Edgar Filing: CONSOLIDATED EDISON INC

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2013

¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to


Commission File Number	Exact name of registrant as specified in its charter and principal office address and telephone number	State of Incorporation	I.R.S. Employer ID. Number
1-14514	Consolidated Edison, Inc.	New York	13-3965100
	4 Irving Place, New York, New York 10003
	(212) 460-4600

1-1217	Consolidated Edison Company of New York, Inc.	New York	13-5009340
	4 Irving Place, New York, New York 10003
	(212) 460-4600

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Consolidated Edison, Inc. (Con Edison)	Yes x	No ¨

Consolidated Edison of New York, Inc. (CECONY)	Yes x	No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


Con Edison	Yes x	No ¨

CECONY	Yes x	No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Con Edison

Large accelerated filer x	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨

CECONY
Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer x	Smaller reporting company ¨

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


Con Edison	Yes ¨	No x

CECONY	Yes ¨	No x

As of July 26, 2013, Con Edison had outstanding 292,872,896 Common Shares ($.10 par value). All of the outstanding common equity of CECONY is held by Con Edison.

Filing Format

This Quarterly Report on Form 10-Q is a combined report being filed separately by two different registrants: Consolidated Edison, Inc. (Con Edison) and Consolidated Edison Company of New York, Inc. (CECONY). CECONY is a subsidiary of Con Edison and, as such, the information in this report about CECONY also applies to Con Edison. As used in this report, the term the “Companies” refers to Con Edison and CECONY. However, CECONY makes no representation as to the information contained in this report relating to Con Edison or the subsidiaries of Con Edison other than itself.

Glossary of Terms

The following is a glossary of frequently used abbreviations or acronyms that are used in the Companies’ SEC reports:


Con Edison Companies
Con Edison		Consolidated Edison, Inc.
CECONY		Consolidated Edison Company of New York, Inc.
Con Edison Development		Consolidated Edison Development, Inc.
Con Edison Energy		Consolidated Edison Energy, Inc.
Con Edison Solutions		Consolidated Edison Solutions, Inc.
O&R		Orange and Rockland Utilities, Inc.
Pike		Pike County Light & Power Company
RECO		Rockland Electric Company
The Companies		Con Edison and CECONY
The Utilities		CECONY and O&R
Regulatory Agencies, Government Agencies, and Quasi-governmental Not-for-Profits
EPA		U. S. Environmental Protection Agency
FERC		Federal Energy Regulatory Commission
IRS		Internal Revenue Service
ISO-NE		ISO New England Inc.
NJBPU		New Jersey Board of Public Utilities
NJDEP		New Jersey Department of Environmental Protection
NYISO		New York Independent System Operator
NYPA		New York Power Authority
NYSAG		New York State Attorney General
NYSDEC		New York State Department of Environmental Conservation
NYSERDA		New York State Energy Research and Development Authority
NYSPSC		New York State Public Service Commission
NYSRC		New York State Reliability Council, LLC
PAPUC		Pennsylvania Public Utility Commission
PJM		PJM Interconnection LLC
SEC		U.S. Securities and Exchange Commission
Accounting
ABO		Accumulated Benefit Obligation
ASU		Accounting Standards Update
FASB		Financial Accounting Standards Board
LILO		Lease In/Lease Out
OCI		Other Comprehensive Income
SFAS		Statement of Financial Accounting Standards
VIE		Variable interest entity
Environmental
CO₂		Carbon dioxide
GHG		Greenhouse gases
MGP Sites		Manufactured gas plant sites
PCBs		Polychlorinated biphenyls
PRP		Potentially responsible party
SO₂		Sulfur dioxide
Superfund		Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 and similar state statutes


2


Units of Measure
AC		Alternating current
dths		Dekatherms
kV		Kilovolt
kWh		Kilowatt-hour
mdths		Thousand dekatherms
MMlbs		Million pounds
MVA		Megavolt ampere
MW		Megawatt or thousand kilowatts
MWH		Megawatt hour
Other
AFDC		Allowance for funds used during construction
COSO		Committee of Sponsoring Organizations of the Treadway Commission
EMF		Electric and magnetic fields
ERRP		East River Repowering Project
Fitch		Fitch Ratings
First Quarter Form 10-Q		The Companies’ combined Quarterly Report on Form 10-Q for the quarterly period ended March 31 of the current year
Form 10-K		The Companies’ combined Annual Report on Form 10-K for the year ended December 31, 2012
LTIP		Long Term Incentive Plan
Moody’s		Moody’s Investors Service
S&P		Standard & Poor’s Financial Services LLC
Second Quarter Form 10-Q		The Companies’ combined Quarterly Report on Form 10-Q for the quarterly period ended June 30 of the current year
VaR		Value-at-Risk


