Edgar Filing: CONSOLIDATED EDISON CO OF NEW YORK INC

Form 10-K

United States

Securities And Exchange Commission

Washington, D.C. 20549

FORM 10-K

x Annual Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

For The Fiscal Year Ended December 31, 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. 4 Irving Place, New York, New York 10003 (212) 460-4600		New York		13-3965100
1-1217	Consolidated Edison Company of New York, Inc. 4 Irving Place, New York, New York 10003 (212) 460-4600		New York		13-5009340

Securities Registered Pursuant to Section 12(b) of the Act:


Title of each class	Name of each exchange on which registered
Consolidated Edison, Inc.,
Common Shares ($.10 par value)		New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Consolidated Edison, Inc. (Con Edison)

Yes

Consolidated Edison Company of New York, Inc. (CECONY)

Yes

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Con Edison

Yes

CECONY

Yes

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.

Con Edison

Yes

CECONY

Yes

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


						CON EDISON ANNUAL REPORT		1

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

CECONY

Yes

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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

Accelerated filer

Non-accelerated filer

Smaller reporting company

CECONY

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Con Edison

Yes

CECONY

Yes

The aggregate market value of the common equity of Con Edison held by non-affiliates of Con Edison, as of June 30, 2012, was approximately $18.2 billion.

As of January 31, 2013, Con Edison had outstanding 292,877,396 Common Shares ($.10 par value).

All of the outstanding common equity of CECONY is held by Con Edison.

Documents Incorporated By Reference

Portions of Con Edison’s definitive proxy statement for its Annual Meeting of Stockholders to be held on May 20, 2013, to be filed with the Commission pursuant to Regulation 14A, not later than 120 days after December 31, 2012, is incorporated in Part III of this report.

Filing Format

This Annual Report on Form 10-K 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 wholly-owned subsidiary of Con Edison and, as such, the information in this report about CECONY also applies to Con Edison. CECONY meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with the reduced disclosure format.

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.


2		CON EDISON ANNUAL REPORT

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


						CON EDISON ANNUAL REPORT		3


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
LTIP		Long Term Incentive Plan
Moody’s		Moody’s Investors Service
S&P		Standard & Poor’s Financial Services LLC
VaR		Value-at-Risk


4		CON EDISON ANNUAL REPORT

TABLE OF CONTENTS


		PAGE
Introduction			6

Available Information			7

Forward-Looking Statements			7
Part I

Item 1:	Business		11

Item 1A:	Risk Factors		31

Item 1B:	Unresolved Staff Comments		33

Item 2:	Properties		33

Item 3:	Legal Proceedings		34

Item 4:	Mine Safety Disclosures		34

	Executive Officers of the Registrant		35

Part II

Item 5:	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		36

Item 6:	Selected Financial Data		38

Item 7:	Management’s Discussion and Analysis of Financial Condition and Results of Operations		39

Item 7A:	Quantitative and Qualitative Disclosures about Market Risk		63

Item 8:	Financial Statements and Supplementary Data		64

Item 9:	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		138

Item 9A:	Controls and Procedures		138

Item 9B:	Other Information		138

Part III

Item 10:	Directors, Executive Officers and Corporate Governance		139

Item 11:	Executive Compensation		139

Item 12:	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		139

Item 13:	Certain Relationships and Related Transactions, and Director Independence		139

Item 14:	Principal Accounting Fees and Services		139

Part IV

Item 15:	Exhibits and Financial Statement Schedules		141

	Signatures		148


						CON EDISON ANNUAL REPORT		5

Introduction

This introduction contains certain information about Con Edison and its subsidiaries, including CECONY, and is qualified in its entirety by reference to the more detailed information appearing elsewhere or incorporated by reference in this report.

Con Edison’s mission is to provide energy services to our customers safely, reliably, efficiently and in an environmentally sound manner; to provide a workplace that allows employees to realize their full potential; to provide a fair return to our investors; and to improve the quality of life in the communities we serve.

Con Edison is a holding company that owns:

•

CECONY, which delivers electricity, natural gas and steam to customers in New York City and Westchester County;

•

O&R (together with CECONY referred to as the Utilities), which delivers electricity and natural gas to customers primarily located in southeastern New York, and northern New Jersey and northeastern Pennsylvania; and

•

Competitive energy businesses, which provide retail and wholesale electricity supply and energy services.

Con Edison anticipates that the Utilities, which are subject to extensive regulation, will continue to provide substantially all of its earnings over the next few years. The Utilities have approved rate plans that are generally designed to cover each company’s cost of service, including the capital and other costs of the company’s energy delivery systems. The Utilities recover from their full-service customers (generally, on a current basis) the cost the Utilities pay for the energy and charge all of their customers the cost of delivery service.

Selected Financial Data

Con Edison


	For the Year Ended December 31,
(millions of dollars, except per share amounts)	2008			2009			2010			2011			2012
Operating revenues	$	13,583		$	13,032		$	13,325		$	12,886		$	12,188
Energy costs		7,584			6,242			5,754			5,001			3,887
Operating income		1,920			1,899			2,120			2,239			2,339
Net income		933	(a)		879			1,003			1,062			1,141
Total assets		33,498			33,844	(b)		36,348	(c)		39,214	(d)		41,209	(e)
Long-term debt		9,232			9,854			10,671			10,143			10,062
Shareholders’ equity		9,911			10,462			11,274			11,649			11,869
Basic earnings per share
Continuing operations	$	3.37		$	3.16		$	3.49		$	3.59		$	3.88
Diluted earnings per share
Continuing operations	$	3.36		$	3.14		$	3.47		$	3.57		$	3.86
Cash dividends per common share	$	2.34		$	2.36		$	2.38		$	2.40		$	2.42
Book value per share	$	35.43		$	36.82		$	37.95		$	39.05		$	40.53
Average common shares outstanding (millions)		273			275			284			293			293
Stock price low	$	34.11		$	32.56		$	41.52		$	48.55		$	53.63
Stock price high	$	49.30		$	46.35		$	51.03		$	62.74		$	65.98

(a)	Represents income from continuing operations.

(b)	Reflects a $1,130 million decrease in regulatory assets for unrecognized pension and other postretirement costs. See Notes E and F to the financial statements in Item 8.

(c)	Reflects a $1,399 million increase in net plant, a $303 million increase in regulatory assets—environmental remediation costs and a $210 million increase in prepayments.

(d)	Reflects a $1,230 million increase in net plant and a $1,481 million increase in regulatory assets for unrecognized pension and other postretirement costs. See Notes E and F to the financial statements in Item 8.

(e)	Reflects a $1,846 million increase in net plant and a $304 million increase in regulatory assets for deferred storm costs. See Note B to the financial statements in Item 8.


6		CON EDISON ANNUAL REPORT

CECONY


	For the Year Ended December 31,
(millions of dollars)	2008		2009			2010			2011			2012
Operating revenues	$	10,424	$	10,036		$	10,573		$	10,432		$	10,187
Energy costs		4,844		3,904			3,715			3,243			2,665
Operating income		1,667		1,716			1,922			2,083			2,093
Net income for common stock		783		781			893			978			1,014
Total assets		30,415		30,461	(a)		32,605	(b)		35,218	(c)		36,885	(d)
Long-term debt		8,494		9,038			9,743			9,220			9,145
Shareholder’s equity		9,204		9,560			10,136			10,431			10,552

(a)	Reflects a $1,076 million decrease in regulatory assets for unrecognized pension and other retirement costs. See Notes E and F to the financial statements in Item 8.

(b)	Reflects a $1,257 million increase in net plant, a $241 million increase in regulatory assets—environmental remediation costs and a $125 million increase in accounts receivable from affiliated companies.

(c)	Reflects a $1,101 million increase in net plant and a $1,402 million increase in regulatory assets for unrecognized pension and other postretirement costs. See Notes E and F to the financial statements in Item 8.

(d)	Reflects a $1,243 million increase in net plant and a $229 million increase in regulatory assets for deferred storm costs. See Note B to the financial statements in Item 8.

Significant 2012 Developments

•

CECONY delivered 57,201 million kWhs of electricity (1.1 percent decrease from prior year), 116,416 mdths of gas (9.8 percent decrease from prior year) and 19,741 MMlbs of steam to its customers (11.6 percent decrease from prior year). The company’s electric and gas rate plans include revenue decoupling mechanisms pursuant to which delivery revenues are not generally affected by changes in delivery volumes from levels assumed in the rate plans. See “Results of Operations” in Item 7.

•

CECONY invested $1,909 million to upgrade and reinforce its energy delivery systems. O&R invested $137 million in its energy delivery systems. See “Capital Requirements and Resources” in Item 1.

•

CECONY’s electric, gas and steam rates increased (on an annual basis) $286.9 million (April 2012), $46.7 million (October 2012) and $17.8 million plus a one-time surcharge of $31.7 million (October 2012), respectively. O&R’s electric and gas rates increased (on an annual basis) $19.4 million and $4.6 million plus a one-time surcharge of $4.3 million, respectively (July and November 2012). See Note B to the financial statements in Item 8.

•

In late October 2012, Superstorm Sandy caused extensive damage to the Utilities’ electric distribution system. Superstorm Sandy interrupted service to approximately 1.4 million of the Utilities’ customers – more than four times the number of customers impacted by the Utilities’ previous worst storm event (Hurricane Irene in 2011). See “Other Regulatory Matters” in Note B to the financial statements in Item 8.

Available Information

Con Edison and CECONY file annual, quarterly and current reports and other information, and Con Edison files proxy statements, with the Securities and Exchange Commission (SEC). The public may read and copy any materials that the Companies file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580 Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy statements, and other information regarding issuers (including Con Edison and CECONY) that file electronically with the SEC. The address of that site is www.sec.gov.

This information the Companies file with the SEC is also available free of charge on or through the Investor Information section of their websites as soon as reasonably practicable after the reports are electronically filed with, or furnished to, the SEC. Con Edison’s internet website is at: www.conedison.com; and CECONY’s is at: www.coned.com.

The Investor Information section of Con Edison’s website also includes the company’s code of ethics (and amendments or waivers of the code for executive officers or directors), corporate governance guidelines and the charters of the following committees of the company’s Board of Directors: Audit Committee, Management Development and Compensation Committee, and Corporate Governance and Nominating Committee. This information is available in print to any shareholder who requests it. Requests should be directed to: Corporate Secretary, Consolidated Edison, Inc., 4 Irving Place, New York, NY 10003.

Information on the Companies’ websites is not incorporated herein.

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


						CON EDISON ANNUAL REPORT		7

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 factors including, but not limited to, those discussed under “Risk Factors,” in Item 1A.


8		CON EDISON ANNUAL REPORT

ITEM 1:

BUSINESS


Contents of Item 1	Page
Overview		11
CECONY		11
Electric		11
Gas		11
Steam		11
O&R		11
Electric		11
Gas		11
Competitive Energy Businesses		11
Utility Regulation		12
State Utility Regulation		12
Regulators		12
Utility Industry Restructuring in New York		12
Rate Plans		12
Liability for Service Interruptions and Other Non-rate Conditions of Service		14
Generic Proceedings		14
Federal Utility Regulation		14
New York Independent System Operator (NYISO)		14
New York Energy Highway		14
Competition		15
The Utilities		15
CECONY		15
Electric Operations		15
Electric Facilities		15
Electric Sales and Deliveries		15
Electric Peak Demand		16
Electric Supply		16
Gas Operations		17
Gas Facilities		17
Gas Sales and Deliveries		18
Gas Peak Demand		19
Gas Supply		19
Steam Operations		19
Steam Facilities		19
Steam Sales and Deliveries		19
Steam Peak Demand and Capacity		19
Steam Supply		20
O&R		20
Electric Operations		20
Electric Facilities		20
Electric Sales and Deliveries		20
Electric Peak Demand		21
Electric Supply		21
Gas Operations		21
Gas Facilities		21
Gas Sales and Deliveries		21
Gas Peak Demand		22
Gas Supply		23


						CON EDISON ANNUAL REPORT		9


Contents of Item 1	Page
Competitive Energy Businesses		23
Con Edison Solutions		23
Con Edison Energy		23
Con Edison Development		24
Capital Requirements and Resources		24
Environmental Matters		27
Climate Change		27
Environmental Sustainability		27
CECONY		27
O&R		29
Other Federal, State and Local Environmental Provisions		30
State Anti-Takeover Law		31
Employees		31

Incorporation By Reference

Information in any item of this report as to which reference is made in this Item 1 is hereby incorporated by reference in this Item 1. The use of terms such as “see” or “refer to” shall be deemed to incorporate into Item 1 at the place such term is used the information to which such reference is made.


10		CON EDISON ANNUAL REPORT

PART I

ITEM 1:

BUSINESS

Overview

Consolidated Edison, Inc. (Con Edison), incorporated in New York State in 1997, is a holding company which owns all of the outstanding common stock of Consolidated Edison Company of New York, Inc. (CECONY), Orange and Rockland Utilities, Inc. (O&R) and the competitive energy businesses. As used in this report, the term the “Companies” refers to Con Edison and CECONY.

LOGO

CECONY’s principal business operations are its regulated electric, gas and steam delivery businesses. O&R’s principal business operations are its regulated electric and gas delivery businesses. The competitive energy businesses sell electricity to wholesale and retail customers, provide certain energy-related services, and participate in energy infrastructure projects. Con Edison is evaluating additional opportunities to invest in electric and gas-related businesses.

Con Edison’s strategy is to provide reliable energy services, maintain public and employee safety, promote energy efficiency, and develop cost-effective ways of performing its business. Con Edison seeks to be a responsible steward of the environment and enhance its relationships with customers, regulators and members of the communities it serves.

CECONY

Electric

CECONY provides electric service to approximately 3.3 million customers in all of New York City (except part of Queens) and most of Westchester County, an approximately 660 square mile service area with a population of more than nine million.

Gas

CECONY delivers gas to approximately 1.1 million customers in Manhattan, the Bronx and parts of Queens and Westchester County.

Steam

CECONY operates the largest steam distribution system in the United States by producing and delivering approximately 20,000 MMlbs of steam annually to approximately 1,717 customers in parts of Manhattan.

O&R

Electric

O&R and its utility subsidiaries, Rockland Electric Company (RECO) and Pike County Light & Power Company (Pike) (together referred to herein as O&R) provide electric service to approximately 0.3 million customers in southeastern New York and in adjacent areas of northern New Jersey and northeastern Pennsylvania, an approximately 1,350 square mile service area.

Gas

O&R delivers gas to over 0.1 million customers in southeastern New York and adjacent areas of northeastern Pennsylvania.

Competitive Energy Businesses

Con Edison pursues competitive energy opportunities through three wholly-owned subsidiaries: Con Edison Solutions, Con Edison Energy and Con Edison Development. These businesses include the sales and related hedging of electricity to wholesale and retail customers, sales of certain energy-related products and services, and participation in energy infrastructure projects. At December 31, 2012, Con Edison’s equity investment in its competitive energy businesses was $522 million and their assets amounted to $1,061 million.


						CON EDISON ANNUAL REPORT		11

Utility Regulation

State Utility Regulation

Regulators

The Utilities are subject to regulation by the New York State Public Service Commission (NYSPSC), which under the New York Public Service Law, is authorized to set the terms of service and the rates the Utilities charge for providing service in New York. It also approves the issuance of the Utilities’ securities. It exercises jurisdiction over the siting of the Utilities’ electric transmission lines and approves mergers or other business combinations involving New York utilities. In addition, it has the authority to impose penalties on utilities, which could be substantial, for violating state utility laws and regulations. O&R’s New Jersey subsidiary, RECO, is subject to similar regulation by the New Jersey Board of Public Utilities (NJBPU). O&R’s Pennsylvania subsidiary, Pike, is subject to similar regulation by the Pennsylvania Public Utility Commission (PAPUC). The NYSPSC, together with the NJBPU and the PAPUC, are referred to herein as state utility regulators.

