As tens of thousands in the New York metropolitan area remain powerless amid a massive cleanup campaign after Hurricane Sandy hit the region, Consolidated Edison, the utility that powers about 3.3 million customers in New York City and Westchester County, reported earnings and reaffirmed its guidance for 2012. Kevin Burke, Con Ed’s chairman and chief executive officer, said that the company was devoting all its resources to aiding Sandy’s victims. The company’s bottom line, though, seems secure, despite the costs of cleanup.
New York Governor Andrew Cuomo has promised that regulators will scrutinize Con Ed’s preparations for Sandy, as well as its subsequent attempts to restore power in the New York City region after the hurricane. Con Ed operates as a regulated monopoly in the region and owns extensive infrastructure that no competitor could duplicate. Not only would it be far too expensive for any potential rival to enter Con Ed’s territory, it would be impossible because of the logistics of ripping up many sections of the city to install new underground lines and then hook them up to every building. The few competitors Con Ed has use the giant’s grid to deliver power.
Regulators currently allow Con Ed about a 10 percent return on its electricity business (the allowable return is tied to interest rates), and the company is about to present a new rate plan for 2013. Barron’s reported last week that Con Ed had delayed its rate requests for months, hoping interest rates would rise so the company could ask for a little more.
According to the Bureau of Labor Statistics, the average price per kilowatt-hour for electricity in the United States is 13 cents. New Yorkers pay an average of 20 cents. The difference isn’t funding the construction of backup systems and flood protections to keep the power on during a major storm, nor are they paying for the crews of technicians necessary to get power restored even five days after what was a forecasted, and hyped, event. The premium that New Yorkers pay is instead padding the coffers of Con Ed’s largest shareholders, in the form of the company’s rich dividend, which is just over 4 percent. The dividend yield on an index-fund share of the S&P 500 is about 2.2 percent.
Con Ed’s dividend payments should be of particular interest to regulators. In the quarter that ended in June, Con Ed shelled out $352 million in dividends for its common and preferred stock. The company spends well in excess of $1 billion on dividend payments every year. If this money had been invested in upgrading New York City’s infrastructure, the difference between the 12-foot storm surge that the company said it had planned for and the 14-foot surge it faced might not have blacked out most of Manhattan below 40th Street.