UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x | Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2011
OR
¨ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission |
Exact name of registrant as specified in its charter and principal office address and telephone number |
State of |
I.R.S. Employer | |||
1-14514 | Consolidated Edison, Inc. | New York | 13-3965100 | |||
4 Irving Place, New York, New York 10003 | ||||||
(212) 460-4600 | ||||||
1-1217 | Consolidated Edison Company of New York, Inc. | New York | 13-5009340 | |||
4 Irving Place, New York, New York 10003 | ||||||
(212) 460-4600 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Consolidated Edison, Inc. (Con Edison) | Yes x | No ¨ | ||||||
Consolidated Edison of New York, Inc. (CECONY) | Yes x | No ¨ |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Con Edison | Yes x | No ¨ | ||||||
CECONY | Yes x | No ¨ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Con Edison | ||||||
Large accelerated filer x | Accelerated filer ¨ | Non-accelerated filer ¨ | Smaller reporting company ¨ | |||
CECONY | ||||||
Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer x | Smaller reporting company ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Con Edison | Yes ¨ | No x | ||||||
CECONY | Yes ¨ | No x |
As of October 28, 2011, Con Edison had outstanding 292,904,646 Common Shares ($.10 par value). All of the outstanding common equity of CECONY is held by Con Edison.
Filing Format
This Quarterly Report on Form 10-Q is a combined report being filed separately by two different registrants: Consolidated Edison, Inc. (Con Edison) and Consolidated Edison Company of New York, Inc. (CECONY). CECONY is a subsidiary of Con Edison and, as such, the information in this report about CECONY also applies to Con Edison. As used in this report, the term the Companies refers to Con Edison and CECONY. However, CECONY makes no representation as to the information contained in this report relating to Con Edison or the subsidiaries of Con Edison other than itself.
Glossary of Terms
The following is a glossary of frequently used abbreviations or acronyms that are used in the Companies SEC reports:
Con Edison Companies | ||
Con Edison | Consolidated Edison, Inc. | |
CECONY | Consolidated Edison Company of New York, Inc. | |
Con Edison Development | Consolidated Edison Development, Inc. | |
Con Edison Energy | Consolidated Edison Energy, Inc. | |
Con Edison Solutions | Consolidated Edison Solutions, Inc. | |
O&R | Orange and Rockland Utilities, Inc. | |
Pike | Pike County Light & Power Company | |
RECO | Rockland Electric Company | |
The Companies | Con Edison and CECONY | |
The Utilities | CECONY and O&R | |
Regulatory Agencies, Government Agencies, and Quasi-governmental Not-for-Profits | ||
EPA | U. S. Environmental Protection Agency | |
FERC | Federal Energy Regulatory Commission | |
IRS | Internal Revenue Service | |
ISO-NE | ISO New England Inc. | |
NJBPU | New Jersey Board of Public Utilities | |
NJDEP | New Jersey Department of Environmental Protection | |
NYAG | New York State Attorney General | |
NYISO | New York Independent System Operator | |
NYPA | New York Power Authority | |
NYSDEC | New York State Department of Environmental Conservation | |
NYSERDA | New York State Energy Research and Development Authority | |
NYSPSC | New York State Public Service Commission | |
NYSRC | New York State Reliability Council, LLC | |
PAPUC | Pennsylvania Public Utility Commission | |
PJM | PJM Interconnection LLC | |
SEC | U.S. Securities and Exchange Commission | |
Accounting | ||
ABO | Accumulated Benefit Obligation | |
ASU | Accounting Standards Update | |
FASB | Financial Accounting Standards Board | |
LILO | Lease In/Lease Out | |
OCI | Other Comprehensive Income | |
SFAS | Statement of Financial Accounting Standards | |
SSCM | Simplified service cost method | |
VIE | Variable interest entity | |
Environmental | ||
CO2 | Carbon dioxide | |
GHG | Greenhouse gases | |
MGP Sites | Manufactured gas plant sites | |
PCBs | Polychlorinated biphenyls | |
PRP | Potentially responsible party | |
SO2 | Sulfur dioxide | |
Superfund | Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 and similar state statutes |
2 |
Units of Measure | ||
dths | Dekatherms | |
kV | Kilovolts | |
kWh | Kilowatt-hour | |
mdths | Thousand dekatherms | |
MMlbs | Million pounds | |
MVA | Megavolt amperes | |
MW | Megawatts or thousand kilowatts | |
MWH | Megawatt hour | |
Other | ||
AFDC | Allowance for funds used during construction | |
COSO | Committee of Sponsoring Organizations of the Treadway Commission | |
EMF | Electric and magnetic fields | |
ERRP | East River Repowering Project | |
Fitch | Fitch Ratings | |
First Quarter Form 10-Q | The Companies combined Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011 | |
Form 10-K | The Companies combined Annual Report on Form 10-K for the year ended December 31, 2010 | |
LTIP | Long Term Incentive Plan | |
Moodys | Moodys Investors Service | |
S&P | Standard & Poors Rating Services | |
Second Quarter Form 10-Q | The Companies combined Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011 | |
Third Quarter Form 10-Q | The Companies combined Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011 | |
VaR | Value-at-Risk |
3 |
PAGE | ||||||
PART IFinancial Information | ||||||
ITEM 1 | Financial Statements (Unaudited) |
|||||
Con Edison |
||||||
6 | ||||||
7 | ||||||
8 | ||||||
10 | ||||||
11 | ||||||
CECONY |
||||||
12 | ||||||
13 | ||||||
14 | ||||||
16 | ||||||
17 | ||||||
ITEM 2 | Managements Discussion and Analysis of Financial Condition and Results of Operations |
38 | ||||
ITEM 3 | 60 | |||||
ITEM 4 | 60 | |||||
PART IIOther Information | ||||||
ITEM 1 | 61 | |||||
ITEM 1A | 61 | |||||
ITEM 2 | 61 | |||||
ITEM 6 | 62 | |||||
Signatures | 63 |
4 |
FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements intended to qualify for the safe-harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements of future expectation and not facts. Words such as expects, estimates, anticipates, intends, believes, plans, will and similar expressions identify forward-looking statements. Forward-looking statements are based on information available at the time the statements are made, and accordingly speak only as of that time. Actual results or developments might differ materially from those included in the forward-looking statements because of various risks, including:
| the failure to operate energy facilities safely and reliably could adversely affect the Companies; |
| the failure to properly complete construction projects could adversely affect the Companies; |
| the failure of processes and systems and the performance of employees and contractors could adversely affect the Companies; |
| the Companies are extensively regulated and are subject to penalties; |
| the Utilities rate plans may not provide a reasonable return; |
| the Companies may be adversely affected by changes to the Utilities rate plans; |
| the Companies are exposed to risks from the environmental consequences of their operations; |
| a disruption in the wholesale energy markets or failure by an energy supplier could adversely affect the Companies; |
| the Companies have substantial unfunded pension and other postretirement benefit liabilities; |
| Con Edisons ability to pay dividends or interest depends on dividends from its subsidiaries; |
| the Companies require access to capital markets to satisfy funding requirements; |
| the Internal Revenue Service has disallowed substantial tax deductions taken by the company; |
| a cyber attack could adversely affect the Companies; and |
| the Companies also face other risks that are beyond their control. |
5 |
Consolidated Edison, Inc. |
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(Millions of Dollars/Except Share Data) | ||||||||||||||||
OPERATING REVENUES |
||||||||||||||||
Electric |
$2,861 | $2,814 | $6,883 | $6,959 | ||||||||||||
Gas |
220 | 229 | 1,309 | 1,276 | ||||||||||||
Steam |
76 | 91 | 508 | 487 | ||||||||||||
Non-utility |
472 | 573 | 1,272 | 1,463 | ||||||||||||
TOTAL OPERATING REVENUES |
3,629 | 3,707 | 9,972 | 10,185 | ||||||||||||
OPERATING EXPENSES |
||||||||||||||||
Purchased power |
1,239 | 1,425 | 3,124 | 3,708 | ||||||||||||
Fuel |
73 | 106 | 317 | 342 | ||||||||||||
Gas purchased for resale |
73 | 73 | 491 | 482 | ||||||||||||
Other operations and maintenance |
783 | 738 | 2,213 | 2,117 | ||||||||||||
Depreciation and amortization |
222 | 211 | 659 | 626 | ||||||||||||
Taxes, other than income taxes |
483 | 449 | 1,387 | 1,283 | ||||||||||||
TOTAL OPERATING EXPENSES |
2,873 | 3,002 | 8,191 | 8,558 | ||||||||||||
OPERATING INCOME |
756 | 705 | 1,781 | 1,627 | ||||||||||||
OTHER INCOME (DEDUCTIONS) |
||||||||||||||||
Investment and other income |
| 9 | 19 | 29 | ||||||||||||
Allowance for equity funds used during construction |
2 | 4 | 8 | 13 | ||||||||||||
Other deductions |
(3 | ) | (3 | ) | (14 | ) | (12 | ) | ||||||||
TOTAL OTHER INCOME (DEDUCTIONS) |
(1 | ) | 10 | 13 | 30 | |||||||||||
INCOME BEFORE INTEREST AND INCOME TAX EXPENSE |
755 | 715 | 1,794 | 1,657 | ||||||||||||
INTEREST EXPENSE |
||||||||||||||||
Interest on long-term debt |
145 | 152 | 437 | 450 | ||||||||||||
Other interest |
| 7 | 15 | 13 | ||||||||||||
Allowance for borrowed funds used during construction |
(1 | ) | (2 | ) | (4 | ) | (7 | ) | ||||||||
NET INTEREST EXPENSE |
144 | 157 | 448 | 456 | ||||||||||||
INCOME BEFORE INCOME TAX EXPENSE |
611 | 558 | 1,346 | 1,201 | ||||||||||||
INCOME TAX EXPENSE |
225 | 205 | 477 | 433 | ||||||||||||
NET INCOME |
386 | 353 | 869 | 768 | ||||||||||||
Preferred stock dividend requirements of subsidiary |
(3 | ) | (3 | ) | (9 | ) | (9 | ) | ||||||||
NET INCOME FOR COMMON STOCK |
$ 383 | $ 350 | $ 860 | $ 759 | ||||||||||||
Net income for common stock per common share basic |
$ 1.31 | $ 1.24 | $ 2.94 | $ 2.69 | ||||||||||||
Net income for common stock per common share diluted |
$ 1.30 | $ 1.23 | $ 2.92 | $ 2.68 | ||||||||||||
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK |
$0.600 | $0.595 | $1.800 | $1.785 | ||||||||||||
AVERAGE NUMBER OF SHARES OUTSTANDING BASIC (IN MILLIONS) |
292.9 | 283.0 | 292.5 | 282.2 | ||||||||||||
AVERAGE NUMBER OF SHARES OUTSTANDING DILUTED (IN MILLIONS) |
294.6 | 284.6 | 294.2 | 283.7 |
The accompanying notes are an integral part of these financial statements.