In November 2012, the Governor of New York established a commission to review actions taken by New York utilities relating to emergency weather events, including Superstorm Sandy and other major storms, and to make recommendations regarding, among other things, the oversight, management and legal framework governing power delivery services in New York. See “Other Regulatory Matters” in Note B to the financial statements in Item 8. In January 2013, following the issuance of recommendations by the commission, the Governor submitted a bill to the State legislature that, among other things, would authorize the NYSPSC to (i) levy expanded penalties against utilities; (ii) review, at least every five years, a utility’s capability to provide safe, adequate and reliable service, and order the utility to comply with additional and more stringent terms of service than existed prior to the review or cause the utility to divest some or all of its utility assets, including franchise territories (based on standards established by the NYSPSC to ensure continuity of service, due process and fair and just compensation); and (iii) revoke or modify an operating certificate issued to the utility by the NYSPSC (following consideration of certain factors, including public interest and standards deemed necessary by the NYSPSC to ensure continuity of service, and due process).

Utility Industry Restructuring In New York

In the 1990s, the NYSPSC restructured the electric utility industry in the state. In accordance with NYSPSC orders, the Utilities sold all of their electric generating facilities other than those that also produce steam for CECONY’s steam business (see Electric Operations – Electric Facilities below) and provided all of their customers the choice to buy electricity or gas from the Utilities or other suppliers (see Electric Operations – Electric Sales and Deliveries and Gas Operations – Gas Sales and Deliveries below).

Following adoption of NYSPSC industry restructuring, there were several utility mergers as a result of which substantially all of the electric and gas delivery service in New York State is now provided by one of three investor-owned utility companies – Con Edison, National Grid plc and Iberdrola, S.A. – or one of two state authorities – New York Power Authority (NYPA) or Long Island Power Authority.

Rate Plans

Investor-owned utilities in the United States provide service to customers according to the terms of tariffs approved by the appropriate state utility regulator. The tariffs include schedules of rates for service that are designed to permit the utilities to recover from their customers the approved anticipated costs, including capital costs, of providing service to customers as defined by the tariff. The tariffs implement rate plans, that result from rate orders, settlements, or joint proposals developed during rate proceedings. The utilities’ earnings depend on the rate levels authorized in the rate plans and their ability to operate their businesses in a manner consistent with their rate plans.

The utilities’ rate plans each cover specified periods, but rates determined pursuant to a plan generally continue in effect until a new rate plan is approved by the state utility regulator. In New York, either the utility or the NYSPSC can commence a proceeding for a new rate plan, and a new rate plan filed by the utility will take effect automatically in 11 months unless prior to such time the NYSPSC approves a rate plan.

In each rate proceeding, rates are determined by the state utility regulator following the submission by the utility of testimony and supporting information, which are subject to review by the staff of the regulator. Other parties with an interest in the proceeding can also review the utility’s proposal and become involved in the rate case. The review process is overseen by an Administrative Law Judge. After an Administrative Law Judge issues a decision, that generally considers the interests of the utility, the regulatory staff, other parties, and legal requisites, the regulator will issue a rate order. The utility and the regulator’s staff and interested parties may enter into a settlement agreement or joint proposal prior to the completion of this administrative process, in which case the agreement would be subject to approval of the regulator.

For each rate plan, the revenues needed to provide the utility a return on invested capital is determined by multiplying the utilities’ forecasted rate base by the utility’s pre-tax weighted average cost of capital. In general, rate base is the amount of the utility’s net plant, deferred taxes and working capital. The NYSPSC uses a forecast of rate base for the rate year. The weighted average cost of capital is determined based on the forecasted amounts and costs of long-term debt and customer deposits, the forecasted amount of common equity and an allowed return on common equity determined by the state utility regulator. The NYSPSC’s current methodology for determining the allowed return on common equity assigns a one-third weight to an estimate determined from a capital asset pricing model applied to a peer group of utility companies and a two-thirds weight to an estimate


12		CON EDISON ANNUAL REPORT

determined from a dividend discount model using stock prices and dividend forecasts for a peer group of utility companies.

Pursuant to the Utilities’ rate plans, there generally can be no change to the charges to customers during the respective terms of the rate plans other than for recovery of the costs incurred for energy supply and specified adjustments provided for in the rate plans.

Common provisions of the Utilities’ rate plans may include:

“Recoverable energy cost clauses” that allow the Utilities to recover on a current basis the costs for the energy they supply with no mark-up to their full-service customers.

“Other cost reconciliations” that reconcile pension and other postretirement benefit costs, environmental remediation costs, and certain other costs to amounts reflected in delivery rates for such costs. Utilities generally retain the right to petition for recovery or accounting deferral of extraordinary and material cost increases for items such as major storm events and provision is sometimes made for the utility to retain a share of cost reductions, for example, property tax refunds.

“Revenue decoupling mechanisms” under which actual energy delivery revenues will be compared, on a periodic basis, with the authorized delivery revenues. The difference is accrued with interest for refund to, or recovery from customers, as applicable.

“Earnings sharing provisions” require the Utilities to defer for customer benefit earnings over specified rates of return on common equity. There is no symmetric mechanism for earnings below specified rates of return on common equity.

“Negative earnings adjustments” for failure to meet certain performance standards relating to service, reliability, safety and other matters.

The following table should be read in conjunction with, and is subject to, the more detailed discussion of the Utilities’ rate plans in Note B to the financial statements in Item 8 (which information is incorporated by reference herein).

Effective

Period

Rate
Increases

Rate
Base

Amortization
To Income of
Net Regulatory
(Assets) and
Liabilities

Authorized
Return on
Equity (ROE)

ROE Sharing Threshold Earnings
Sharing Terms(a)

(Shareholders/ Customers)

(millions of dollars, except percentages)

CECONY – Electric(b)

April 2010 – March 2013

Yr. 1 – $420.4

Yr. 2 – $420.4

Yr. 3 – $286.9

Yr. 1 – $14,887

Yr. 2 – $15,987

Yr. 3 – $16,826

$(75)

over 3 yrs.

10.15

Yr. 1 – 11.15% -
12.149%: 50/50

12.15% - 13.149%:
25/75

> 13.149%: 10/90(c)

CECONY – Gas(b)

October 2010 –

September 2013

Yr. 1 – $47.1

Yr. 2 – $47.9

Yr. 3 – $46.7

Yr. 1 – $3,027

Yr. 2 – $3,245

Yr. 3 – $3,434

$(53)

over 3 yrs.

9.6

Yr. 1 – 10.35% -
11.59%: 40/60

11.6% - 12.59%:
25/75

> 12.59%: 10/90(d)

CECONY – Steam(b)

October 2010 –

September 2013

Yr. 1 – $49.5

Yr. 2 – $49.5

Yr. 3 – $17.8

(e)

Yr. 1 – $1,589

Yr. 2 – $1,603

Yr. 3 – $1,613

$(20)

over 3 yrs.

9.6

Yr. 1 – 10.35% -
11.59%: 40/60

11.6% - 12.59%:
25/75

>12.59%:10/90(d)

O&R – Electric (NY)

July 2012 –

June 2015

Yr. 1 – $19.4

Yr. 2 – $ 8.8

Yr. 3 – $15.2

Yr. 1 – $671

Yr. 2 – $708

Yr. 3 – $759

$(32)

over 3 yrs.

Yr. 1 – 9.4

Yr. 2 – 9.5

Yr. 3 – 9.6

Yr. 1 – 10.21% -
11.2%: 50/50

11.21% - 12.2%:
25/75

> 12.2%: 10/90(f)

O&R – Gas (NY)

November 2009 –

October 2012

Yr. 1 – $9.0

Yr. 2 – $9.0

Yr. 3 – $4.6

(g)

Yr. 1 – $280

Yr. 2 – $296

Yr. 3 – $309

$(2)

over 3 yrs.

10.4

11.4% – 12.4% -
50/50

12.4% - 14% - 35/65

>14% – 10/90

(a)	Subject to limitation for cost reconciliations described in Note B to the financial statements in Item 8.

(b)	Pursuant to NYSPSC orders, a portion of the company’s revenues is being collected subject to refund. See “Other Regulatory Matters” in Note B to the financial statements in Item 8.

(c)	In Yr. 2 and Yr. 3, 10.65% – 12.149%: 40/60, 12.15% – 13.149%: 25/75, and > 13.15%: 10/90.

(d)	In Yr. 2 and Yr. 3, 10.1% – 11.59%: 40/60, 11.6% – 12.59%: 25/75, and >12.6%: 10/90.

(e)	The rate plan provides for a one-time surcharge of $31.7 million in Year 3.

(f)	In Yr. 2, 10.31% – 11.3%: 50/50, 11.31% – 12.3%: 25/75, and >12.3%: 10/90. In Yr. 3, 10.41% – 11.4%: 50/50, 11.41% – 12.4%: 25/75, and >12.4%: 10/90.

(g)	The rate plan provides for a one-time surcharge of $4.3 million in Year 3.


						CON EDISON ANNUAL REPORT		13

In January 2013, CECONY filed a request with the NYSPSC for new electric, gas and steam rate plans. See Note B to the financial statements (which information is incorporated by reference herein).

Liability for Service Interruptions and Other Non-rate Conditions of Service

The tariff provisions under which CECONY provides electric, gas and steam service limit the company’s liability to pay for damages resulting from service interruptions to circumstances resulting from its gross negligence or willful misconduct.

CECONY’s tariff for electric service provides for reimbursement to electric customers for spoilage losses resulting from service interruptions in certain circumstances. In general, the company is obligated to reimburse affected residential and commercial customers for food spoilage of up to $450 and $9,000, respectively, and reimburse affected residential customers for prescription medicine spoilage losses without limitation on amount per claim. The company’s maximum aggregate liability for such reimbursement for an incident is $15 million. The company is not required to provide reimbursement to electric customers for outages attributable to generation or transmission system facilities or events beyond its control, such as storms, provided the company makes reasonable efforts to restore service as soon as practicable.

Generic Proceedings

The NYSPSC from time to time conducts “generic” proceedings to consider issues relating to all electric and gas utilities operating in New York State. Pending proceedings included those relating to utilities exiting the service of selling electric energy and gas at retail (including an examination of utilities’ provider of last resort responsibility); the utilities’ vision for the ‘smart grid’; and the implementation of energy efficiency and renewable energy programs and consumer protections. The Utilities are typically active participants in such proceedings. The Utilities do not expect that these pending generic proceedings will have a material adverse effect on their financial positions, results of operation or liquidity. 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. In November 2012, the NYSPSC adopted an order in which it, among other things, declined to adopt a generic policy requiring sharing such costs between utilities and their customers and indicated that sharing may be appropriate in specific company and rate case circumstances (for example, to serve as an incentive to a utility that has failed to adequately constrain such costs or, in the context of a multi-year rate plan, where some allocation of earnings in excess of the allowed rate of return could be used toward payment of such costs). See “Environmental Matters – CECONY” and “Environmental Matters – O&R,” below, and Note G to the financial statements in Item 8.

Federal Utility Regulation

The Federal Energy Regulatory Commission (FERC), among other things, regulates the transmission and wholesale sales of electricity in interstate commerce and the transmission and sale of natural gas for resale in interstate commerce. In addition, the FERC has the authority to impose penalties, which could be substantial, including penalties for the violation of reliability and cyber security rules. Certain activities of the Utilities and the competitive energy businesses are subject to the jurisdiction of the FERC. The Utilities are subject to regulation by the FERC with respect to electric transmission rates and to regulation by the NYSPSC with respect to electric and gas retail commodity sales and local delivery service. As a matter of practice, the NYSPSC has approved delivery service rates that include both distribution and transmission costs.

New York Independent System Operator (NYISO)

The NYISO is a not-for-profit organization that controls and operates most of the electric transmission facilities in New York State, including those of the Utilities, as an integrated system and administers wholesale markets for electricity in New York State. In addition to operating the state’s high voltage grid, the NYISO administers the energy, ancillary services and capacity markets. The New York State Reliability Council (NYSRC) promulgates reliability standards subject to FERC oversight. Pursuant to a requirement that is set annually by the NYSRC, the NYISO requires that entities supplying electricity to customers in New York State have generating capacity (owned, procured through the NYISO capacity markets or contracted for) in an amount equal to the peak demand of their customers plus the applicable reserve margin. In addition, the NYISO has determined that entities that serve customers in New York City must have enough capacity that is electrically located in New York City to cover a substantial percentage (currently 83 percent; 86 percent effective May 2013) of the peak demands of their New York City customers. These requirements apply both to regulated utilities such as CECONY and O&R for the customers they supply under regulated tariffs and to companies such as Con Edison Solutions that supply customers on market terms. RECO, O&R’s New Jersey subsidiary, provides electric service in an area that has a different independent system operator – PJM Interconnection LLC (PJM).

New York Energy Highway

In October 2012, the Energy Highway Task Force appointed by the Governor of New York issued its Blueprint containing recommendations to modernize New York’s energy systems. The recommended actions included electric transmission construction and upgrades to electric and natural gas infrastructure.

In November 2012, the NYSPSC established a proceeding to review specific proposals from utilities and private developers


14		CON EDISON ANNUAL REPORT

for new electric transmission lines and upgrades to existing facilities that will address transmission congestion between upstate and downstate. In January 2013, the owners of transmission facilities in New York (including the Utilities), on behalf of the proposed New York Transmission Company that is to be owned by their affiliates, submitted a statement of intent to construct five transmission projects, with an aggregate estimated cost of $1,300 million. The projects, which could be completed in the 2016 to 2019 timeframe, will require authorizations from the NYSPSC (including its determination that the projects meet public policy goals), the FERC, as well as other federal, state and local agencies.

Competition

Competition from suppliers of oil and other sources of energy, including distributed generation (such as solar, fuel cells and micro-turbines), may provide alternatives for the Utilities’ delivery customers. See “Rate Agreements” in Note B and “Recoverable Energy Costs” in Note A to the financial statements in Item 8.

The Utilities do not consider it reasonably likely that another company would be authorized to provide utility delivery service of electricity, natural gas or steam where the company already provides service. Any such other company would need to obtain NYSPSC consent, satisfy applicable local requirements, install facilities to provide the service, meet applicable services standards, and charge customers comparable taxes and other fees and costs imposed on the service. A new delivery company would also be subject to extensive ongoing regulation by the NYSPSC. See “Utility Regulation – State Utility Regulation – Regulators”.

The competitive energy businesses participate in competitive energy supply and services businesses that are subject to different risks than those found in the businesses of the Utilities.

The Utilities

CECONY

CECONY, incorporated in New York State in 1884, is a subsidiary of Con Edison and has no significant subsidiaries of its own. Its principal business segments are its regulated electric, gas and steam businesses.

For a discussion of the company’s operating revenues and operating income for each segment, see “Results of Operations” in Item 7. For additional information about the segments, see Note N to the financial statements in Item 8.

Electric Operations

Electric Facilities

CECONY’s capitalized costs for utility plant, net of accumulated depreciation, for distribution facilities were $13,930 million and $13,125 million at December 31, 2012 and 2011, respectively. For its transmission facilities, the costs for utility plant, net of accumulated depreciation, were $2,518 million and $2,476 million at December 31, 2012 and 2011, respectively, and for its generation facilities, the costs for utility plant, net of accumulated depreciation, were $434 million and $400 million, at December 31, 2012 and 2011, respectively.

Distribution Facilities. CECONY owns 62 area distribution substations and various distribution facilities located throughout New York City and Westchester County. At December 31, 2012, the company’s distribution system had a transformer capacity of 28,899 MVA, with 36,825 miles of overhead distribution lines and 96,907 miles of underground distribution lines. The underground distribution lines represent the single longest underground electric delivery system in the United States. In late October 2012, Superstorm Sandy caused extensive damage to the company’s electric distribution system, See “Other Regulatory Matters” in Note B to the financial statements in Item 8.

