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, 2012

¨	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 31, 2012, Con Edison had outstanding 292,872,896 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
NYISO		New York Independent System Operator
NYPA		New York Power Authority
NYSAG		New York State Attorney General
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
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
AC		Alternating current
dths		Dekatherms
kV		Kilovolt
kWh		Kilowatt-hour
mdths		Thousand dekatherms
MMlbs		Million pounds
MVA		Megavolt ampere
MW		Megawatt 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, 2012
Form 10-K		The Companies’ combined Annual Report on Form 10-K for the year ended December 31, 2011
LTIP		Long Term Incentive Plan
Moody’s		Moody’s Investors Service
S&P		Standard & Poor’s Financial Services LLC
Second Quarter Form 10-Q		The Companies’ combined Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2012
Third Quarter Form 10-Q		The Companies’ combined Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012
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 Comprehensive Income		7
	Consolidated Statement of Cash Flows		8
	Consolidated Balance Sheet		9
	Consolidated Statement of Common Shareholders’ Equity		11
	CECONY
	Consolidated Income Statement		12
	Consolidated Statement of Comprehensive Income		13
	Consolidated Statement of Cash Flows		14
	Consolidated Balance Sheet		15
	Consolidated Statement of Common Shareholder’s Equity		17
	Notes to Financial Statements (Unaudited)		18
ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		40
ITEM 3	Quantitative and Qualitative Disclosures About Market Risk		63
ITEM 4	Controls and Procedures		63
PART II—Other Information
ITEM 1	Legal Proceedings		64
ITEM 1A	Risk Factors		64
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds		64
ITEM 6	Exhibits		65
	Signatures		66


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,
	2012			2011			2012			2011
	*(Millions of Dollars/Except Share Data)*
OPERATING REVENUES
Electric		$2,810			$2,861			$6,762			$6,883
Gas		216			220			1,161			1,309
Steam		68			76			414			508
Non-utility		344			472			950			1,272
TOTAL OPERATING REVENUES		3,438			3,629			9,287			9,972
OPERATING EXPENSES
Purchased power		930			1,239			2,440			3,124
Fuel		59			73			213			317
Gas purchased for resale		56			73			314			491
Operations and maintenance		826			783			2,365			2,213
Depreciation and amortization		240			222			709			659
Taxes, other than income taxes		476			483			1,360			1,387
TOTAL OPERATING EXPENSES		2,587			2,873			7,401			8,191
OPERATING INCOME		851			756			1,886			1,781
OTHER INCOME (DEDUCTIONS)
Investment and other income		4			—			14			19
Allowance for equity funds used during construction		1			2			3			8
Other deductions		(3	)		(3	)		(13	)		(14	)
TOTAL OTHER INCOME (DEDUCTIONS)		2			(1	)		4			13
INCOME BEFORE INTEREST AND INCOME TAX EXPENSE		853			755			1,890			1,794
INTEREST EXPENSE
Interest on long-term debt		146			145			440			437
Other interest		6			—			17			15
Allowance for borrowed funds used during construction		—			(1	)		(2	)		(4	)
NET INTEREST EXPENSE		152			144			455			448
INCOME BEFORE INCOME TAX EXPENSE		701			611			1,435			1,346
INCOME TAX EXPENSE		261			225			501			477
NET INCOME		440			386			934			869
Preferred stock dividend requirements of subsidiary		—			(3	)		(3	)		(9	)
NET INCOME FOR COMMON STOCK		$440			$383			$931			$860
Net income for common stock per common share—basic		$1.50			$1.31			$3.18			$2.94
Net income for common stock per common share—diluted		$1.49			$1.30			$3.16			$2.92
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK		$0.605			$0.600			$1.815			$1.800
AVERAGE NUMBER OF SHARES OUTSTANDING—BASIC (IN MILLIONS)		292.9			292.9			292.9			292.5
AVERAGE NUMBER OF SHARES OUTSTANDING—DILUTED (IN MILLIONS)		294.6			294.6			294.6			294.2

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


6


Consolidated Edison, Inc.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)


	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2012		2011			2012			2011
	*(Millions of Dollars)*
NET INCOME		$440		$386			$934			$869
OTHER COMPREHENSIVE INCOME, NET OF TAXES
Pension plan liability adjustments, net of $1 and $5 taxes in 2012 and $1 and $4 in taxes 2011, respectively		2		2			8			7
TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAXES		2		2			8			7
COMPREHENSIVE INCOME		$442		$388			$942			$876
Preferred stock dividend requirements of subsidiary		—		(3	)		(3	)		(9	)
COMPREHENSIVE INCOME FOR COMMON STOCK		$442		$385			$939			$867

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


					7


Consolidated Edison, Inc.