6 |
Consolidated Edison, Inc. |
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended September 30, |
||||||||
2011 | 2010 | |||||||
(Millions of Dollars) | ||||||||
OPERATING ACTIVITIES |
||||||||
Net Income |
$ | 869 | $ | 768 | ||||
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME |
||||||||
Depreciation and amortization |
659 | 626 | ||||||
Deferred income taxes |
368 | 562 | ||||||
Common equity component of allowance for funds used during construction |
(8 | ) | (13 | ) | ||||
Net derivative (gains)/losses |
(25 | ) | 35 | |||||
Other non-cash items (net) |
45 | (8 | ) | |||||
CHANGES IN ASSETS AND LIABILITIES |
||||||||
Accounts receivable customers, less allowance for uncollectibles |
(4 | ) | (114 | ) | ||||
Materials and supplies, including fuel oil and gas in storage |
(27 | ) | (9 | ) | ||||
Other receivables and other current assets |
70 | (114 | ) | |||||
Prepayments |
(128 | ) | (473 | ) | ||||
Accounts payable |
(50 | ) | (105 | ) | ||||
Pensions and retiree benefits |
(1 | ) | (33 | ) | ||||
Accrued taxes |
76 | 63 | ||||||
Accrued interest |
57 | 45 | ||||||
Deferred charges, deferred derivative losses, noncurrent assets and other regulatory assets |
92 | (472 | ) | |||||
Deferred credits and other regulatory liabilities |
158 | 142 | ||||||
Other assets |
| (8 | ) | |||||
Other liabilities |
10 | 82 | ||||||
NET CASH FLOWS FROM OPERATING ACTIVITIES |
2,161 | 974 | ||||||
INVESTING ACTIVITIES |
||||||||
Utility construction expenditures |
(1,412 | ) | (1,455 | ) | ||||
Cost of removal less salvage |
(123 | ) | (103 | ) | ||||
Non-utility construction expenditures |
(57 | ) | (6 | ) | ||||
Proceeds from investment tax credits and grants related to renewable energy investments |
4 | | ||||||
Net investment in Pilesgrove solar project |
(31 | ) | (3 | ) | ||||
Common equity component of allowance for funds used during construction |
8 | 13 | ||||||
Purchase of additional ownership interest in Honeoye Storage Corporation |
| (12 | ) | |||||
NET CASH FLOWS USED IN INVESTING ACTIVITIES |
(1,611 | ) | (1,566 | ) | ||||
FINANCING ACTIVITIES |
||||||||
Net proceeds from short-term debt |
| 846 | ||||||
Issuance of long-term debt |
| 870 | ||||||
Retirement of long-term debt |
(3 | ) | (781 | ) | ||||
Issuance of common stock |
81 | 78 | ||||||
Repurchase of common stock |
(40 | ) | | |||||
Debt issuance costs |
| (6 | ) | |||||
Common stock dividends |
(519 | ) | (468 | ) | ||||
Preferred stock dividends |
(9 | ) | (9 | ) | ||||
NET CASH FLOWS (USED IN)/FROM FINANCING ACTIVITIES |
(490 | ) | 530 | |||||
CASH AND TEMPORARY CASH INVESTMENTS: |
||||||||
NET CHANGE FOR THE PERIOD |
60 | (62 | ) | |||||
BALANCE AT BEGINNING OF PERIOD |
338 | 260 | ||||||
BALANCE AT END OF PERIOD |
$ | 398 | $ | 198 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
||||||||
Cash paid/(refunded) during the period for: |
||||||||
Interest |
$ | 371 | $ | 394 | ||||
Income taxes |
$ | (132 | ) | $ | 284 |
The accompanying notes are an integral part of these financial statements.
7 |
Consolidated Edison, Inc. |
CONSOLIDATED BALANCE SHEET (UNAUDITED)
September 30, 2011 |
December 31, 2010 |
|||||||
(Millions of Dollars) | ||||||||
ASSETS |
||||||||
CURRENT ASSETS |
||||||||
Cash and temporary cash investments |
$ | 398 | $ | 338 | ||||
Accounts receivable customers, less allowance for uncollectible accounts of $88 and $76 in 2011 and 2010, respectively |
1,177 | 1,173 | ||||||
Accrued unbilled revenue |
479 | 633 | ||||||
Other receivables, less allowance for uncollectible accounts of $9 and $8 in 2011 and 2010, respectively |
297 | 293 | ||||||
Fuel oil, gas in storage, materials and supplies, at average cost |
375 | 348 | ||||||
Prepayments |
469 | 341 | ||||||
Regulatory assets |
110 | 203 | ||||||
Other current assets |
153 | 178 | ||||||
TOTAL CURRENT ASSETS |
3,458 | 3,507 | ||||||
INVESTMENTS |
474 | 403 | ||||||
UTILITY PLANT, AT ORIGINAL COST |
||||||||
Electric |
20,714 | 19,851 | ||||||
Gas |
4,566 | 4,344 | ||||||
Steam |
1,960 | 2,038 | ||||||
General |
1,907 | 1,911 | ||||||
TOTAL |
29,147 | 28,144 | ||||||
Less: Accumulated depreciation |
5,961 | 5,808 | ||||||
Net |
23,186 | 22,336 | ||||||
Construction work in progress |
1,404 | 1,458 | ||||||
NET UTILITY PLANT |
24,590 | 23,794 | ||||||
NON-UTILITY PLANT |
||||||||
Non-utility property, less accumulated depreciation of $57 and $51 in 2011 and 2010, respectively |
47 | 46 | ||||||
Construction work in progress |
61 | 23 | ||||||
NET PLANT |
24,698 | 23,863 | ||||||
OTHER NONCURRENT ASSETS |
||||||||
Goodwill |
429 | 429 | ||||||
Intangible assets, less accumulated amortization of $3 in 2011 and 2010 |
3 | 3 | ||||||
Regulatory assets |
7,206 | 7,683 | ||||||
Other deferred charges and noncurrent assets |
267 | 298 | ||||||
TOTAL OTHER NONCURRENT ASSETS |
7,905 | 8,413 | ||||||
TOTAL ASSETS |
$ | 36,535 | $ | 36,186 |
The accompanying notes are an integral part of these financial statements.
8 |
Consolidated Edison, Inc. |
CONSOLIDATED BALANCE SHEET (UNAUDITED)
September 30, 2011 |
December 31, 2010 |
|||||||
(Millions of Dollars) | ||||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
CURRENT LIABILITIES |
||||||||
Long-term debt due within one year |
$ | 305 | $ | 5 | ||||
Accounts payable |
1,062 | 1,151 | ||||||
Customer deposits |
302 | 289 | ||||||
Accrued taxes |
166 | 90 | ||||||
Accrued interest |
212 | 155 | ||||||
Accrued wages |
94 | 102 | ||||||
Fair value of derivative liabilities |
101 | 125 | ||||||
Regulatory liabilities |
257 | 295 | ||||||
Other current liabilities |
460 | 459 | ||||||
TOTAL CURRENT LIABILITIES |
2,959 | 2,671 | ||||||
NONCURRENT LIABILITIES |
||||||||
Obligations under capital leases |
2 | 7 | ||||||
Provision for injuries and damages |
180 | 165 | ||||||
Pensions and retiree benefits |
2,600 | 3,287 | ||||||
Superfund and other environmental costs |
496 | 512 | ||||||
Asset retirement obligations |
114 | 109 | ||||||
Fair value of derivative liabilities |
30 | 77 | ||||||
Other noncurrent liabilities |
118 | 113 | ||||||
TOTAL NONCURRENT LIABILITIES |
3,540 | 4,270 | ||||||
DEFERRED CREDITS AND REGULATORY LIABILITIES |
||||||||
Deferred income taxes and investment tax credits |
7,110 | 6,602 | ||||||
Regulatory liabilities |
821 | 652 | ||||||
Other deferred credits |
69 | 46 | ||||||
TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES |
8,000 | 7,300 | ||||||
LONG-TERM DEBT |
10,369 | 10,671 | ||||||
SHAREHOLDERS EQUITY |
||||||||
Common shareholders equity (See Statement of Shareholders Equity) |
11,454 | 11,061 | ||||||
Preferred stock of subsidiary |
213 | 213 | ||||||
TOTAL SHAREHOLDERS EQUITY |
11,667 | 11,274 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
$ | 36,535 | $ | 36,186 |
The accompanying notes are an integral part of these financial statements.
9 |
Consolidated Edison, Inc. |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(Millions of Dollars) | ||||||||||||||||
NET INCOME |
$ | 386 | $ | 353 | $ | 869 | $ | 768 | ||||||||
OTHER COMPREHENSIVE INCOME, NET OF TAXES |
||||||||||||||||
Pension plan liability adjustments, net of taxes of $1 and $4 in 2011 and $1 and $4 in 2010, respectively |
2 | 1 | 7 | 5 | ||||||||||||
TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAXES |
2 | 1 | 7 | 5 | ||||||||||||
COMPREHENSIVE INCOME |
$ | 388 | $ | 354 | $ | 876 | $ | 773 | ||||||||
Preferred stock dividend requirements of subsidiary |
(3 | ) | (3 | ) | (9 | ) | (9 | ) | ||||||||
COMPREHENSIVE INCOME FOR COMMON STOCK |
$ | 385 | $ | 351 | $ | 867 | $ | 764 |
The accompanying notes are an integral part of these financial statements.