Transmission Facilities. The company’s transmission facilities are located in New York City and Westchester, Orange, Rockland, Putnam and Dutchess counties in New York State. At December 31, 2012, CECONY owned or jointly owned 438 miles of overhead circuits operating at 138, 230, 345 and 500 kV and 750 miles of underground circuits operating at 69, 138 and 345 kV. The company’s 39 transmission substations and 62 area stations are supplied by circuits operated at 69 kV and above. In 2011, the company completed and placed in service a 9 ¹/₂ mile transmission line connecting its Sprainbrook substation in Westchester County with the new Academy substation in upper Manhattan.

CECONY’s transmission facilities interconnect with those of National Grid, Central Hudson Gas & Electric Corporation, O&R, New York State Electric & Gas, Connecticut Light & Power Company, Long Island Power Authority, NYPA and Public Service Electric and Gas Company.

Generating Facilities. CECONY’s electric generating facilities consist of plants located in Manhattan with an aggregate capacity of 706 MW. The company expects to have sufficient amounts of gas and fuel oil available in 2013 for use in these facilities.

Electric Sales and Deliveries

CECONY delivers electricity to its full-service customers who purchase electricity from the company. The company also delivers electricity to its customers who purchase electricity from other suppliers through the company’s retail access plan. In addition, the company delivers electricity to state and municipal customers of NYPA and economic development customers of municipal electric agencies.


						CON EDISON ANNUAL REPORT		15

The company charges all customers in its service area for the delivery of electricity. The company generally recovers, on a current basis, the cost of the electricity that it buys and then sells to its full-service customers. It does not make any margin or profit on the electricity it sells. Effective April 2008, CECONY’s electric revenues became subject to a revenue decoupling mechanism. As a result, its electric delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved. CECONY’s electric sales and deliveries, excluding off-system sales, for the last five years were:


	Year Ended December 31,
	2008		2009		2010		2011		2012
Electric Energy Delivered (millions of kWhs)
CECONY full service customers		24,640		23,483		24,142		22,622		20,622
Delivery service for retail access customers		22,047		21,859		23,098		24,234		25,990
Delivery service to NYPA customers and others		10,918		10,650		10,834		10,408		10,267
Delivery service for municipal agencies		718		675		619		562		322
Total Deliveries in Franchise Area		58,323		56,667		58,693		57,826		57,201
Electric Energy Delivered ($ in millions)
CECONY full service customers	$	5,569	$	5,040	$	5,546	$	5,237	$	4,731
Delivery service for retail access customers		1,507		1,855		2,123		2,354		2,750
Delivery service to NYPA customers and others		378		423		516		555		596
Delivery service for municipal agencies		20		21		22		22		10
Other operating revenues		404		335		169		60		89
Total Deliveries in Franchise Area	$	7,878	$	7,674	$	8,376	$	8,228	$	8,176
Average Revenue per kWh Sold (Cents)(a)
Residential		24.2		23.6		25.8		25.6		25.6
Commercial and Industrial		21.2		19.6		20.4		20.7		20.0

(a)	Includes Municipal Agency sales.

For further discussion of the company’s electric operating revenues and its electric results, see “Results of Operations” in Item 7. For additional segment information, see Note N to the financial statements in Item 8.

Electric Peak Demand

The electric peak demand in CECONY’s service area occurs during the summer air conditioning season. CECONY’s highest service area peak demand, which occurred on July 22, 2011, was 13,189 MW. The 2012 service area peak demand, which occurred on July 18, 2012, was 12,836 MW. The 2012 peak demand included an estimated 5,428 MW for CECONY’s full-service customers, 5,688 MW for customers participating in its electric retail access program and 1,720 MW for NYPA’s customers and municipal electric agency customers. The NYISO invoked demand reduction programs on July 18, 2012, as it had on peak demand days in some previous years (most recently 2011). “Design weather” for the electric system is a standard to which the actual peak demand is adjusted for evaluation and planning purposes. Since the majority of demand reduction programs are invoked only in specific circumstances, design conditions do not include these programs’ potential impact. However, the CECONY forecasted peak demand at design conditions does include the impact of mandatory demand reduction programs. The company estimates that, under design weather conditions, the 2013 service area peak demand will be 13,200 MW, including an estimated 5,315 MW for its full-service customers, 5,965 MW for its electric retail access customers and 1,920 MW for NYPA’s customers and municipal electric agency customers. The company forecasts average annual growth of the peak electric demand in the company’s service area over the next five years at design conditions to be approximately 1.3 percent per year.

Electric Supply

Most of the electricity sold by CECONY to its customers in 2012 was purchased under firm power contracts or through the wholesale electricity market administered by the NYISO. Con Edison expects that these resources will again be adequate to meet the requirements of its customers in 2013. The company plans to meet its continuing obligation to supply electricity to its customers through a combination of electricity purchased under contracts, purchased through the NYISO’s wholesale electricity market, or generated from its electricity generating facilities. For information about the company’s contracts for approximately 2,835 MW of electric generating capacity, see Notes I and O to the financial statements in Item 8. To reduce the volatility of its customers’ electric energy costs, the company has contracts to purchase electric energy and enters into derivative transactions to hedge the costs of a portion of its expected purchases under these contracts and through the NYISO’s wholesale electricity market.


16		CON EDISON ANNUAL REPORT

CECONY owns generating stations in New York City associated primarily with its steam system. As of December 31, 2012, the generating stations had a combined electric capacity of approximately 706 MW, based on 2012 summer test ratings. For information about electric generating capacity owned by the company, see “Electric Operations – Electric Facilities – Generating Facilities”, above.

In general, the Utilities recover their purchased power costs, including the cost of hedging purchase prices, pursuant to rate provisions approved by the state public utility regulatory authority having jurisdiction. See “Financial and Commodity Market Risks – Commodity Price Risk,” in Item 7 and “Recoverable Energy Costs” in Note A to the financial statements in Item 8. From time to time, certain parties have petitioned the NYSPSC to review these provisions, the elimination of which could have a material adverse effect on the Companies’ financial position, results of operations or liquidity.

In a July 1998 order, the NYSPSC indicated that it “agree(s) generally that CECONY need not plan on constructing new generation as the competitive market develops,” but considers “overly broad” and did not adopt CECONY’s request for a declaration that, solely with respect to providing generating capacity, it will no longer be required to engage in long-range planning to meet potential demand and, in particular, that it will no longer have the obligation to construct new generating facilities, regardless of the market price of capacity. CECONY monitors the adequacy of the electric capacity resources and related developments in its service area, and works with other parties on long-term resource adequacy issues within the framework of the NYISO. In addition, the NYISO has adopted reliability rules that include obligations on transmission owners (such as CECONY) to construct facilities that may be needed for system reliability if the market does not solve a reliability need identified by the NYISO. See “NYISO” above.

In November 2012, the NYSPSC directed CECONY to work with NYPA to develop a contingency plan to address reliability concerns associated with the potential closure by the end of 2015 of the nuclear power plants at the Indian Point Energy Center (which is owned by Entergy Corporation subsidiaries). In February 2013, CECONY and NYPA submitted their plan, which takes into account incremental CECONY energy efficiency and demand management programs. The plan provides for the New York transmission owners, subject to required approvals, to begin developing three proposed transmission projects for implementation by 2016. These projects, which include two projects included in the statement of intent discussed under “New York Energy Highway” above, subsequently would be transferred to the proposed New York Transmission Company. The plan also provides for the issuance by NYPA of a request for proposals for generation and transmission projects that could also be in service by 2016. Under the plan, the NYSPSC is to designate which projects are authorized to be implemented.

In 2009, the then Governor of New York announced a new goal of meeting 45 percent of the State’s electricity needs with energy efficiency or renewable resources by 2015. The goal is to be achieved by reducing electricity consumption by 15 percent, and having 30 percent of the electricity used in New York provided by renewable resources. Establishment of the renewable resources target began in September 2004, when the NYSPSC issued an order establishing a renewable portfolio standard (RPS) which provides that by 2013, 24 percent of the State’s energy needs would come from large renewable facilities (such as wind, hydro, and biomass) and smaller customer-sited renewable generation (limited to solar, fuel cells, and wind farm less than 300 kW in size), and 1 percent would come from green marketing efforts. The NYSPSC agreed with the Utilities that the responsibility for procuring the new renewable resources would rest with the New York State Energy Research and Development Authority (NYSERDA), and not the Utilities. In implementing the RPS for large renewable resources, NYSERDA enters into long-term agreements with developers, and pays the developers renewable premiums based on the facilities’ energy output. For customer-sited resources, NYSERDA provides rebates when customers install eligible renewable technologies. The renewable premiums, rebates, and NYSERDA’s administrative fee are financed through a volumetric charge imposed on the delivery customers of each of the state’s investor-owned utilities. Pursuant to the 2004 NYSPSC order, CECONY billed customers RPS surcharges of $92 million and $73 million in each of 2012 and 2011, respectively. These surcharges will increase as NYSERDA increases its renewables energy purchases. The NYSPSC issued an order in January 2010 formally increasing the RPS target to 30 percent by 2015 and requiring NYSPSC staff to develop a program to address the geographic balance of the RPS, setting-aside up to $30 million per year to be spent in the downstate region (including in the Utilities’ service territories) until 2015 for this purpose. Large renewable resources are grid-connected and sell their energy output in the wholesale energy market administered by the NYISO. As a result of the Utilities participation in the NYISO wholesale markets, a portion of the Utilities’ NYISO energy purchases are sourced from renewable resources. The energy produced by customer-sited renewables offsets the energy which the Utilities would otherwise have procured, thereby reducing the overall level of non-renewable energy consumed. In 2008, the NYSPSC issued an order authorizing the Utilities to begin implementing energy efficiency programs. Costs of the programs are being recovered primarily through a separate non-bypassable charge.

Gas Operations

Gas Facilities

CECONY’s capitalized costs for utility plant, net of accumulated depreciation, for gas facilities, which are primarily distribution


						CON EDISON ANNUAL REPORT		17

facilities, were $3,735 million and $3,455 million at December 31, 2012 and 2011, respectively.

Natural gas is delivered by pipeline to CECONY at various points in its service territory and is distributed to customers by the company through an estimated 4,360 miles of mains and 387,881 service lines. The company owns a natural gas liquefaction facility and storage tank at its Astoria property in Queens, New York. The plant can store approximately 1,000 mdths of which a maximum of about 250 mdths can be withdrawn per day. The company has about 1,226 mdths of additional natural gas storage capacity at a field in upstate New York, owned and operated by Honeoye Storage Corporation, a corporation 28.8 percent owned by CECONY and 71.2 percent owned by Con Edison Development.

Gas Sales and Deliveries

The company generally recovers the cost of the gas that it buys and then sells to its firm sales customers. It does not make any margin or profit on the gas it sells. CECONY’s gas revenues are subject to a weather normalization clause and a revenue decoupling mechanism. As a result, its gas delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved.

CECONY’s gas sales and deliveries for the last five years were:


	Year Ended December 31,
	2008		2009		2010		2011		2012
Gas Delivered (mdth)
Firm Sales
Full service		68,943		67,994		63,592		64,696		57,595
Firm transportation		43,245		48,671		51,859		54,291		52,860
Total Firm Sales and Transportation		112,188		116,665		115,451		118,987		110,455
Interruptible Sales(a)		11,220		8,225		8,521		10,035		5,961
Total Gas Sold to CECONY Customers		123,408		124,890		123,972		129,022		116,416
Transportation of customer-owned gas
NYPA		44,694		37,764		24,890		34,893		48,107
Other (mainly generating plants)		94,086		86,454		99,666		97,163		108,086
Off-System Sales		154		1		7		97		730
Total Sales and Transportation		262,342		249,109		248,535		261,175		273,339

(a)	Includes 563, 3,801, 3,385, 2,851 and 2,955 mdths for 2012, 2011, 2010, 2009 and 2008, respectively, which are also reflected in firm transportation and other.


	Year Ended December 31,
	2008		2009		2010			2011			2012
Gas Delivered ($ in millions)
Firm Sales
Full service	$	1,332	$	1,229	$	1,099		$	1,048		$	889
Firm transportation		202		266		347			356			380
Total Firm Sales and Transportation		1,534		1,495		1,446			1,404			1,269
Interruptible Sales		138		75		60			75			35
Total Gas Sold to CECONY Customers		1,672		1,570		1,506			1,479			1,304
Transportation of customer-owned gas
NYPA		4		4		2			2			2
Other (mainly generating plants)		85		73		87			84			72
Off-System Sales		1		—		—			—			5
Other operating revenues (mainly regulatory amortizations)		77		54		(54	)		(44	)		37
Total Sales and Transportation	$	1,839	$	1,701	$	1,541		$	1,521		$	1,420
Average Revenue per dth Sold
Residential	$	21.15	$	20.33	$	19.31		$	18.45		$	18.14
General	$	16.77	$	14.91	$	14.28		$	12.96		$	11.68

For further discussion of the company’s gas operating revenues and its gas results, see “Results of Operations” in Item 7. For additional segment information, see Note N to the financial statements in Item 8.


18		CON EDISON ANNUAL REPORT

Gas Peak Demand

The gas peak demand for firm service customers in CECONY’s service area occurs during the winter heating season. The daily peak day demand during the winter 2012/2013 (through January 31, 2013) occurred on January 24, 2013 when the demand reached 941 mdths. The 2012/2013 winter demand included 621 mdths for CECONY’s full-service customers and 320 mdths for customers participating in its gas retail access program. “Design weather” for the gas system is a standard to which the actual peak demand is adjusted for evaluation and planning purposes. The company estimates that, under design weather conditions, the 2013/2014 service area peak demand will be 1,274 mdths, including an estimated 689 mdths for its full-service customers and 585 mdths for its retail access customers. The company forecasts average annual growth of the peak gas demand over the next five years at design conditions to be approximately 4.3 percent in its service area. The forecasted peak demand at design conditions does not include gas used by interruptible gas customers or in generating stations (electricity and steam).

Gas Supply

CECONY and O&R have combined their gas requirements, and contracts to meet those requirements, into a single portfolio. The combined portfolio is administered by, and related management services are provided by, CECONY (for itself and as agent for O&R) and costs are allocated between the Utilities in accordance with provisions approved by the NYSPSC. See Note S to the financial statements in Item 8.

Charges from suppliers for the firm purchase of gas, which are based on formulas or indexes or are subject to negotiation, are generally designed to approximate market prices. The gas supply contracts are for various terms extending to 2015. The Utilities have contracts with interstate pipeline companies for the purchase of firm transportation from upstream points where gas has been purchased to the Utilities’ distribution systems, and for upstream storage services. Charges under these transportation and storage contracts are approved by the FERC. Such contracts are for various terms extending to 2027. The Utilities are required to pay certain fixed charges under the supply, transportation and storage contracts whether or not the contracted capacity is actually used. These fixed charges amounted to approximately $253 million in 2012, including $213 million for CECONY. See “Contractual Obligations” below. In addition, the Utilities purchase gas on the spot market and contract for interruptible gas transportation. See “Recoverable Energy Costs” in Note A to the financial statements in Item 8.

Steam Operations

Steam Facilities

CECONY’s capitalized costs for utility plant, net of accumulated depreciation for steam facilities were $1,674 million and $1,651 million at December 31, 2012 and 2011, respectively.

CECONY generates steam at one steam-electric generating station and five steam-only generating stations and distributes steam to its customers through approximately 105 miles of transmission, distribution, and service piping.

Steam Sales and Deliveries

CECONY’s steam sales and deliveries for the last five years were:


	Year Ended December 31,
	2008		2009		2010		2011			2012
Steam Sold (MMlbs)
General		533		544		515		519			425
Apartment house		6,936		6,725		5,748		5,779			5,240
Annual power		16,507		15,748		16,767		16,024			14,076
Total Steam Delivered to CECONY Customers		23,976		23,017		23,030		22,322			19,741
Steam Sold ($ in millions)
General	$	23	$	28	$	25	$	28		$	25
Apartment house		186		165		158		175			158
Annual power		468		446		457		487			429
Other operating revenues		30		22		16		(7	)		(16	)
Total Steam Delivered to CECONY Customers	$	707	$	661	$	656	$	683		$	596
Average Revenue per Mlb Sold	$	28.24	$	27.76	$	27.79	$	30.91		$	31.00

For further discussion of the company’s steam operating revenues and its steam results, see “Results of Operations” in Item 7. For additional segment information, see Note N to the financial statements in Item 8.

