Edgar Filing: CONSOLIDATED EDISON CO OF NEW YORK INC

Form 10-Q

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

¨	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.

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
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


		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

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.


					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 Stock Expense			Accumulated Other Comprehensive Income/(Loss)			Total
*(Millions of Dollars/Except Share Data)*	Shares		Amount		Additional Paid-In Capital		Retained Earnings			Shares			Amount			Capital Stock Expense			Accumulated Other Comprehensive Income/(Loss)			Total
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 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.


					15


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		Additional Paid-In Capital		Retained Earnings			Repurchased Con Edison Stock			Capital Stock Expense			Accumulated Other Comprehensive Income/(Loss)			Total
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 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.


					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 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.


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 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.


					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 CECONY’s pension obligations of $45 million from a 1999 special retirement program.


					21

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


22

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


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 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


					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 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.


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 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.


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 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.


					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	)&

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