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)


	For the Nine Months Ended September 30,
	2012			2011
	*(Millions of Dollars)*
OPERATING ACTIVITIES
Net Income		$ 934			$ 869
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME
Depreciation and amortization		709			659
Deferred income taxes		344			368
Rate case amortization and accruals		32			39
Common equity component of allowance for funds used during construction		(3	)		(8	)
Net derivative gains		(61	)		(25	)
Other non-cash items (net)		(53	)		6
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable – customers, less allowance for uncollectibles		(196	)		(4	)
Materials and supplies, including fuel oil and gas in storage		1			(27	)
Other receivables and other current assets		54			70
Prepayments		(288	)		(128	)
Accounts payable		18			(50	)
Pensions and retiree benefits obligations		713			578
Pensions and retiree benefits contributions		(821	)		(579	)
Accrued taxes		(80	)		76
Accrued interest		46			57
Superfund and environmental remediation costs (net)		7			—
Deferred charges, noncurrent assets and other regulatory assets		183			92
Deferred credits and other regulatory liabilities		83			158
Other liabilities		16			10
NET CASH FLOWS FROM OPERATING ACTIVITIES		1,638			2,161
INVESTING ACTIVITIES
Utility construction expenditures		(1,450	)		(1,404	)
Cost of removal less salvage		(118	)		(123	)
Non-utility construction expenditures		(68	)		(57	)
Acquisition of Alpaugh solar energy projects		(286	)		—
Proceeds from grants related to renewable energy investments		27			4
Net investment in Pilesgrove solar project and other		28			(31	)
NET CASH FLOWS USED IN INVESTING ACTIVITIES		(1,867	)		(1,611	)
FINANCING ACTIVITIES
Net proceeds from short-term debt		340			—
Preferred stock redemption		(239	)		—
Retirement of long-term debt		(304	)		(3	)
Issuance of long-term debt		400			—
Issuance of common shares for stock plans, net of repurchases		(16	)		41
Debt issuance costs		(4	)		—
Common stock dividends		(524	)		(519	)
Preferred stock dividends		(3	)		(9	)
NET CASH FLOWS USED IN FINANCING ACTIVITIES		(350	)		(490	)
CASH AND TEMPORARY CASH INVESTMENTS:
NET CHANGE FOR THE PERIOD		(579	)		60
BALANCE AT BEGINNING OF PERIOD		648			338
BALANCE AT END OF PERIOD		$ 69			$ 398
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid/(refunded) during the period for:
Interest		$ 379			$ 371
Income taxes		$ 46			$ (132	)

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


8


Consolidated Edison, Inc.

CONSOLIDATED BALANCE SHEET (UNAUDITED)


	September 30, 2012		December 31, 2011
	*(Millions of Dollars)*
ASSETS
CURRENT ASSETS
Cash and temporary cash investments		$ 69		$ 648
Accounts receivable – customers, less allowance for uncollectible accounts of $85 and $87 in 2012 and 2011, respectively		1,319		1,123
Accrued unbilled revenue		451		474
Other receivables, less allowance for uncollectible accounts of $10 in 2012 and 2011		216		303
Fuel oil, gas in storage, materials and supplies, at average cost		355		356
Prepayments		433		145
Deferred tax assets – current		113		266
Regulatory assets		77		164
Other current assets		207		159
TOTAL CURRENT ASSETS		3,240		3,638
INVESTMENTS		462		455
UTILITY PLANT, AT ORIGINAL COST
Electric		22,019		21,114
Gas		5,009		4,734
Steam		2,034		1,983
General		2,253		1,944
TOTAL		31,315		29,775
Less: Accumulated depreciation		6,388		6,051
Net		24,927		23,724
Construction work in progress		898		1,241
NET UTILITY PLANT		25,825		24,965
NON-UTILITY PLANT
Non-utility property, less accumulated depreciation of $66 and $59 in 2012 and 2011, respectively		99		89
Construction work in progress		400		39
NET PLANT		26,324		25,093
OTHER NONCURRENT ASSETS
Goodwill		429		429
Intangible assets, less accumulated amortization of $3 in 2012 and 2011		3		3
Regulatory assets		8,897		9,337
Other deferred charges and noncurrent assets		278		259
TOTAL OTHER NONCURRENT ASSETS		9,607		10,028
TOTAL ASSETS		$39,633		$39,214

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


					9


Consolidated Edison, Inc.

CONSOLIDATED BALANCE SHEET (UNAUDITED)


	September 30, 2012		December 31, 2011
	*(Millions of Dollars)*
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Long-term debt due within one year		$ 930		$ 530
Notes payable		340		—
Accounts payable		968		955
Customer deposits		308		303
Accrued taxes		108		188
Accrued interest		206		160
Accrued wages		88		91
Fair value of derivative liabilities		56		169
Regulatory liabilities		231		118
Other current liabilities		489		473
TOTAL CURRENT LIABILITIES		3,724		2,987
NONCURRENT LIABILITIES
Obligations under capital leases		2		2
Provision for injuries and damages		145		181
Pensions and retiree benefits		4,039		4,835
Superfund and other environmental costs		537		489
Asset retirement obligations		149		145
Fair value of derivative liabilities		34		48
Other noncurrent liabilities		124		131
TOTAL NONCURRENT LIABILITIES		5,030		5,831
DEFERRED CREDITS AND REGULATORY LIABILITIES
Deferred income taxes and investment tax credits		8,026		7,563
Regulatory liabilities		1,102		977
Other deferred credits		70		64
TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES		9,198		8,604
LONG-TERM DEBT		9,839		10,143
SHAREHOLDERS’ EQUITY
Common shareholders’ equity (See Statement of Common Shareholders’ Equity)		11,842		11,436
Preferred stock of subsidiary		—		213
TOTAL SHAREHOLDERS’ EQUITY		11,842		11,649
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$39,633		$39,214