Steam Peak Demand and Capacity

Demand for steam in CECONY’s service area peaks during the winter heating season. The one-hour peak demand during the winter of 2012/2013 (through January 31, 2013) occurred on


						CON EDISON ANNUAL REPORT		19

January 25, 2013 when the demand reached 8.1 MMlbs per hour. The company’s estimate for the winter of 2013/2014 peak demand of its steam customers is 9.2 MMlbs per hour under design criteria, which assumes severe weather.

On December 31, 2012, the steam system had the capability of delivering approximately 10.0 MMlbs of steam per hour. This reduction from the prior year’s capability (11.7 MMlbs of steam per hour on December 31, 2011) is due to damage to stations caused by Superstorm Sandy. (For additional information, see “Other Regulatory Matters” in Note B to the financial statements in Item 8). In January 2013, the steam system was restored to its full capacity. The steam system is expected to have the capability to deliver 11.7 MMlbs of steam per hour for the remainder of the 2012/2013 winter. CECONY estimates that the system will have the capability to deliver 11.7 MMlbs of steam per hour in the 2013/2014 winter.

Steam Supply

Thirty-six percent of the steam produced by CECONY in 2012 was supplied by the company’s steam-only generating assets; 49 percent was produced by the company’s steam-electric generating assets, where steam and electricity are primarily cogenerated; and 15 percent was purchased under an agreement with Brooklyn Navy Yard Cogeneration Partners L.P.

O&R

Electric Operations

Electric Facilities

O&R’s capitalized costs for utility plant, net of accumulated depreciation, for distribution facilities were $728 million and $680 million at December 31, 2012 and 2011, respectively. For its transmission facilities, the costs for utility plant, net of accumulated depreciation, were $180 million and $178 million at December 31, 2012 and 2011, respectively.

O&R, RECO and Pike, own, in whole or in part, transmission and distribution facilities which include 555 circuit miles of transmission lines, 14 transmission substations, 62 distribution substations, 85,474 in-service line transformers, 3,781 pole miles of overhead distribution lines and 1,794 miles of underground distribution lines. O&R’s transmission system is part of the NYISO system except that portions of RECO’s system are located within the transmission area controlled by PJM. In late October 2012, Superstorm Sandy caused extensive damage to the company’s electric distribution system, See “Other Regulatory Matters” in Note B to the financial statements in Item 8.

Electric Sales and Deliveries

O&R generally recovers, on a current basis, the cost of the electricity that it buys and then sells to its full-service customers. It does not make any margin or profit on the electricity it sells. Effective July 2008, O&R’s New York electric revenues (which accounted for 70.7 percent of O&R’s electric revenues in 2012) became subject to a revenue decoupling mechanism. As a result, O&R’s New York electric delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved. O&R’s electric sales in New Jersey and Pennsylvania are not subject to a decoupling mechanism. O&R’s electric sales and deliveries, excluding off-system sales for the last five years were:


	Year Ended December 31,
	2008		2009		2010			2011			2012
Electric Energy Delivered (millions of kWhs)
Total deliveries to O&R full service customers		4,093		3,673		3,498			3,029			2,691
Delivery service for retail access customers		1,814		1,901		2,330			2,760			3,040
Total Deliveries In Franchise Area		5,907		5,574		5,828			5,789			5,731
Electric Energy Delivered ($ in millions)
Total deliveries to O&R full service customers	$	650	$	551	$	570		$	486		$	405
Delivery service for retail access customers		80		95		132			157			178
Other operating revenues		3		2		(10	)		(2	)		9
Total Deliveries In Franchise Area	$	733	$	648	$	692		$	641		$	592
Average Revenue Per kWh Sold (Cents)
Residential		17.4		17.2		18.3			18.0			16.7
Commercial and Industrial		14.6		13.3		14.1			13.7			13.0


20		CON EDISON ANNUAL REPORT

Electric Peak Demand

The electric peak demand in O&R’s service area occurs during the summer air conditioning season. O&R’s highest service area peak demand, which occurred in 2006, was 1,617 MW. The 2012 service area peak demand, which occurred on July 18, 2012, was 1,508 MW. The 2012 peak demand included an estimated 980 MW for O&R’s full-service customers and 528 MW for customers participating in its electric retail access program. The NYISO invoked demand reduction programs on July 18, 2012, as it had on peak demand days in some previous years. “Design weather” for the electric system is a standard to which the actual peak demand is adjusted for evaluation and planning purposes. Since the majority of demand reduction programs are invoked only in specific circumstances, design conditions do not include these programs’ potential impact. However, the O&R forecasted peak demand at design conditions does include the impact of permanent demand reduction programs. The company estimates that, under design weather conditions, the 2013 service area peak demand will be 1,600 MW, including an estimated 1,040 MW for its full-service customers and 560 MW for its electric retail access customers. The company forecasts average annual growth of the peak electric demand in the company’s service area over the next five years at design conditions to be approximately 0.9 percent per year.

Electric Supply

The electricity O&R sold to its customers in 2012 was purchased under firm power contracts or through the wholesale electricity markets administered by the NYISO and PJM. The company expects that these resources will again be adequate to meet the requirements of its customers in 2013. O&R does not own any electric generating capacity.

Gas Operations

Gas Facilities

O&R’s capitalized costs for utility plant, net of accumulated depreciation for gas facilities, which are primarily distribution facilities, were $435 million and $403 million at December 31, 2012 and 2011, respectively. O&R and Pike own their gas distribution systems, which include 1,777 miles of mains. In addition, O&R owns a gas transmission system, which includes 77 miles of mains.

Gas Sales and Deliveries

O&R generally recovers the cost of the gas that it buys and then sells to its firm sales customers. It does not make any margin or profit on the gas it sells. O&R’s gas revenues are subject to a weather normalization clause. Effective November 2009, O&R’s New York gas revenues (which accounted for substantially all of O&R’s gas revenues in 2012) became subject to a revenue decoupling mechanism. As a result, its gas delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved. O&R’s gas deliveries and sales for the last five years were:


	Year Ended December 31,
	2008		2009		2010		2011		2012
Gas delivered (mdth)
Firm Sales
Full service		9,884		9,561		8,772		8,384		7,538
Firm transportation		10,471		10,905		10,692		10,823		10,505
Total Firm Sales and Transportation		20,355		20,466		19,464		19,207		18,043
Interruptible Sales		2,567		2,390		675		8		1
Total Gas Sold To O&R Customers		22,922		22,856		20,139		19,215		18,044
Transportation of customer-owned gas
Interruptible transportation		2,842		2,112		3,822		4,176		4,325
Sales for resale		1,007		953		840		864		793
Sales to electric generating stations		2,327		1,346		691		1,109		738
Off-System Sales		249		624		1		-		-
Total Sales and Transportation		29,347		27,891		25,493		25,364		23,900


						CON EDISON ANNUAL REPORT		21


	Year Ended December 31,
	2008		2009		2010		2011		2012
Gas delivered ($ in millions)
Firm Sales
Full service	$	172	$	159	$	131	$	122	$	103
Firm transportation		45		51		65		71		76
Total Firm Sales and Transportation		217		210		196		193		179
Interruptible Sales		27		21		9		4		4
Total Gas Sold To O&R Customers		244		231		205		197		183
Transportation of customer-owned gas
Sales to electric generating stations		4		2		-		1		-
Other operating revenues		10		9		13		16		20
Total Sales and Transportation	$	258	$	242	$	218	$	214	$	203
Average Revenue Per dth Sold
Residential	$	17.64	$	16.86	$	15.20	$	14.84	$	14.01
General	$	16.55	$	15.58	$	13.64	$	13.20	$	11.99

Gas Peak Demand

The gas peak demand for firm service customers in O&R’s service area occurs during the winter heating season. The daily peak day demand during the winter 2012/2013 (through January 31, 2013) occurred on January 23, 2013 when the demand reached 179 mdths. The 2012/2013 winter demand included an estimated 90 mdths for O&R’s full-service customers and 89 mdths for customers participating in its gas retail access program. “Design weather” for the gas system is a standard to which the actual peak demand is adjusted for evaluation and planning purposes. The company estimates that, under design weather conditions, the 2013/2014 service area peak demand will be 214 mdths, including an estimated 107 mdths for its full-service customers and 107 mdths for its retail access customers. The company forecasts average annual growth of the peak gas demand over the next five years at design conditions to be approximately 0.8 percent in the company’s service area. The forecasted peak demand at design conditions does not include gas used by interruptible gas customers or in generating stations.


22		CON EDISON ANNUAL REPORT

Gas Supply

O&R and CECONY have combined their gas requirements and purchase contracts to meet those requirements into a single portfolio. See “CECONY – Gas Operations – Gas Supply” above.

Competitive Energy Businesses

Con Edison Solutions

Con Edison Solutions primarily sells electricity to industrial, commercial and governmental customers in the northeastern United States and Texas. It also sells electricity to residential and small commercial customers in the northeastern United States. Con Edison Solutions does not sell electricity to the Utilities. Con Edison Solutions sells electricity to customers who are provided delivery service by the Utilities. It also provides energy efficiency services, procurement and management services to companies and governmental entities throughout most of the United States.

Con Edison Solutions was reported by KEMA, Inc. in August 2012 to be the 9th largest non-residential retail electricity provider in the United States. The company sells to retail aggregation entities in Massachusetts and Illinois as well as to individual residential and small commercial (mass market) customers in the northeastern United States. At December 31, 2012, it served approximately 154,000 customers, not including approximately 145,000 served under the two aggregation agreements. Con Edison Solutions’ electricity sales for the last five years were:


	2008		2009		2010		2011		2012
Retail electric volumes sold (millions of kWhs)		10,749		12,723		15,993		15,725		13,840
Number of retail customers accounts:(a)
Industrial and large commercial		18,828		35,056		40,081		42,983		35,043
Mass market		39,976		49,094		85,191		117,635		119,276

(a)	Excludes aggregation agreement customers

Con Edison Solutions seeks to serve customers in utility service territories that encourage retail competition through transparent pricing, purchase of receivables programs or utility-sponsored customer acquisition programs. The company currently sells electricity in the service territories of 45 utilities in the states of New York, Massachusetts, Connecticut, New Hampshire, Maine, New Jersey, Delaware, Maryland, Illinois, Pennsylvania, Rhode Island and Texas, as well as the District of Columbia.

Total peak load at the end of 2012 was 4,514 MWs. Approximately 26 percent of the sales volumes were in New York, 28 percent in New England, 37 percent in PJM and the remainder in Texas.

Con Edison Solutions offers the choice of green power to customers. In 2012, it sold approximately 377,000 MWHs of green power, ending the year with almost 17,000 customers. Green power is a term used by electricity suppliers to describe electricity produced from renewable energy sources, including wind, hydro and solar.

Con Edison Solutions also provides energy-efficiency services to government and commercial customers. The services include the design and installation of lighting retrofits, high-efficiency heating, ventilating and air conditioning equipment and other energy saving technologies. The company is compensated for its services based primarily on the increased energy efficiency of the installed equipment over a multi-year period. Con Edison Solutions has won competitive solicitations for energy savings contracts with the Department of Energy and the Department of Defense, and a shared energy savings contract with the United States Postal Service. The company owns solar energy projects in Massachusetts with an aggregate capacity of 5 MW (AC).

Con Edison Energy

Con Edison Energy manages the output and fuel requirements for over 7,400 MW of third-party generating plants in the northeastern United States. The company also provides wholesale hedging and risk management services to Con Edison Solutions and Con Edison Development. In addition, the company sells electricity to utilities in the northeastern United States, primarily under indexed price contracts, which they use to supply their full-service customers.


	2008		2009		2010		2011		2012
Wholesale electricity sales (millions of kWh)		7,798		5,472		3,610		2,231		958


						CON EDISON ANNUAL REPORT		23

Con Edison Development

Con Edison Development participates in energy infrastructure projects. The company’s investments include ownership interests in solar energy projects in New Jersey, Massachusetts, California and Pennsylvania with an aggregate capacity of 127 MW, a gas storage corporation (see “CECONY – Gas Operations – Gas Facilities,” above), an investment in an affordable housing partnership and leasehold interests in a gas-fired plant and a gas distribution network in the Netherlands (see Note J to the financial statements in Item 8). The company has additional solar energy projects under construction with an aggregate capacity of 42 MW.

Con Edison Development and its subsidiary, CED/SCS Newington, LLC, completed the sale of their ownership interests in electricity generating plants with an aggregate capacity of approximately 1,706 MW in the second quarter of 2008.


	Solar Energy Projects *(in MW (AC))*
State	In-Service			Under Construction			Total
California		70	(a)		40	(a)		110
Massachusetts		12			-			12
New Jersey		35	(b)		-			35
Pennsylvania		10			-			10
Rhode Island		-			2			2
Total		127			42			169

(a)	Electricity generated by the projects is to be purchased by Pacific Gas and Electric Company pursuant to 25 year power purchase agreements

(b)	Includes 100% of an 18 MW (AC) project (Pilesgrove Solar, LLC) in which CED holds a 50% interest

Capital Requirements and Resources

Capital Requirements

The following table contains the Companies’ capital requirements for the years 2010 through 2012 and their current estimate of amounts for 2013 through 2015.


	Actual						Estimate
(millions of dollars)	2010		2011		2012		2013		2014		2015
Regulated utility construction expenditures(a)
CECONY(b)	$	1,866	$	1,778	$	1,909	$	2,030	$	2,077	$	2,291
O&R		135		111		137		142		140		125
Total regulated utility construction expenditures		2,001		1,889		2,046		2,172		2,217		2,416
Competitive energy businesses capital expenditures		28		114		492		253		95		106
Sub-total		2,029		2,003		2,538		2,425		2,312		2,522
Retirement of long-term securities(c)
Con Edison – parent company		3		1		1		2		2		2
CECONY(d)		850		-		764		700		475		350
O&R		158		3		3		3		4		143
Competitive energy businesses		-		-		1		1		-		-
Total retirement of long-term securities		1,011		4		769		706		481		495
Total	$	3,040	$	2,007	$	3,307	$	3,131	$	2,793	$	3,017

(a)

Actuals for 2011-2012 and the estimate for 2013 include an aggregate $136 million for one-half of the costs of certain smart electric grid projects for which the company is receiving grants from the U.S. Department of Energy for the other half of the projects’ costs under the American Recovery and Reinvestment Act of 2009.

(b)	CECONY’s capital expenditures for environmental protection facilities and related studies were $194 million, $149 million and $133 million in 2012, 2011 and 2010, respectively, and are estimated to be $175 million in 2013.

(c)	For 2010, includes long-term securities redeemed in advance of maturity.

(d)	For 2012, includes $239 million for the May 2012 redemption of all of its preferred stock and $224.6 million tax-exempt debt which was subject to mandatory tender by bondholders in November 2012.

The Utilities have an ongoing need for substantial capital investment in order to meet the growth in demand for electricity and gas, and for electric, gas and steam reliability needs, including programs to strengthen the storm resiliency of their infrastructure. The estimated construction expenditures do not include amounts for transmission projects that New York transmission owners have proposed. See “New York Energy Highway,” above.

The estimated capital expenditures for the competitive energy businesses reflect potential investments in renewable generation and energy infrastructure projects and could significantly increase or decrease from the amounts estimated depending on market conditions and opportunities.


24		CON EDISON ANNUAL REPORT

Contractual Obligations

The following table summarizes the Companies’ material obligations at December 31, 2012 to make payments pursuant to contracts. Long-term debt, capital lease obligations and other long-term liabilities are included on their balance sheets. Operating leases and electricity purchase agreements (for which undiscounted future annual payments are shown) are described in the notes to the financial statements.


