New York's Clean Energy Policies Support Con Ed's Growth

Strategist

Travis Miller

Revenue segments as reported by the company.

Electric

Steam

Non-utility

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Revenue is the money generated from normal business operations. Gross Profit is revenue minus cost of goods sold. Operating Income is revenue minus cost of goods sold and other operating expenses.

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Net Income, also called net earnings, is calculated as revenue minus cost of goods sold, operating expenses, depreciation, interest, taxes, and other expenses.

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Gross Profit, Operating Income, and Net Income as a percentage of Revenue

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An operating expense is an expense a business incurs through its normal business operations. Often abbreviated as OPEX.

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Shares outstanding refer to a company's stock currently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company's officers and insiders.

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Also known as Price/Sales Ratio. Calculated using Average market cap for the quarter / Annualized quarterly revenue.

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Consolidated Edison's core rate-regulated electric and natural gas distribution utilities in New York and New Jersey have produced stable earnings and dividend growth despite regulatory challenges.

New York regulators historically have made it difficult for Con Ed to earn returns above the industry average. Regulators have offset this by reducing the volatility of Con Ed's earnings and cash flows by adjusting rates for variables like weather and sales volume. New York's three-year rate-setting framework also improves cash flow.

Consolidated Edison of New York, Con Ed's largest subsidiary, is awaiting an important regulatory decision that will set electric and gas base rates in 2023-25. A mid-February settlement implies a cumulative $1.9 billion rate increase, down from Con Ed's $3.2 billion rate increase request, but still a fair outcome if regulators approve it. We expect the CECONY rate increases and rate increases at its smaller New York and New Jersey subsidiaries will support 6% earnings growth at least through 2025. We expect that Con Ed's utilities will average nearly $5 billion of annual capital investment for the foreseeable future.

Con Ed has dabbled in other businesses such as clean energy, electric transmission, and gas pipelines but all still are a small share of earnings. Management is exiting the stand-alone clean energy business with its $6.8 billion sale to European utility RWE. We think is an attractive price for Con Ed's 3 gigawatts of solar and wind capacity mostly outside of New York. Those proceeds will now go to fund Con Ed's utility infrastructure growth investment, avoiding the need for new equity at least through 2023.

Con Ed has increased its dividend for 49 consecutive years, but growth has trailed its peers. 

The board raised the dividend 2.5% in 2023, in line with the average dividend growth rate during the last decade. We expect dividend growth to pick up slightly once its CECONY rate case is approved and the clean energy business sale closes, but we still think dividend growth will trail many other utilities' growth rates.

Business Strategy & Outlook

We give Con Ed a no moat rating. Regulation for some U.S. distribution utilities supports economic moats given the implicit agreement to maintain a return on capital for investors in utility infrastructure.

However, regulators in New York have a history of setting rates at levels that make it difficult for Con Ed to earn its cost of capital consistently. Con Ed's latest rate settlement at CECONY for rates in 2023-25 includes a 9.25% allowed return on equity, a step up from the 8.8% in its 2020-22 rate cycle, but still one of the lowest in the utilities sector. We don't expect a significant change in the coming years. Due to forward-looking regulatory frameworks, the utility usually earns near the allowed return; however, the returns on invested capital are only marginally above our estimate of the company's cost of capital. 

The small spread between returns on invested capital and cost of capital provides very little room for what at times can be a challenging political environment when its executives must square off against not only New York regulators but also the governor, the mayor of New York City, and others looking to generate political capital from targeting the utility. Thus, we have low confidence that the company can consistently earn above its cost of capital during the next 15 years.

Con Ed's customers in New York City pay among the highest rates for electricity in the country. The city's infrastructure is very old, mostly underground—which is much more expensive to expand and maintain—and perennially at risk from very serious storm-related damage. These factors also play a role in our lack of confidence in Con Ed's ability to create an economic moat.

Con Ed's nonregulated businesses are not large enough to have a material impact on our no-moat rating.