10 |
Consolidated Edison, Inc. |
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS EQUITY (UNAUDITED)
Common Stock | Additional Paid-In Capital |
Retained Earnings |
Treasury Stock | Capital Expense |
Accumulated Income/(Loss) |
Total |
||||||||||||||||||||||||||||||
(Millions of Dollars/Except Share Data) | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||
BALANCE AS OF DECEMBER 31, 2009 |
281,123,741 | $ | 30 | $ | 4,420 | $ | 6,904 | 23,210,700 | $ | (1,001 | ) | $ | (62 | ) | $ | (42 | ) | $ | 10,249 | |||||||||||||||||
Net income for common stock |
226 | 226 | ||||||||||||||||||||||||||||||||||
Common stock dividends |
(167 | ) | (167 | ) | ||||||||||||||||||||||||||||||||
Issuance of common shares dividend reinvestment and employee stock plans |
647,731 | 28 | 28 | |||||||||||||||||||||||||||||||||
Other comprehensive income |
3 | 3 | ||||||||||||||||||||||||||||||||||
BALANCE AS OF MARCH 31, 2010 |
281,771,472 | $ | 30 | $ | 4,448 | $ | 6,963 | 23,210,700 | $ | (1,001 | ) | $ | (62 | ) | $ | (39 | ) | $ | 10,339 | |||||||||||||||||
Net income for common stock |
183 | 183 | ||||||||||||||||||||||||||||||||||
Common stock dividends |
(168 | ) | (168 | ) | ||||||||||||||||||||||||||||||||
Issuance of common shares dividend reinvestment and employee stock plans |
555,964 | 25 | 25 | |||||||||||||||||||||||||||||||||
Other comprehensive income |
1 | 1 | ||||||||||||||||||||||||||||||||||
BALANCE AS OF JUNE 30, 2010 |
282,327,436 | $ | 30 | $ | 4,473 | $ | 6,978 | 23,210,700 | $ | (1,001 | ) | $ | (62 | ) | $ | (38 | ) | $ | 10,380 | |||||||||||||||||
Net income for common stock |
350 | 350 | ||||||||||||||||||||||||||||||||||
Common stock dividends |
(168 | ) | (168 | ) | ||||||||||||||||||||||||||||||||
Issuance of common shares dividend reinvestment and employee stock plans |
1,487,598 | 1 | 66 | 67 | ||||||||||||||||||||||||||||||||
Other comprehensive income |
1 | 1 | ||||||||||||||||||||||||||||||||||
BALANCE AS OF SEPTEMBER 30, 2010 |
283,815,034 | $ | 31 | $ | 4,539 | $ | 7,160 | 23,210,700 | $ | (1,001 | ) | $ | (62 | ) | $ | (37 | ) | $ | 10,630 | |||||||||||||||||
BALANCE AS OF DECEMBER 31, 2010 |
291,616,334 | $ | 31 | $ | 4,915 | $ | 7,220 | 23,210,700 | $ | (1,001 | ) | $ | (64 | ) | $ | (40 | ) | $ | 11,061 | |||||||||||||||||
Net income for common stock |
311 | 311 | ||||||||||||||||||||||||||||||||||
Common stock dividends |
(175 | ) | (175 | ) | ||||||||||||||||||||||||||||||||
Issuance of common shares dividend reinvestment and employee stock plans |
656,049 | 1 | 30 | 31 | ||||||||||||||||||||||||||||||||
Other comprehensive income |
3 | 3 | ||||||||||||||||||||||||||||||||||
BALANCE AS OF MARCH 31, 2011 |
292,272,383 | $ | 32 | $ | 4,945 | $ | 7,356 | 23,210,700 | $ | (1,001 | ) | $ | (64 | ) | $ | (37 | ) | $ | 11,231 | |||||||||||||||||
Net income for common stock |
165 | 165 | ||||||||||||||||||||||||||||||||||
Common stock dividends |
(175 | ) | (175 | ) | ||||||||||||||||||||||||||||||||
Issuance of common shares dividend reinvestment and employee stock plans |
603,513 | 32 | (182,942 | ) | 5 | 37 | ||||||||||||||||||||||||||||||
Common stock repurchases |
178,942 | (9 | ) | (9 | ) | |||||||||||||||||||||||||||||||
Other comprehensive income |
2 | 2 | ||||||||||||||||||||||||||||||||||
BALANCE AS OF JUNE 30, 2011 |
292,875,896 | $ | 32 | $ | 4,977 | $ | 7,346 | 23,206,700 | $ | (1,005 | ) | $ | (64 | ) | $ | (35 | ) | $ | 11,251 | |||||||||||||||||
Net income for common stock |
383 | 383 | ||||||||||||||||||||||||||||||||||
Common stock dividends |
(176 | ) | (176 | ) | ||||||||||||||||||||||||||||||||
Issuance of common shares dividend reinvestment and employee stock plans |
8,000 | 6 | (554,356 | ) | 19 | 25 | ||||||||||||||||||||||||||||||
Common stock repurchases |
546,356 | (31 | ) | (31 | ) | |||||||||||||||||||||||||||||||
Other comprehensive income |
2 | 2 | ||||||||||||||||||||||||||||||||||
BALANCE AS OF SEPTEMBER 30, 2011 |
292,883,896 | $ | 32 | $ | 4,983 | $ | 7,553 | 23,198,700 | $ | (1,017 | ) | $ | (64 | ) | $ | (33 | ) | $ | 11,454 |
The accompanying notes are an integral part of these financial statements.
11 |
Consolidated Edison Company of New York, Inc. |
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(Millions of Dollars) | ||||||||||||||||
OPERATING REVENUES |
||||||||||||||||
Electric |
$ | 2,644 | $ | 2,570 | $ | 6,378 | $ | 6,402 | ||||||||
Gas |
197 | 204 | 1,156 | 1,126 | ||||||||||||
Steam |
76 | 91 | 508 | 487 | ||||||||||||
TOTAL OPERATING REVENUES |
2,917 | 2,865 | 8,042 | 8,015 | ||||||||||||
OPERATING EXPENSES |
||||||||||||||||
Purchased power |
736 | 764 | 1,840 | 2,102 | ||||||||||||
Fuel |
73 | 105 | 317 | 343 | ||||||||||||
Gas purchased for resale |
57 | 63 | 412 | 408 | ||||||||||||
Other operations and maintenance |
678 | 637 | 1,906 | 1,832 | ||||||||||||
Depreciation and amortization |
209 | 198 | 618 | 586 | ||||||||||||
Taxes, other than income taxes |
462 | 432 | 1,330 | 1,232 | ||||||||||||
TOTAL OPERATING EXPENSES |
2,215 | 2,199 | 6,423 | 6,503 | ||||||||||||
OPERATING INCOME |
702 | 666 | 1,619 | 1,512 | ||||||||||||
OTHER INCOME (DEDUCTIONS) |
||||||||||||||||
Investment and other income |
(6 | ) | 5 | 3 | 23 | |||||||||||
Allowance for equity funds used during construction |
1 | 3 | 6 | 10 | ||||||||||||
Other deductions |
(3 | ) | (2 | ) | (12 | ) | (11 | ) | ||||||||
TOTAL OTHER INCOME (DEDUCTIONS) |
(8 | ) | 6 | (3 | ) | 22 | ||||||||||
INCOME BEFORE INTEREST AND INCOME TAX EXPENSE |
694 | 672 | 1,616 | 1,534 | ||||||||||||
INTEREST EXPENSE |
||||||||||||||||
Interest on long-term debt |
130 | 137 | 393 | 406 | ||||||||||||
Other interest |
4 | 5 | 13 | 13 | ||||||||||||
Allowance for borrowed funds used during construction |
(1 | ) | (1 | ) | (3 | ) | (6 | ) | ||||||||
NET INTEREST EXPENSE |
133 | 141 | 403 | 413 | ||||||||||||
INCOME BEFORE INCOME TAX EXPENSE |
561 | 531 | 1,213 | 1,121 | ||||||||||||
INCOME TAX EXPENSE |
205 | 196 | 425 | 404 | ||||||||||||
NET INCOME |
356 | 335 | 788 | 717 | ||||||||||||
Preferred stock dividend requirements |
(3 | ) | (3 | ) | (9 | ) | (8 | ) | ||||||||
NET INCOME FOR COMMON STOCK |
$ | 353 | $ | 332 | $ | 779 | $ | 709 |
The accompanying notes are an integral part of these financial statements.
12 |
Consolidated Edison Company of New York, Inc. |
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended September 30, |
||||||||
2011 | 2010 | |||||||
(Millions of Dollars) | ||||||||
OPERATING ACTIVITIES |
||||||||
Net income |
$ | 788 | $ | 717 | ||||
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME |
||||||||
Depreciation and amortization |
618 | 586 | ||||||
Deferred income taxes |
309 | 562 | ||||||
Common equity component of allowance for funds used during construction |
(6 | ) | (10 | ) | ||||
Other non-cash items (net) |
98 | (88 | ) | |||||
CHANGES IN ASSETS AND LIABILITIES |
||||||||
Accounts receivable customers, less allowance for uncollectibles |
3 | (84 | ) | |||||
Materials and supplies, including fuel oil and gas in storage |
2 | (9 | ) | |||||
Other receivables and other current assets |
243 | (208 | ) | |||||
Prepayments |
(303 | ) | (309 | ) | ||||
Accounts payable |
(45 | ) | (96 | ) | ||||
Pensions and retiree benefits |
(5 | ) | (30 | ) | ||||
Accrued taxes |
(7 | ) | 20 | |||||
Accrued interest |
46 | 37 | ||||||
Deferred charges, deferred derivative losses, noncurrent assets and other regulatory assets |
33 | (374 | ) | |||||
Deferred credits and other regulatory liabilities |
167 | 131 | ||||||
Other liabilities |
19 | 93 | ||||||
NET CASH FLOWS FROM OPERATING ACTIVITIES |
1,960 | 938 | ||||||
INVESTING ACTIVITIES |
||||||||
Utility construction expenditures |
(1,338 | ) | (1,371 | ) | ||||
Cost of removal less salvage |
(118 | ) | (100 | ) | ||||
Common equity component of allowance for funds used during construction |
6 | 10 | ||||||
NET CASH FLOWS USED IN INVESTING ACTIVITIES |
(1,450 | ) | (1,461 | ) | ||||
FINANCING ACTIVITIES |
||||||||
Net proceeds from short-term debt |
| 832 | ||||||
Issuance of long-term debt |
| 700 | ||||||
Retirement of long-term debt |
| (625 | ) | |||||
Debt issuance costs |
| (6 | ) | |||||
Capital contribution by parent |
| 36 | ||||||
Dividend to parent |
(509 | ) | (502 | ) | ||||
Preferred stock dividends |
(9 | ) | (8 | ) | ||||
NET CASH FLOWS (USED IN)/FROM FINANCING ACTIVITIES |
(518 | ) | 427 | |||||
CASH AND TEMPORARY CASH INVESTMENTS: |
||||||||
NET CHANGE FOR THE PERIOD |
(8 | ) | (96 | ) | ||||
BALANCE AT BEGINNING OF PERIOD |
78 | 131 | ||||||
BALANCE AT END OF PERIOD |
$ | 70 | $ | 35 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
||||||||
Cash paid/(refunded) during the period for: |
||||||||
Interest |
$ | 336 | $ | 357 | ||||
Income taxes |
$ | (103 | ) | $ | 263 |
The accompanying notes are an integral part of these financial statements.