					3

TABLE OF CONTENTS


		PAGE
PART I—Financial Information
ITEM 1	Financial Statements (Unaudited)
	Con Edison
	Consolidated Income Statement		6
	Consolidated Statement of Comprehensive Income		7
	Consolidated Statement of Cash Flows		8
	Consolidated Balance Sheet		9
	Consolidated Statement of Common Shareholders’ Equity		11
	CECONY
	Consolidated Income Statement		12
	Consolidated Statement of Comprehensive Income		13
	Consolidated Statement of Cash Flows		14
	Consolidated Balance Sheet		15
	Consolidated Statement of Common Shareholder’s Equity		17
	Notes to Financial Statements (Unaudited)		18
ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		42
ITEM 3	Quantitative and Qualitative Disclosures About Market Risk		64
ITEM 4	Controls and Procedures		64
PART II—Other Information
ITEM 1	Legal Proceedings		65
ITEM 1A	Risk Factors		65
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds		65
ITEM 6	Exhibits		66
	Signatures		67


4

FORWARD-LOOKING STATEMENTS

This report includes forward-looking statements intended to qualify for the safe-harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements of future expectation and not facts. Words such as “expects,” “estimates,” “anticipates,” “intends,” “believes,” “plans,” “will” and similar expressions identify forward-looking statements. Forward-looking statements are based on information available at the time the statements are made, and accordingly speak only as of that time. Actual results or developments might differ materially from those included in the forward-looking statements because of various risks, including:

•

the failure to operate energy facilities safely and reliably could adversely affect the Companies;

•

the failure to properly complete construction projects could adversely affect the Companies;

•

the failure of processes and systems and the performance of employees and contractors could adversely affect the Companies;

•

the Companies are extensively regulated and are subject to penalties;

•

the Utilities’ rate plans may not provide a reasonable return;

•

the Companies may be adversely affected by changes to the Utilities’ rate plans;

•

the Companies are exposed to risks from the environmental consequences of their operations;

•

a disruption in the wholesale energy markets or failure by an energy supplier could adversely affect the Companies;

•

the Companies have substantial unfunded pension and other postretirement benefit liabilities;

•

Con Edison’s ability to pay dividends or interest depends on dividends from its subsidiaries;

•

the Companies require access to capital markets to satisfy funding requirements;

•

the Internal Revenue Service has disallowed substantial tax deductions taken by the company;

•

a cyber attack could adversely affect the Companies; and

•

the Companies also face other risks that are beyond their control.


					5

Consolidated Edison, Inc.

CONSOLIDATED INCOME STATEMENT (UNAUDITED)


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2013			2012			2013			2012
	*(Millions of Dollars/Except Share Data)*
OPERATING REVENUES
Electric		$2,018			$2,090			$3,977			$3,952
Gas		366			300			1,108			945
Steam		118			83			450			346
Non-utility		316			298			468			606
TOTAL OPERATING REVENUES		2,818			2,771			6,003			5,849
OPERATING EXPENSES
Purchased power		768			729			1,475			1,510
Fuel		58			46			205			153
Gas purchased for resale		118			62			368			258
Other operations and maintenance		776			790			1,606			1,539
Depreciation and amortization		255			236			506			469
Taxes, other than income taxes		457			433			931			884
TOTAL OPERATING EXPENSES		2,432			2,296			5,091			4,813
OPERATING INCOME		386			475			912			1,036
OTHER INCOME (DEDUCTIONS)
Investment and other income		7			2			10			10
Allowance for equity funds used during construction		1			2			1			2
Other deductions		(6	)		(6	)		(8	)		(10	)
TOTAL OTHER INCOME (DEDUCTIONS)		2			(2	)		3			2
INCOME BEFORE INTEREST AND INCOME TAX EXPENSE		388			473			915			1,038
INTEREST EXPENSE
Interest on long-term debt		145			149			288			295
Other interest		6			5			142			10
Allowance for borrowed funds used during construction		—			(1	)		(1	)		(1	)
NET INTEREST EXPENSE		151			153			429			304
INCOME BEFORE INCOME TAX EXPENSE		237			320			486			734
INCOME TAX EXPENSE		65			106			122			240
NET INCOME		172			214			364			494
Preferred stock dividend requirements of subsidiary		—			—			—			(3	)
NET INCOME FOR COMMON STOCK		$172			$214			$364			$491
Net income for common stock per common share—basic		$0.59			$0.73			$1.24			$1.68
Net income for common stock per common share—diluted		$0.59			$0.73			$1.24			$1.67
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK		$0.615			$0.605			$1.230			$1.210
AVERAGE NUMBER OF SHARES OUTSTANDING—BASIC (IN MILLIONS)		292.9			292.9			292.9			292.9
AVERAGE NUMBER OF SHARES OUTSTANDING—DILUTED (IN MILLIONS)		294.3			294.4			294.3			294.4