	Payments Due by Period
(millions of dollars)	Total		1 year or less		Years 2 & 3		Years 4 & 5		After 5 years
Long-term debt (Statement of Capitalization)
CECONY	$	9,861	$	700	$	825	$	650	$	7,686
O&R		608		4		146		83		375
Competitive energy businesses and parent		316		2		5		5		304
Interest on long-term debt(a)		8,130		532		1,003		910		5,685
Total long-term debt, including interest		18,915		1,238		1,979		1,648		14,050
Capital lease obligations (Note J)
CECONY		3		-		1		1		1
Total capital lease obligations		3		-		1		1		1
Operating leases (Notes J and Q)
CECONY		197		49		55		22		71
O&R		6		-		2		1		3
Competitive energy businesses		30		3		5		5		17
Total operating leases		233		52		62		28		91
Purchase obligations
Electricity purchase power agreements – Utilities (Note I)
CECONY
Energy(b)		7,239		650		1,402		1,034		4,153
Capacity		2,390		507		675		275		933
Total CECONY		9,629		1,157		2,077		1,309		5,086
O&R
Energy and Capacity(b)		129		82		47		-		-
Total electricity and purchase power agreements – Utilities		9,758		1,239		2,124		1,309		5,086
Natural gas supply, transportation, and storage contracts – Utilities(c)
CECONY
Natural gas supply		94		94		-		-		-
Transportation and storage		1,095		226		385		233		251
Total CECONY		1,189		320		385		233		251
O&R
Natural gas supply		8		8		-		-		-
Transportation and storage		204		42		72		43		47
Total O&R		212		50		72		43		47
Total natural gas supply, transportation and storage contracts		1,401		370		457		276		298
Other purchase obligations(d)
CECONY		3,445		2,362		1,009		74		-
O&R		200		149		47		4		-
Total other purchase obligations		3,645		2,511		1,056		78		-
Competitive energy businesses commodity and service agreements(e)		218		193		20		2		3
Uncertain income taxes (Note L)
CECONY		36		36		-		-		-
O&R		2		2		-		-		-
Competitive energy businesses and parent		6		6		-		-		-
Total uncertain income taxes		44		44		-		-		-
Total	$	34,217	$	5,647	$	5,699	$	3,342	$	19,529

(a)	Includes interest on variable rate debt calculated at rates in effect at December 31, 2012.

(b)	Included in these amounts is the cost of minimum quantities of energy that the company is obligated to purchase at both fixed and variable prices.

(c)	Included in these amounts is the cost of minimum quantities of natural gas supply, transportation and storage that the Utilities are obligated to purchase at both fixed and variable prices.

(d)

Amounts shown for other purchase obligations, which reflect capital and operations and maintenance costs incurred by the Utilities in running their day-to-day operations, were derived from the Utilities’ purchasing system as the difference between the amounts authorized and the amounts paid (or vouchered to be paid) for each obligation. For many of these obligations, the Utilities are committed to purchase less than the amount authorized. Payments for the “Other Purchase Obligations” are generally assumed to be made ratably over the term of the obligations. The Utilities believe that unreasonable effort and expense would be involved to enable them to report their “Other Purchase Obligations” in a different manner.

(e)	Amounts represent commitments to purchase minimum quantities of electric energy and capacity, renewable energy certificates, natural gas, natural gas pipeline capacity, energy efficiency services and construction services entered into by Con Edison’s competitive energy businesses.


						CON EDISON ANNUAL REPORT		25

The Companies’ commitments to make payments in addition to these contractual commitments include their other liabilities reflected in their balance sheets, any funding obligations for their pension and other postretirement benefit plans, financial hedging activities, their collective bargaining agreements and Con Edison’s guarantees of certain obligations of its businesses. See Notes E, F, O and “Guarantees” in Note H to the financial statements in Item 8.

Capital Resources

Con Edison is a holding company that operates only through its subsidiaries and has no material assets other than its interests in its subsidiaries. Con Edison expects to finance its capital requirements primarily through internally-generated funds and the sale of its securities. The company does not expect to need to issue additional common equity in 2013. Con Edison’s ability to make payments on its external borrowings and dividends on its common shares is also dependent on its receipt of dividends from its subsidiaries or proceeds from the sale of its securities or its interests in its subsidiaries.

For information about restrictions on the payment of dividends by the Utilities and significant debt covenants, see Note C to the financial statements in Item 8.

For information on the Companies’ commercial paper program and revolving credit agreements with banks, see Note D to the financial statements in Item 8.

The Utilities may finance their operations, capital requirements and payment of dividends to Con Edison from internally-generated funds (see “Liquidity and Capital Resources – Cash Flows from Operating Activities” in Item 7), contributions of equity capital from Con Edison and external borrowings.

The Companies expect to meet their 2013 external financing requirements, including for maturing securities, through the issuance of between $1,000 million and $1,500 million of long-term debt.

The Companies require access to the capital markets to fund capital requirements that are substantially in excess of available internally-generated funds. See “Capital Requirements,” above. Each of the Companies believes that it will continue to be able to access capital, although capital market conditions may affect the timing of the Companies’ financing activities. The Companies monitor the availability and costs of various forms of capital, and will seek to issue Con Edison common stock and other securities when it is necessary or advantageous to do so. For information about the Companies’ long-term debt and short-term borrowing, see Notes C and D to the financial statements in Item 8.

In 2012, the NYSPSC authorized CECONY, through 2016, to issue up to $3,500 million of debt securities and to issue up to $2,500 million of debt securities to refund existing debt securities. At December 31, 2012, CECONY had not issued any securities pursuant to such authorization. In 2009, the NYSPSC authorized O&R, through 2013, to issue up to $500 million of securities (of which up to $100 million may be preferred stock and up to the entire amount authorized may be debt securities) and to issue up to $389 million of debt securities to refund existing debt securities. At December 31, 2012, O&R had issued $190 million of debt securities pursuant to such authorization.

Con Edison’s competitive energy businesses have financed their operations and capital requirements primarily with capital contributions and borrowings from Con Edison, internally-generated funds and external borrowings. Con Edison Development is evaluating long-term debt financing for the solar projects it acquired in 2012.

For each of the Companies, the ratio of earnings to fixed charges (SEC basis) for the last five years was:


	Ratio of Earnings to Fixed Charges
	2008		2009		2010		2011		2012
Con Edison		3.4		3.0		3.3		3.6		3.7
CECONY		3.3		3.1		3.4		3.8		3.7

For each of the Companies, the common equity ratio for the last five years was:


	Common Equity Ratio (Percent of total capitalization)
	2008		2009		2010		2011		2012
Con Edison		50.7		50.5		50.4		52.5		54.1
CECONY		50.8		50.3		49.9		52.0		53.6

The commercial paper of the Companies is rated P-2, A-2 and F2, respectively, by Moody’s, S&P and Fitch. Con Edison’s long-term credit rating is Baa1, BBB+ and BBB+, respectively, by Moody’s, S&P and Fitch. The unsecured debt of CECONY is rated A3, A- and A-, respectively, by Moody’s, S&P and Fitch. The unsecured debt of O&R is rated Baa1, A- and A-, respectively, by Moody’s, S&P and Fitch. Securities ratings assigned by rating organizations are expressions of opinion and are not recommendations to buy, sell or hold securities. A securities rating is subject to revision or withdrawal at any time by the assigning rating organization. Each rating should be evaluated independently of any other rating.

CECONY has $636 million of tax-exempt debt for which the interest rates are to be determined pursuant to periodic auctions. Of this amount, $391 million is insured by Ambac Assurance Corporation and $245 million is insured by Syncora Guarantee Inc. (formerly XL Capital Assurance Inc.). Credit rating agencies have withdrawn the ratings of these insurers. Subsequently,


26		CON EDISON ANNUAL REPORT

there have not been sufficient bids to determine the interest rates pursuant to auctions, and interest rates have been determined by reference to a variable rate index. The weighted average annual interest rate on this tax-exempt debt was 0.27 percent on December 31, 2012. The weighted average interest rate was 0.29 percent, 0.34 percent and 0.45 percent for the years 2012, 2011 and 2010, respectively. Under CECONY’s current electric, gas and steam rate plans, variations in auction rate debt interest expense are reconciled to the levels set in rates.

Environmental Matters

Climate Change

As indicated in 2007 by the Intergovernmental Panel on Climate Change, emissions of greenhouse gases, including carbon dioxide, are very likely changing the world’s climate.

Climate change could affect customer demand for the Companies’ energy services. The effects of climate change might also include physical damage to the Companies’ facilities and disruption of their operations due to the impact of more frequent and more extreme weather-related events. In late October 2012, Superstorm Sandy caused extensive damage to the Utilities’ electric distribution system. Superstorm Sandy interrupted service to approximately 1.4 million of the Utilities’ customers – more than four times the number of customers impacted by the Utilities’ previous worst storm event (Hurricane Irene in 2011). See “Other Regulatory Matters” in Note B to the financial statements in Item 8.

Based on the most recent data (2009) published by the U.S. Environmental Protection Agency (EPA), Con Edison estimates that its greenhouse gas emissions constitute less than 0.1 percent of the nation’s greenhouse gas emissions. Con Edison’s emissions of greenhouse gases during the past five years (expressed in terms of millions of tons of carbon dioxide equivalent) were:


	2008		2009		2010		2011		2012
CO₂ equivalent emissions		4.6		4.2		4.3		3.7		3.6

The 45 percent decrease in Con Edison’s greenhouse gas emissions since 2005 (6.6 million tons) reflects the emission reductions resulting from equipment and repair projects, including projects to reduce sulfur hexafluoride emissions, and increased use of natural gas at CECONY’s steam production facilities. Emissions from electric generation at the Con Edison Development electric generating plants, which were sold in 2008, have been removed from the above data set.

The Companies are working to further reduce greenhouse gas emissions. CECONY has participated for several years in voluntary initiatives with the EPA to reduce its methane and sulfur hexafluoride emissions. The Utilities reduce methane emissions from the operation of their gas distribution systems through pipe maintenance and replacement programs, by operating system components at lower pressure, and by introducing new technologies. The Utilities reduce emissions of sulfur hexafluoride, which is used for arc suppression in substation circuit breakers and switches, by using improved technologies to locate and repair leaks, and by replacing older equipment. The Utilities also promote energy efficiency programs for customers that help them reduce their greenhouse gas emissions.

Beginning in 2009, CECONY is subject to carbon dioxide emissions regulations established by New York State under the Regional Greenhouse Gas Initiative (RGGI). The Initiative, a cooperative effort by Northeastern and Mid-Atlantic states, established a decreasing cap on carbon dioxide emissions resulting from the generation of electricity to a level ten percent below the Initiative’s baseline by 2018. Under the Initiative, affected electric generators are required to obtain emission allowances to cover their carbon dioxide emissions, available primarily through auctions administered by participating states or a secondary market. CECONY met its requirement of 6.3 million allowances for the first RGGI compliance period (2009 – 2011). In February 2013, RGGI released a model rule for adoption by the participating states that includes a 45 percent reduction in the emissions cap for 2014 and further reductions of 2.5 percent each year from 2015 to 2020.

The EPA has started regulating greenhouse gas emissions from major sources, requiring existing sources to report emissions and subjecting certain new sources to emissions limitations. Also, New York State has announced a goal to reduce greenhouse gas emissions 80 percent below 1990 levels by 2050, and New York City plans to reduce greenhouse gas emissions within the City 30 percent below 2005 levels by 2030. The cost to comply with legislation, regulations or initiatives limiting the Companies’ greenhouse gas emissions could be substantial.

Environmental Sustainability

Con Edison seeks to improve the environmental sustainability of its businesses. CECONY is piloting smart grid technologies to demonstrate the interoperability of distributed generation and the exchange of information between customers and utilities. The smart grid will give customers the tools to be smarter consumers of energy and will allow the utility to identify and isolate problems more quickly. The company recycles clean non-hazardous waste materials in more than a dozen categories and recycled an estimated 50,000 tons of waste in 2012. More than 38 percent of the company’s vehicles now use alternative-energy technology. New environmentally friendly white roofs are in place at the corporate headquarters and more than 20 other company facilities, and others are underway. A white roof reflects sunlight, lowering indoor temperatures on hot days, which reduces the need to cool the building, resulting in fewer carbon dioxide emissions.

CECONY

Superfund

The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 and similar state statutes (Superfund) impose joint and several liability, regardless of fault,


						CON EDISON ANNUAL REPORT		27

upon generators of hazardous substances for investigation costs, remediation costs and environmental damages. The sites as to which CECONY has been asserted to have liability under Superfund include its and its predecessor companies’ former manufactured gas sites, its multi-purpose Astoria site, its former Flushing Service Center site, the Gowanus Canal site, and other Superfund sites discussed below. There may be additional sites as to which assertions will be made that the Company has liability. For a further discussion of claims and possible claims against the Company under Superfund, estimated liability accrued for Superfund claims and recovery from customers of site investigation and remediation costs, see Note G to the financial statements in Item 8 (which information is incorporated herein by reference).

Manufactured Gas Sites

CECONY and its predecessors formerly manufactured gas and maintained storage holders for gas manufactured at sites in New York City and Westchester County (MGP Sites). Many of these sites have been subdivided and are now owned by parties other than CECONY and have been redeveloped by them for other uses, including schools, residential and commercial developments and hospitals. The New York State Department of Environmental Conservation (NYSDEC) requires the company to investigate, and if necessary, develop and implement remediation programs for the sites, which include 34 manufactured gas plant sites and 17 storage holder sites and any neighboring areas to which contamination may have migrated.

The information available to CECONY for many of the MGP Sites is incomplete as to the extent of contamination and scope of the remediation likely to be required. Through the end of 2012, investigations have been started for all 51 MGP Sites, and have been completed at all or portions of 31 of the sites. Coal tar and/or other manufactured gas production/storage-related environmental contaminants have been detected at 35 MGP Sites, including locations within Manhattan and other parts of New York City, and in Westchester County. Remediation has been completed at six sites and portions of seven other sites.

Astoria Site

CECONY is permitted by the NYSDEC to operate a hazardous waste storage facility on property the company owns in the Astoria section of Queens, New York. Portions of the property were formerly the location of a manufactured gas plant and also have been used or are being used for, among other things, electric generation operations, electric substation operations, the storage of fuel oil and liquefied natural gas, and the maintenance and storage of electric equipment. As a condition of its NYSDEC permit, the company is required to investigate the property and, where environmental contamination is found and action is necessary, to conduct corrective action to remediate the contamination. The company has investigated various sections of the property and is performing additional investigations. The company has submitted to the NYSDEC and the New York State Department of Health reports identifying the known areas of contamination. The company estimates that its undiscounted potential liability for the completion of the site investigation and cleanup of the known contamination on the property will be at least $53 million.

Flushing Service Center Site

The owner of a former CECONY service center facility in Flushing, New York, informed the company that PCB contamination had been detected on a substantial portion of the property, which the owner remediated pursuant to the New York State Brownfield Cleanup Program administered by the NYSDEC and is redeveloping for residential and commercial use. The property owner’s claim against the company for its environmental response costs for the site has been resolved. In September 2007, the NYSDEC demanded that the company investigate and remediate PCB contamination that may have migrated into the adjacent Flushing River from the site. In April 2008, the company and NYSDEC entered into a consent order under which the company has agreed to implement a NYSDEC-approved investigation program for the Flushing River and, if deemed necessary by the NYSDEC to protect human health and the environment from such contamination, to implement a NYSDEC-approved remediation program for any PCB contamination in the river attributable to the site. In March 2011, the company submitted to NYSDEC a report indicating that PCBs had migrated from the site to sediment in a portion of the river. In October 2011, the company submitted to the NYSDEC a feasibility study evaluating various remedial alternatives. In response to NYSDEC comments on that feasibility study, the company submitted a revised feasibility study in June 2012. The NYSDEC has not yet approved that study or selected a remedy. At this time, the company cannot estimate its liability for the cleanup of PCB contamination that has migrated to the Flushing River from the site, but such liability may be substantial.