13 |
Consolidated Edison Company of New York, Inc. |
CONSOLIDATED BALANCE SHEET (UNAUDITED)
September 30, 2011 |
December 31, 2010 |
|||||||
(Millions of Dollars) | ||||||||
ASSETS |
||||||||
CURRENT ASSETS |
||||||||
Cash and temporary cash investments |
$ | 70 | $ | 78 | ||||
Accounts receivable customers, less allowance for uncollectible accounts of $80 and $68 in 2011 and 2010, respectively |
1,022 | 1,025 | ||||||
Other receivables, less allowance for uncollectible accounts of $8 and $7 in 2011 and 2010, respectively |
82 | 73 | ||||||
Accrued unbilled revenue |
358 | 473 | ||||||
Accounts receivable from affiliated companies |
24 | 273 | ||||||
Fuel oil, gas in storage, materials and supplies, at average cost |
304 | 306 | ||||||
Prepayments |
385 | 82 | ||||||
Regulatory assets |
90 | 151 | ||||||
Other current assets |
90 | 104 | ||||||
TOTAL CURRENT ASSETS |
2,425 | 2,565 | ||||||
INVESTMENTS |
178 | 167 | ||||||
UTILITY PLANT, AT ORIGINAL COST |
||||||||
Electric |
19,508 | 18,735 | ||||||
Gas |
4,051 | 3,844 | ||||||
Steam |
1,960 | 2,038 | ||||||
General |
1,736 | 1,746 | ||||||
TOTAL |
27,255 | 26,363 | ||||||
Less: Accumulated depreciation |
5,443 | 5,314 | ||||||
Net |
21,812 | 21,049 | ||||||
Construction work in progress |
1,333 | 1,345 | ||||||
NET UTILITY PLANT |
23,145 | 22,394 | ||||||
NON-UTILITY PLANT |
||||||||
Non-utility property, less accumulated depreciation of $23 and $22 in 2011 and 2010, respectively |
6 | 7 | ||||||
NET PLANT |
23,151 | 22,401 | ||||||
OTHER NONCURRENT ASSETS |
||||||||
Regulatory assets |
6,668 | 7,097 | ||||||
Other deferred charges and noncurrent assets |
232 | 244 | ||||||
TOTAL OTHER NONCURRENT ASSETS |
6,900 | 7,341 | ||||||
TOTAL ASSETS |
$ | 32,654 | $ | 32,474 |
The accompanying notes are an integral part of these financial statements.
14 |
Consolidated Edison Company of New York, Inc. |
CONSOLIDATED BALANCE SHEET (UNAUDITED)
September 30, 2011 |
December 31, 2010 |
|||||||
(Millions of Dollars) | ||||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
CURRENT LIABILITIES |
||||||||
Long-term debt due within one year |
$ | 300 | $ | | ||||
Accounts payable |
836 | 924 | ||||||
Accounts payable to affiliated companies |
15 | 13 | ||||||
Customer deposits |
289 | 276 | ||||||
Accrued taxes |
27 | 34 | ||||||
Accrued taxes to affiliated companies |
29 | 29 | ||||||
Accrued interest |
176 | 130 | ||||||
Accrued wages |
91 | 93 | ||||||
Fair value of derivative liabilities |
51 | 71 | ||||||
Regulatory liabilities |
230 | 267 | ||||||
Other current liabilities |
407 | 400 | ||||||
TOTAL CURRENT LIABILITIES |
2,451 | 2,237 | ||||||
NONCURRENT LIABILITIES |
||||||||
Obligations under capital leases |
2 | 7 | ||||||
Provision for injuries and damages |
173 | 159 | ||||||
Pensions and retiree benefits |
2,259 | 2,900 | ||||||
Superfund and other environmental costs |
377 | 392 | ||||||
Asset retirement obligations |
114 | 109 | ||||||
Fair value of derivative liabilities |
9 | 29 | ||||||
Other noncurrent liabilities |
110 | 102 | ||||||
TOTAL NONCURRENT LIABILITIES |
3,044 | 3,698 | ||||||
DEFERRED CREDITS AND REGULATORY LIABILITIES |
||||||||
Deferred income taxes and investment tax credits |
6,539 | 6,071 | ||||||
Regulatory liabilities |
706 | 547 | ||||||
Other deferred credits |
65 | 42 | ||||||
TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES |
7,310 | 6,660 | ||||||
LONG-TERM DEBT |
9,444 | 9,743 | ||||||
SHAREHOLDERS EQUITY |
||||||||
Common shareholders equity (See Statement of Shareholders Equity) |
10,192 | 9,923 | ||||||
Preferred stock |
213 | 213 | ||||||
TOTAL SHAREHOLDERS EQUITY |
10,405 | 10,136 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
$ | 32,654 | $ | 32,474 |
The accompanying notes are an integral part of these financial statements.
15 |
Consolidated Edison Company of New York, Inc. |
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS EQUITY (UNAUDITED)
Common Stock | Additional Paid-In Capital |
Retained Earnings |
Repurchased Stock |
Capital Expense |
Accumulated Income/(Loss) |
Total |
||||||||||||||||||||||||||
(Millions of Dollars/Except Share Data) | Shares | Amount | ||||||||||||||||||||||||||||||
BALANCE AS OF DECEMBER 31, 2009 |
235,488,094 | $ | 589 | $ | 3,877 | $ | 5,909 | $ | (962 | ) | $ | (62 | ) | $ | (4 | ) | $ | 9,347 | ||||||||||||||
Net income |
246 | 246 | ||||||||||||||||||||||||||||||
Capital contribution from parent |
12 | 12 | ||||||||||||||||||||||||||||||
Common stock dividend to parent |
(167 | ) | (167 | ) | ||||||||||||||||||||||||||||
Cumulative preferred dividends |
(3 | ) | (3 | ) | ||||||||||||||||||||||||||||
BALANCE AS OF MARCH 31, 2010 |
235,488,094 | $ | 589 | $ | 3,889 | $ | 5,985 | $ | (962 | ) | $ | (62 | ) | $ | (4 | ) | $ | 9,435 | ||||||||||||||
Net income |
138 | 138 | ||||||||||||||||||||||||||||||
Capital contribution from parent |
12 | 12 | ||||||||||||||||||||||||||||||
Common stock dividend to parent |
(168 | ) | (168 | ) | ||||||||||||||||||||||||||||
Cumulative preferred dividends |
(3 | ) | (3 | ) | ||||||||||||||||||||||||||||
BALANCE AS OF JUNE 30, 2010 |
235,488,094 | $ | 589 | $ | 3,901 | $ | 5,952 | $ | (962 | ) | $ | (62 | ) | $ | (4 | ) | $ | 9,414 | ||||||||||||||
Net income |
335 | 335 | ||||||||||||||||||||||||||||||
Capital contribution from parent |
12 | 12 | ||||||||||||||||||||||||||||||
Common stock dividend to parent |
(167 | ) | (167 | ) | ||||||||||||||||||||||||||||
Cumulative preferred dividends |
(3 | ) | (3 | ) | ||||||||||||||||||||||||||||
BALANCE AS OF SEPTEMBER 30, 2010 |
235,488,094 | $ | 589 | $ | 3,913 | $ | 6,117 | $ | (962 | ) | $ | (62 | ) | $ | (4 | ) | $ | 9,591 | ||||||||||||||
BALANCE AS OF DECEMBER 31, 2010 |
235,488,094 | $ | 589 | $ | 4,234 | $ | 6,132 | $ | (962 | ) | $ | (64 | ) | $ | (6 | ) | $ | 9,923 | ||||||||||||||
Net income |
271 | 271 | ||||||||||||||||||||||||||||||
Common stock dividend to parent |
(170 | ) | (170 | ) | ||||||||||||||||||||||||||||
Cumulative preferred dividends |
(3 | ) | (3 | ) | ||||||||||||||||||||||||||||
BALANCE AS OF MARCH 31, 2011 |
235,488,094 | $ | 589 | $ | 4,234 | $ | 6,230 | $ | (962 | ) | $ | (64 | ) | $ | (6 | ) | $ | 10,021 | ||||||||||||||
Net income |
160 | 160 | ||||||||||||||||||||||||||||||
Common stock dividend to parent |
(170 | ) | (170 | ) | ||||||||||||||||||||||||||||
Cumulative preferred dividends |
(3 | ) | (3 | ) | ||||||||||||||||||||||||||||
BALANCE AS OF JUNE 30, 2011 |
235,488,094 | $ | 589 | $ | 4,234 | $ | 6,217 | $ | (962 | ) | $ | (64 | ) | $ | (6 | ) | $ | 10,008 | ||||||||||||||
Net income |
356 | 356 | ||||||||||||||||||||||||||||||
Common stock dividend to parent |
(169 | ) | (169 | ) | ||||||||||||||||||||||||||||
Cumulative preferred dividends |
(3 | ) | (3 | ) | ||||||||||||||||||||||||||||
BALANCE AS OF SEPTEMBER 30, 2011 |
235,488,094 | $ | 589 | $ | 4,234 | $ | 6,401 | $ | (962 | ) | $ | (64 | ) | $ | (6 | ) | $ | 10,192 |
The accompanying notes are an integral part of these financial statements.
16 |
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
General
These combined notes accompany and form an integral part of the separate consolidated financial statements of each of the two separate registrants: Consolidated Edison, Inc. and its subsidiaries (Con Edison) and Consolidated Edison Company of New York, Inc. and its subsidiaries (CECONY). CECONY is a subsidiary of Con Edison and as such its financial condition and results of operations and cash flows, which are presented separately in the CECONY consolidated financial statements, are also consolidated, along with those of Con Edisons other utility subsidiary, Orange and Rockland Utilities, Inc. (O&R), and Con Edisons competitive energy businesses (discussed below) in Con Edisons consolidated financial statements. The term Utilities is used in these notes to refer to CECONY and O&R.
As used in these notes, the term Companies refers to Con Edison and CECONY and, except as otherwise noted, the information in these combined notes relates to each of the Companies. However, CECONY makes no representation as to information relating to Con Edison or the subsidiaries of Con Edison other than itself.
The separate interim consolidated financial statements of each of the Companies are unaudited but, in the opinion of their respective managements, reflect all adjustments (which include only normally recurring adjustments) necessary for a fair presentation of the results for the interim periods presented. The Companies separate interim consolidated financial statements should be read together with their separate audited financial statements (including the combined notes thereto) included in Item 8 of their combined Annual Report on Form 10-K for the year ended December 31, 2010 and their separate unaudited financial statements (including the combined notes thereto) included in Part I, Item 1 of their combined Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2011 and June 30, 2011. Certain prior period amounts have been reclassified to conform to the current period presentation.
Con Edison has two regulated utility subsidiaries: CECONY and O&R. CECONY provides electric service and gas service in New York City and Westchester County. The company also provides steam service in parts of Manhattan. O&R, along with its regulated utility subsidiaries, provides electric service in southeastern New York and adjacent areas of northern New Jersey and eastern Pennsylvania and gas service in southeastern New York and adjacent areas of eastern Pennsylvania. Con Edison has the following competitive energy businesses: Consolidated Edison Solutions, Inc. (Con Edison Solutions), a retail energy services company that sells electricity and also offers energy-related services; Consolidated Edison Energy, Inc. (Con Edison Energy), a wholesale energy supply and services company; and Consolidated Edison Development, Inc. (Con Edison Development), a company that develops and participates in infrastructure projects.