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


6

Consolidated Edison, Inc.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)


	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2013		2012			2013		2012
	*(Millions of Dollars)*
NET INCOME		$172		$214			$364		$494
OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES
Pension plan liability adjustments, net of $1 and $3 in 2013 and $(1) and $4 taxes in 2012, respectively		2		(1	)		5		6
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES		2		(1	)		5		6
COMPREHENSIVE INCOME		174		213			369		500
Preferred stock dividend requirements of subsidiary		—		—			—		(3	)
COMPREHENSIVE INCOME FOR COMMON STOCK		$174		$213			$369		$497

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


					7

Consolidated Edison, Inc.

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)


	For the Six Months Ended June 30,
	2013			2012
	*(Millions of Dollars)*
OPERATING ACTIVITIES
Net Income		$ 364			$ 494
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME
Depreciation and amortization		506			469
Deferred income taxes		(134	)		146
Rate case amortization and accruals		19			22
Common equity component of allowance for funds used during construction		(1	)		(2	)
Net derivative (gains)/losses		30			(31	)
Pre-tax gain on the termination of a LILO transaction		(49	)		—
Other non-cash items (net)		154			(85	)
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable – customers, less allowance for uncollectibles		11			89
Special deposits		(335	)		—
Materials and supplies, including fuel oil and gas in storage		9			19
Other receivables and other current assets		2			17
Prepayments		40			(6	)
Accounts payable		(121	)		(89	)
Pensions and retiree benefits obligations		467			483
Pensions and retiree benefits contributions		(361	)		(450	)
Superfund and environmental remediation costs (net)		(6	)		1
Accrued taxes		160			(34	)
Accrued interest		124			19
Deferred charges, noncurrent assets and other regulatory assets		(34	)		116
Deferred credits and other regulatory liabilities		79			73
Other assets		66			—
Other liabilities		(17	)		(4	)
NET CASH FLOWS FROM OPERATING ACTIVITIES		973			1,247
INVESTING ACTIVITIES
Utility construction expenditures		(1,114	)		(1,030	)
Cost of removal less salvage		(93	)		(85	)
Non-utility construction expenditures		(129	)		(43	)
Increase in restricted cash		(2	)		—
Proceeds from grants related to renewable energy investments		18			25
Net investment in Pilesgrove solar project and other		—			28
Proceeds from the termination of a LILO transaction		108			—
NET CASH FLOWS USED IN INVESTING ACTIVITIES		(1,212	)		(1,105	)
FINANCING ACTIVITIES
Net proceeds of short-term debt		753			800
Preferred stock redemption		—			(239	)
Issuance of long-term debt		919			400
Retirement of long-term debt		(706	)		(2	)
Issuance of common shares for stock plans, net of repurchases		(2	)		(12	)
Debt issuance costs		(12	)		(4	)
Common stock dividends		(360	)		(349	)
Preferred stock dividends		—			(3	)
NET CASH FLOWS FROM FINANCING ACTIVITIES		592			591
CASH AND TEMPORARY CASH INVESTMENTS:
NET CHANGE FOR THE PERIOD		353			733
BALANCE AT BEGINNING OF PERIOD		394			648
BALANCE AT END OF PERIOD		$ 747			$ 1,381
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest		$ 281			$ 281
Income taxes		$ 27			$ 45

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


8

Consolidated Edison, Inc.