Gowanus Canal

In August 2009, CECONY received a notice of potential liability and request for information from the EPA about the operations of the company and its predecessors at sites adjacent or near the 1.8 mile Gowanus Canal in Brooklyn, New York. The company understands that the EPA also has provided or will provide notices of potential liability and information requests to other parties. In March 2010, the EPA added the Gowanus Canal to its National Priorities List of Superfund sites. The canal’s adjacent waterfront is primarily commercial and industrial, currently consisting of concrete plants, warehouses, and parking lots, and the canal is near several residential neighborhoods. In February 2011, the EPA released a report of its remedial investigation that confirmed there was significant contamination in the Gowanus Canal. In December 2011, the EPA released a draft feasibility study that evaluated remedial alternatives. In December 2012, the EPA released its proposed remedial action plan for the site. The EPA estimated that the cost of assessment and remediation


28		CON EDISON ANNUAL REPORT

of hazardous substances in and around the Gowanus Canal will be between $466.7 million and $503.7 million, and indicated that the cost could be significantly higher. CECONY is unable to predict its exposure to liability with respect to the Gowanus Canal site.

Other Superfund Sites

CECONY is a potentially responsible party (PRP) with respect to other Superfund sites where there are other PRPs and where it is generally not responsible for managing the site investigation and remediation. Work at these sites is in various stages, with the company participating in PRP groups at some of the sites. Investigation, remediation and monitoring at some of these sites have been, and are expected to continue to be, conducted over extended periods of time. The company does not believe that it is reasonably likely that monetary sanctions, such as penalties, will be imposed upon it by any governmental authority with respect to these sites.

The following table lists each of CECONY’s other Superfund sites for which the company anticipates it may have a liability. The table also shows for each such site, its location, the year in which the company was designated or alleged to be a PRP or to otherwise have responsibilities with respect to the site (shown in the table under “Start”), the name of the court or agency in which proceedings with respect to the site are pending and CECONY’s estimated percentage of total liability for each site. The company currently estimates that its potential liability for investigation, remediation, monitoring and environmental damages at each site is less than $0.2 million, with the exception of the Cortese Landfill site, for which the estimate is $1 million, and the Curcio Scrap Metal site, for which the estimate is $0.2 million. Superfund liability is joint and several. The company’s estimate of its liability for each site was determined pursuant to consent decrees, settlement agreements or otherwise and in light of the financial condition of other PRPs. The company’s actual liability could differ substantially from amounts estimated.


Site	Location	Start		Court or Agency		% of Total Liability
Maxey Flats Nuclear	Morehead, KY		1986		EPA		0.8	%
Curcio Scrap Metal	Saddle Brook, NJ		1987		EPA		100	%
Metal Bank of America	Philadelphia, PA		1987		EPA		0.97	%
Cortese Landfill	Narrowsburg, NY		1987		EPA		6.0	%
Global Landfill	Old Bridge, NJ		1988		EPA		0.3	%
Borne Chemical	Elizabeth, NJ		1997		NJDEP		0.7	%

O&R

Superfund

The sites at which O&R has been asserted to have liability under Superfund include its manufactured gas sites, its West Nyack site, the Newark Bay site, and other Superfund sites discussed below. There may be additional sites as to which assertions will be made that O&R has liability. For a further discussion of claims and possible claims against O&R under Superfund, see Note G to the financial statements in Item 8 (which information is incorporated herein by reference).

Manufactured Gas Sites

O&R and its predecessors formerly owned and operated manufactured gas plants at seven sites (O&R MGP Sites) in Orange County and Rockland County, New York. Three of these sites are now owned by parties other than O&R, and have been redeveloped by them for residential, commercial or industrial uses. The NYSDEC is requiring O&R to develop and implement remediation programs for the O&R MGP Sites including any neighboring areas to which contamination may have migrated.

O&R has completed remedial investigations at all seven O&R MGP Sites and has completed the remediation at one of the sites and a portion of another. O&R has received NYSDEC’s decision regarding the remedial work to be performed at three of the sites and a portion of another. Remedial construction at the Port Jervis MGP site began in July 2012 and the excavation phase of the remedy is expected to be completed by May 2013. Remedial design is ongoing for three of the sites. A feasibility study was completed for one site in 2012 and is currently being reviewed by NYSDEC. A feasibility study for one site will be completed in 2013.

West Nyack Site

In 1991, 1994 and 1997, O&R entered into consent orders with the NYSDEC pursuant to which O&R agreed to conduct a remedial investigation and remediate certain property it owns in West Nyack, New York at which PCBs were discovered. Petroleum contamination related to a leaking underground storage tank was found as well. O&R has completed all remediation at the site that the NYSDEC has required to date. In 2012, NYSDEC reclassified the West Nyack site to a Class 4 site, meaning that the site has been properly closed but requires continued site management. Annual inspections and certification of compliance with the Site Management Plan will be required.

Newark Bay

Approximately 300 parties, including O&R (which was served with a third-party complaint in June 2009), were sued as third-party defendants by Tierra Solutions, Inc. (Tierra) and Maxus Energy Corporation (Maxus), successors to the Occidental Chemical Corporation and Diamond Shamrock Chemical Company. Tierra and Maxus were themselves sued in 2005 by the New Jersey Department of Environmental Protection and others for removal and cleanup costs, punitive damages, penalties, and economic losses allegedly arising from the dioxin contamination their predecessors’ pesticide/herbicide plant allegedly released to the “Newark Bay Complex,” a system of


						CON EDISON ANNUAL REPORT		29

waterways including Newark Bay, the Arthur Kill, the Kill Van Kull, and lower portions of the Passaic and Hackensack Rivers. Tierra and Maxus are seeking equitable contribution from the third-party defendants for such costs, damages, penalties and losses, which are likely to be substantial. As to O&R, Tierra and Maxus allege that 1975 and 1976 shipments of waste oil by O&R from an electricity generating plant in Haverstraw, New York to the Borne Chemical Company in Elizabeth, New Jersey was a source of petroleum discharges to the Arthur Kill. Con Edison is unable to predict O&R’s exposure to liability with respect to the Newark Bay Complex.

Other Superfund Sites

O&R is a PRP with respect to other Superfund sites where there are other PRPs and it is not managing the site investigation and remediation. Work at these sites is in various stages, with the company participating in PRP groups at some of the sites. Investigation, remediation and monitoring at some of these sites have been, and are expected to continue to be, conducted over extended periods of time. The company does not believe that it is reasonably likely that monetary sanctions, such as penalties, will be imposed upon it by any governmental authority with respect to these sites.

The following table lists each of O&R’s other Superfund sites for which the company anticipates it may have liability. The table also shows for each such site, its location, the year in which the company was designated or alleged to be a PRP or to otherwise have responsibilities with respect to the site (shown in the table under “Start”), the name of the court or agency in which proceedings with respect to the site are pending and O&R’s estimated percentage of total liability for each site. The company currently estimates that its potential liability for investigation, remediation, monitoring and environmental damages at each site is less than $0.3 million. Superfund liability is joint and several. The company’s estimate of its anticipated share of the total liability for each site was determined pursuant to consent decrees, settlement agreements or otherwise and in light of the financial condition of other PRPs. The company’s actual liability could differ substantially from amounts estimated.

Site

Location

Start

Court or
Agency

% of
Total
Liability

Borne Chemical

Elizabeth, NJ

1997

NJDEP

2.27

Metal Bank of America

Philadelphia, PA

1993

EPA

4.58

Ellis Road

Jacksonville, FL

2011

EPA

0.24

Other Federal, State and Local Environmental Provisions

Toxic Substances Control Act

Virtually all electric utilities, including CECONY, own equipment containing PCBs. PCBs are regulated under the Federal Toxic Substances Control Act of 1976.

Water Quality

Under NYSDEC regulations, the operation of certain CECONY generating facilities requires permits for water discharges. Regulations that will become effective in 2013 will begin to require permits for water withdrawals. Conditions to the issuance or renewal of such permits may include limitations on the operations of the permitted facility or requirements to install certain equipment, the cost of which could be substantial. For information about the company’s generating facilities, see “CECONY – Electric Operations – Electric Facilities” and “Steam Operations – Steam Facilities” above in this Item 1.

Certain governmental authorities are investigating contamination in the Hudson River and the New York Harbor. These waters run through portions of CECONY’s service area. Governmental authorities could require entities that released hazardous substances that contaminated these waters to bear the cost of investigation and remediation, which could be substantial.

Air Quality

Under new source review regulations, an owner of a large generating facility, including CECONY’s steam and steam-electric generating facilities, is required to obtain a permit before making modifications to the facility, other than routine maintenance, repair, or replacement, that increase emissions of pollutants from the facility above specified thresholds. To obtain a permit, the facility owner could be required to install additional pollution controls or otherwise limit emissions from the facility. The company reviews on an on-going basis its planned modifications to its generating facilities to determine the potential applicability of new source review and similar regulations. In December 2011, the company filed its proposed plan to comply with revised New York State nitrogen oxides reasonably available control technology regulations (NOx RACT) and is incorporating the plan provisions into its existing air quality permits as they are renewed. In 2011, the EPA adopted regulations establishing maximum achievable control technology standards for utility and industrial boilers. The regulations apply to major air emissions sources, including CECONY’s generating facilities. CECONY plans to comply with these regulations and the regulations known as the Clean Air Interstate Rule (CAIR) largely through the modification by 2014 of certain of its generating facilities to enable the facilities to increase the use of natural gas, decreasing the use of fuel oil. In 2011, the EPA also adopted additional regulations known as the Cross State Air Pollution Rule (CSAPR), which established a new cap and trade program requiring further reductions in air emissions than CAIR (which CSAPR was to have replaced). In August 2012, CSAPR was overturned by an appellate court, and CAIR will remain in effect pending further action by the EPA. For information about the company’s generating facilities, see “CECONY – Electric Operations – Electric Facilities” and “Steam Operations – Steam Facilities” above in this Item 1. The company is unable to predict the impact on its operations of any regulations that may be adopted


30		CON EDISON ANNUAL REPORT

to replace CSAPR or the additional costs, which could be substantial, it could incur to comply with any such regulations.

State Anti-Takeover Law

New York State law provides that a “domestic corporation,” such as Con Edison, may not consummate a merger, consolidation or similar transaction with the beneficial owner of a 20 percent or greater voting stock interest in the corporation, or with an affiliate of the owner, for five years after the acquisition of the voting stock interest, unless the transaction or the acquisition of the voting stock interest was approved by the corporation’s board of directors prior to the acquisition of the voting stock interest. After the expiration of the five-year period, the transaction may be consummated only pursuant to a stringent “fair price” formula or with the approval of a majority of the disinterested stockholders.

Employees

Con Edison has no employees other than those of CECONY, O&R and Con Edison’s competitive energy businesses (which at December 31, 2012 had 13,130, 1,096 and 303 employees, respectively). Of the 13,130 CECONY employees and 1,096 O&R employees, 8,143 and 622 were represented by a collective bargaining unit, respectively. The collective bargaining agreement covering most of these CECONY employees expires in June 2016. Agreements covering other CECONY employees and O&R employees expire in June 2013 and June 2014, respectively.

Available Information

For the sources of information about the Companies, see “Available Information” in the “Introduction” appearing before this Item 1.

ITEM 1A:

RISK FACTORS

Information in any item of this report as to which reference is made in this Item 1A is incorporated by reference herein. The use of such terms as “see” or “refer to” shall be deemed to incorporate at the place such term is used the information to which such reference is made.

The Companies’ businesses are influenced by many factors that are difficult to predict, and that involve uncertainties that may materially affect actual operating results, cash flows and financial condition.

The Companies have established an enterprise risk management program to identify, assess, manage and monitor its major operations and administrative risks based on established criteria for the severity of an event, the likelihood of its occurrence, and the programs in place to control the event or reduce the impact. The Companies also have financial and commodity market risks. See “Financial and Commodity Market Risks” in Item 7.

The Companies’ major risks include:

The Failure to Operate Energy Facilities Safely and Reliably Could Adversely Affect The Companies. The Utilities provide electricity, gas and steam service using energy facilities, many of which are located either in, or close to, densely populated public places. See the description of the Utilities’ facilities in Item 1. A failure of, or damage to, these facilities, or an error in the operation or maintenance of these facilities, could result in bodily injury or death, property damage, the release of hazardous substances or extended service interruptions. In such event, the Utilities could be required to pay substantial amounts, which may not be covered by the Utilities’ insurance policies, to repair or replace their facilities, compensate others for injury or death or other damage, and settle any proceedings initiated by state utility regulators or other regulatory agencies. In late October 2012, Superstorm Sandy caused extensive damage to the Utilities’ electric distribution system and interrupted service to approximately 1.4 million of the Utilities’ customers. See “Other Regulatory Matters” in Note B and “Manhattan Steam Main Rupture” in Note H to the financial statements in Item 8. The occurrence of such an event could also adversely affect the cost and availability of insurance. Changes to laws, regulations or judicial doctrines could further expand the Utilities’ liability for service interruptions. See “Utility Regulation – State Utility Regulation” in Item 1.

The Failure To Properly Complete Construction Projects Could Adversely Affect The Companies. The Utilities’ ongoing construction program includes large energy transmission, substation and distribution system projects. The failure to properly complete these projects timely and effectively could adversely affect the Utilities’ ability to meet their customers’ growing energy needs with the high level of safety and reliability that they currently provide, which would adversely affect the Companies. See “Capital Requirements” and “New York Energy Highway” in Item 1.

The Failure of Processes and Systems and the Performance of Employees and Contractors Could Adversely Affect the Companies. The Companies have developed business processes for operations, customer service, legal compliance, personnel, accounting, planning and other matters. Some of the Companies’ information systems and communications systems have been operating for many years, and may become obsolete. In 2012, the Utilities implemented new financial and supply-chain enterprise resource planning information systems. See Item 9A. The failure of the Companies’ business processes or information or communication systems could adversely affect the Companies’ operations and liquidity and result in substantial liability, higher costs and increased regulatory requirements. The failure by the Companies’ employees or contractors to follow procedures, or their unsafe actions, errors or intentional misconduct, or work stoppages could also adversely affect the Companies. See “Employees” in Item 1 and “Other Regulatory Matters” in Note B to the financial statements in Item 8.


						CON EDISON ANNUAL REPORT		31

The Companies Are Extensively Regulated And Are Subject To Penalties. The Companies’ operations require numerous permits, approvals and certificates from various federal, state and local governmental agencies. State utility regulators may seek to impose substantial penalties on the Utilities for violations of state utility laws, regulations or orders. In addition, the Utilities rate plans usually include penalties for failing to meet certain operating standards. See Note B to the financial statements in Item 8. FERC has the authority to impose penalties on the Utilities and the competitive energy businesses, which could be substantial, for violations of the Federal Power Act, the Natural Gas Act or related rules, including reliability and cyber security rules. Environmental agencies may seek penalties for failure to comply with laws, regulations or permits. The Companies may also be subject to penalties from other regulatory agencies. The Companies may be subject to new laws, regulations, accounting standards or other requirements or the revision or reinterpretation of such requirements, which could adversely affect the Companies. See “Utility Regulation” and “Environmental Matters – Climate Change and Other Federal, State and Local Environmental Provisions” in Item 1 and “Application of Critical Accounting Policies” in Item 7.

