proposed rate plans cover a three-year period from January 2025 through December 2027.
• The electric rate plan includes base rate changes, amortizations of regulatory assets and liabilities, potential earnings adjustments, revenue decoupling mechanisms, and recoverable energy costs.
• The electric plan also includes potential negative revenue adjustments if performance targets are not met, and reconciliations for various expenses.
• The electric plan targets an average net plant of $1,398 million in year 1, $1,471 million in year 2, and $1,737 million in year 3.
• The electric plan targets an average rate base of $1,293 million in year 1, $1,393 million in year 2, and $1,646 million in year 3.
• The electric plan includes capital investments of $311 million in year 1, $349 million in year 2, and $315 million in year 3.
• The weighted average cost of capital is set at 7.25% in year 1, 7.28% in year 2, and 7.31% in year 3 for both electric and gas.
• The authorized return on common equity is 9.75% for both electric and gas.
• The gas rate plan includes base rate changes, amortization of regulatory liabilities, potential positive rate adjustments for safety and performance, and revenue decoupling mechanisms.
• The gas plan also includes potential negative revenue adjustments if performance targets are not met, and reconciliations for various expenses.
• The gas plan targets an average net plant of $877 million in year 1, $934 million in year 2, and $1,010 million in year 3.
• The gas plan targets an average rate base of $720 million in year 1, $791 million in year 2, and $863 million in year 3.
• The gas plan includes capital investments of $121 million in year 1, $127 million in year 2, and $110 million in year 3.
• Both plans include earnings sharing where earnings above a 10.25% threshold are used to reduce regulatory assets.
• The cost of long-term debt is set at 4.95% in year 1, 5.01% in year 2, and 5.08% in year 3 for both electric and gas.
• The common equity ratio is 48% for both electric and gas.
• The Joint Proposal is subject to approval by the New York State Public Service Commission (NYSPSC).

Sentiment

Score: 7

Explanation: The document outlines a standard regulatory agreement, which is generally positive for the company as it provides a framework for future revenue. There are some potential negatives, such as performance penalties, but overall the sentiment is moderately positive.

Positives

• The agreement provides a clear framework for rate changes over the next three years.
• The plans include mechanisms for recovering costs and adjusting for performance.
• There are potential incentives for energy efficiency and other initiatives.
• The plans include a continuation of reconciliation of actual to authorized revenues, providing stability.
• The plans include a continuation of current rate recovery of purchased power and fuel costs.

Negatives

• The plans include potential negative revenue adjustments if performance targets are not met.
• There are potential charges if certain performance targets relating to service, reliability, safety and other matters are not met.
• The base rate changes for electric are initially negative in year 1, although this is proposed to be implemented with no change.
• The base rate changes for gas are initially low in year 1, although this is proposed to be implemented with an increase.

Risks

• The Joint Proposal is subject to approval by the New York State Public Service Commission (NYSPSC), and may be modified or rejected.
• Failure to meet performance targets could result in significant negative revenue adjustments.
• Changes in regulatory policy or economic conditions could impact the effectiveness of the rate plans.
• There is a risk that the actual costs for items such as pension and environmental remediation may exceed the amounts reflected in rates.

Future Outlook

The proposed rate plans are subject to approval by the NYSPSC and will be in effect from January 2025 through December 2027, providing a framework for revenue and cost recovery for Orange and Rockland Utilities.

Industry Context

This announcement is typical for regulated utilities, which must periodically negotiate rate plans with regulatory bodies. The agreement reflects the ongoing need to balance the interests of the utility, its customers, and the public.

Comparison to Industry Standards

• The authorized return on common equity of 9.75% is within the typical range for regulated utilities in the United States.
• The weighted average cost of capital of around 7.25% to 7.31% is also consistent with industry norms.
• The use of revenue decoupling mechanisms is a common practice to ensure utilities are not penalized for promoting energy efficiency.
• The inclusion of performance-based incentives and penalties is also a standard practice to encourage utilities to meet service and reliability targets.
• Comparible companies such as National Grid and Eversource Energy also have similar rate structures and regulatory oversight.

Stakeholder Impact

• Shareholders will be impacted by the new rate plans, which will affect the company's revenue and profitability.
• Customers will be impacted by the changes in rates for electric and gas services.
• Employees will be impacted by the company's performance and financial stability.
• Suppliers and creditors will be impacted by the company's financial health and ability to meet its obligations.

Next Steps

• The Joint Proposal will be submitted to the New York State Public Service Commission (NYSPSC) for approval.
• The NYSPSC will review the proposal and may approve, modify, or reject it.
• If approved, the new rate plans will go into effect in January 2025.

Key Dates

Keywords

rate plan, utilities, regulation, energy, electric, gas, NYSDPS, NYSPSC, Orange and Rockland, Consolidated Edison