17 |
Note A Summary of Significant Accounting Policies
Earnings Per Common Share
For the three and nine months ended September 30, 2011 and 2010, Con Edisons basic and diluted EPS for Con Edison are calculated as follows:
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
(Millions of Dollars, except per share amounts/Shares in Millions) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Net income for common stock |
$ | 383 | $ | 350 | $ | 860 | $ | 759 | ||||||||
Weighted average common shares outstanding Basic |
292.9 | 283.0 | 292.5 | 282.2 | ||||||||||||
Add: Incremental shares attributable to effect of potentially dilutive securities |
1.7 | 1.6 | 1.7 | 1.5 | ||||||||||||
Adjusted weighted average common shares outstanding Diluted |
294.6 | 284.6 | 294.2 | 283.7 | ||||||||||||
Net income for common stock per common share basic |
$ | 1.31 | $ | 1.24 | $ | 2.94 | $ | 2.69 | ||||||||
Net income for common stock per common share diluted |
$ | 1.30 | $ | 1.23 | $ | 2.92 | $ | 2.68 |
Note B Regulatory Matters
Rate Agreements
O&R Electric
In June 2011, the NYSPSC adopted an order granting O&R an electric rate increase, effective July 1, 2011, of $26.6 million. The NYSPSC ruling reflects the following major items:
| a weighted average cost of capital of 7.22 percent, reflecting: |
| a return on common equity of 9.2 percent, assuming achievement by the company of $825,000 of austerity measures; |
| cost of long-term debt of 5.50 percent; and |
| common equity ratio of 48 percent. |
| continuation of a revenue decoupling mechanism; |
| a provision for reconciliation of certain differences in actual average net utility plant to the amount reflected in rates ($718 million) and continuation of rate provisions under which pension and other post-retirement benefit expenses, environmental remediation expenses, tax-exempt debt costs and certain other expenses are reconciled to amounts for those expenses reflected in rates; |
| continuation of the rate provisions pursuant to which the company recovers its purchased power costs from customers; |
| discontinuation of the provisions under which property taxes were reconciled to amounts reflected in rates; |
| discontinuation of the inclusion in rates of funding for the companys annual incentive plan for non-officer management employees; |
| continuation of provisions for potential operations penalties of up to $3 million annually if certain customer service and system reliability performance targets are not met; and |
| O&R is directed to produce a report detailing its implementation plans for the recommendations made in connection with the NYSPSCs management audit of CECONY, with a forecast of costs to achieve and expected savings. |
On July 29, 2011, O&R filed a request with the NYSPSC for an increase in the rates it charges for electric service rendered in New York, effective July 1, 2012, of $17.7 million. The filing reflects a return on common equity of 10.75 percent and a common equity ratio of 49.4 percent. Among other things, the filing proposes continuation of the current provisions with respect to recovery from customers of the cost of purchased power and with respect to the deferral of differences between actual expenses allocable to the electric business for pensions and other postretirement benefits, environmental, and research and developmental costs to the amounts for such costs reflected in electric rates. The filing also includes an alternative proposal for a three-year electric rate plan with annual rate increases of $17.6 million effective July 2012, 2013 and 2014. The multi-year filing reflects a return on common equity of 11.25 percent.
18 |
Other Regulatory Matters
In February 2009, the NYSPSC commenced a proceeding to examine the prudence of certain CECONY expenditures (see Investigations of Vendor Payments in Note G). Pursuant to NYSPSC orders, a portion of the companys revenues (currently, $249 million, $32 million and $6 million on an annual basis for electric, gas and steam service, respectively) is being collected subject to potential refund to customers. At September 30, 2011, the company had collected an estimated $753 million from customers subject to potential refund in connection with this proceeding. In October 2010, a NYSPSC consultant reported its $21 million provisional assessment, which the company has disputed, of potential overcharges for construction work. The potential overcharges related to transactions that involved certain employees who were arrested and a contractor that performed work for the company. The NYSPSCs consultant is expected to continue to review the companys expenditures. At September 30, 2011, the company had a $10.5 million regulatory liability relating to this matter. The company is unable to estimate the amount, if any, by which any refund required by the NYSPSC may exceed this regulatory liability.
In February 2011, the NYSPSC initiated a proceeding to examine the existing mechanisms pursuant to which utilities recover site investigation and remediation costs and possible alternatives. See Note F to the Third Quarter Financial Statements.
19 |
Regulatory Assets and Liabilities
Regulatory assets and liabilities at September 30, 2011 and December 31, 2010 were comprised of the following items:
Con Edison | CECONY | |||||||||||||||
(Millions of Dollars) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Regulatory assets |
||||||||||||||||
Unrecognized pension and other postretirement costs |
$ | 3,769 | $ | 4,371 | $ | 3,584 | $ | 4,152 | ||||||||
Future federal income tax |
1,763 | 1,593 | 1,688 | 1,515 | ||||||||||||
Environmental remediation costs |
681 | 695 | 563 | 574 | ||||||||||||
Pension and other post retirement benefits deferrals |
198 | 138 | 156 | 90 | ||||||||||||
Revenue taxes |
160 | 145 | 155 | 140 | ||||||||||||
Surcharge for New York State assessment |
150 | 121 | 138 | 112 | ||||||||||||
Net electric deferrals |
126 | 156 | 126 | 156 | ||||||||||||
Deferred storm costs |
81 | 57 | 61 | 43 | ||||||||||||
O&R transition bond charges |
45 | 48 | | | ||||||||||||
Deferred derivative losses long-term |
34 | 74 | 21 | 48 | ||||||||||||
Workers compensation |
25 | 31 | 24 | 31 | ||||||||||||
Accrued unbilled revenues |
22 | | 22 | | ||||||||||||
Property tax reconciliation |
12 | 34 | | 27 | ||||||||||||
World Trade Center restoration costs |
9 | 45 | 9 | 45 | ||||||||||||
Recoverable energy cost |
2 | 42 | 2 | 42 | ||||||||||||
Other |
129 | 133 | 119 | 122 | ||||||||||||
Regulatory assets long-term |
7,206 | 7,683 | 6,668 | 7,097 | ||||||||||||
Deferred derivative losses current |
110 | 190 | 90 | 151 | ||||||||||||
Recoverable energy costs current |
| 13 | | | ||||||||||||
Regulatory assets current |
110 | 203 | 90 | 151 | ||||||||||||
Total Regulatory Assets |
$ | 7,316 | $ | 7,886 | $ | 6,758 | $ | 7,248 | ||||||||
Regulatory liabilities |
||||||||||||||||
Allowance for cost of removal less salvage |
$ | 440 | $ | 422 | $ | 365 | $ | 350 | ||||||||
World Trade Center settlement proceeds |
62 | | 62 | | ||||||||||||
Carrying charges on transmission and distribution net plant |
39 | 28 | 12 | 5 | ||||||||||||
Bonus depreciation |
24 | 1 | 23 | 1 | ||||||||||||
Energy efficiency programs |
23 | 12 | 21 | 11 | ||||||||||||
Gas line losses |
21 | | 21 | | ||||||||||||
New York State tax refund |
20 | 30 | 20 | 30 | ||||||||||||
Gain on sale of properties |
14 | 28 | 14 | 28 | ||||||||||||
Expenditure prudence proceeding |
11 | | 11 | | ||||||||||||
Other |
167 | 131 | 157 | 122 | ||||||||||||
Regulatory liabilities long-term |
821 | 652 | 706 | 547 | ||||||||||||
Net unbilled revenue deferrals current |
116 | 136 | 115 | 135 | ||||||||||||
Revenue decoupling mechanism |
99 | 38 | 99 | 38 | ||||||||||||
Refundable energy cost current |
38 | 117 | 13 | 91 | ||||||||||||
Deferred derivative gains current |
4 | 4 | 3 | 3 | ||||||||||||
Regulatory liabilities current |
257 | 295 | 230 | 267 | ||||||||||||
Total Regulatory Liabilities |
$ | 1,078 | $ | 947 | $ | 936 | $ | 814 |
Note C Short-Term Borrowing
In October 2011, Con Edison and the Utilities entered into a Credit Agreement (Credit Agreement), under which banks are committed to provide loans and letters of credit on a revolving credit basis, and terminated their Amended and Restated Credit Agreement (Prior Credit Agreement) which was to expire in June 2012. Under the Credit Agreement, which expires in October 2016, there is a maximum of $2.25 billion of credit available, with the full amount available to CECONY and $1 billion available to Con Edison, including up to $1.2 billion of letters of credit. The Credit Agreement supports the Companies commercial paper programs. The Companies have not borrowed under the Credit Agreement.
The banks commitments under the Credit Agreement are subject to certain conditions, including that there be no event of default. The commitments are not subject to maintenance of credit rating levels or the absence of a material adverse change. Upon a change of control of, or upon an event of default by one of the
20 |
Companies, the banks may terminate their commitments with respect to that company, declare any amounts owed by that company under the Credit Agreement immediately due and payable and require that company to provide cash collateral relating to the letters of credit issued for it under the Credit Agreement. Events of default include the exceeding at any time of a ratio of consolidated debt to consolidated total capital of 0.65 to 1 (at September 30, 2011 this ratio was 0.48 to 1 for Con Edison and CECONY); having liens on its assets in an aggregate amount exceeding 5 percent of its consolidated total capital, subject to certain exceptions; and the failure, following any applicable notice period, to meet certain other customary covenants. Interest and fees charged for the revolving credit facilities and any loans made or letters of credit issued under the Credit Agreement reflect the Companies respective credit ratings.
At September 30, 2011 and December 31, 2010 Con Edison and CECONY had no commercial paper outstanding.
At September 30, 2011 and December 31, 2010, no loans were outstanding under the Companies Credit Agreement or Prior Credit Agreement and $223 million (including $170 million for CECONY) and $197 million (including $145 million for CECONY) of letters of credit were outstanding under the Credit Agreement or Prior Credit Agreement, respectively.
