Con Edison(ED) - 2021 Q4 - Annual Report

Introduction Company Overview Consolidated Edison, Inc, is a holding company operating through its regulated utilities, clean energy, and transmission subsidiaries - Con Edison's primary business segments are its regulated utilities (CECONY and O&R), its renewable energy operations (Clean Energy Businesses), and its transmission investment arm (Con Edison Transmission)[23] - The regulated utilities, CECONY and O&R, are expected to provide substantially all of the company's earnings over the next few years through approved rate plans[24] Significant Developments and Outlook The company reported increased net income in 2021, plans over $14 billion in capital expenditures, and is exploring strategic alternatives for its Clean Energy Businesses Financial Performance Summary (2020 vs. 2021) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Net Income | $1,346 million | $1,101 million | | EPS | $3.86 | $3.29 | | Adjusted Earnings | $1,528 million | $1,399 million | | Adjusted EPS | $4.39 | $4.18 | Planned Capital Investments (2022-2024, in millions) | Segment | 2022 | 2023 | 2024 | | :--- | :--- | :--- | :--- | | The Utilities | $4,134 | $5,015 | $5,203 | | Clean Energy Businesses | $400 | $400 | $400 | | Con Edison Transmission | $73 | $42 | $10 | - The company is considering strategic alternatives for its Clean Energy Businesses, which develops, owns, and operates renewable energy projects[27] - Financing plans for 2022-2024 include issuing $800M-$1,400M of long-term debt in 2022, an aggregate of $2.5B in 2023-2024, and up to $850M of common equity in 2022 plus $750M in 2023-2024[28][29] - In 2021, Con Edison Transmission's subsidiary, CET Gas, recorded significant pre-tax impairment losses: $212 million on its investment in Stagecoach Gas Services LLC and $231 million on its investment in Mountain Valley Pipeline LLC[39][40] Non-GAAP Financial Measures The company uses non-GAAP adjusted earnings to provide a clearer view of ongoing financial performance by excluding certain non-recurring items Reconciliation of Reported Net Income to Adjusted Earnings (Millions of Dollars) | Description | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Reported net income – GAAP basis | $1,346 | $1,101 | $1,343 | | Impairment loss on MVP (net of tax) | 162 | 223 | — | | Impairment loss on Stagecoach (net of tax) | 147 | — | — | | HLBV effects (net of tax) | (98) | 32 | 74 | | Net mark-to-market effects (net of tax) | (37) | 43 | 21 | | Other adjustments | 8 | — | — | | Adjusted earnings (Non-GAAP) | $1,528 | $1,399 | $1,438 | Reconciliation of Reported EPS to Adjusted EPS | Description | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Reported EPS – GAAP basis | $3.86 | $3.29 | $4.09 | | Adjustments (net) | $0.53 | $0.89 | $0.29 | | Adjusted EPS (Non-GAAP) | $4.39 | $4.18 | $4.38 | Part I Item 1: Business The company's operations are segmented into regulated utilities, clean energy, and transmission, with a focus on capital investment and environmental goals Overview Con Edison operates through four main subsidiaries, with its regulated utilities forming the core business and strategic alternatives being explored for its clean energy arm - Con Edison's main business segments are CECONY, O&R, the Clean Energy Businesses, and Con Edison Transmission[57][59] - CECONY provides electric service to approximately 3.5 million customers and gas to 1.1 million customers in NYC and Westchester, and operates the largest steam distribution system in the U.S[60][61] - O&R provides electric service to approximately 0.3 million customers and gas to over 0.1 million customers in southeastern NY and northern NJ[63] - The company is considering strategic alternatives for its Clean Energy Businesses, which owns and operates approximately 3,000 MW (AC) of renewable energy projects[59][64] Utility Regulation The utilities are primarily regulated by state commissions that set rates and service terms, with federal oversight from FERC for interstate activities - The NYSPSC is the primary regulator for the Utilities in New York, with authority to set rates, approve security issuances, and impose penalties for violations[66][67] - Utility rate plans are designed to allow recovery of approved costs, including capital investments, and provide a return on invested capital[71][75] - FERC regulates the transmission and wholesale sales of electricity and natural gas in interstate commerce, with the authority to impose substantial penalties for violations[86] Competition The utilities face growing competition from distributed energy resources, while climate legislation is expected to accelerate the shift away from gas and steam - Competition is growing from distributed generation (DG) sources like solar, fuel cells, and battery storage, which provide an alternative source of electricity for customers[88] Growth in Distribution-Level DG Capacity (Total MW) | Technology | CECONY 2021 | CECONY 2017 | O&R 2021 | O&R 2017 | | :--- | :--- | :--- | :--- | :--- | | Photovoltaic