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							Shares			Amount
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
BALANCE AS OF DECEMBER 31, 2011		292,888,521			$32		$4,991		$7,568			23,194,075			$(1,033	)		$(64	)		$(58	)		$11,436
Net income for common stock									277															277
Common stock dividends									(177	)														(177	)
Issuance of common shares for stock plans, net of repurchases		(7,225	)									7,225			(2	)								(2	)
Preferred stock redemption																		4						4
Other comprehensive income																					7			7
BALANCE AS OF MARCH 31, 2012		292,881,296			$32		$4,991		$7,668			23,201,300			$(1,035	)		$(60	)		$(51	)		$11,545
Net income for common stock									214															214
Common stock dividends									(178	)														(178	)
Issuance of common shares for stock plans, net of repurchases		1,700					—					(1,700	)		—			(1	)					(1	)
Other comprehensive loss																					(1	)		(1	)
BALANCE AS OF JUNE 30, 2012		292,882,996			$32		$4,991		$7,704			23,199,600			$(1,035	)		$(61	)		$(52	)		$11,579
Net income for common stock									440															440
Common stock dividends									(177	)														(177	)
Issuance of common shares for stock plans, net of repurchases		(11,100	)				—					11,100			(2	)		—						(2	)
Other comprehensive income																					2			2
BALANCE AS OF September 30, 2012		292,871,896			$32		$4,991		$7,967			23,210,700			$(1,037	)		$(61	)		$(50	)		$11,842

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,
	2012			2011			2012			2011
	*(Millions of Dollars)*
OPERATING REVENUES
Electric		$2,611			$2,644			$6,307			$6,378
Gas		189			197			1,017			1,156
Steam		68			76			414			508
TOTAL OPERATING REVENUES		2,868			2,917			7,738			8,042
OPERATING EXPENSES
Purchased power		604			736			1,554			1,840
Fuel		59			73			213			317
Gas purchased for resale		45			57			264			412
Other operations and maintenance		725			678			2,065			1,906
Depreciation and amortization		225			209			664			618
Taxes, other than income taxes		456			462			1,300			1,330
TOTAL OPERATING EXPENSES		2,114			2,215			6,060			6,423
OPERATING INCOME		754			702			1,678			1,619
OTHER INCOME (DEDUCTIONS)
Investment and other income		2			(6	)		6			3
Allowance for equity funds used during construction		—			1			2			6
Other deductions		(2	)		(3	)		(10	)		(12	)
TOTAL OTHER INCOME (DEDUCTIONS)		—			(8	)		(2	)		(3	)
INCOME BEFORE INTEREST AND INCOME TAX EXPENSE		754			694			1,676			1,616
INTEREST EXPENSE
Interest on long-term debt		130			130			395			393
Other interest		8			4			19			13
Allowance for borrowed funds used during construction		—			(1	)		(1	)		(3	)
NET INTEREST EXPENSE		138			133			413			403
INCOME BEFORE INCOME TAX EXPENSE		616			561			1,263			1,213
INCOME TAX EXPENSE		227			205			436			425
NET INCOME		389			356			827			788
Preferred stock dividend requirements		—			(3	)		(3	)		(9	)
NET INCOME FOR COMMON STOCK		$389			$353			$824			$779

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


12


Consolidated Edison Company of New York, Inc.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)


	For the Three Month Ended September 30,				For the Nine Month Ended September 30,
	2012		2011		2012			2011
	*(Millions of Dollars)*
NET INCOME		$389		$356		$827			$788
OTHER COMPREHENSIVE LOSS, NET OF TAXES
Pension plan liability adjustments, net of $(1) taxes in 2012		—		—		(2	)		—
TOTAL OTHER COMPREHENSIVE LOSS, NET OF TAXES		—		—		(2	)		—
COMPREHENSIVE INCOME		$389		$356		$825			$788

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


					13


Consolidated Edison Company of New York, Inc.

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)


	For the Nine Months Ended September 30,
	2012			2011
	*(Millions of Dollars)*
OPERATING ACTIVITIES
Net income		$ 827			$ 788
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME
Depreciation and amortization		664			618
Deferred income taxes		220			309
Rate case amortization and accruals		32			38
Common equity component of allowance for funds used during construction		(2	)		(6	)
Other non-cash items (net)		84			60
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable – customers, less allowance for uncollectibles		(197	)		3
Materials and supplies, including fuel oil and gas in storage		12			2
Other receivables and other current assets		(41	)		243
Prepayments		(308	)		(303	)
Accounts payable		50			(45	)
Pensions and retiree obligations		639			527
Pensions and retiree contributions		(761	)		(532	)
Accrued taxes		40			(7	)
Accrued interest		46			46
Superfund and environmental remediation costs (net)		7			—
Deferred charges, deferred derivative losses, noncurrent assets and other regulatory assets		84			33
Deferred credits and other regulatory liabilities		88			167
Other liabilities		(21	)		19
NET CASH FLOWS FROM OPERATING ACTIVITIES		1,463			1,960
INVESTING ACTIVITIES
Utility construction expenditures		(1,368	)		(1,332	)
Cost of removal less salvage		(115	)		(118	)
NET CASH FLOWS USED IN INVESTING ACTIVITIES		(1,483	)		(1,450	)
FINANCING ACTIVITIES
Net proceeds from short-term debt		332			—
Preferred stock redemption		(239	)		—
Retirement of long-term debt		(300	)
Issuance of long-term debt		400			—
Debt issuance costs		(4	)		—
Dividend to parent		(512	)		(509	)
Preferred stock dividends		(3	)		(9	)
NET CASH FLOWS USED IN FINANCING ACTIVITIES		(326	)		(518	)
CASH AND TEMPORARY CASH INVESTMENTS:
NET CHANGE FOR THE PERIOD		(346	)		(8	)
BALANCE AT BEGINNING OF PERIOD		372			78
BALANCE AT END OF PERIOD		$26			$70
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid/(refunded) during the period for:
Interest		$ 344			$ 336
Income taxes		$ 50			$ (103	)

