Grade: F — Major Red Flags
Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles
Data: SEC EDGAR 10-K (Filed 2026-02-19) + Yahoo Finance
Auditor: PricewaterhouseCoopers LLP — Clean opinion (1 critical audit matter: regulatory asset recoverability)
One-line verdict: Consolidated Edison is the quintessential New York metro area utility, providing electric, gas, and steam service to approximately 3.7 million electric and 1.1 million gas customers through its primary subsidiary CECONY, plus service in southeastern New York and northern New Jersey through O&R. The F grade reflects just two fails (negative FCF, cash vs debt) — the fewest in this batch alongside Duke Energy. Revenue grew 10.9% to $16.9B, net income rose 11.2% to $2.0B, and CFFO surged 32.8% to $4.8B. Uniquely among these utilities, Con Edison nearly achieved positive FCF at $36M — the closest any utility in this batch came to breakeven. The $406M goodwill (from the O&R merger) is minimal. PwC identified regulatory asset recoverability as the CAM, with $1.6B in cash on the balance sheet — the strongest liquidity position among these 10 utilities relative to company size.
| Metric | Result |
|---|---|
| Red Flags | **2** (FCF negative for 3 years, cash vs debt) |
| Watch Items | **2** (leverage, post-acquisition FCF) |
| Checks Completed | **15/18** |
| Beneish M-Score | **N/A** (insufficient data) |
| Altman Z-Score | **1.51** (grey zone) |
Business: New York Metro Area Monopoly
From the 10-K: "Con Edison's principal business operations are those of CECONY, O&R and Con Edison Transmission. CECONY's principal business operations are its regulated electric, gas and steam delivery businesses."
CECONY operates the largest steam distribution system in the United States, producing and delivering approximately 16,975 MMlb of steam annually to approximately 1,490 customers in Manhattan.
CECONY Financial Summary (from 10-K)
| Line Item | FY2025 | FY2024 | FY2023 |
|---|---|---|---|
| Electric Revenue | $11,670M | $10,717M | $10,078M |
| Gas Revenue | $3,278M | $2,834M | $2,829M |
| Steam Revenue | $703M | $578M | $569M |
| **Total Operating Revenue** | **$15,651M** | **$14,129M** | **$13,476M** |
| Total Operating Expenses | $12,839M | $11,536M | $11,299M |
| **Operating Income** | **$2,812M** | **$2,593M** | **$2,177M** |
| Net Interest Expense | $1,159M | $1,109M | $945M |
| Income Tax Expense | $544M | $314M | $358M |
| **Net Income** | **$1,906M** | **$1,748M** | **$1,606M** |
CECONY's net income grew 9.0% to $1.9B. All three service lines — electric, gas, and steam — grew revenue, with gas showing the strongest growth (+15.7%).
Con Edison Transmission Investments
From the 10-K, Con Edison Transmission's ownership interests in New York Transco electric transmission projects:
| Project | Ownership | In-Service | Authorized ROE |
|---|---|---|---|
| TOTS | 45.7% | 2016 | 9.99% + 0.50% = 10.49% |
| NYES (~$800M) | 45.7% | 2023/2025 | 9.99% + 0.50-1.00% |
| Propel NY Energy (~$2.2B) | 41.7% of NYTransco share | 2030 | 10.3% + 1.0% = 11.3% |
The Propel NY Energy project — a 90-mile transmission line increasing connections between Long Island and the rest of New York State at an estimated $2,200M — will be the next major capital commitment.
Revenue and Income
| Metric | FY2023 | FY2024 | FY2025 | Trend |
|---|---|---|---|---|
| Revenue | $15.6B | $15.3B | $16.9B | Growing |
| Net Income | — | $1.8B | $2.0B | Growing |
| Gross Margin | 53.5% | 53.5% | 53.3% | Very stable |
| Net Margin | — | 11.9% | 12.0% | Stable |
| ROE | — | — | 8.4% | — |
Gross margin is rock-steady at 53.3%, reflecting the regulated delivery model where CECONY passes through purchased power and gas costs. Operating income grew 8.4% at CECONY, consistent with rate base growth.
Cash Flow: Near Break-Even FCF
| Metric | FY2023 | FY2024 | FY2025 |
|---|---|---|---|
| Operating Cash Flow | — | $3.6B | $4.8B |
| CFFO / Net Income | — | 1.98 | 2.37 |
| Free Cash Flow | — | — | $36M |
| Cash on Hand | — | — | $1,629M |
Con Edison's $36M FCF is effectively breakeven — a remarkable result for a utility. CFFO surged 32.8% to $4.8B, suggesting strong working capital management and timely regulatory cost recovery. The $1.6B cash position is the strongest absolute and relative liquidity in this batch.
The 18-Point Screening
Revenue Quality
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO | Pass | 56 days, -3 days YoY. Improving |
| A2 | AR vs Revenue | Pass | AR +5.9% vs revenue +10.9%. Clean |
| A3 | Revenue vs CFFO | Pass | Revenue +10.9%, CFFO +32.8%. Cash strongly outpaces revenue |
A3 is the strongest in the batch: CFFO growth of 32.8% far exceeds revenue growth of 10.9%. This suggests improving working capital dynamics and effective regulatory cost recovery.