The Utilities’ Rate Plans May Not Provide A Reasonable Return. The Utilities have rate plans approved by state utility regulators that limit the rates they can charge their customers. The rates are generally designed for, but do not guarantee, the recovery of the Utilities’ cost of service (including a return on equity). The Utilities’ rate plans can involve complex accounting and other calculations, a mistake in which could have a substantial adverse affect on the Utilities. See “Utility Regulation – State Utility Regulation, Rate Plans” in Item 1 and “Rate Agreements” in Note B to the financial statements in Item 8. Rates usually may not be changed during the specified terms of the rate plans other than to recover energy costs and limited other exceptions. The Utilities’ actual costs may exceed levels provided for such costs in the rate plans. The Utilities’ rate plans usually include penalties for failing to meet certain operating standards. State utility regulators can initiate proceedings to prohibit the Utilities from recovering from their customers the cost of service (including energy costs) that the regulators determine to have been imprudently incurred (see “Other Regulatory Matters” in Note B to the financial statements in Item 8). The Utilities have from time to time entered into settlement agreements to resolve various prudence proceedings.

The Companies May Be Adversely Affected By Changes To The Utilities’ Rate Plans. The Utilities’ rate plans typically require action by regulators at their expiration dates, which may include approval of new plans with different provisions. The need to recover from customers increasing costs, taxes or state-mandated assessments or surcharges could adversely affect the Utilities’ opportunity to obtain new rate plans that provide a reasonable rate of return and continue important provisions of current rate plans. The Utilities’ current New York electric and gas rate plans include revenue decoupling mechanisms and their New York electric, gas and steam rate plans include provisions for the recovery of energy costs and reconciliation of the actual amount of pension and other postretirement, environmental and certain other costs to amounts reflected in rates. In January 2013, CECONY filed a request with the NYSPSC for new electric, gas and steam rate plans. See “Rate Agreements” in Note B to the financial statements in Item 8.

The Companies Are Exposed to Risks From The Environmental Consequences Of Their Operations. The Companies are exposed to risks relating to climate change and related matters. See “Environmental Matters – Climate Change” in Item 1. CECONY may also be impacted by regulations requiring reductions in air emissions. See “Environmental Matters – Other Federal, State and Local Environmental Provisions, Air Quality” in Item 1. In addition, the Utilities are responsible for hazardous substances, such as asbestos, PCBs and coal tar, that have been used or produced in the course of the Utilities’ operations and are present on properties or in facilities and equipment currently or previously owned by them. See “Environmental Matters” in Item 1 and Note G to the financial statements in Item 8. Electric and magnetic fields are found wherever electricity is used. The Companies could be adversely affected if a causal relationship between these fields and adverse health effects were to be established. Negative perceptions about electric and magnetic fields can make it more difficult to construct facilities needed for the Companies’ operations.

A Disruption In The Wholesale Energy Markets Or Failure By An Energy Supplier Could Adversely Affect The Companies. Almost all the electricity and gas the Utilities sell to their full-service customers is purchased through the wholesale energy markets or pursuant to contracts with energy suppliers. See the description of the Utilities’ energy supply in Item 1. Con Edison Energy and Con Edison Solutions also depend on wholesale energy markets to supply electricity to their customers. See “Competitive Energy Businesses” in Item 1. A disruption in the wholesale energy markets or a failure on the part of the Companies’ energy suppliers or operators of energy delivery systems that connect to the Utilities’ energy facilities could adversely affect the Companies’ ability to meet their customers’ energy needs and adversely affect the Companies.

The Companies Have Substantial Unfunded Pension And Other Postretirement Benefit Liabilities. The Utilities have substantial unfunded pension and other postretirement benefit liabilities. The Utilities expect to make substantial contributions to their pension and other postretirement benefit plans. Significant declines in the market values of the investments held to fund pension and other postretirement benefits could trigger substantial funding requirements under governmental regulations. See “Application of Critical Accounting Policies –


32		CON EDISON ANNUAL REPORT

Accounting for Pensions and Other Postretirement Benefits” and “Financial and Commodity Market Risks,” in Item 7 and Notes E and F to the financial statements in Item 8.

Con Edison’s Ability To Pay Dividends Or Interest Depends On Dividends From Its Subsidiaries. Con Edison’s ability to pay dividends on its common stock or interest on its external borrowings depends primarily on the dividends and other distributions it receives from its subsidiaries. The dividends that the Utilities may pay to Con Edison are limited by the NYSPSC to not more than 100 percent of their respective income available for dividends calculated on a two-year rolling average basis, with certain exceptions. See “Dividends” in Note C to the financial statements in Item 8.

The Companies Require Access To Capital Markets To Satisfy Funding Requirements. The Utilities estimate that their construction expenditures will exceed $6 billion over the next three years. The Utilities may use internally-generated funds, equity contributions from Con Edison and external borrowings to fund the construction expenditures. The competitive energy businesses are evaluating opportunities to invest in renewable generation and energy-related infrastructure projects that would require funds in excess of those produced in the businesses. Con Edison expects to finance its capital requirements primarily through internally generated funds and the sale of its securities. In addition, Con Edison Development is evaluating long-term debt financing for the solar projects it acquired in 2012. See “Cash Flows Used in Investing Activities” in Item 7. The company does not expect to need to issue additional common equity in 2013. Changes in financial market conditions or in the Companies’ credit ratings could adversely affect their ability to raise new capital and the cost thereof. See “Capital Requirements and Resources” in Item 1.

The Internal Revenue Service Has Disallowed Substantial Tax Deductions Taken By The Company. The Companies’ federal income tax returns reflect certain tax positions with which the Internal Revenue Service does not or may not agree, including the deduction of the cost of certain repairs to utility plant for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility (see Note L to the financial statements in Item 8). In January 2013, a federal appeals court reversed a trial court decision that had allowed deductions claimed by Con Edison relating to Con Edison Development’s 1997 lease in/lease out (“LILO”) transaction. As a result, with respect to the 1997 and 1999 LILO transactions, Con Edison expects to record an estimated charge of between $150 million and $170 million (after-tax) in the first quarter of 2013 and has made deposits of $447 million with federal and state tax agencies. See Note J to the financial statements in Item 8.

A Cyber Attack Could Adversely Affect the Companies. The Utilities and other operators of critical energy infrastructure may face a heightened risk of cyber attack. The Companies have experienced cyber attacks, although none of the attacks had a material impact on the Companies. In the event of a cyber attack that the Companies were unable to defend against or mitigate, the Utilities and the competitive energy businesses could have their operations disrupted, financial and other information systems impaired, property damaged and customer information stolen; experience substantial loss of revenues, response costs and other financial loss; and be subject to increased regulation, litigation and damage to their reputation.

The Companies Also Face Other Risks That Are Beyond Their Control. The Companies’ results of operations can be affected by circumstances or events that are beyond their control. Weather directly influences the demand for electricity, gas and steam service, and can affect the price of energy commodities. Natural disasters, such as a major storm, heat wave or hurricane (see “Environmental Matters – Climate Change” in Item 1 and “Other Regulatory Matters” in Note B to the financial statements in Item 8) or terrorist attacks or related acts of war could damage Company facilities. As a provider of essential utility services, the Utilities may experience more severe consequences from attempting to operate during and after such events. In addition, pandemic illness could potentially disrupt the Utilities’ employees and contractors from providing essential utility services. Economic conditions can affect customers’ demand and ability to pay for service, which could adversely affect the Companies.

ITEM 1B:

UNRESOLVED STAFF COMMENTS

Con Edison

Con Edison has no unresolved comments from the SEC staff.

CECONY

CECONY has no unresolved comments from the SEC staff.

ITEM 2:

PROPERTIES

Con Edison

Con Edison has no significant properties other than those of the Utilities and its competitive energy businesses.

For information about the capitalized cost of the Companies’ utility plant, net of accumulated depreciation, see “Plant and Depreciation” in Note A to the financial statements in Item 8 (which information is incorporated herein by reference).

CECONY

For a discussion of CECONY’s electric, gas and steam facilities, see “CECONY – Electric Operations – Electric Facilities”, “CECONY – Gas Operations – Gas Facilities”, and “CECONY – Steam Operations – Steam Facilities” in Item 1 (which information is incorporated herein by reference).


						CON EDISON ANNUAL REPORT		33

O&R

For a discussion of O&R’s electric and gas facilities, see “O&R – Electric Operations – Electric Facilities” and “O&R – Gas Operations – Gas Facilities” in Item 1 (which information is incorporated herein by reference).

Competitive Energy Businesses

For a discussion of the competitive energy businesses’ facilities, see “Competitive Energy Businesses” in Item 1 (which information is incorporated herein by reference).

ITEM 3:

LEGAL PROCEEDINGS

Con Edison

Lease In/Lease Out Transactions

For information about legal proceedings with the IRS with respect to substantial tax deductions taken by Con Edison in connection with Con Edison Development’s LILO transactions, see Note J to the financial statements in Item 8 (which information is incorporated herein by reference).

Former Con Edison Development Subsidiary Site

In November 2011, Con Edison Development was notified by the Office of the Attorney General of Massachusetts that it was considering filing suit against the company and others for violations of certain laws and regulations in connection with the capping and cover of certain ash treatment basins with an amount of material in excess of that permitted by the Massachusetts Department of Environmental Protection. The ash treatment basins are located on the electric generating plant site of a subsidiary sold by the company in 2008. In December 2012, the company paid less than $1 million to resolve the claims against it in connection with this matter.

CECONY

Manhattan Steam Main Rupture

For information about proceedings relating to the July 2007 rupture of a steam main located in midtown Manhattan, see “Manhattan Steam Main Rupture” in Note H to the financial statements in Item 8 (which information is incorporated herein by reference).

NYSPSC Prudence Proceeding

For information about an NYSPSC proceeding relating to unlawful conduct by certain former employees in connection with vendor payments, see “Other Regulatory Matters” in Note B to the financial statements in Item 8 (which is incorporated herein by reference).

Superstorm Sandy Investigations

For information about investigations regarding the company’s preparation and performance relating to Superstorm Sandy, see “Other Regulatory Matters” in Note B to the financial statements in Item 8 (which is incorporated herein by reference).

Asbestos

For information about legal proceedings relating to exposure to asbestos, see Note G to the financial statements in Item 8 (which information is incorporated herein by reference).

Superfund

For information about CECONY Superfund sites, see “Environmental Matters – CECONY—Superfund” in Item 1 (which information is incorporated herein by reference) and Note G to the financial statements in Item 8.

O&R

Superstorm Sandy Investigations

Asbestos

For information about legal proceedings relating to exposure to asbestos, see Note G to the financial statements in Item 8 (which information is incorporated herein by reference).

Superfund

For information about O&R Superfund sites, see “Environmental Matters – O&R – Superfund” in Item 1 (which information is incorporated herein by reference) and Note G to the financial statements in Item 8.

ITEM 4:

MINE SAFETY DISCLOSURES

Not applicable.


34		CON EDISON ANNUAL REPORT

Executive Officers of the Registrant

The following table sets forth certain information about the executive officers of Con Edison and CECONY as of February 21, 2013. As indicated, certain of the executive officers are executive officers of each of Con Edison and CECONY and others are executive officers of Con Edison or CECONY. The term of office of each officer, is until the next election of directors (trustees) of their company and until his or her successor is chosen and qualifies. Officers are subject to removal at any time by the board of directors (trustees) of their company. Mr. Burke has an employment agreement with Con Edison, which provides for him to serve in his present position through December 31, 2013. The employment agreement provides for automatic one-year extensions of its term, unless notice to the contrary is received six months prior to the end of the term.


Name	Age		Offices and Positions During Past Five Years
Executive Officers of Con Edison and CECONY
Kevin Burke		62	3/06 to present — Chairman of the Board, President and Chief Executive Officer and Director of Con Edison and Chairman, Chief Executive Officer and Trustee of CECONY

Craig S. Ivey		50	12/09 to present — President of CECONY
			8/07 to 9/09 — Senior Vice President — Transmission & Distribution, Dominion Resources, Inc.

William G. Longhi		59	1/13 to present — President — Shared Services of CECONY
			2/09 to 12/12 — President and Chief Executive Officer of O&R
			12/06 to 1/09 — Senior Vice President — Central Operations of CECONY

Robert Hoglund		51	9/05 to present — Senior Vice President and Chief Financial Officer of Con Edison and CECONY
			6/04 to 10/09 — Chief Financial Officer and Controller of O&R

Elizabeth D. Moore		58	5/09 to present — General Counsel of Con Edison and CECONY
			1/95 to 4/09 — Partner, Nixon Peabody LLP

Joseph P. Oates		51	9/12 to present — Senior Vice President — Business Shared Services of CECONY
			7/12 to 8/12 — Senior Vice President of CECONY
			7/07 to 6/12 — Vice President — Energy Management of CECONY

Frances A. Resheske		52	2/02 to present — Senior Vice President — Public Affairs of CECONY

Luther Tai		64	7/06 to present — Senior Vice President — Enterprise Shared Services of CECONY

Gurudatta Nadkarni		47	1/08 to present — Vice President of Strategic Planning

Scott Sanders		49	2/10 to present — Vice President and Treasurer of Con Edison and CECONY
			1/10 to 2/10 — Vice President — Finance
			5/09 to 12/09 — Co-founder and Partner of New Infrastructure Advisors
			5/05 to 1/09 — Managing Director — Investment Banking, Bank of America

Robert Muccilo		56	7/09 to present — Vice President and Controller of Con Edison and CECONY
			11/09 to present — Chief Financial Officer and Controller of O&R
			4/08 to 6/09 — Assistant Controller of CECONY
			8/06 to 3/08 — General Manager — Central Field Services of CECONY

Executive Officers of Con Edison but not CECONY
John McAvoy		52	1/13 to present — President and Chief Executive Officer of O&R
			12/12 — Senior Vice President of CECONY
			2/09 to 11/12 — Senior Vice President — Central Operations of CECONY
			12/06 to 1/09 — Vice President — System and Transmission Operations of CECONY

Executive Officers of CECONY but not Con Edison
(All offices and positions listed are with CECONY)

Marilyn Caselli		58	5/05 to present — Senior Vice President — Customer Operations

Timothy P. Cawley		48	12/12 to present — Senior Vice President — Central Operations
			5/11 to 11/12 — Vice President — Substation Operations
			9/07 to 4/11 — Vice President — Bronx and Westchester Electric Operations

Claude Trahan		60	5/09 to present — Senior Vice President — Gas Operations
			2/02 to 5/09 — Vice President — Human Resources

John F. Miksad		53	9/05 to present — Senior Vice President — Electric Operations


						CON EDISON ANNUAL REPORT		35

PART II

ITEM 5:

MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Con Edison

Con Edison’s Common Shares ($.10 par value), the only class of common equity of Con Edison, are traded on the New York Stock Exchange. As of January 31, 2013, there were 56,172 holders of record of Con Edison’s Common Shares.

The market price range for Con Edison’s Common Shares during 2012 and 2011, as reported in the consolidated reporting system, and the dividends paid by Con Edison in 2012 and 2011 were as follows:


	2012						2011
	High		Low		Dividends Paid		High		Low		Dividends Paid
1^st Quarter	$	62.26	$	56.99	$	0.605	$	50.90	$	48.55	$	0.60
2^nd Quarter	$	63.64	$	57.01	$	0.605	$	54.36	$	49.80	$	0.60
3^rd Quarter	$	65.98	$	59.01	$	0.605	$	58.79	$	49.18	$	0.60
4^th Quarter	$	60.83	$	53.63	$	0.605	$	62.74	$	54.72	$	0.60

On January 31, 2013, Con Edison declared a quarterly dividend of 61 ¹/₂ cents per Common Share. The first quarter 2013 dividend will be paid on March 15, 2013.

Con Edison expects to pay dividends to its shareholders primarily from dividends and other distributions it receives from its subsidiaries. The payment of future dividends, which is subject to approval and declaration by Con Edison’s Board of Directors, will depend on a variety of factors, including business, financial and regulatory considerations. For additional information, see “Dividends” in Note C to the financial statements in Item 8 (which information is incorporated herein by reference).