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, 2012		December 31, 2011
	*(Millions of Dollars)*
ASSETS
CURRENT ASSETS
Cash and temporary cash investments		$ 26		$ 372
Accounts receivable – customers, less allowance for uncollectible accounts of $79 in 2012 and 2011		1,174		977
Other receivables, less allowance for uncollectible accounts of $9 in 2012 and 2011		103		102
Accrued unbilled revenue		347		366
Accounts receivable from affiliated companies		82		54
Fuel oil, gas in storage, materials and supplies, at average cost		296		308
Prepayments		393		85
Regulatory assets		62		140
Deferred tax assets – current		62		157
Other current assets		114		100
TOTAL CURRENT ASSETS		2,659		2,661
INVESTMENTS		203		177
UTILITY PLANT AT ORIGINAL COST
Electric		20,728		19,886
Gas		4,448		4,200
Steam		2,034		1,983
General		2,081		1,785
TOTAL		29,291		27,854
Less: Accumulated depreciation		5,834		5,523
Net		23,457		22,331
Construction work in progress		850		1,165
NET UTILITY PLANT		24,307		23,496
NON-UTILITY PROPERTY
Non-utility property, less accumulated depreciation of $25 and $24 in 2012 and 2011, respectively		4		6
NET PLANT		24,311		23,502
OTHER NONCURRENT ASSETS
Regulatory assets		8,285		8,661
Other deferred charges and noncurrent assets		241		217
TOTAL OTHER NONCURRENT ASSETS		8,526		8,878
TOTAL ASSETS		$35,699		$35,218

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


					15

Consolidated Edison Company of New York, Inc.

CONSOLIDATED BALANCE SHEET (UNAUDITED)


	September 30, 2012		December 31, 2011
	*(Millions of Dollars)*
LIABILITIES AND SHAREHOLDER’S EQUITY
CURRENT LIABILITIES
Long-term debt due within one year		$ 925		$ 525
Notes payable		332		—
Accounts payable		772		774
Accounts payable to affiliated companies		22		16
Customer deposits		295		290
Accrued taxes		33		32
Accrued taxes to affiliated companies		165		126
Accrued interest		179		133
Accrued wages		83		81
Fair value of derivative liabilities		30		98
Regulatory liabilities		199		79
Other current liabilities		400		396
TOTAL CURRENT LIABILITIES		3,435		2,550
NONCURRENT LIABILITIES
Obligations under capital leases		2		2
Provision for injuries and damages		138		173
Pensions and retiree benefits		3,627		4,337
Superfund and other environmental costs		423		373
Asset retirement obligations		148		145
Fair value of derivative liabilities		12		24
Other noncurrent liabilities		116		120
TOTAL NONCURRENT LIABILITIES		4,466		5,174
DEFERRED CREDITS AND REGULATORY LIABILITIES
Deferred income taxes and investment tax credits		7,301		6,921
Regulatory liabilities		978		861
Other deferred credits		67		61
TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES		8,346		7,843
LONG-TERM DEBT		8,920		9,220
SHAREHOLDER’S EQUITY
Common shareholder’s equity (See Statement of Common Shareholder’s Equity)		10,532		10,218
Preferred stock		—		213
TOTAL SHAREHOLDER’S EQUITY		10,532		10,431
TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY		$35,699		$35,218

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


16

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, 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	)
Other comprehensive income																	—			—
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	)
Other comprehensive income																	—			—
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	)
Other comprehensive income																	—			—
BALANCE AS OF SEPTEMBER 30, 2011		235,488,094		$589		$4,234		$6,401			$(962	)		$(64	)		$ (6	)		$10,192
BALANCE AS OF DECEMBER 31, 2011		235,488,094		$589		$4,234		$6,429			$(962	)		$(64	)		$ (8	)		$10,218
Net income								276												276
Common stock dividend to parent								(171	)											(171	)
Cumulative preferred dividends								(3	)											(3	)
Preferred stock redemption														4						4
Other comprehensive income																	—			—
BALANCE AS OF MARCH 31, 2012		235,488,094		$589		$4,234		$6,531			$(962	)		$(60	)		$ (8	)		$10,324
Net income								163												163
Common stock dividend to parent								(171	)											(171	)
Other comprehensive loss																	(2	)		(2	)
BALANCE AS OF JUNE 30, 2012		235,488,094		$589		$4,234		$6,523			$(962	)		$(60	)		$(10	)		$10,314
Net income								389												389
Common stock dividend to parent								(171	)											(171	)
Other comprehensive loss																	—			—
BALANCE AS OF SEPTEMBER 30, 2012		235,488,094		$589		$4,234		$6,741			$(962	)		$(60	)		$(10	)		$10,532

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


					17

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, 2011 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, 2012 and June 30, 2012. 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.


