EUR 850.00 For Business Accounts Only

Morningstar | Con Ed Accelerates Utility Investment

Con Ed's focus on electric and natural gas distribution, combined with decoupled and forward-looking rates, has produced among the most stable earnings in the utilities sector. The regulatory framework insulates earnings from variables like weather and sales volume, resulting in less earnings and cash flow volatility than peers.New York, the home to most of Con Ed's utility earnings, has historically allowed returns below industry averages. However, recent rate cases have allowed forward-looking estimates of capital expenditures and projected rate base, allowing Consolidated Edison Company of New York, Con Ed's largest subsidiary, to earn above its allowed returns. Although its Clean Energy Business and Con Ed Transmission segments, CEB and CET, are expected to grow faster than its utility distribution business, we expect the regulated utility distribution business will still contribute over 90% of adjusted earnings over the next five years.The CEB and CET businesses has focused on long-term contracts with investment-grade customers, although CEB has a modest exposure to bankrupt PG&E due to 680 megawatts of solar capacity under long-term power purchase agreements after acquiring assets from Sempra Energy. After EPS dilution through 2020, we expect the Sempra acquisition to be modestly accretive beginning in 2021 and consolidated annual EPS growth to accelerate to high-single-digit levels in 2021-23.Con Ed has increased its dividend for 45 consecutive years and declared an increase of 3.5% in January 2019. We believe the dividend is secure considering the conservative strategy of the company's nonutility businesses and the favorable regulatory framework for its New York utilities.