Note D Pension Benefits
Net Periodic Benefit Cost
The components of the Companies net periodic benefit costs for the three and nine months ended September 30, 2011 and 2010 were as follows:
For the Three Months Ended September 30, | ||||||||||||||||
Con Edison | CECONY | |||||||||||||||
(Millions of Dollars) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Service cost including administrative expenses |
$ | 48 | $ | 42 | $ | 45 | $ | 39 | ||||||||
Interest cost on projected benefit obligation |
140 | 139 | 131 | 130 | ||||||||||||
Expected return on plan assets |
(184 | ) | (175 | ) | (174 | ) | (167 | ) | ||||||||
Amortization of net actuarial loss |
133 | 106 | 126 | 100 | ||||||||||||
Amortization of prior service costs |
2 | 2 | | 2 | ||||||||||||
NET PERIODIC BENEFIT COST |
$ | 139 | $ | 114 | $ | 128 | $ | 104 | ||||||||
Amortization of regulatory asset |
| | | | ||||||||||||
TOTAL PERIODIC BENEFIT COST |
$ | 139 | $ | 114 | $ | 128 | $ | 104 | ||||||||
Cost capitalized |
(45 | ) | (40 | ) | (42 | ) | (36 | ) | ||||||||
Cost deferred |
(11 | ) | (29 | ) | (11 | ) | (29 | ) | ||||||||
Cost charged to operating expenses |
$ | 83 | $ | 45 | $ | 75 | $ | 39 |
For the Nine Months Ended September 30, | ||||||||||||||||
Con Edison | CECONY | |||||||||||||||
(Millions of Dollars) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Service cost including administrative expenses |
$ | 142 | $ | 126 | $ | 133 | $ | 117 | ||||||||
Interest cost on projected benefit obligation |
420 | 417 | 393 | 390 | ||||||||||||
Expected return on plan assets |
(550 | ) | (527 | ) | (524 | ) | (501 | ) | ||||||||
Amortization of net actuarial loss |
397 | 318 | 376 | 300 | ||||||||||||
Amortization of prior service costs |
6 | 6 | 4 | 6 | ||||||||||||
NET PERIODIC BENEFIT COST |
$ | 415 | $ | 340 | $ | 382 | $ | 312 | ||||||||
Amortization of regulatory asset* |
1 | 1 | 1 | 1 | ||||||||||||
TOTAL PERIODIC BENEFIT COST |
$ | 416 | $ | 341 | $ | 383 | $ | 313 | ||||||||
Cost capitalized |
(141 | ) | (118 | ) | (131 | ) | (109 | ) | ||||||||
Cost deferred |
(68 | ) | (85 | ) | (70 | ) | (82 | ) | ||||||||
Cost charged to operating expenses |
$ | 207 | $ | 138 | $ | 182 | $ | 122 |
* | Relates to increases in CECONYs pension obligations of $45 million from a 1999 special retirement program. |
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Expected Contributions
The Companies are not required under funding regulations and laws to make any contributions to the pension plan during 2011. The Companies policy is to fund their accounting cost to the extent tax deductible. In 2011, Con Edison contributed $533 million to the pension plan (of which $491 million was contributed by CECONY). During the first nine months of 2010, Con Edison contributed $434 million to the pension plan (of which $397 million was contributed by CECONY). During the first nine months of 2011, the Companies funded $11 million for the non-qualified supplemental pension plans.
Note E Other Postretirement Benefits
Net Periodic Benefit Cost
The components of the Companies net periodic postretirement benefit costs for the three and nine months ended September 30, 2011 and 2010 were as follows:
For the Three Months Ended September 30, | ||||||||||||||||
Con Edison | CECONY | |||||||||||||||
(Millions of Dollars) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Service cost |
$ | 7 | $ | 6 | $ | 5 | $ | 5 | ||||||||
Interest cost on accumulated other postretirement benefit obligation |
20 | 23 | 18 | 20 | ||||||||||||
Expected return on plan assets |
(22 | ) | (22 | ) | (21 | ) | (19 | ) | ||||||||
Amortization of net actuarial loss |
22 | 23 | 20 | 21 | ||||||||||||
Amortization of prior service cost |
(3 | ) | (3 | ) | (3 | ) | (4 | ) | ||||||||
Amortization of transition obligation |
1 | 1 | 1 | 1 | ||||||||||||
NET PERIODIC POSTRETIREMENT BENEFIT COST |
$ | 25 | $ | 28 | $ | 20 | $ | 24 | ||||||||
Cost capitalized |
(9 | ) | (10 | ) | (7 | ) | (8 | ) | ||||||||
Cost deferred |
3 | 2 | 3 | 1 | ||||||||||||
Cost charged to operating expenses |
$ | 19 | $ | 20 | $ | 16 | $ | 17 |
For the Nine Months Ended September 30, | ||||||||||||||||
Con Edison | CECONY | |||||||||||||||
(Millions of Dollars) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Service cost |
$ | 19 | $ | 18 | $ | 15 | $ | 15 | ||||||||
Interest cost on accumulated other postretirement benefit obligation |
62 | 69 | 54 | 60 | ||||||||||||
Expected return on plan assets |
(66 | ) | (66 | ) | (59 | ) | (57 | ) | ||||||||
Amortization of net actuarial loss |
66 | 69 | 60 | 63 | ||||||||||||
Amortization of prior service cost |
(7 | ) | (9 | ) | (9 | ) | (12 | ) | ||||||||
Amortization of transition obligation |
3 | 3 | 3 | 3 | ||||||||||||
NET PERIODIC POSTRETIREMENT BENEFIT COST |
$ | 77 | $ | 84 | $ | 64 | $ | 72 | ||||||||
Cost capitalized |
(27 | ) | (30 | ) | (22 | ) | (25 | ) | ||||||||
Cost deferred |
12 | 2 | 10 | (1 | ) | |||||||||||
Cost charged to operating expenses |
$ | 62 | $ | 56 | $ | 52 | $ | 46 |
Expected Contributions
Con Edison expects to make a contribution of $84 million, including $74 million for CECONY, to the other postretirement benefit plans in 2011. During the first nine months of 2011, Con Edison contributed $35 million to the other postretirement benefit plans (of which $30 million was contributed by CECONY).
Note F Environmental Matters
Superfund Sites
Hazardous substances, such as asbestos, polychlorinated biphenyls (PCBs) and coal tar, have been used or generated in the course of operations of the Utilities and their predecessors and are present at sites and in facilities and equipment they currently or previously owned, including sites at which gas was manufactured or stored.
The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 and similar state statutes (Superfund) impose joint and several liability, regardless of fault, upon generators of hazardous substances for investigation and remediation costs (which include costs of demolition, removal, disposal, storage, replacement, containment, and monitoring) and natural resource damages. Liability
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under these laws can be material and may be imposed for contamination from past acts, even though such past acts may have been lawful at the time they occurred. The sites at which the Utilities have been asserted to have liability under these laws, including their manufactured gas plant sites and any neighboring areas to which contamination may have migrated, are referred to herein as Superfund Sites.
For Superfund Sites where there are other potentially responsible parties and the Utilities are not managing the site investigation and remediation, the accrued liability represents an estimate of the amount the Utilities will need to pay to investigate and, where determinable, discharge their related obligations. For Superfund Sites (including the manufactured gas plant sites) for which one of the Utilities is managing the investigation and remediation, the accrued liability represents an estimate of the companys share of undiscounted cost to investigate the sites and, for sites that have been investigated in whole or in part, the cost to remediate the sites, if remediation is necessary and if a reasonable estimate of such cost can be made. Remediation costs are estimated in light of the information available, applicable remediation standards, and experience with similar sites.
The accrued liabilities and regulatory assets related to Superfund Sites at September 30, 2011 and December 31, 2010 were as follows:
Con Edison | CECONY | |||||||||||||||
(Millions of Dollars) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Accrued Liabilities: |
||||||||||||||||
Manufactured gas plant sites |
$ | 432 | $ | 446 | $ | 314 | $ | 327 | ||||||||
Other Superfund Sites |
64 | 66 | 63 | 65 | ||||||||||||
Total |
$ | 496 | $ | 512 | $ | 377 | $ | 392 | ||||||||
Regulatory assets |
$ | 681 | $ | 695 | $ | 563 | $ | 574 |
Most of the accrued Superfund Site liability relates to sites that have been investigated, in whole or in part. However, for some of the sites, the extent and associated cost of the required remediation has not yet been determined. As investigations progress and information pertaining to the required remediation becomes available, the Utilities expect that additional liability may be accrued, the amount of which is not presently determinable, but may be material. Under their current rate agreements, the Utilities are permitted to recover or defer as regulatory assets (for subsequent recovery through rates) certain site investigation and remediation costs. In February 2011, the NYSPSC initiated a proceeding to examine the existing mechanisms pursuant to which utilities recover such costs and possible alternatives.
Environmental remediation costs incurred related to Superfund Sites for the three and nine months ended September 30, 2011 and 2010, were as follows:
For the Three Months Ended September 30, | ||||||||||||||||
Con Edison | CECONY | |||||||||||||||
(Millions of Dollars) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Remediation costs incurred |
$ | 9 | $ | 9 | $ | 9 | $ | 8 |
For the Nine Months Ended September 30, | ||||||||||||||||
Con Edison | CECONY | |||||||||||||||
(Millions of Dollars) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Remediation costs incurred |
$ | 24 | $ | 32 | $ | 22 | $ | 30 |
There were no insurance recoveries related to Superfund Sites for the three months ended September 30, 2011 and 2010. Insurance recoveries related to Superfund Sites for the nine months ended September 30, 2011 and 2010 were immaterial.
In 2010, CECONY estimated that for its manufactured gas plant sites, its aggregate undiscounted potential liability for the investigation and remediation of coal tar and/or other manufactured gas plant-related environmental contaminants could range up to $1.9 billion. In 2010, O&R estimated that for its manufactured gas plant sites, each of which has been investigated, the aggregate undiscounted potential liability for the remediation of such contaminants could range up to $200 million. These estimates were based on the assumption that there is contamination at all sites, including those that have not yet been fully investigated and additional assumptions about the extent of the contamination and the type and extent of the remediation that may be required. Actual experience may be materially different.
