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

Consolidated Edison’s ED 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 the 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.