Consolidated Edison (ED) reckons it will take four decades - and cost $10B - to replace the hundreds of miles of aging iron and unprotected steel gas pipelines that form a large part of its infrastructure.
The issue has taken on new urgency following the gas explosion in Harlem in March, which killed eight people and injured dozens of others.
From 2010-2013, ConEd replaced 83 miles of cast-iron pipelines, leaving it with another 1,110 miles. ConEd has another 1,084 miles of unprotected steel gas pipes, nearly all of which the utility intends to replace.
The NTSB is poring over ED’s call logs and the maintenance history of the problematic gas lines, and likely will release a written update tomorrow on the investigation’s initial findings.
CEO John McAvoy said last week that the gas mains in the area had been surveyed as recently as last summer, but ED could be blamed for the blast if the NTSB concludes the aging pipes were neglected or not properly maintained.
Consolidated Edison (ED -1.3%) is underperforming other utility and electric names following today's NYC apartment fire and explosion; ED received a report of a suspected natural gas leak before the explosion and collapse of two buildings in Harlem.
ED sent a crew in response to a caller reporting the smell of gas at 9:13 a.m., according to a company spokesman, and the explosion occurred ~15 minutes later.
Consolidated Edison (ED +0.5%) is upgraded to Buy from Hold with a $60 price target at Argus, which says the stock appears favorably valued based on historical multiples and relative to peers.
ED's rate plan settlement was approved by New York regulators last month, and while the company did not receive the rate increases it initially requested, the firm likes the deal which allows for rate base growth in its electric, gas and steam operations while temporarily freezing rates for customers.
ED also offers an attractive dividend yield of ~4.5%, above the industry average.
Consolidated Edison (ED +0.6%) is upgraded to Overweight from Equal Weight with a $62 price target at Barclays, which cites ED's above-average yield to the regulated utility group and 15.8% total return potential.
The firm's $62 price target is based on estimated 2015 EPS of $3.90 on a 15x regulated group multiple with a 6% large-cap premium that it sees as warranted in light of ConEd New York's rate base growth and long-term rate plan settlement that was approved last week by the state's public service commission.
The New York state Public Service Commission votes to freeze Consolidated Edison's (ED) electricity rates for two years and natural gas rates for the next three years.
The freeze covers the charges consumers pay for the delivery of electricity and gas - it does not cover the actual price of the commodities, which aren't regulated by the state - so the supply portions of consumers' bills will vary according to the market prices for natural gas and electricity generation.
ED did not get the rate increases it sought, but it wasn't strapped with rate cuts consumer advocates wanted; ED says the new plan will allow it to move ahead with $1B in infrastructure upgrades.
To avert the increase, ED and New York state regulators would need to set new rates when the two-year electric and three-year gas price freezes expire; if no action is taken and the rate freeze expires, ED could collectively raise customers’ electric bills by $47.7M in 2016 and gas bills by $40.8M in 2017, the AARP says.
Whether that scenario actually occurs is an open question, but rate orders often expire without action by either regulators or Con Ed.
Credit Suisse suggests investors own utilities boasting good visibility to growth through capital expenditure programs, supportive regulation where the risk of cuts in return on equity is lower, and rate case stay-out protections that lower potential for regulatory intervention; to that end, its favorite utilities into the new year are CMS Energy (CMS), American Electric Power (AEP), NextEra Energy (NEE), Northeast Utilities (NU) and Dominion Resources (D).
Elsewhere in the sector, CS cuts EPS estimates for Entergy (ETR) after the utility received an order in Arkansas pointing to a 9.3% ROE vs. 10.4% requested, which will sustain questions about ETR's ability to execute on its growth strategy; the firm also lowers its EPS outlook for Con Ed (ED) after reaching a broad settlement on electric, gas and steam cases with a 9.2% ROE on electric and 9.3% for steam and gas.
Consolidated Edison (ED -1.6%) is downgraded to Hold from Buy at Argus based on valuation and the firm's expectations for an upcoming unfavorable rate case decision from the New York Public Service Commission, which is seen as unlikely to approve ED's request for an allowed ROE of 10.1%.
The firm's long-term rating on ED remains a Buy, as it likes the strong financial position, limited risk profile and visible earnings stream will continue to provide stable returns for shareholders; shares also offer an attractive 4.2% dividend yield, above the industry average.