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Asbestos Proceedings
Suits have been brought in New York State and federal courts against the Utilities and many other defendants, wherein a large number of plaintiffs sought large amounts of compensatory and punitive damages for deaths and injuries allegedly caused by exposure to asbestos at various premises of the Utilities. The suits that have been resolved, which are many, have been resolved without any payment by the Utilities, or for amounts that were not, in the aggregate, material to them. The amounts specified in all the remaining thousands of suits total billions of dollars; however, the Utilities believe that these amounts are greatly exaggerated, based on the disposition of previous claims. In 2010, CECONY estimated that its aggregate undiscounted potential liability for these suits and additional suits that may be brought over the next 15 years is $10 million. The estimate was based upon a combination of modeling, historical data analysis and risk factor assessment. Actual experience may be materially different. In addition, certain current and former employees have claimed or are claiming workers compensation benefits based on alleged disability from exposure to asbestos. Under its current rate agreements, CECONY is permitted to defer as regulatory assets (for subsequent recovery through rates) costs incurred for its asbestos lawsuits and workers compensation claims. The accrued liability for asbestos suits and workers compensation proceedings (including those related to asbestos exposure) and the amounts deferred as regulatory assets for the Companies at September 30, 2011 and December 31, 2010 were as follows:
Con Edison | CECONY | |||||||||||||||
(Millions of Dollars) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Accrued liability asbestos suits |
$ | 10 | $ | 10 | $ | 10 | $ | 10 | ||||||||
Regulatory assets asbestos suits |
$ | 10 | $ | 10 | $ | 10 | $ | 10 | ||||||||
Accrued liability workers compensation |
$ | 99 | $ | 106 | $ | 94 | $ | 101 | ||||||||
Regulatory assets workers compensation |
$ | 25 | $ | 31 | $ | 24 | $ | 31 |
Note G Other Material Contingencies
Manhattan Steam Main Rupture
In July 2007, a CECONY steam main located in midtown Manhattan ruptured. It has been reported that one person died and others were injured as a result of the incident. Several buildings in the area were damaged. Debris from the incident included dirt and mud containing asbestos. The response to the incident required the closing of several buildings and streets for various periods. Approximately 100 suits are pending against the company seeking generally unspecified compensatory and, in some cases, punitive damages, for personal injury, property damage and business interruption. The company has not accrued a liability for the suits. The company has notified its insurers of the incident and believes that the policies in force at the time of the incident will cover most of the companys costs, which the company is unable to estimate, but which could be substantial, to satisfy its liability to others in connection with the incident.
Investigations of Vendor Payments
In January 2009, CECONY commenced an internal investigation relating to the arrests of certain employees and retired employees (all of whom have since been convicted) for accepting kickbacks from contractors that performed construction work for the company. The company has retained a law firm, which has retained an accounting firm, to assist in the companys investigation. The company has provided information to governmental authorities, which consider the company to be a victim of unlawful conduct, in connection with their investigation of the arrested employees and contractors. The company has terminated its employment of the arrested employees and its contracts with the contractors. In February 2009, the NYSPSC commenced a proceeding that, among other things, will examine the prudence of certain of the companys expenditures relating to the arrests and consider whether additional expenditures should also be examined (see Other Regulatory Matters in Note B).
CECONY is also investigating the September 2010 arrest of a retired employee (who has since pleaded guilty to participating in a bribery scheme in which the employee received payments from two companies that supplied materials to the company) and the January 2011 arrest of an employee (for accepting kickbacks from an engineering firm that performed work for the
24 |
company). CECONY has provided information to governmental authorities in connection with their ongoing investigations of these matters.
The company, based upon its evaluation of its internal controls for 2010 and previous years, believes that the controls were effective to provide reasonable assurance that its financial statements have been fairly presented, in all material respects, in conformity with generally accepted accounting principles. Because the companys investigations are ongoing, the company is unable to predict the impact of any of the employees unlawful conduct on the companys internal controls, business, results of operations or financial position.
Lease In/Lease Out Transactions
In each of 1997 and 1999, Con Edison Development entered into a transaction in which it leased property and then immediately subleased it back to the lessor (termed Lease In/Lease Out, or LILO transactions). The transactions respectively involve electric generating and gas distribution 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. In accordance with the accounting rules for leases, Con Edison is accounting for the two LILO transactions as leveraged leases. Accordingly, the companys investment in these leases, net of non-recourse debt, is carried as a single amount in Con Edisons consolidated balance sheet and income is recognized pursuant to a method that incorporates a level rate of return for those years when net investment in the lease is positive, based upon the after-tax cash flows projected at the inception of the leveraged leases. The companys investment in these leveraged leases was $(52) million at September 30, 2011 and $(41) million at December 31, 2010 and is comprised of a $234 million gross investment less $286 million deferred tax liabilities at September 30, 2011 and $235 million gross investment less $276 million of deferred tax liabilities at December 31, 2010.
On audit of Con Edisons tax return for 1997, the IRS disallowed the tax losses in connection with the 1997 LILO transaction. In December 2005, Con Edison paid a $0.3 million income tax deficiency asserted by the IRS for the tax year 1997 with respect to the 1997 LILO transaction. In April 2006, the company paid interest of $0.2 million associated with the deficiency and commenced an action in the United States Court of Federal Claims, entitled Consolidated Edison Company of New York, Inc. v. United States, to obtain a refund of this tax payment and interest. A trial was completed in November 2007. In October 2009, the court issued a decision in favor of the company concluding that the 1997 LILO transaction was, in substance, a true lease that possessed economic substance, the loans relating to the lease constituted bona fide indebtedness, and the deductions for the 1997 LILO transactions claimed by the company in its 1997 federal income tax return are allowable. The IRS is entitled to appeal the decision.
In connection with its audit of Con Edisons federal income tax returns for 1998 through 2007, the IRS disallowed $416 million of net tax deductions taken with respect to both of the LILO transactions for the tax years. Con Edison is pursuing administrative appeals of these audit level disallowances. In connection with its audit of Con Edisons federal income tax returns for 2010, 2009 and 2008, the IRS has disallowed $40 million, $41 million and $42 million, respectively, of net tax deductions taken with respect to both of the LILO transactions. When these audit level disallowances become appealable, Con Edison intends to file an appeal of the disallowances.
Con Edison believes that its LILO transactions have been correctly reported, and has not recorded any reserve with respect to the disallowance of tax losses, or related interest, in connection with its LILO transactions. Con Edisons estimated tax savings, reflected in its financial statements, from the two LILO transactions through September 30, 2011, in the aggregate, was $232 million. If Con Edison were required to repay all or a portion of these amounts, it would also be required to pay interest of up to $86 million net of tax at September 30, 2011.
Pursuant to the accounting rules for leveraged lease transactions, the expected timing of income tax cash flows generated by Con Edisons LILO transactions are required to be reviewed at least annually. If the
25 |
expected timing of the cash flows is revised, the rate of return and the allocation of income would be recalculated from the inception of the LILO transactions, and the company would be required to recalculate the accounting effect of the LILO transactions, which would result in a charge to earnings that could have a material adverse effect on the companys results of operations.
Guarantees
Con Edison and its subsidiaries enter into various agreements providing financial or performance assurance primarily to third parties on behalf of their subsidiaries. Maximum amounts guaranteed by Con Edison totaled $862 million and $859 million at September 30, 2011 and December 31, 2010, respectively.
A summary, by type and term, of Con Edisons total guarantees at September 30, 2011 is as follows:
Guarantee Type | 0 3 years | 4 10 years | > 10 years | Total | ||||||||||||
(Millions of Dollars) | ||||||||||||||||
Energy transactions |
$ | 652 | $ | 3 | $ | 153 | $ | 808 | ||||||||
Intra-company guarantees |
15 | | 1 | 16 | ||||||||||||
Other guarantees |
25 | 13 | | 38 | ||||||||||||
TOTAL |
$ | 692 | $ | 16 | $ | 154 | $ | 862 |
Energy Transactions Con Edison guarantees payments on behalf of its competitive energy businesses in order to facilitate physical and financial transactions in gas, pipeline capacity, transportation, oil, electricity and energy services. To the extent that liabilities exist under the contracts subject to these guarantees, such liabilities are included in Con Edisons consolidated balance sheet.
Intra-company Guarantees Con Edison guarantees electricity sales made by Con Edison Energy and Con Edison Solutions to O&R and CECONY.
Other Guarantees Con Edison, also guarantees the following:
| $13 million relates to a guarantee issued by Con Edison to CECONY covering a former Con Edison subsidiarys lease payments to use CECONYs conduit system in accordance with a tariff approved by the NYSPSC and a guarantee issued by Con Edison to a landlord to guarantee the former subsidiarys obligations under a building lease. The former subsidiary is obligated to reimburse Con Edison for any payments made under these guarantees. This obligation is fully secured by letters of credit; |
| $25 million for guarantees provided by Con Edison to Travelers Insurance Company for indemnity agreements for surety bonds in connection with energy service projects performed by Con Edison Solutions; and |
| Con Edison, on behalf of Con Edison Solutions, as a retail electric provider, issued a guarantee to the Public Utility Commission of Texas with no specified limitation on the amount guaranteed, covering the payment of all obligations of a retail electric provider. Con Edisons estimate of the maximum potential obligation is $5 million as of September 30, 2011. |
26 |
Note H Financial Information by Business Segment
The financial data for the business segments are as follows:
For the Three Months Ended September 30, | ||||||||||||||||||||||||||||||||
Operating revenues |
Inter-segment revenues |
Depreciation and amortization |
Operating income |
|||||||||||||||||||||||||||||
(Millions of Dollars) | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||||||||||
CECONY |
||||||||||||||||||||||||||||||||
Electric |
$ | 2,644 | $ | 2,570 | $ | 3 | $ | 3 | $ | 166 | $ | 156 | $ | 758 | $ | 715 | ||||||||||||||||
Gas |
197 | 204 | 1 | 1 | 28 | 26 | (23 | ) | (16 | ) | ||||||||||||||||||||||
Steam |
76 | 91 | 20 | 18 | 15 | 16 | (33 | ) | (33 | ) | ||||||||||||||||||||||
Consolidation adjustments |
| | (24 | ) | (22 | ) | | | | | ||||||||||||||||||||||
Total CECONY |
$ | 2,917 | $ | 2,865 | $ | | $ | | $ | 209 | $ | 198 | $ | 702 | $ | 666 | ||||||||||||||||
O&R |
||||||||||||||||||||||||||||||||
Electric |
$ | 217 | $ | 245 | $ | | $ | | $ | 9 | $ | 8 | $ | 44 | $ | 52 | ||||||||||||||||
Gas |
24 | 25 | | | 3 | 3 | (6 | ) | (4 | ) | ||||||||||||||||||||||
Total O&R |
$ | 241 | $ | 270 | $ | | $ | | $ | 12 | $ | 11 | $ | 38 | $ | 48 | ||||||||||||||||
Competitive energy businesses |
$ | 472 | $ | 584 | $ | 3 | $ | 2 | $ | 1 | $ | 2 | $ | 16 | $ | (8 | ) | |||||||||||||||
Other* |
(1 | ) | (12 | ) | (3 | ) | (2 | ) | | | | (1 | ) | |||||||||||||||||||
Total Con Edison |
$ | 3,629 | $ | 3,707 | $ | | $ | | $ | 222 | $ | 211 | $ | 756 | $ | 705 |
* | Parent company expenses, primarily interest, and consolidation adjustments. Other does not represent a business segment. |
For the Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||
Operating revenues |
Inter-segment revenues |
Depreciation and amortization |
Operating income |
|||||||||||||||||||||||||||||
(Millions of Dollars) | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||||||||||
CECONY |
||||||||||||||||||||||||||||||||
Electric |
$ | 6,378 | $ | 6,402 | $ | 9 | $ | 9 | $ | 489 | $ | 464 | $ | 1,326 | $ | 1,228 | ||||||||||||||||
Gas |
1,156 | 1,126 | 4 | 4 | 82 | 76 | 212 | 243 | ||||||||||||||||||||||||
Steam |
508 | 487 | 59 | 55 | 47 | 46 | 81 | 41 | ||||||||||||||||||||||||
Consolidation adjustments |
| | (72 | ) | (68 | ) | | | | | ||||||||||||||||||||||
Total CECONY |
$ | 8,042 | $ | 8,015 | $ | | $ | | $ | 618 | $ | 586 | $ | 1,619 | $ | 1,512 | ||||||||||||||||
O&R |
||||||||||||||||||||||||||||||||
Electric |
$ | 507 | $ | 559 | $ | | $ | | $ | 26 | $ | 24 | $ | 69 | $ | 71 | ||||||||||||||||
Gas |
153 | 150 | | | 10 | 9 | 22 | 20 | ||||||||||||||||||||||||
Total O&R |
$ | 660 | $ | 709 | $ | | $ | | $ | 36 | $ | 33 | $ | 91 | $ | 91 | ||||||||||||||||
Competitive energy businesses |
$ | 1,286 | $ | 1,491 | $ | 9 | $ | 6 | $ | 5 | $ | 7 | $ | 75 | $ | 25 | ||||||||||||||||
Other* |
(16 | ) | (30 | ) | (9 | ) | (6 | ) | | | (2 | ) | (1 | ) | ||||||||||||||||||
Total Con Edison |
$ | 9,972 | $ | 10,185 | $ | | $ | | $ | 659 | $ | 626 | $ | 1,781 | $ | 1,627 |
* | Parent company expenses, primarily interest, and consolidation adjustments. Other does not represent a business segment. |
Note I Derivative Instruments and Hedging Activities
Under the accounting rules for derivatives and hedging, derivatives are recognized on the balance sheet at fair value, unless an exception is available under the accounting rules. Certain qualifying derivative contracts have been designated as normal purchases or normal sales contracts. These contracts are not reported at fair value under the accounting rules.