18

Note A — Summary of Significant Accounting Policies

Earnings Per Common Share

For the three and nine months ended September 30, 2012 and 2011, 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)*	2012		2011		2012		2011
Net income for common stock		$ 440		$ 383		$ 931		$ 860
Weighted average common shares outstanding – basic		292.9		292.9		292.9		292.5
Add: Incremental shares attributable to effect of potentially dilutive securities		1.7		1.7		1.7		1.7
Adjusted weighted average common shares outstanding – diluted		294.6		294.6		294.6		294.2
Net income for common stock per common share – basic		$ 1.50		$ 1.31		$ 3.18		$ 2.94
Net income for common stock per common share – diluted		$ 1.49		$ 1.30		$ 3.16		$ 2.92

Note B — Regulatory Matters

Rate Agreements

CECONY — Electric

In March 2012, the NYSPSC issued an order requiring that the $134 million surcharge that was to have been collected from customers during the rate year ending March 2013 instead be offset using certain CECONY regulatory liabilities that would have otherwise been refundable to or applied for the benefit of customers after the rate year.

O&R — Electric

On February 24, 2012, O&R, the staff of the NYSPSC and the Utility Intervention Unit of New York State’s Division of Consumer Protection entered into a Joint Proposal with respect to the company’s rates for electric delivery service rendered in New York. The Joint Proposal, which the NYSPSC approved in June 2012, covers the three-year period from July 2012 through June 2015. The Joint Proposal provides for electric base rate increases of $19.4 million, $8.8 million and $15.2 million, effective July 2012, 2013 and 2014, respectively, which is being implemented, at the NYSPSC’s option, with increases of $15.2 million effective July 2012 and 2013 and an increase of $13.1 million, together with a surcharge of $2.1 million, effective July 2014. The Joint Proposal reflects the following major items:

•

a weighted average cost of capital of 7.61 percent, 7.65 percent and 7.48 percent for the rate years ending June 30, 2013, 2014 and 2015, respectively, reflecting:

•

a return on common equity of 9.4 percent, 9.5 percent and 9.6 percent for the rate years ending June 30, 2013, 2014 and 2015, respectively;

•

cost of long-term debt of 6.07 percent for each of the rate years ending June 30, 2013 and 2014 and 5.64 percent for the rate year ending June 30, 2015;

•

common equity ratio of 48 percent for each of the rate years ending June 30, 2013, 2014 and 2015; and

•

average rate base of $671 million, $708 million and $759 million for the rate years ending June 30, 2013, 2014 and 2015, respectively;

•

sharing with electric customers of any actual earnings, excluding the effects of any penalties and certain other items, above specified percentage returns on common equity (based on the actual average common equity ratio, subject to a 50 percent maximum):

•

the company will allocate to customers the revenue requirement equivalent of 50 percent, 75 percent and 90 percent of any such earnings for each rate year in excess of 80 basis points, 180 basis points and 280 basis points, respectively, above the return on common equity for that rate year indicated above; and

•

the earnings sharing allocation between the company and customers will be on a cumulative basis at the end of rate year three;

•

continuation of a revenue decoupling mechanism;


					19

•

continuation of a provision which defers as a regulatory liability for the benefit of customers or, subject to certain limitations, a regulatory asset for recovery from customers, as the case may be, the revenue requirement impact of the amount by which actual average net utility plant for each rate year is different than the average net utility plant reflected in rates ($678 million, $704 million and $753 million for the rate years ending June 30, 2013, 2014 and 2015, respectively);

•

continuation of the rate provisions pursuant to which the company recovers its purchased power costs from customers;

•

continuation of rate provisions under which pension and other post-retirement benefit expenses, environmental remediation expenses, tax-exempt debt costs, property taxes and certain other expenses are reconciled to amounts for those expenses reflected in rates; and

•

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.

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 H). 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, 2012, the company had collected an estimated $1,031 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. These estimated potential overcharges related to transactions that involved certain employees who were arrested and a contractor that performed work for the company. The company expects that the NYSPSC’s consultant will be reporting an estimate of potential overcharges with respect to a substantial portion of the company’s construction expenditures from January 2000 to January 2009, including expenditures for transactions that did not involve the arrested employees and contractor. The NYSPSC consultant’s estimate is expected to be materially higher than its $21 million provisional assessment. The NYSPSC’s consultant is developing its estimate based on its review of a selection of the construction expenditures and its extrapolation of the results of its review (which the company is disputing). The NYSPSC’s consultant is expected to continue to review the company’s expenditures. At September 30, 2012, the company had a $15 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 G.


20

Regulatory Assets and Liabilities

Regulatory assets and liabilities at September 30, 2012 and December 31, 2011 were comprised of the following items:


