Shock from Con Ed

If there is one thing an electric utility is supposed never to do, it is omit a quarterly dividend; investors buy utility stocks primarily to get those dividends. Last week the unthinkable happened: New York's Consolidated Edison Co., the biggest U.S. power generator, skipped its dividend for the first time in its 89-year history. The news gave Wall Street a high-voltage shock. Con Ed stock promptly lost a third of its value, dropping from 18 to 12 (it closed the week at 12 3/8), and the dive dragged down prices of many other utility stocks.

Although Con Ed's first-quarter profits dropped 21%, they were still large enough (48-c- a share) to maintain the dividend (45-c-). But the utility's managers decided they must hang onto every penny for uses even more important than rewarding stockholders. Most crucial: paying for the low-sulfur Arab oil that the utility must buy in order to avoid polluting the skies over New York City and Westchester County. A year ago the oil cost $4.50 per bbl.; today Con Ed is paying as much as $15.50. A near doubling of its electric and gas rates since 1970 has not given it enough money to meet the bill.

Rating Lowered. By passing the dividend, though, Con Ed has created more problems for itself. Like most utilities, it must frequently sell new issues of stock or bonds to finance maintenance and expansion of its system. When the dividend was omitted, Standard & Poor's immediately lowered the credit rating on Con Ed bonds--so much that some potential investors, such as savings and loan associations, will be legally barred from buying them. As a result, Con Ed in effect is asking New York State to do some of its borrowing for it. Under a plan that the legislature in Albany is likely to pass this week, the state will sell an $800 million bond issue. It will use $500 million to buy from Con Ed two uncompleted generating plants--a nuclear-powered plant at Buchanan, N.Y., and an oil-fired facility in Queens--and the other $300 million to finish construction. The plants will be leased back to Con Ed to operate.

Whether that will solve Con Ed's crisis is uncertain. It is trapped in a vicious cycle common to utilities: as its rates rise, customers burn less electricity and revenues fall, forcing more rate increases that cut usage further. But it has many problems of its own. The state public service commission requires that its rates be based on last year's costs. A 60-day lag exists between Con Ed's paying for fuel and receiving payment for it from customers; currently the utility has spent $107 million to generate electricity for which no bills have yet been sent out. Some Con Ed customers are so angered by rate hikes that they are paying bills slowly or not at all.

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