Energy Price Hedging
Con Edisons subsidiaries hedge market price fluctuations associated with physical purchases and sales of electricity, natural gas, and steam by using derivative instruments including futures, forwards, basis swaps, options, transmission congestion contracts and financial transmission rights contracts. The fair values of these hedges at September 30, 2011 and December 31, 2010 were as follows:
Con Edison | CECONY | |||||||||||||||
(Millions of Dollars) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Fair value of net derivative assets/(liabilities) gross |
$ | (115 | ) | $ | (261 | ) | $ | (62 | ) | $ | (156 | ) | ||||
Impact of netting of cash collateral |
73 | 176 | 41 | 104 | ||||||||||||
Fair value of net derivative assets/(liabilities) net |
$ | (42 | ) | $ | (85 | ) | $ | (21 | ) | $ | (52 | ) |
27 |
Credit Exposure
The Companies are exposed to credit risk related to transactions entered into primarily for the various energy supply and hedging activities by the Utilities and the competitive energy businesses. The Companies use credit policies to manage this risk, including an established credit approval process, monitoring of counterparty limits, netting provisions within agreements, collateral or prepayment arrangements, credit insurance and credit default swaps.
At September 30, 2011, Con Edison and CECONY had $120 million and $24 million of credit exposure in connection with energy supply and hedging activities, net of collateral, respectively. Con Edisons net credit exposure consisted of $60 million with investment-grade counterparties, $44 million with commodity exchange brokers, $15 million with independent system operators and $1 million with non-investment grade counterparties. CECONYs entire net credit exposure was with commodity exchange brokers.
Economic Hedges
The Companies enter into certain derivative instruments that do not qualify or are not designated as hedges under the accounting rules for derivatives and hedging. However, management believes these instruments represent economic hedges that mitigate exposure to fluctuations in commodity prices.
The fair values of the Companies commodity derivatives at September 30, 2011 were:
(Millions of Dollars) | Fair Value of Commodity Derivatives (a) Balance Sheet Location |
Con Edison |
CECONY | |||||||
Derivative Assets | ||||||||||
Current |
Other current assets | $ | 112 | $ | 41 | |||||
Long-term |
Other deferred charges and non-current assets | 36 | 23 | |||||||
Total derivative assets |
$ | 148 | $ | 64 | ||||||
Impact of netting |
(68 | ) | (25 | ) | ||||||
Net derivative assets |
$ | 80 | $ | 39 | ||||||
Derivative Liabilities | ||||||||||
Current |
Fair value of derivative liabilities | $ | 209 | $ | 95 | |||||
Long-term |
Fair value of derivative liabilities | 54 | 31 | |||||||
Total derivative liabilities |
$ | 263 | $ | 126 | ||||||
Impact of netting |
(141 | ) | (66 | ) | ||||||
Net derivative liabilities |
$ | 122 | $ | 60 |
(a) | Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table. |
The fair values of the Companies commodity derivatives at December 31, 2010 were:
(Millions of Dollars) | Fair Value of Commodity Derivatives (a) Balance Sheet Location |
Con Edison |
CECONY | |||||||
Derivative Assets | ||||||||||
Current |
Other current assets | $ | 184 | $ | 29 | |||||
Long-term |
Other deferred charges and non-current assets | 51 | 19 | |||||||
Total derivative assets |
$ | 235 | $ | 48 | ||||||
Impact of netting |
(129 | ) | | |||||||
Net derivative assets |
$ | 106 | $ | 48 | ||||||
Derivative Liabilities | ||||||||||
Current |
Fair value of derivative liabilities | $ | 385 | $ | 148 | |||||
Long-term |
Fair value of derivative liabilities | 111 | 56 | |||||||
Total derivative liabilities |
$ | 496 | $ | 204 | ||||||
Impact of netting |
(305 | ) | (104 | ) | ||||||
Net derivative liabilities |
$ | 191 | $ | 100 |
(a) | Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table. |
28 |
The Utilities generally recover all of their prudently incurred fuel, purchased power and gas cost, including hedging gains and losses, in accordance with rate provisions approved by the applicable state utility commissions. In accordance with the accounting rules for regulated operations, the Utilities record a regulatory asset or liability to defer recognition of unrealized gains and losses on their electric and gas derivatives. As gains and losses are realized in future periods, they will be recognized as purchased power, gas and fuel costs in the Companies consolidated income statements. Con Edisons competitive energy businesses record realized and unrealized gains and losses on their derivative contracts in earnings in the reporting period in which they occur.
The following tables present the changes in the fair values of commodity derivatives that have been deferred or recognized in earnings for the three and nine months ended September 30, 2011:
Realized and Unrealized Gains/(Losses) on Commodity Derivatives (a) Deferred or Recognized in Income for the three months ended September 30, 2011 |
||||||||||
(Millions of Dollars) | Balance Sheet Location | Con Edison |
CECONY | |||||||
Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations: |
| |||||||||
Current |
Deferred derivative gains | $ | (2 | ) | $ | (1 | ) | |||
Long-term |
Regulatory liabilities | 1 | 1 | |||||||
Total deferred gains |
$ | (1 | ) | $ | | |||||
Current |
Deferred derivative losses | $ | 12 | $ | 7 | |||||
Current |
Recoverable energy costs | (75 | ) | (53 | ) | |||||
Long-term |
Regulatory assets | 10 | 6 | |||||||
Total deferred losses |
$ | (53 | ) | $ | (40 | ) | ||||
Net deferred losses |
$ | (54 | ) | $ | (40 | ) | ||||
Income Statement Location | ||||||||||
Pre-tax gain/(loss) recognized in income |
| |||||||||
Purchased power expense | $ | 29 | (b) | $ | | |||||
Gas purchased for resale | 6 | | ||||||||
Non-utility revenue | 5 | (b) | | |||||||
Total pre-tax gain/(loss) recognized in income |
$ | 40 | $ | |
(a) | Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table. |
(b) | For the three months ended September 30, 2011 Con Edison recorded in non-utility operating revenues and purchased power expense an unrealized pre-tax (loss) of $(10) million and $(1) million, respectively. |
Realized and Unrealized Gains/(Losses) on Commodity Derivatives (a) Deferred or Recognized in Income for the nine months ended September 30, 2011 |
||||||||||
(Millions of Dollars) | Balance Sheet Location | Con Edison |
CECONY | |||||||
Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations: |
| |||||||||
Current |
Deferred derivative gains | $ | | $ | | |||||
Long-term |
Regulatory liabilities | 3 | 3 | |||||||
Total deferred gains |
$ | 3 | $ | 3 | ||||||
Current |
Deferred derivative losses | $ | 80 | $ | 61 | |||||
Current |
Recoverable energy costs | (177 | ) | (134 | ) | |||||
Long-term |
Regulatory assets | 38 | 27 | |||||||
Total deferred losses |
$ | (59 | ) | $ | (47 | ) | ||||
Net deferred losses |
$ | (56 | ) | $ | (44 | ) | ||||
Income Statement Location | ||||||||||
Pre-tax gain/(loss) recognized in income |
| |||||||||
Purchased power expense | $ | 81 | (b) | $ | | |||||
Gas purchased for resale | 17 | | ||||||||
Non-utility revenue | 22 | (b) | | |||||||
Total pre-tax gain/(loss) recognized in income |
$ | 120 | $ | |
(a) | Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table. |
29 |
(b) | For the nine months ended September 30, 2011, Con Edison recorded in non-utility operating revenues and purchased power expense an unrealized pre-tax (loss)/gain of $(35) million and $59 million, respectively. |
The following tables present the changes in the fair values of commodity derivatives that have been deferred or recognized in earnings for the three and nine months ended September 30, 2010:
Realized and Unrealized Gains/(Losses) on Commodity Derivatives (a) Deferred or Recognized in Income for the Three Months Ended September 30, 2010 |
||||||||||
(Millions of Dollars) | Balance Sheet Location | Con Edison |
CECONY | |||||||
Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations: |
| |||||||||
Current |
Other current liabilities | $ | (3 | ) | $ | (3 | ) | |||
Total deferred losses |
$ | (3 | ) | $ | (3 | ) | ||||
Current |
Other current assets | $ | (61 | ) | $ | (54 | ) | |||
Current |
Recoverable energy costs | (70 | ) | (63 | ) | |||||
Long term |
Regulatory assets | 4 | 7 | |||||||
Total deferred losses |
$ | (127 | ) | $ | (110 | ) | ||||
Net deferred losses |
$ | (130 | ) | $ | (113 | ) | ||||
Income Statement Location | ||||||||||
Pre-tax gain/(loss) recognized in income |
| |||||||||
Purchased power expense | $ | (26 | )(b) | $ | | |||||
Gas purchased for resale | (1 | )& |