	Con Edison				CECONY
*(Millions of Dollars)*	2012		2011		2012		2011
Regulatory assets
Unrecognized pension and other postretirement costs		$5,211		$5,852		$4,972		$5,554
Future income tax		1,888		1,798		1,810		1,724
Environmental remediation costs		722		681		607		564
Pension and other post retirement benefits deferrals		205		198		174		157
Revenue taxes		177		163		171		158
Surcharge for New York State assessment		135		90		125		82
Deferred storm costs		120		128		78		80
Net electric deferrals		107		121		107		121
Deferred derivative losses – long-term		47		60		25		44
O&R transition bond charges		40		44		—		—
Preferred stock redemption		29		—		29		—
Workers’ compensation		19		23		19		23
Property tax reconciliation		15		13		—		—
Recoverable energy costs – long-term		1		14		1		14
Other		181		152		167		140
Regulatory assets – long-term		8,897		9,337		8,285		8,661
Deferred derivative losses – current		75		164		62		140
Recoverable energy costs – current		2		—		—		—
Regulatory assets – current		77		164		62		140
Total Regulatory Assets		$8,974		$9,501		$8,347		$8,801
Regulatory liabilities
Allowance for cost of removal less salvage		$ 488		$ 448		$ 407		$ 372
Property tax reconciliation		137		35		137		35
Net unbilled revenue deferrals		121		104		121		104
World Trade Center settlement proceeds		62		62		62		62
Long-term interest rate reconciliation		54		30		54		30
Carrying charges on transmission and distribution net plant		36		38		16		14
Expenditure prudence proceeding		15		11		15		11
Gas line losses		14		21		14		21
Energy efficiency programs		5		22		5		20
Other		170		206		147		192
Regulatory liabilities – long-term		1,102		977		978		861
Revenue decoupling mechanism		107		66		103		66
Electric surcharge offset		60		—		60		—
Refundable energy costs – current		58		51		30		12
Deferred derivative gains – current		6		1		6		1
Regulatory liabilities – current		231		118		199		79
Total Regulatory Liabilities		$1,333		$1,095		$1,177		$ 940

Note C — Capitalization

In March 2012, CECONY issued $400 million of 4.20 percent 30-year debentures, $239 million of the net proceeds from the sale of which were used to redeem on May 1, 2012 all outstanding shares of its $5 Cumulative Preferred Stock and Cumulative Preferred Stock ($100 par value). In November 2012, CECONY purchased $225 million of its tax-exempt debt that was subject to mandatory tender.

The carrying amounts and fair values of long-term debt are:


*(Millions of Dollars)*	September 30, 2012				December 31, 2011
Long-Term Debt (including current portion)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Con Edison		$10,769		$13,197		$10,673		$12,744
CECONY		$ 9,845		$12,001		$ 9,745		$11,593


					21

Fair values of long-term debt have been estimated primarily using available market information. For Con Edison, $12,561 million and $636 million of the fair value of long-term debt at September 30, 2012 are classified as Level 2 and Level 3, respectively. For CECONY, $11,365 million and $636 million of the fair value of long-term debt at September 30, 2012 are classified as Level 2 and Level 3, respectively (see Note K). The $636 million of long-term debt classified as Level 3 is CECONY’s tax-exempt, auction-rate securities for which the market is highly illiquid and there is a lack of observable inputs.

Note D — Short-Term Borrowing

At September 30, 2012, Con Edison had $340 million of commercial paper outstanding, $332 million of which was outstanding under CECONY’s program. The weighted average interest rate was 0.3 percent for each of Con Edison and CECONY. The Companies have not borrowed under their October 2011 credit agreement. Con Edison had $207 million of letters of credit outstanding under the credit agreement (including $192 million for CECONY).

Note E — Pension Benefits

Net Periodic Benefit Cost

The components of the Companies’ net periodic benefit costs for the three and nine months ended September 30, 2012 and 2011 were as follows:


	For the Three Months Ended September 30,
	Con Edison						CECONY
*(Millions of Dollars)*	2012			2011			2012			2011
Service cost – including administrative expenses		$ 59			$ 48			$ 55			$ 45
Interest cost on projected benefit obligation		137			140			128			131
Expected return on plan assets		(176	)		(184	)		(168	)		(174	)
Amortization of net actuarial loss		177			133			168			126
Amortization of prior service costs		2			2			2			—
NET PERIODIC BENEFIT COST		$ 199			$ 139			$ 185			$ 128
Cost capitalized		(64	)		(45	)		(60	)		(42	)
Reconciliation to rate level		—			(11	)		(1	)		(11	)
Cost charged to operating expenses		$ 135			$ 83			$ 124			$ 75


	For the Nine Months Ended September 30,
	Con Edison						CECONY
*(Millions of Dollars)*	2012			2011			2012			2011
Service cost – including administrative expenses		$ 177			$ 142			$ 165			$ 133
Interest cost on projected benefit obligation		410			420			385			393
Expected return on plan assets		(528	)		(550	)		(503	)		(524	)
Amortization of net actuarial loss		531			397			503			376
Amortization of prior service costs		6			6			4			4
NET PERIODIC BENEFIT COST		$ 596			$ 415			$ 554			$ 382
Amortization of regulatory asset		1			1			1			1
TOTAL PERIODIC BENEFIT COST		$ 597			$ 416			$ 555			$ 383
Cost capitalized		(200	)		(141	)		(186	)		(131	)
Reconciliation to rate level		(37	)		(68	)		(36	)		(70	)
Cost charged to operating expenses		$ 360			$ 207			$ 333			$ 182

Expected Contributions

The Companies made contributions to the pension plan during 2012 of $775 million (of which $721 million was contributed by CECONY). The Companies’ policy is to fund their pension plan’s accounting cost to the extent tax deductible. During the first nine months of 2012, CECONY also funded $12 million for the non-qualified supplemental plan.


