Regulatory Risks Overshadowing Con Edison's Growth Ambitions

The utility sector has long been a refuge for income-focused investors, offering stable cash flows and predictable earnings. But in 2025, the calculus is shifting. For Consolidated Edison (ED), a once-reliable utility stock, regulatory and political pressures are eroding investor confidence and redefining valuation metrics in regulated markets. The company's ambitious growth targets—anchored on a 8.2% compound annual growth rate (CAGR) for its rate base through 2029—now face headwinds that could force a recalibration of expectations.

Regulatory Pushback and Affordability Pressures

Con Edison's recent rate case filing—a proposed 18% increase in electric revenue—has become a flashpoint in New York's affordability crisis. The New York Public Service Commission (PSC) rejected the full request, slashing the proposed increase by $1.3 billion for electricity and $395 million for gas. This regulatory rebuke reflects a broader political shift: as New York's energy costs rise, policymakers are prioritizing ratepayer protection over utility returns. Bank of America's downgrade of Con Edison to “Underperform” in 2025 underscores this trend, with analysts citing “affordability challenges” and “regulatory uncertainty” as key risks.

The PSC's decision to cap Con Edison's allowed return on equity (ROE) at 10.1%—below the company's requested 10.5%—signals a tightening of regulatory oversight. This is not an isolated incident. Across the U.S., state utility commissions are grappling with the tension between funding infrastructure upgrades and maintaining affordability. For Con Edison, the stakes are high: its $21 billion three-year capital plan hinges on passing costs to customers. But with public sentiment souring—exemplified by testimonies from customers like Kisha Skipper, who described her healthcare-dependent electricity costs as “unaffordable”—regulators are increasingly skeptical of rate hikes.

Valuation Metrics in a New Era

The erosion of investor confidence is evident in Con Edison's valuation. Bank of America applied a 10% discount to the company's electric, gas, and steam businesses, reflecting heightened risk premiums. This aligns with broader trends in the utility sector. As of Q1 2025, the S&P Utility Index traded at a forward P/E of 17x, a premium to its historical median of 16.8x, but with elevated discount rates due to regulatory and political uncertainty.

The Trump administration's pro-gas and pro-nuclear policies have created a paradox for utilities. While easing permitting for gas plants and nuclear reactors could lower capital costs, they also intensify competition for rate base growth. For Con Edison, which relies heavily on New York's regulated markets, this means navigating a fragmented policy landscape. The 2026 gubernatorial election and PSC commissioner elections in 2027 could further disrupt its rate case timeline, adding volatility to earnings projections.

The Affordability Dilemma

Affordability is no longer a peripheral concern—it's a core determinant of utility valuations. Con Edison's disconnection policies, which saw 88,000 households cut off in the first half of 2025, have drawn sharp criticism. Critics argue that the company's focus on profit margins clashes with its social responsibility. Meanwhile, state Senator Kristen Gonzalez has highlighted a disconnect between rate increases and infrastructure spending, noting that “profits are prioritized over pipes.”

This affordability crisis is not unique to Con Edison. Utilities nationwide are facing similar pressures as data centers and industrial loads drive up demand. To mitigate ratepayer backlash, companies like American Electric Power (AEP) and Southern Company are experimenting with “large load” tariffs to shift costs to high-demand customers. For Con Edison, however, the path forward is constrained by New York's political climate, where affordability is a non-negotiable priority.

Investment Implications

For investors, the lesson is clear: regulatory and political risks are now embedded in utility valuations. Con Edison's 2025–2027 EPS forecasts, now revised downward to $5.60, $6.01, and $6.31, reflect a sector-wide recalibration. While the company's balance sheet remains strong, its growth ambitions are contingent on regulatory outcomes that are increasingly unpredictable.

Investors should consider the following strategies:
1. Diversify Exposure: Utilities with less reliance on politically sensitive markets (e.g., Entergy, Duke Energy) may offer more stable returns.
2. Monitor Rate Case Timelines: The outcome of Con Edison's 2025 rate case and PSC elections in 2027 will be pivotal.
3. Factor in Discount Rates: Utilities with higher regulatory risk (e.g., those in states with affordability mandates) should be valued with higher discount rates.

Conclusion

Con Edison's struggles highlight a broader transformation in the utility sector. As affordability pressures and political dynamics reshape regulatory frameworks, the traditional metrics of utility valuation—ROE, rate base growth, and capital expenditures—are being redefined. For investors, the key is to balance long-term infrastructure needs with the realities of a politicized regulatory environment. In this new era, patience and adaptability will be as valuable as technical expertise.