8-KOther Events

CONSOLIDATED EDISON INC 8-K Report, Corporate Update (Jan 31, 2019)

Filed January 31, 2019For Securities:ED

Summary

Consolidated Edison, Inc. (ED) is disclosing a material event stemming from the January 29, 2019, Chapter 11 bankruptcy filing of Pacific Gas and Electric Company (PG&E). A subsidiary of Con Edison Development sells power from renewable projects totaling 680 MW (AC) to PG&E under long-term agreements. These contracts, often priced above current market rates, are now subject to PG&E's bankruptcy proceedings. This situation introduces significant uncertainty regarding Con Edison's financial exposure. The company has substantial net non-utility plant ($829 million), intangible assets related to the power purchase agreements ($1,234 million), and associated project debt ($1,050 million) tied to these PG&E Projects. PG&E, as debtor-in-possession, may reject these agreements, requiring court or FERC approval, which PG&E is challenging. The bankruptcy itself constitutes an event of default under the power purchase agreements, potentially impacting debt repayment and project ownership.

Key Highlights

  • 1PG&E, a major customer, has filed for Chapter 11 bankruptcy.
  • 2Con Edison Development has $829 million in net non-utility plant related to projects supplying PG&E.
  • 3Intangible assets totaling $1,234 million are linked to the power purchase agreements with PG&E.
  • 4Related project debt associated with these projects amounts to $1,050 million.
  • 5PG&E may reject the power purchase agreements, subject to court/FERC review.
  • 6The bankruptcy is an event of default for the power purchase agreements.
  • 7Distributions from projects to Con Edison Development are suspended during the bankruptcy proceedings unless lenders agree otherwise.

Frequently Asked Questions

The direct financial impact is uncertain but potentially significant. Con Edison has substantial assets and intangible rights tied to power purchase agreements with PG&E. PG&E may reject these agreements, and the bankruptcy constitutes an event of default, which could lead to the lenders accelerating project debt or foreclosing on the projects. Distributions from the affected projects to Con Edison Development are also halted.

The 'PG&E Projects' refer to renewable electric production facilities with a combined capacity of 680 MW (AC) whose output is sold to PG&E under long-term power purchase agreements. These projects represent a significant portion of Con Edison's non-utility assets and related intangible assets.

The primary risk is that PG&E, as part of its bankruptcy proceedings, may seek to reject or renegotiate these PPAs. This could result in Con Edison receiving lower prices for the power sold, or potentially losing the contracted revenue stream altogether. The bankruptcy also triggers default clauses in the PPAs.

If the defaults under the PPAs are not cured and the lenders for the related project debt do not agree otherwise, they have the right to declare the principal and interest on the project debt immediately due and payable. If not paid, they can initiate foreclosure proceedings on the related projects.