22

Note F — 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, 2012 and 2011 were as follows:


	For the Three Months Ended September 30,
	Con Edison						CECONY
*(Millions of Dollars)*	2012			2011			2012			2011
Service cost		$ 6			$ 7			$ 5			$ 5
Interest cost on accumulated other postretirement benefit obligation		18			20			16			18
Expected return on plan assets		(21	)		(22	)		(19	)		(21	)
Amortization of net actuarial loss		24			22			22			20
Amortization of prior service cost		(5	)		(3	)		(4	)		(3	)
Amortization of transition obligation		—			1			—			1
NET PERIODIC POSTRETIREMENT BENEFIT COST		$ 22			$ 25			$ 20			$ 20
Cost capitalized		(8	)		(9	)		(7	)		(7	)
Reconciliation to rate level		3			3			3			3
Cost charged to operating expenses		$ 17			$ 19			$ 16			$ 16


	For the Nine Months Ended September 30,
	Con Edison						CECONY
*(Millions of Dollars)*	2012			2011			2012			2011
Service cost		$ 20			$ 19			$ 15			$ 15
Interest cost on accumulated other postretirement benefit obligation		55			62			48			54
Expected return on plan assets		(64	)		(66	)		(56	)		(59	)
Amortization of net actuarial loss		73			66			65			60
Amortization of prior service cost		(16	)		(7	)		(13	)		(9	)
Amortization of transition obligation		1			3			1			3
NET PERIODIC POSTRETIREMENT BENEFIT COST		$ 69			$ 77			$ 60			$ 64
Cost capitalized		(24	)		(27	)		(20	)		(22	)
Reconciliation to rate level		15			12			12			10
Cost charged to operating expenses		$ 60			$ 62			$ 52			$ 52

Expected Contributions

Con Edison expects to make a contribution of $83 million, including $71 million for CECONY, to the other postretirement benefit plans in 2012. During the first nine months of 2012, Con Edison contributed $34 million to the other postretirement benefit plans (of which $28 million was contributed by CECONY).

Note G — 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 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.”


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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, 2012 and December 31, 2011 were as follows:


	Con Edison				CECONY
*(Millions of Dollars)*	2012		2011		2012		2011
Accrued Liabilities:
Manufactured gas plant sites		$466		$422		$352		$307
Other Superfund Sites		71		67		71		66
Total		$537		$489		$423		$373
Regulatory assets		$722		$681		$607		$564

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 and insurance recoveries received related to Superfund Sites for the three and nine months ended September 30, 2012 and 2011, were as follows:


	For the Three Months Ended September 30,
	Con Edison				CECONY
*(Millions of Dollars)*	2012		2011		2012		2011
Remediation costs incurred		$3		$9		$1		$9
Insurance recoveries received		—		—		—		—


	For the Nine Months Ended September 30,
	Con Edison				CECONY
*(Millions of Dollars)*	2012		2011		2012		2011
Remediation costs incurred		$18		$24		$15		$22
Insurance recoveries received		—		—		—		—

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.

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


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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, 2012 and December 31, 2011 were as follows:


	Con Edison				CECONY
*(Millions of Dollars)*	2012		2011		2012		2011
Accrued liability – asbestos suits		$10		$10		$10		$10
Regulatory assets – asbestos suits		$10		$10		$10		$10
Accrued liability – workers’ compensation		$94		$98		$89		$93
Regulatory assets – workers’ compensation		$19		$23		$19		$23

Note H — 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 93 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 been convicted of 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 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 2011 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


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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 $(73) million at September 30, 2012 and $(55) million at December 31, 2011 and is comprised of a $228 million gross investment less $301 million of deferred tax liabilities at September 30, 2012 and $234 million gross investment less $289 million of deferred tax liabilities at December 31, 2011.

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 appealed the decision in December 2011. Oral argument on the appeal is scheduled to be held in November 2012.

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 2011, 2010, 2009 and 2008, the IRS has disallowed $35 million, $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, 2012, in the aggregate, was $248 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 $122 million net of tax at September 30, 2012.

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 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.


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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 $823 million and $760 million at September 30, 2012 and December 31, 2011, respectively.

A summary, by type and term, of Con Edison’s total guarantees at September 30, 2012 is as follows:


Guarantee Type	0 – 3 years		4 – 10 years		> 10 years		Total
	*(Millions of Dollars)*
Energy transactions		$696		$2		$66		$764
Intra-company guarantees		15		—		1		16
Other guarantees		38		5		—		43
TOTAL		$749		$7		$67		$823

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 and Con Edison Development also guarantee the following:

•

$7 million relates to guarantees issued by Con Edison to CECONY covering a former Con Edison subsidiary’s lease payment 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;

•

$11 million for guarantees provided by Con Edison Development to Travelers Insurance Company for indemnity agreements for surety bonds in connection with the construction and operation of solar facilities performed by its subsidiaries; 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, 2012.