solar | 398 | 178 | 183 | 75 | | Battery energy storage | 18 | — | 11 | — | | Total DG | 691 | 366 | 220 | 100 | - State and city climate laws are expected to increase DER adoption and electric alternatives, leading to a decrease in gas and steam consumption[88] The Utilities This section provides detailed operational and financial data for the regulated utilities, highlighting capital investment and demand forecasts CECONY Net Utility Plant at Year-End (Millions) | Service | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Electric (Distribution) | $21,240 | $20,366 | | Electric (Transmission) | $3,658 | $3,496 | | Gas | $9,748 | $8,522 | | Steam | $1,924 | $1,854 | O&R Net Utility Plant at Year-End (Millions) | Service | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Electric (Distribution) | $1,178 | $1,115 | | Electric (Transmission) | $297 | $290 | | Gas | $725 | $684 | - CECONY forecasts average annual growth in peak demand over the next five years of approximately 0.4% for electricity, 1.3% for gas, and 0.1% for steam[99][110][118] - O&R forecasts an average annual decrease in electric peak demand of 0.3% and average annual growth in gas peak demand of 0.1% over the next five years[126][132] Clean Energy Businesses This segment develops and operates a growing portfolio of utility-scale renewable energy projects across the United States Renewable Electric Projects Generating Capacity (MW AC) | Year | Capacity (MW AC) | | :--- | :--- | | 2017 | 1,358 | | 2018 | 2,588 | | 2019 | 2,628 | | 2020 | 2,809 | | 2021 | 3,061 | - The Clean Energy Businesses' portfolio is geographically diverse, with major utility-scale solar and wind projects across the U.S[136] - In addition to generation, this segment provides energy-efficiency services and manages dispatch for 11,127 MW of third-party generating plants[139][140] Con Edison Transmission This segment invests in electric and gas transmission assets, recently divesting from some gas holdings while developing major electric projects - CET Electric owns a 45.7% interest in New York Transco LLC, which is developing transmission projects to increase capacity in New York[142][144] - In 2021, CET Gas sold its 50% interest in Stagecoach Gas Services for $629 million and recorded a pre-tax impairment loss of $212 million on the investment[147] - CET Gas recorded pre-tax impairment losses of $231 million in 2021 and $320 million in 2020 on its investment in the Mountain Valley Pipeline (MVP) project[146] Capital Requirements and Resources The company has substantial capital needs for system upgrades, funded through a mix of internal funds, debt, and equity issuances Capital Investments (Actual & Estimated, Millions of Dollars) | Segment | 2021 (Actual) | 2022 (Est.) | 2023 (Est.) | 2024 (Est.) | | :--- | :--- | :--- | :--- | :--- | | CECONY | $3,418 | $3,893 | $4,762 | $4,957 | | O&R | $217 | $241 | $253 | $246 | | Con Edison Transmission | $31 | $73 | $42 | $10 | | Clean Energy Businesses | $298 | $400 | $400 | $400 | | Total | $3,964 | $4,607 | $5,457 | $5,613 | - Financing plans for 2022-2024 include issuing $800M-$1.4B of long-term debt in 2022, an aggregate of $2.5B in 2023-2024, and up to $850M of common equity in 2022 plus an aggregate of $750M in 2023-2024[161] Credit Ratings | Entity | Moody's | S&P | Fitch | | :--- | :--- | :--- | :--- | | Con Edison | Baa2 | BBB+ | BBB+ | | CECONY | Baa1 | A- | A- | | O&R | Baa2 | A- | A- | Environmental Matters The company is navigating significant environmental regulations and climate risks, including state-mandated clean energy goals and substantial cleanup liabilities - New York's CLCPA is a major driver, setting goals for 70% renewable electricity by 2030 and 100% zero-emission electricity by 2040[169] - A 2019 climate change vulnerability study estimated that CECONY may need to invest between $1.8 billion and $5.2 billion by 2050 to adapt its systems to climate risks[186] - The company has significant potential liabilities for environmental cleanup, with undiscounted liability for former manufactured gas plant (MGP) sites estimated to range from $630 million to $2.39 billion for CECONY[201][214] - CECONY is a Potentially Responsible Party (PRP) for major Superfund sites but is unable to estimate its final liability[204][205] Human Capital The company employed nearly 14,000 people at year-end 2021, with a focus on safety, employee development, and diversity Employee Headcount by Subsidiary (as of Dec 31, 2021) | Subsidiary | Employee Count | | :--- | :--- | | CECONY | 12,325 | | O&R | 1,085 | | Clean Energy Businesses | 453 | | Con Edison Transmission | 8 | | Total | 13,871 | - The workforce has a low annual turnover rate of 6.4%, with an average length of service of 14.9 years[230] - As of year-end 2021, women represented 21.9% of the total workforce, and people of color represented 49.7%[230] Item 1A: Risk Factors The company faces significant regulatory, operational, and financial risks, including potential penalties, cyber-attacks, and