None

Economic Moat

Con Ed

Consolidated Edison, Inc. operates as a holding company, which through its subsidiaries engages in the business of regulated electric, gas, and steam delivery. It operates through the following segments: Consolidated Edison Company of New York(CECONY), Orange and Rockland Utilities(O&R), Con Edison Clean Energy Businesses and Con Edison Transmission. The Consolidated Edison Co. of New York involves regulated electric, gas, and steam utility businesses. The Orange & Rockland Utilities covers regulated electric and gas utility delivery businesses. The Con Edison Clean Energy Businesses develops, owns and operates renewable and energy infrastructure projects and provides energy-related products and services to wholesale and retail customers. The Con Edison Transmission invests in electric and gas transmission projects. The company was founded in 1823 and is headquartered in New York, NY.

Earnings data Q2 2023

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Consolidated Edison, Inc. is a holding company, which engages in the business of regulated electric, gas, and steam delivery. It operates through the following segments: Consolidated Edison Company of New York (CECONY), Orange and Rockland Utilities(O&R), Con Edison Clean Energy Businesses and Con Edison Transmission. The CECONY segment is involved in the regulated electric, gas, and steam utility businesses. The O&R segment covers regulated electric and gas utility delivery businesses. The Con Edison Clean Energy Businesses segment develops, owns, and operates renewable and energy infrastructure projects and provides energy-related products and services to wholesale and retail customers. The Con Edison Transmission segment invests in electric and gas transmission projects. The company was founded in 1823 and is headquartered in New York, NY.

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NEW YORK , May 19, 2023 /PRNewswire/ -- Consolidated Edison, Inc. ("Con Edison") (NYSE: ED) executives will meet with investors at the American Gas Association Financial Forum in Fort Lauderdale, Fla. on May 21 and 22.

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Company Seeks to Deliver 100 Percent Clean Energy, Supports Electrification of Buildings and Transportation, Offers Robust Energy Efficiency Programs NEW YORK , May 15, 2023 /PRNewswire/ -- Con Edison Chairman and CEO Tim Cawley spoke optimistically about the company's future as a leader of the region's transition to clean energy. The company continues to deliver industry-leading service reliability to its customers and strong, stable returns for shareholders while building a grid to provide 100 percent clean energy by 2040, Cawley told shareholders today at the company's virtual annual meeting.

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NEW YORK , May 4, 2023 /PRNewswire/ -- Consolidated Edison, Inc. (Con Edison) (NYSE: ED) today reported 2023 first quarter net income for common stock of $1,433 million or $4.06 a share compared with $602 million or $1.70 a share in the 2022 first quarter. Adjusted earnings were $645 million or $1.83 a share in the 2023 period compared with $522 million or $1.47 a share in the 2022 period.

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NEW YORK, April 20, 2023 /PRNewswire/ -- Consolidated Edison, Inc. (Con Edison) (NYSE: ED) declared a quarterly dividend of 81 cents a share on its common stock, payable June 15, 2023 to stockholders of record as of May 17, 2023. Consolidated Edison, Inc. is one of the nation's largest investor-owned energy-delivery companies, with approximately $16 billion in annual revenues and $69 billion in assets as of December 31, 2022.

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NEW YORK , March 17, 2023 /PRNewswire/ -- Consolidated Edison, Inc. ("Con Edison") (NYSE: ED) today announced that its Chairman & CEO Tim Cawley will meet with investors in Europe during the week of March 20-24, 2023. As part of the meetings, management will discuss its recent Q4 and FY 2022 financial results and business strategy, including the Company's clean energy future.

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NEW YORK , March 6, 2023 /PRNewswire/ -- Consolidated Edison, Inc. ("Con Edison") (NYSE: ED) today announced that it has entered into accelerated share repurchase agreements with two dealers to repurchase $1 billion in aggregate of its common shares. Con Edison is funding the repurchases under the accelerated share repurchase agreements from a portion of the proceeds from the sale of Con Edison Clean Energy Businesses, Inc. Under the terms of the accelerated share repurchase agreements, Con Edison will make payments of $1 billion in aggregate to the dealers on March 7, 2023 and will receive approximately 8.7 million shares of Con Edison common shares in aggregate on the same day.

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NEW YORK , March 1, 2023 /PRNewswire/ -- Consolidated Edison, Inc. ("Con Edison") (NYSE:ED) has successfully completed the sale of its wholly-owned subsidiary, Con Edison Clean Energy Businesses, Inc. (the "Clean Energy Businesses"), including the transfer of substantially all of its assets, to RWE Renewables Americas, LLC.  The transaction is valued at $6.8 billion.

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News for Con Ed Stock (ED)