Expense Quality
| # | Check | Result | Detail |
|---|---|---|---|
| B1 | Inventory | Pass | +9.3% vs COGS +11.6%. Aligned |
| B2 | CapEx | Pass | CapEx -0.1% vs revenue +10.9%. CapEx flat |
| B3 | SG&A Ratio | N/A | Insufficient data |
| B4 | Gross Margin | Pass | 53.3%, -0.3pp. Stable |
Cash Flow Quality
| # | Check | Result | Detail |
|---|---|---|---|
| C1 | CFFO vs NI | Pass | Ratio 2.37. Strong |
| C2 | FCF | **FAIL** | FCF negative for 3 years (barely positive in FY2025 at $36M) |
| C3 | Accruals | Pass | -3.7%. Low |
| C4 | Cash vs Debt | **FAIL** | Cash $1.6B covers 6% of $28.4B debt |
C2: While technically a fail (FCF was negative in prior years), FY2025's $36M positive FCF suggests Con Edison is at an inflection point. If CapEx remains flat while CFFO continues growing with rate base expansion, sustained positive FCF is achievable.
C4: Cash coverage of 6% is the best ratio in this batch. $1.6B cash against $28.4B debt is modest in absolute terms but reflects strong liquidity management.
Balance Sheet
| # | Check | Result | Detail |
|---|---|---|---|
| D1 | Goodwill + Intangibles | Pass | $406M = 2% of equity. Minimal |
| D2 | Leverage | Watch | Debt/EBITDA 4.6x |
| D3 | Soft Assets | Pass | Other assets +6.8% vs revenue +10.9% |
| D4 | Impairment | N/A | No write-off data |
D1: $406M goodwill (all from the O&R merger) at 2% of equity is the lowest in this batch. From the 10-K: "In 2025 and 2024, Con Edison completed qualitative and quantitative impairment tests, respectively, for its goodwill of $406 million related to the O&R merger and determined that the fair value of the reporting units significantly exceeded their carrying value."
D2: Leverage of 4.6x is among the lowest in this batch, reflecting Con Edison's conservative financial management.
Acquisition & Manipulation
| # | Check | Result | Detail |
|---|---|---|---|
| E1 | Serial Acquirer | Watch | FCF after acquisitions negative for 2/3 years |
| E2 | Goodwill Surge | Pass | Goodwill flat at $406M |
| F1 | M-Score | N/A | Insufficient data |
PwC Critical Audit Matter: Regulatory Asset Recoverability
PwC flagged "(i) the significant judgment by management in determining the recoverability of certain regulatory assets and (ii) a high degree of auditor judgment and subjectivity in performing procedures."
Regulatory Assets Not Earning a Return (from 10-K)
| Category | FY2025 | FY2024 |
|---|---|---|
| Environmental investigation and remediation | $1,072M | $1,037M |
| Revenue taxes | $621M | $567M |
| Uncollectible accounts | $427M | $551M |
| Deferred derivative losses | $115M | $208M |
| **Total (Con Edison)** | **$2,281M** | **$2,402M** |
The $1.1B environmental remediation regulatory asset is notable — these are costs CECONY has incurred for environmental investigation and cleanup that are not yet earning a return but are expected to be recovered through future rates. The $427M uncollectible accounts deferral reflects NYSPSC-approved mechanisms for bad debt recovery.
Income Tax Complexity (from 10-K)
Con Edison's effective tax rate reconciliation shows significant adjustments: amortization of excess deferred federal income taxes reduced taxes by $50M (vs $203M in FY2024), and allowance for uncollectible accounts provided a $43M benefit. The MTA Surcredit amortization added $35M to taxes.
Key Risks
1. New York regulatory environment. From the 10-K: "the NYSPSC has the authority to (i) impose penalties on New York utilities, which could be material, for violating state utility laws and regulations and its orders; (ii) review, at least every five years, an electric and gas utility's capability to provide safe, adequate and reliable service."
2. Environmental remediation. The $1.1B regulatory asset for environmental investigation and remediation represents future costs that depend on NYSPSC approval for rate recovery.
3. Steam system concentration. CECONY's steam system serves only ~1,490 customers in Manhattan — a highly concentrated business dependent on commercial real estate occupancy in a specific geographic area.
4. Propel NY Energy project. The ~$2.2B transmission project (Con Edison Transmission's share) extending to 2030 will require significant capital commitment with regulatory and construction execution risk.
Altman Z-Score and F-Score
| Model | Score | Interpretation |
|---|---|---|
| Altman Z-Score | **1.51** | Grey zone (1.81 threshold). Second-best in batch |
| F-Score (Dechow) | **0.46** | Very low fraud probability (0.17%) |
The Z-Score of 1.51 is the second-best in this utility batch (after ATO's 1.85), reflecting Con Edison's relatively lower leverage and stable cash generation.
Summary
| # | Check | Result |
|---|---|---|
| A1-A3 | Revenue Quality | Pass-Pass-Pass |
| B1-B4 | Expense Quality | Pass-Pass-N/A-Pass |
| C1-C4 | Cash Flow Quality | Pass-Fail-Pass-Fail |
| D1-D4 | Balance Sheet | Pass-Watch-Pass-N/A |
| E1-E2 | M&A Risk | Watch-Pass |
| F1 | Beneish M-Score | N/A |
Grade: F — entirely structural, among the strongest utilities in the batch.
Con Edison's F grade is purely structural, with the mildest fail profile in this group. Both fails are borderline: FCF was barely positive at $36M in FY2025 (the only utility in this batch to approach positive FCF), and cash coverage at 6% is the best ratio here. Revenue quality is clean across all checks, goodwill at 2% of equity is minimal, leverage at 4.6x is conservative, and CFFO grew 32.8% — the strongest cash flow growth in the batch. The Altman Z-Score of 1.51 (grey zone, not distress) and F-Score fraud probability of 0.17% confirm a financially conservative, well-managed utility. The F grade is a structural false positive.
**Disclaimer**: This report is based on Consolidated Edison's FY2025 10-K (SEC EDGAR, filed 2026-02-19) and public financial data. This is NOT investment advice.
Data: SEC EDGAR 10-K (Filed 2026-02-19) + Yahoo Finance
Auditor: PricewaterhouseCoopers LLP (Unqualified opinion, 1 critical audit matter)