reliance on capital markets - Regulatory/Compliance Risks: The company is subject to extensive regulation and substantial penalties, and rate plans may not provide a reasonable return[236][237][238] - Operations Risks: Failure of or damage to energy facilities from operational errors, climate change impacts, or cyber-attacks could result in significant liability and service interruptions[240][241] - Financial and Market Risks: Con Edison's ability to pay dividends depends on distributions from its subsidiaries, and it requires continuous access to capital markets to fund over $14.3 billion in construction expenditures[245][246] - Other Risks: The COVID-19 pandemic poses ongoing risks to liquidity due to slower customer payments and supply chain disruptions[250][251] Item 1B: Unresolved Staff Comments The company reports no unresolved comments from the staff of the Securities and Exchange Commission - There are no unresolved comments from the SEC staff for either Con Edison or CECONY[253] Item 2: Properties The company's significant properties consist of the electric, gas, and steam facilities owned by its subsidiaries - The company's properties consist mainly of the utility plant and facilities of its subsidiaries, as detailed in the Business section (Item 1)[255][256][257] Item 3: Legal Proceedings Information regarding legal proceedings is incorporated by reference from notes to the financial statements - Details on legal proceedings are located in Note B (Regulatory Matters), Note G (Environmental Matters), and Note H (Manhattan Explosion and Fire) of the financial statements[259] Item 4: Mine Safety Disclosures This item is not applicable to the company's operations - The company has no mine safety disclosures to report[260] Part II Item 5: Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on the NYSE, delivering a 23% total shareholder return in 2021 and increasing its quarterly dividend - Con Edison's common shares trade on the NYSE under the symbol "ED"[263] - In 2021, Con Edison's total shareholder return was 23%, compared to 17.7% for the S&P 500 Utilities Index and 28.7% for the S&P 500 Index[264] - Quarterly dividends were $0.775 per share in 2021, with an increase to $0.79 per share declared for payment in March 2022[263] Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the financial impact of rate plans, clean energy goals, and the COVID-19 pandemic on the company's performance and liquidity Corporate Overview and Key Factors Key factors influencing performance include pending rate cases, clean energy implementation, and the strategic realignment of business segments - CECONY filed for significant electric and gas rate increases effective January 2023, which will be critical for future earnings[273] - The long-term future of the gas business depends on its role in achieving New York's climate goals, with an expected shift towards electrification[276] - Con Edison Transmission is realigning its portfolio to focus on electric transmission, highlighted by the 2021 sale of its interest in Stagecoach[279] COVID-19 Impacts The pandemic increased customer accounts receivable and negatively affected liquidity, though regulatory mechanisms are in place to recover some costs - The pandemic caused a slower recovery of cash from customer receivables, with the allowance for uncollectible accounts increasing from $147M in 2020 to $316M in 2021[296] - The company benefited from the CARES Act, recognizing a $10 million tax benefit in 2020 and deferring approximately $71 million in employer payroll taxes[292][293] - In November 2021, the NYSPSC approved a surcharge mechanism for CECONY to recover $62 million in late payment charges not billed during the pandemic[303] Results of Operations Net income increased in 2021, driven by higher revenues at CECONY and the Clean Energy Businesses, partially offset by impairment losses at Con Edison Transmission Net Income for Common Stock by Segment (Millions) | Segment | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | CECONY | $1,344 | $1,185 | $1,250 | | O&R | $75 | $71 | $70 | | Clean Energy Businesses | $266 | $24 | $(18) | | Con Edison Transmission | $(316) | $(175) | $52 | | Con Edison Total | $1,346 | $1,101 | $1,343 | - CECONY's 2021 earnings increased by $159 million, primarily due to higher rate base and earnings adjustment mechanisms[313][314] - The Clean Energy Businesses' net income rose by $242 million in 2021, driven by higher revenues from new projects and favorable accounting effects[314] - Con Edison Transmission's net loss widened by $141 million in 2021 due to impairment losses on its gas investments[314] Liquidity and Capital Resources The company maintains sufficient liquidity through operating cash flows and capital market access to fund its substantial construction program Consolidated Cash Flow Summary (Millions) | Activity | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Operating Activities | $2,733 | $2,198 | $3,134 | | Investing Activities | $(3,484) | $(4,224) | $(3,782) | | Financing Activities | $461 | $2,245 | $859 | - In 2021, Con Edison issued 10.1 million common shares for net proceeds of approximately $775 million to fund construction expenditures at CECONY[436] - CECONY issued $2.25 billion of long-term debentures in 2021 to repay short-term debt and fund general corporate purposes[440][441] Critical Accounting Estimates Management identifies several critical accounting estimates involving significant judgment, including pensions, contingencies, and impairment testing - Pensions: A 0.25% decrease in the discount rate would increase the 2022 pension cost by $67 million and the projected benefit obligation by $729 million[486][490] - Investments: The company recorded significant pre-tax impairment losses on its investment in Mountain Valley Pipeline (MVP) of $231 million in 2021 and $320 million in 2020[499] - Allowance for Uncollectible Accounts: The allowance for uncollectible accounts for Con Edison and CECONY increased significantly to $317 million and $304 million, respectively, at year-end 2021[505] Item 7A: Quantitative and Qualitative Disclosures about Market Risk The company is exposed to interest rate, commodity price, and investment risks, which are managed through various mitigation strategies - A 10% increase in interest rates on variable-rate debt would increase Con Edison's annual interest expense by an estimated $1 million[512] - A 10% decline in market prices would decrease the fair value of the Utilities' commodity derivative instruments by an estimated $117 million, a change largely offset by cost recovery[514] - The pension plan's target asset allocation is 45-55% equity securities, 33-43% debt securities, and 10-14% real estate[519] Item 8: Financial Statements and Supplementary Data This section contains the audited consolidated financial statements, independent auditor's report, and detailed notes for the fiscal year ended December 31, 2021 Financial Statements The core financial statements present the company's performance and financial position for the year Con Edison Consolidated Income Statement Summary (Millions) | Line Item | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Total Operating Revenues | $13,676 | $12,246 | $12,574 | | Operating Income | $2,826 | $2,654 | $2,676 | | Net Income for Common Stock | $1,346 | $1,101 | $1,343 | Con Edison Consolidated Balance Sheet Summary (Millions) | Line Item | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $5,551 | $5,301 | | Net Plant | $48,596 | $46,555 | | Total Assets | $63,116 | $62,895 | | Total Current Liabilities | $5,427 | $7,354 | | Long-Term Debt | $22,604 | $20,382 | | Total Equity | $20,336 | $19,065 | | Total Liabilities and Equity | $63,116 | $62,895 | Notes to the Financial Statements The notes provide critical details on accounting policies, regulatory matters, debt, pensions, and environmental liabilities - Note B (Regulatory Matters): Details the rate plans for CECONY and O&R, including authorized returns on equity and cost recovery mechanisms[686][710] - Note C (Capitalization): Long-term debt maturing from 2022-2026 for Con Edison totals approximately $2.5 billion[795][796] - Note E (Pension Benefits): The pension plan shifted from an underfunded status of $1.94 billion in 2020 to an overfunded status of $1.15 billion in 2021[811] - Note G (Environmental Matters): Accrued liabilities for manufactured gas plant sites were $845 million for Con Edison at year-end 2021, with potential liability as high as $2.98 billion[848][852] Item 9 & 9A-9C: Other Items Management confirms the effectiveness of disclosure controls and procedures and reports no material changes to internal controls - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[1000] - There were no changes in internal control over financial reporting during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, internal controls[1002] Part III Items 10-14: Directors, Executive Compensation, Security Ownership, and Accountant Fees This section incorporates by reference information on governance, compensation, and ownership from the company's 2022 proxy statement - Information regarding directors, executive compensation, and corporate governance is incorporated by reference from the company's forthcoming proxy statement[1004] Equity Compensation Plan Information (as of Dec 31, 2021) | Plan Category | Securities to be Issued Upon Exercise | Securities Remaining for Future Issuance | | :--- | :--- | :--- | | Approved by security holders | 1,484,853 | 7,031,718 | | Not approved by security holders | 1,000 | — | Part IV Item 15: Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the annual report - This section provides a comprehensive list of all documents filed with the 10-K, including financial statements, schedules, and exhibits such as bylaws, debt indentures, and executive compensation plans[1012][1013][1014] Item 16: Form 10-K Summary This item is not applicable, and no summary is provided - No Form 10-K summary is provided[1026]