Form 10-Q
Table of Contents

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
File Number

 

Exact name of registrant as specified in its charter

and principal office address and telephone number

  

State of
Incorporation

  

I.R.S. Employer
ID. Number

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.


Table of Contents

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     


Table of Contents
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
Moody’s    Moody’s Investors Service
S&P    Standard & Poor’s 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   


Table of Contents

TABLE OF CONTENTS

 

          PAGE  
PART I—Financial Information  
ITEM 1  

Financial Statements (Unaudited)

 
 

Con Edison

 
 

Consolidated Income Statement

    6   
 

Consolidated Statement of Cash Flows

    7   
 

Consolidated Balance Sheet

    8   
 

Consolidated Statement of Comprehensive Income

    10   
 

Consolidated Statement of Common Shareholders’ Equity

    11   
 

CECONY

 
 

Consolidated Income Statement

    12   
 

Consolidated Statement of Cash Flows

    13   
 

Consolidated Balance Sheet

    14   
 

Consolidated Statement of Common Shareholder’s Equity

    16   
 

Notes to Financial Statements (Unaudited)

    17   
ITEM  2  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

    38   
ITEM  3  

Quantitative and Qualitative Disclosures About Market Risk

    60   
ITEM  4  

Controls and Procedures

    60   
PART II—Other Information  
ITEM  1  

Legal Proceedings

    61   
ITEM 1A  

Risk Factors

    61   
ITEM  2  

Unregistered Sales of Equity Securities and Use of Proceeds

    61   
ITEM  6  

Exhibits

    62   
  Signatures     63   

 

4     


Table of Contents

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 Edison’s 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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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Consolidated Edison, Inc.   

CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS’ EQUITY (UNAUDITED)

 

    Common Stock     Additional
Paid-In
Capital
   

Retained

Earnings

    Treasury Stock    

Capital
Stock

Expense

   

Accumulated
Other
Comprehensive

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.

 

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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.

 

 

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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.

 

 

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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.

 

 

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Consolidated Edison Company of New York, Inc.   

CONSOLIDATED BALANCE SHEET (UNAUDITED)

 

     September 30,
2011
    December 31,
2010
 
    (Millions of Dollars)  

LIABILITIES AND SHAREHOLDER’S 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   

SHAREHOLDER’S EQUITY

   

Common shareholder’s equity (See Statement of Shareholder’s Equity)

    10,192        9,923   

Preferred stock

    213        213   

TOTAL SHAREHOLDER’S EQUITY

    10,405        10,136   

TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY

  $ 32,654      $ 32,474   

The accompanying notes are an integral part of these financial statements.

 

 

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Consolidated Edison Company of New York, Inc.   

CONSOLIDATED STATEMENT OF COMMON SHAREHOLDER’S EQUITY (UNAUDITED)

 

    Common Stock     Additional
Paid-In
Capital
   

Retained

Earnings

   

Repurchased
Con Edison

Stock

   

Capital
Stock

Expense

   

Accumulated
Other
Comprehensive

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.

 

 

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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 Edison’s other utility subsidiary, Orange and Rockland Utilities, Inc. (O&R), and Con Edison’s competitive energy businesses (discussed below) in Con Edison’s 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.

 

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Note A — Summary of Significant Accounting Policies

Earnings Per Common Share

For the three and nine months ended September 30, 2011 and 2010, Con Edison’s 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 company’s 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 NYSPSC’s 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.

 

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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 company’s 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 NYSPSC’s consultant is expected to continue to review the company’s 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.

 

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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

 

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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 CECONY’s 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 company’s 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 company’s 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 company’s 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 company’s 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

 

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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 company’s investigations are ongoing, the company is unable to predict the impact of any of the employees’ unlawful conduct on the company’s 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 company’s investment in these leases, net of non-recourse debt, is carried as a single amount in Con Edison’s 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 company’s 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 Edison’s 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 Edison’s 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 Edison’s 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 Edison’s 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 Edison’s LILO transactions are required to be reviewed at least annually. If the

 

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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 company’s 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 Edison’s 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 Edison’s 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 subsidiary’s lease payments to use CECONY’s 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 subsidiary’s 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 Edison’s estimate of the maximum potential obligation is $5 million as of September 30, 2011.

 

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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 Edison’s 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

 

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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 Edison’s 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. CECONY’s 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.

 

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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 Edison’s 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.

 

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(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 )&