01—Abstract
Summary
Summary of the 10-Q filed August 1, 2024. Cited figures are marked; the original filing is the authoritative source.
Consolidated Edison's second-quarter 2024 10-Q shows a quarter of lower earnings but solid underlying utility growth.
Net income for common stock fell to $202 milliona ($0.58 diluted EPS) from $226 million ($0.65) in Q2 2023, and year-to-date net income fell to $922 million ($2.66 diluted EPS) from $1,658 million ($4.72). The comparison is distorted by the March 2023 sale of the Clean Energy Businesses, which produced an $804 million after-tax gain in the prior-year period. Excluding that gain and related items, the story is more positive: CECONY's year-to-date net income rose to $880 million from $793 million, driven by the new steam rate plan, higher electric and gas rate base, and Con Edison Transmission's earnings from its Mountain Valley Pipeline (MVP) investment, which entered service in June 2024.
The quarter was pressured by a $37 millionb after-tax charge at CECONY tied to a NYSPSC order denying recovery of costs above the $421 million cap for its new customer billing system, and by a $51 million expense recognized in May 2024 for those costs. Other operations and maintenance expense rose 14% in the quarter, and Taxes other than income taxes rose 9%, mainly from higher property taxes. Operating cash flow improved to $1.91 billion for the first half, up from $1.16 billion, largely due to working capital changes.
Capital spending remains heavy, with utility construction expenditures of $2.40 billionc in the first half, funded by $1.4 billion of CECONY debentures issued in May and a rise in commercial paper to $2.45 billion. Investors should watch several open items: the NYSPSC rehearing petition on the billing system costs, a potential write-down risk on $1.1 billion of income tax regulatory assets tied to the audit of normalization practices, aged customer receivables that are slowing cash collections, the pending O&R electric and gas rate cases effective January 2025, and the $369 million EPA-estimated remedial cost for the Gowanus Canal Superfund site, for which CECONY cannot estimate its exposure. Equity-funded share repurchases were absent in 2024 after a $1 billion repurchase in the first half of 2023.
02—Key points
Key Highlights
- Q2 2024 net income for common stock was $202 million ($0.58 diluted EPS), down from $226 million ($0.65) in Q2 2023; six-month net income was $922 million ($2.66 diluted EPS), down from $1,658 million ($4.72), mainly because the prior year included the Clean Energy Businesses sale gain.
- CECONY's six-month net income rose to $880 million from $793 million, helped by the new steam rate plan (+$59 million), higher electric rate base (+$32 million) and higher gas rate base (+$29 million).
- A $37 million after-tax charge (about $0.11 per share) followed a NYSPSC order denying recovery of billing system costs above the $421 million cap; CECONY's final cost was $510 million and it has filed for rehearing.
- Con Edison Transmission net income rose to $24 million for the six months from $6 million, driven by investment income and AFUDC from Mountain Valley Pipeline, which entered service in June 2024.
- Operating cash flow for the first half increased to $1.91 billion from $1.16 billion, while utility construction expenditures reached $2.40 billion, up from $2.10 billion.
- Long-term debt rose to $23.3 billion (from $21.9 billion at year-end 2023), and commercial paper increased to $2.45 billion; the common equity ratio was 48.0%, down from 49.1%.
- Open risks include a potential write-off of $1.08 billion in CECONY income tax regulatory assets tied to a NYSPSC audit, an unestimated exposure at the Gowanus Canal Superfund site (EPA estimate of $369 million for remedial work), and aged customer receivables (CECONY aged balances of $1.55 billion).
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2024filed August 1, 2024Financial Statements
Q2 FY2024 against Q2 FY2023
| Line item | Q2 FY2024Q2 FY2023 | Change |
|---|---|---|
| Revenue | $3.30B$2.77B | +19.0% |
| Operating Expenses | $2.90B$2.67B | +8.5% |
| Operating Income | $320.00M$284.00M | +12.7% |
| Interest Expense | $288.00M$236.00M | +22.0% |
| Net Income | $202.00M$226.00M | −10.6% |
| EPS (Basic) | $0.58$0.65 | −10.8% |
| EPS (Diluted) | $0.58$0.65 | −10.8% |
| Shares Outstanding (Basic) | 345.90M345.90M | 0.0% |
| Shares Outstanding (Diluted) | 347.10M347.40M | −0.1% |
05—Questions
Frequently Asked Questions
Why did Con Edison's earnings decline so sharply in the second quarter and first half of 2024?
Most of the decline comparison reflects the prior year. In the first half of 2023, Con Edison booked an $804 million after-tax gain on the March 2023 sale of its Clean Energy Businesses, and it repurchased $1 billion of stock. Excluding those items, the business improved. In Q2 2024 specifically, earnings were also reduced by a $37 million after-tax charge at CECONY for billing system costs disallowed by the NYSPSC, offset partly by higher rate base earnings and Con Edison Transmission's MVP income.
What is the status of the billing system cost dispute at CECONY?
In May 2024, the NYSPSC denied CECONY's petition to capitalize billing system costs above the $421 million cap set in its rate plans. CECONY's final cost was $510 million. The company expensed $51 million of previously capitalized incremental costs in May 2024, in addition to a $38 million reserve established at year-end 2023. CECONY filed a petition for rehearing in June 2024, and management cannot predict the NYSPSC's response.
What are the main balance sheet and financing risks for investors?
Total assets reached $67.9 billion and long-term debt rose to $23.3 billion. CECONY issued $1.4 billion of debentures in May 2024 ($400 million due 2034 at 5.375% and $1.0 billion due 2054 at 5.7%). Commercial paper outstanding was $2.45 billion at a 5.5% weighted average rate. The common equity ratio fell to 48.0% from 49.1%. Heavy capital spending and slow collection of aged customer receivables (CECONY aged balances of $1.55 billion) continue to increase funding needs and borrowing costs.
Does the income tax regulatory asset create a risk to earnings?
Yes, it is a contingent risk. The Utilities hold income tax regulatory assets of $1,082 million at CECONY and $16 million at O&R that do not earn a return. These arose from an inadvertent understatement of federal income tax expense in ratemaking, which is under NYSPSC audit. Management believes the assets are probable of recovery through future rates and plans to seek an IRS private letter ruling. However, if the NYSPSC requires a write-off, the Utilities would record a charge. The amount of any possible loss cannot be estimated, and nothing has been accrued.
What regulatory and growth catalysts are highlighted for the rest of 2024 and beyond?
Key items include O&R's pending electric and gas rate requests effective January 1, 2025 (company requests of $10.7 million electric and $17.5 million gas, with NYSDPS proposing decreases). CECONY reached a four-year collective bargaining agreement covering about 7,300 employees, subject to ratification. Construction of the Empire Wind 1 interconnection was approved, and the NYSPSC set an energy storage goal of up to 6,000 MW by 2030. Con Edison Transmission is bidding on additional offshore wind transmission projects, and Mountain Valley Pipeline is now in service.
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