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Note I — 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)*	2012		2011			2012			2011			2012		2011		2012			2011
CECONY
Electric		$2,611		$2,644			$ 4			$ 3			$179		$166		$812			$758
Gas		189		197			1			1			31		28		(21	)		(23	)
Steam		68		76			20			20			15		15		(37	)		(33	)
Consolidation adjustments		—		—			(25	)		(24	)		—		—		—			—
Total CECONY		$2,868		$2,917			$ —			$ —			$225		$209		$754			$702
O&R
Electric		$ 199		$ 217			$ —			$ —			$ 10		$ 9		$ 50			$ 44
Gas		27		24			—			—			3		3		(6	)		(6	)
Total O&R		$ 226		$ 241			$ —			$ —			$ 13		$ 12		$ 44			$ 38
Competitive energy businesses		$ 344		$ 472			$ 2			$ 3			$ 2		$ 1		$ 53			$ 16
Other*		—		(1	)		(2	)		(3	)		—		—		—			—
Total Con Edison		$3,438		$3,629			$ —			$ —			$240		$222		$851			$756

*	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)*	2012			2011			2012			2011			2012		2011		2012			2011
CECONY
Electric		$6,307			$6,378			$ 11			$ 9			$527		$489		$1,383			$1,326
Gas		1,017			1,156			4			4			89		82		255			212
Steam		414			508			58			59			48		47		40			81
Consolidation adjustments		—			—			(73	)		(72	)		—		—		—			—
Total CECONY		$7,738			$8,042			$ —			$ —			$664		$618		$1,678			$1,619
O&R
Electric		$ 457			$ 507			$ —			$ —			$ 28		$ 26		$ 74			$ 69
Gas		144			153			—			—			11		10		26			22
Total O&R		$ 601			$ 660			$ —			$ —			$ 39		$ 36		$ 100			$ 91
Competitive energy businesses		$ 954			$1,286			$ 6			$ 9			$ 6		$ 5		$ 111			$ 75
Other*		(6	)		(16	)		(6	)		(9	)		—		—		(3	)		(4	)
Total Con Edison		$9,287			$9,972			$ —			$ —			$709		$659		$1,886			$1,781

*	Parent company expenses, primarily interest, and consolidation adjustments. Other does not represent a business segment.

In July 2012, Con Edison Development purchased a company that is developing 70 MW (AC) of solar energy projects in Alpaugh, California (Alpaugh). Electricity generated by the projects is to be purchased by Pacific Gas and Electric Company pursuant to long-term power purchase agreements (PPA). Alpaugh was purchased for $288 million, including contingent consideration of $2 million, of which $284 million has been allocated to construction work in progress and $4 million to deposits relating to the PPA and interconnection agreements. The total cost to acquire and construct these projects is estimated to be $350 million.

In October 2012, Con Edison Development purchased two companies that are developing 40 MW (AC) of solar energy projects in Tulare and Kings County, California. Electricity generated by the projects is to be purchased by Pacific Gas and Electric Company pursuant to long-term PPAs. The projects were purchased for approximately $51 million, of which $39 million has been allocated to construction work in progress and $12 million to deposits relating to the PPA and interconnection agreements. The total cost to acquire and construct these projects is estimated to be $200 million.


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Note J — 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 the Companies’ commodity derivatives at September 30, 2012 and December 31, 2011 were as follows:


	Con Edison						CECONY
*(Millions of Dollars)*	2012			2011			2012			2011
Fair value of net derivative assets/(liabilities) – gross		$(92	)		$(249	)		$(48	)		$(144	)
Impact of netting of cash collateral		59			110			33			46
Fair value of net derivative assets/(liabilities) – net		$(33	)		$(139	)		$(15	)		$ (98	)

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, 2012, Con Edison and CECONY had $118 million and $13 million of credit exposure in connection with energy supply and hedging activities, net of collateral, respectively. Con Edison’s net credit exposure consisted of $44 million with investment-grade counterparties, $25 million with commodity exchange brokers, $47 million with independent system operators and $2 million with non-rated counterparties. CECONY’s net credit exposure consisted of $3 million with investment-grade counterparties and $10 million 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, 2012 were:


*(Millions of Dollars)*	Fair Value of Commodity Derivatives (a) Balance Sheet Location	Con Edison			CECONY
Derivative Assets
Current	Other current assets		$ 91			$ 30
Long-term	Other deferred charges and non-current assets		19			10
Total derivative assets			$ 110			$ 40
Impact of netting			(59	)		(13	)
Net derivative assets			$ 51			$ 27


Derivative Liabilities
Current	Fair value of derivative liabilities	$ 149		$ 60
Long-term	Fair value of derivative liabilities	53		28
Total derivative liabilities		$ 202		$ 88
Impact of netting		(118	)	(46	)
Net derivative liabilities		$ 84		$ 42

(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 fair values of the Companies’ commodity derivatives at December 31, 2011 were:


*(Millions of Dollars)*	Fair Value of Commodity Derivatives (a) Balance Sheet Location	Con Edison			CECONY
Derivative Assets
Current	Other current assets		$ 139			$ 16
Long-term	Other deferred charges and non-current assets		26			14
Total derivative assets			$ 165			$ 30
Impact of netting			(95	)		(6	)
Net derivative assets			$ 70			$ 24
Derivative Liabilities
Current	Fair value of derivative liabilities		$ 331			$127
Long-term	Fair value of derivative liabilities		83			48
Total derivative liabilities			$ 414			$175
Impact of netting			(205	)		(53	)
Net derivative liabilities			$ 209			$122

(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 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, 2012:


Realized and Unrealized Gains/(Losses) on Commodity Derivatives (a) Deferred or Recognized in Income for the Three Months Ended September 30, 2012
*(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		$ 5			$ 5
Long-term	Deferred derivative gains		1			1
Total deferred gains/(losses)			$ 6			$ 6
Current	Deferred derivative losses		$ 51			$ 42
Current	Recoverable energy costs		(60	)		(52	)
Long-term	Deferred derivative losses		22			20
Total deferred gains/(losses)

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