Con Edison Subsidiaries
A major structural benefit of restructuring for the local New York utilities is the permission granted by the PSC to create holding companies. Instead of being single purpose local utilities linked to the economic welfare of the communities they serve, paying out profits as dividends to shareholders or investing them to improve the utility infrastructure and efficiency, profits from the regulated entity now are paid to the new holding company parent and the holding company is free to invest in new enterprises.
With the new holding company structure, Con Edison created
- An unregulated energy trading company (Con Edison Energy, Inc.).
- A telecommunications company (Con Edison Communications, LLC). According to a Con Edison financial report, "Con Edison Communications incurred net losses of $12 million, $109 million (including an after-tax impairment charge of $84 million) and $21 million for the years ended 2004, 2003 and 2002, respectively. Con Edison 10-K for 2004, p. 37
- A subsidiary that owns merchant power plants in other states (Con Edison Development, Inc.). Con Edison sold most of its power plants in New York, whose output sas sold to consumers based on the cost of production. The divested plants formerly owned by Con Edison are now owned by wholesale merchant power companies who receive whatever price the market will bear for the output.
- A retail company that could sell electricity and gas at retail (Con Edison Solutions, Inc.).
The SEC filings of Con Edison indicate that up to $2 billion has been invested in the subsidiaries and that these are at present relatively non-producing assets (some now written off, as with CEC). The most recent SEC Form 10-Q filed 8/3/05 by Con Edison, at pages 41 - 42, indicates that the Con Edison unregulated subsidiaries have assets currently valued at $1.6 billion with a net loss in the last 6 months of $17 million.
Con Edison’s Prospectus dated April 22, 2004 for issuance of up to an aggregate $925,000,000 of unsecured debt securities, preferred shares, and common shares states that “Our regulated utility subsidiaries accounted for approximately 91.0 percent of our approximately $21.5 billion of total assets as of March 31, 2004 and all of our net income for the year ended December 31, 2003 and the three months ended March 31, 2004. We also have unregulated subsidiaries....”
If 91% of total assets are in the regulated utility subsidiaries (e.g., Con Edison of NY and Orange & Rockland Utilities), it appears that the "unregulated subsidiaries" have up to 9% of total assets, or $1.935 Billion. If so, it appears that the company made nothing in 2003 on $1.9 Billion invested outside the regulated retail utilities.
It appears that the Con Edison holding company invested in a tax shelter transaction now questioned by the IRS. "Con Edison Development entered into two LILO transactions, involving gas distribution and electric generating facilities in the Netherlands, with a total investment of $259 million. The transactions were financed with $93 million of equity and $166 million of non-recourse, long-term debt secured by the underlying assets. **** The estimated tax savings from the two LILO transactions during the tax years 1997 through June 30, 2005, in the aggregate, was $128 million. On audit of Con Edison’s tax return for 1997, the Internal Revenue Service proposed that the tax losses in connection with the 1997 LILO transaction be disallowed. Con Edison believes that its LILO’s were correctly reported and is currently appealing the proposed disallowance within the Internal Revenue Service. However, under the proposed accounting guidance for leveraged leases discussed in Note M, if the amount or the timing of the tax benefits anticipated to be realized by Con Edison from the LILO transactions were to be altered in connection with either a settlement with the Internal Revenue Service or by a final court decision, the company could be required to recalculate the accounting effect of the LILO’s, which could result in a charge to earnings that could have a material adverse effect on its results of operations." Con Ed 10-Q, 8/3/05, p. 26 - 27
ARTICLES
Hearings set for PCL&P complaints - Scranton Times Herald - 09-26-2006
`Long Haul' Fight Takes next Step in October - Pike County Courier -
09-11-2006
Hogan no hero to consumers of electricity - The Patriot-News - 04-09-2006
Con Edison Completes Sale of Telecommunications Unit to RCN Corporation PRNewswire-FirstCall - 03-21-2006
PA PUC ALJ Recommended Decision Regarding Commodity Hedging by Con Edison/O&R for Pike County PA Subsidiary.
Shocking Development - Electric Rates Jump 73% after Pike County Auction - The Patriot News - 02-02-2006
A telco diamond in the rough - CNET News.com - 12-13-2005
ConEd Finds A New Buyer For Broadband Unit - TelecomWeb- 12-7-2005
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