During 2012, the market price of Con Edison’s Common Shares decreased by 10.46 percent (from $62.03 at year-end 2011 to $55.54 at year-end 2012). By comparison, the S&P 500 Index increased 13.41 percent and the S&P Utilities Index decreased 2.91 percent. The total return to Con Edison’s common shareholders during 2012, including both price depreciation and reinvestment of dividends, was -6.72 percent. By comparison, the total returns for the S&P 500 Index and the S&P Utilities Index were 16.00 percent and 1.29 percent, respectively. For the five-year period 2008 through 2012 inclusive, Con Edison’s shareholders’ total average annual return was 7.91 percent, compared with total average annual returns for the S&P 500 Index and the S&P Utilities Index of 1.66 percent and 0.36 percent, respectively.


36		CON EDISON ANNUAL REPORT

LOGO


	Period Ending
Company/Index	12/31/07		12/31/08		12/31/09		12/31/10		12/31/11		12/31/12
Consolidated Edison, Inc.		100.00		84.24		104.37		119.94		156.90		146.35
S&P 500 Index		100.00		63.00		79.68		91.68		93.61		108.59
S&P Utilities		100.00		71.02		79.48		83.82		100.51		101.81

Based

on $100 invested at December 31, 2007, reinvestment of all dividends in equivalent shares of stock and market price changes on all such shares.

CECONY

The outstanding shares of CECONY’s Common Stock ($2.50 par value), the only class of common equity of CECONY, are held by Con Edison and are not traded.

The dividends declared by CECONY in 2012 and 2011 are shown in its Consolidated Statement of Common Shareholder’s Equity included in Item 8 (which information is incorporated herein by reference). For additional information about the payment of dividends by CECONY, and restrictions thereon, see “Dividends” in Note C to the financial statements in Item 8 (which information is incorporated herein by reference).

Issuer Purchases of Equity Securities


Period	Total Number of Shares (or Units) Purchased*		Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Appropriate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
October 1, 2012 to October 31, 2012		92,175	$	60.04		—		—
November 1, 2012 to November 30, 2012		44,093		55.89		—		—
December 1, 2012 to December 31, 2012		60,198		56.22		—		—
Total		196,466	$	57.94		—		—

*	Represents Con Edison common shares purchased in open-market transactions. The number of shares purchased approximated the number of treasury shares used for the company’s employee stock plans.


						CON EDISON ANNUAL REPORT		37

ITEM 6:

SELECTED FINANCIAL DATA

For selected financial data of Con Edison and CECONY, see “Introduction” appearing before Item 1 (which selected financial data is incorporated herein by reference).


38		CON EDISON ANNUAL REPORT

ITEM 7:

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This combined management’s discussion and analysis of financial condition and results of operations relates to the consolidated financial statements included in this report of two separate registrants: Con Edison and CECONY and should be read in conjunction with the financial statements and the notes thereto. As used in this report, the term the “Companies” refers to Con Edison and CECONY. CECONY is a subsidiary of Con Edison and, as such, information in this management’s discussion and analysis about CECONY applies to Con Edison.

Information in any item of this report referred to in this discussion and analysis is incorporated by reference herein. The use of terms such as “see” or “refer to” shall be deemed to incorporate by reference into this discussion and analysis the information to which reference is made.

Corporate Overview

Con Edison’s principal business operations are those of the Utilities. Con Edison also has competitive energy businesses. See “The Utilities” and “Competitive Energy Businesses” in Item 1. Certain financial data of Con Edison’s businesses is presented below:


	Twelve months ended December 31, 2012										At December 31, 2012
(millions of dollars, except percentages)	Operating Revenues					Net Income for Common Stock					Assets
CECONY	$	10,187		84	%	$	1,014		89	%	$	36,885	90	%
O&R		795		6	%		64		6	%		2,671	6	%
Total Utilities		10,982		90	%		1,078		95	%		39,556	96	%
Con Edison Solutions (a)		1,115		9	%		71		6	%		302	1	%
Con Edison Energy (a)		84		1	%		-		-	%		49	-	%
Con Edison Development		22		-	%		5		-	%		727	2	%
Other (b)		(15	)	-	%		(16	)	(1	)%		575	1	%
Total Con Edison	$	12,188		100	%	$	1,138		100	%	$	41,209	100	%

(a)	Net income from the competitive energy businesses for the twelve months ended December 31, 2012 includes $40 million of net after-tax mark-to-market (losses)/gains (Con Edison Solutions, $42 million and Con Edison Energy, $(2) million).

(b)	Represents inter-company and parent company accounting. See “Results of Operations,” below.

Con Edison’s net income for common stock in 2012 was $1,138 million or $3.88 a share ($3.86 on a diluted basis). Net income for common stock in 2011 and 2010 was $1,051 million or $3.59 a share ($3.57 on a diluted basis) and $992 million or $3.49 a share ($3.47 on a diluted basis), respectively. See “Results of Operations – Summary,” below. For segment financial information, see Note N to the financial statements in Item 8 and “Results of Operations,” below.

Results of Operations — Summary

Net income for common stock for the years ended December 31, 2012, 2011 and 2010 was as follows:


(millions of dollars)	2012			2011			2010
CECONY	$	1,014		$	978		$	893
O&R		64			53			49
Competitive energy businesses (a)		76			32			66
Other (b)		(16	)		(12	)		(16	)
Con Edison	$	1,138		$	1,051		$	992

(a)	Includes $40 million, $(13) million and $11 million of net after-tax mark-to-market (losses)/gains in 2012, 2011 and 2010, respectively.

(b)	Consists of inter-company and parent company accounting.

The Companies’ results of operations for 2012, as compared with 2011, reflect changes in the Utilities’ rate plans and the effects of the milder winter weather on steam revenues. These rate plans provide for additional revenues to cover expected increases in certain operations and maintenance expenses, and depreciation. The results of operations include the operating results of the competitive energy businesses, including net mark-to-market effects.

Operations and maintenance expenses were higher in 2012 compared with 2011 due to pension costs and the support and maintenance of company underground facilities to accommodate municipal projects. Depreciation and property taxes were higher in 2012 compared with 2011 reflecting primarily higher utility plant balances.

CECONY and O&R, in the 2012 fourth quarter, incurred response and restoration costs for Superstorm Sandy of $363 million and $98 million, respectively (including capital expenditures of $104 million and $14 million, respectively). Most of the costs that were not capitalized were deferred for recovery as a regulatory asset under the Utilities’ electric rate plans. See “Other Regulatory Matters” in Note B to the financial statements in Item 8.


						CON EDISON ANNUAL REPORT		39

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – CONTINUED

The following table presents the estimated effect on earnings per share and net income for common stock for 2012 as compared with 2011 and 2011 as compared with 2010, resulting from these and other major factors:


	2012 vs. 2011						2011 vs. 2010
	Earnings per Share			Net Income for Common Stock (millions of dollars)			Earnings per Share			Net Income for Common Stock (millions of dollars)
CECONY
Rate plans, primarily to recover increases in certain costs	$	0.90		$	263		$	0.84		$	237
Weather impact on steam revenues		(0.07	)		(20	)		-			-
Operations and maintenance expenses		(0.47	)		(137	)		(0.14	)		(41	)
Depreciation and property taxes		(0.19	)		(57	)		(0.30	)		(86	)
Other (includes dilutive effect of new stock issuances)		(0.05	)		(13	)		(0.20	)		(25	)
Total CECONY		0.12			36			0.20			85
O&R		0.04			11			0.01			4
Competitive energy businesses (a)		0.15			44			(0.13	)		(34	)
Other, including parent company expenses		(0.02	)		(4	)		0.02			4
Total variations	$	0.29		$	87		$	0.10		$	59

(a)	These variations reflect after-tax net mark-to-market gains/(losses) of $40 million or $0.13 a share,$(13) million or $(0.05) a share and $11 million or $0.04 a share for the years ended December 31, 2012, 2011 and 2010, respectively.

See “Results of Operations” below for further discussion and analysis of results of operations.


40		CON EDISON ANNUAL REPORT

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – CONTINUED

Risk Factors

Application of Critical Accounting Policies

The Companies’ financial statements reflect the application of their accounting policies, which conform to accounting principles generally accepted in the United States of America. The Companies’ critical accounting policies include industry-specific accounting applicable to regulated public utilities and accounting for pensions and other postretirement benefits, contingencies, long-lived assets, derivative instruments, goodwill and leases.

Accounting for Regulated Public Utilities

The Utilities are subject to the accounting rules for regulated operations and the accounting requirements of the FERC and the state public utility regulatory commissions having jurisdiction.

The accounting rules for regulated operations specify the economic effects that result from the causal relationship of costs and revenues in the rate-regulated environment and how these effects are to be accounted for by a regulated enterprise. Revenues intended to cover some costs may be recorded either before or after the costs are incurred. If regulation provides assurance that incurred costs will be recovered in the future, these costs would be recorded as deferred charges or “regulatory assets” under the accounting rules for regulated operations. If revenues are recorded for costs that are expected to be incurred in the future, these revenues would be recorded as deferred credits or “regulatory liabilities” under the accounting rules for regulated operations.

The Utilities’ principal regulatory assets and liabilities are listed in Note B to the financial statements in Item 8. The Utilities are each receiving or being credited with a return on all regulatory assets for which a cash outflow has been made. The Utilities are each paying or being charged with a return on all regulatory liabilities for which a cash inflow has been received. The regulatory assets and liabilities will be recovered from customers, or applied for customer benefit, in accordance with rate provisions approved by the applicable public utility regulatory commission.

In the event that regulatory assets of the Utilities were no longer probable of recovery, as required by the accounting rules for regulated operations, these regulatory assets would be charged to earnings. At December 31, 2012, the regulatory assets for Con Edison and CECONY were $9,779 million and $9,032 million, respectively.

Accounting for Pensions and Other Postretirement Benefits

The Utilities provide pensions and other postretirement benefits to substantially all of their employees and retirees. Con Edison’s competitive energy businesses also provide such benefits to certain of their employees. The Companies account for these benefits in accordance with the accounting rules for retirement benefits. In addition, the Utilities apply the accounting rules for regulated operations to account for the regulatory treatment of these obligations (which, as described in Note B to the financial statements in Item 8, reconciles the amounts reflected in rates for the costs of the benefit to the costs actually incurred). In applying these accounting policies, the Companies have made critical estimates related to actuarial assumptions, including assumptions of expected returns on plan assets, discount rates, health care cost trends and future compensation. See Notes A, E and F to the financial statements in Item 8 for information about the Companies’ pension and other postretirement benefits, the actuarial assumptions, actual performance, amortization of investment and other actuarial gains and losses and calculated plan costs for 2012, 2011 and 2010.

The discount rate for determining the present value of future period benefit payments is determined using a model to match the durations of highly-rated (Aa or higher by either Moody’s or S&P) corporate bonds with the projected stream of benefit payments.

In determining the health care cost trend rate, the Companies review actual recent cost trends and projected future trends.

The cost of pension and other postretirement benefits in future periods will depend on actual returns on plan assets, assumptions for future periods, contributions and benefit experience. Con Edison’s and CECONY’s current estimates for 2013 are increases, compared with 2012, in their pension and other postretirement benefits costs of $43 million.


						CON EDISON ANNUAL REPORT		41

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – CONTINUED

The following table illustrates the effect on 2013 pension and other postretirement costs of changing the critical actuarial assumptions, while holding all other actuarial assumptions constant:


Actuarial Assumption	Change in Assumption			Pension		Other Postretirement Benefits			Total
(millions of dollars)
Increase in accounting cost:

Discount rate
Con Edison		(0.25	%)	$	51	$	3		$	54
CECONY		(0.25	%)	$	48	$	2		$	50
Expected return on plan assets
Con Edison		(0.25	%)	$	22	$	2		$	24
CECONY		(0.25	%)	$	21	$	2		$	23
Health care trend rate
Con Edison		1.00	%	$	-	$	(2	)	$	(2	)
CECONY		1.00	%	$	-	$	(6	)	$	(6	)
Increase in projected benefit obligation:
Discount rate
Con Edison		(0.25	%)	$	504	$	40		$	544
CECONY		(0.25	%)	$	475	$	33		$	508
Health care trend rate
Con Edison		1.00	%	$	-	$	(12	)	$	(12	)
CECONY		1.00	%	$	-	$	(31	)	$	(31	)

A 5.0 percentage point variation in the actual annual return in 2013, as compared with the expected annual asset return of 8.00 percent, would change pension and other postretirement benefit costs for both Con Edison and CECONY by approximately $24 million and $22 million, respectively, in 2014.

Pension benefits are provided through a pension plan maintained by Con Edison to which CECONY, O&R and the competitive energy businesses make contributions for their participating employees. Pension accounting by the Utilities includes an allocation of plan assets.

The Companies’ policy is to fund their pension and other postretirement benefit accounting costs to the extent tax deductible, and for the Utilities, to the extent these costs are recovered under their rate agreements. The Companies were not required to make cash contributions to the pension plan in 2012 under funding regulations and tax laws. However, CECONY and O&R made discretionary contributions to the plan in 2012 of $741 million and $56 million, respectively. In 2013, CECONY and O&R expect to make contributions of $834 million and $59 million, respectively. See “Expected Contributions” in Notes E and F to the financial statements in Item 8.

Accounting for Contingencies

The accounting rules for contingencies apply to an existing condition, situation or set of circumstances involving uncertainty as to possible loss that will ultimately be resolved when one or more future events occur or fail to occur. Known material contingencies, which are described in the notes to the financial statements, include certain regulatory matters (Note B), the Utilities’ responsibility for hazardous substances, such as asbestos, PCBs and coal tar that have been used or generated in the course of operations (Note G); certain tax matters (Notes J and L); and other contingencies (Note H). In accordance with the accounting rules, the Companies have accrued estimates of losses relating to the contingencies as to which loss is probable and can be reasonably estimated and no liability has been accrued for contingencies as to which loss is not probable or cannot be reasonably estimated.

The Utilities generally recover costs for asbestos lawsuits, workers’ compensation and environmental remediation pursuant to their current rate plans. Changes during the terms of the rate plans to the amounts accrued for these contingencies would not impact earnings.

Accounting for Long-Lived Assets

The accounting rules for property, plant and equipment require that certain long-lived assets must be tested for recoverability whenever events or changes in circumstances indicate their carrying amounts may not be recoverable. The carrying amount of a long-lived asset is deemed not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Under the accounting rules, an impairment loss is recognized if the carrying amount is not recoverable from such cash flows, and exceeds its fair value, which approximates market value.

Accounting for Goodwill

In accordance with the accounting rules for goodwill and intangible assets, Con Edison is required to test goodwill for impairment annually. See Notes K to the financial statements in Item 8. Goodwill is tested for impairment using a two-step approach. The first step of the goodwill impairment test compares the estimated fair value of a reporting unit with its carrying value, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is considered not impaired. If the carrying value exceeds the estimated fair value of the reporting unit, the second step is performed to measure the amount of impairment loss, if any. The second step requires a calculation of the implied fair value of goodwill.

Goodwill was $429 million at December 31, 2012. The most recent test, which was performed during 2012 did not require


42		CON EDISON ANNUAL REPORT

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – CONTINUED

any second-step assessment and did not result in any impairment. The company’s most significant assumptions surrounding the goodwill impairment test relate to the estimates of reporting unit fair values. The company estimated fair values based primarily on discounted cash flows and on market values for a proxy group of companies.

Accounting for Derivative Instruments

The Companies apply the accounting rules for derivatives and hedging to their derivative financial instruments. The Companies use derivative financial instruments to hedge market price fluctuations in related underlying transactions for the physical purchase and sale of electricity and gas and interest rate risk on certain debt securities. The Utilities are permitted by their respective regulators to reflect in rates all reasonably incurred gains and losses on these instruments. See “Financial and Commodity Market Risks,” below and Note O to the financial statements in Item 8.

Where the Companies are required to make mark-to-market estimates pursuant to the accounting rules, the estimates of gains and losses at a particular period end do not reflect the end results of particular transactions, and will most likely not reflect the actual gain or loss at the conclusion of a transaction. Substantially all of the estimated gains or losses are based on prices supplied by external sources such as the fair value of exchange-traded futures and options and the fair value of positions