CONSOLIDATED BALANCE SHEET (UNAUDITED)


	June 30, 2013		December 31, 2012
	*(Millions of Dollars)*
ASSETS
CURRENT ASSETS
Cash and temporary cash investments		$ 747		$ 394
Special deposits		405		70
Accounts receivable – customers, less allowance for uncollectible accounts of $93 and $94 in 2013 and 2012, respectively		1,211		1,222
Accrued unbilled revenue		487		516
Other receivables, less allowance for uncollectible accounts of $8 and $10 in 2013 and 2012, respectively		310		228
Fuel oil, gas in storage, materials and supplies, at average cost		321		330
Prepayments		119		159
Deferred tax assets – current		283		296
Regulatory assets		56		74
Other current assets		164		162
TOTAL CURRENT ASSETS		4,103		3,451
INVESTMENTS		313		467
UTILITY PLANT, AT ORIGINAL COST
Electric		22,823		22,376
Gas		5,288		5,120
Steam		2,106		2,049
General		2,295		2,302
TOTAL		32,512		31,847
Less: Accumulated depreciation		6,837		6,573
Net		25,675		25,274
Construction work in progress		1,279		1,027
NET UTILITY PLANT		26,954		26,301
NON-UTILITY PLANT
Non-utility property, less accumulated depreciation of $78 and $68 in 2013 and 2012, respectively		486		555
Construction work in progress		102		83
NET PLANT		27,542		26,939
OTHER NONCURRENT ASSETS
Goodwill		429		429
Intangible assets, less accumulated amortization of $4 in 2013 and 2012		4		2
Regulatory assets		9,304		9,705
Other deferred charges and noncurrent assets		227		216
TOTAL OTHER NONCURRENT ASSETS		9,964		10,352
TOTAL ASSETS		$41,922		$41,209

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


					9

Consolidated Edison, Inc.

CONSOLIDATED BALANCE SHEET (UNAUDITED)


	June 30, 2013		December 31, 2012
	*(Millions of Dollars)*
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Long-term debt due within one year		$ 483		$ 706
Notes payable		1,400		539
Accounts payable		997		1,215
Customer deposits		310		304
Accrued taxes		322		162
Accrued interest		277		153
Accrued wages		93		94
Fair value of derivative liabilities		31		47
Regulatory liabilities		88		183
Uncertain income tax liabilities		13		44
Other current liabilities		490		498
TOTAL CURRENT LIABILITIES		4,504		3,945
NONCURRENT LIABILITIES
Obligations under capital leases		2		2
Provision for injuries and damages		144		149
Pensions and retiree benefits		4,333		4,678
Superfund and other environmental costs		522		545
Asset retirement obligations		162		159
Fair value of derivative liabilities		32		31
Uncertain income tax liabilities		3		—
Other noncurrent liabilities		117		125
TOTAL NONCURRENT LIABILITIES		5,315		5,689
DEFERRED CREDITS AND REGULATORY LIABILITIES
Deferred income taxes and investment tax credits		8,280		8,372
Regulatory liabilities		1,393		1,202
Other deferred credits		53		70
TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES		9,726		9,644
LONG-TERM DEBT		10,494		10,062
COMMON SHAREHOLDERS’ EQUITY (See Statement of Common Shareholders’ Equity)		11,883		11,869
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$41,922		$41,209

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


10

Consolidated Edison, Inc.

CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS’ EQUITY (UNAUDITED)


*(Millions of Dollars/Except Share Data)*	Common Stock					Additional Paid-In Capital			Retained Earnings			Treasury Stock						Capital Stock Expense			Accumulated Other Comprehensive Income/(Loss)
*(Millions of Dollars/Except Share Data)*	Shares			Amount		Additional Paid-In Capital			Retained Earnings			Shares			Amount			Capital Stock Expense						Total
BALANCE AS OF DECEMBER 31, 2011		292,888,521			$32		$4,991			$7,568			23,194,075			$(1,033	)		$(64	)		$(58	)		$11,436
Net income for common stock										277															277
Common stock dividends										(177	)														(177	)
Issuance of common shares for stock plans, net of repurchases		(7,225	)										7,225			(2	)								(2	)
Preferred stock redemption																			4						4
Other comprehensive income																						7			7
BALANCE AS OF MARCH 31, 2012		292,881,296			$32		$4,991			$7,668			23,201,300			$(1,035	)		$(60	)		$(51	)		$11,545
Net income for common stock										214															214
Common stock dividends										(178	)														(178	)
Issuance of common shares for stock plans, net of repurchases		1,700					—						(1,700	)		—			(1	)					(1	)
Other comprehensive loss																						(1	)		(1	)
BALANCE AS OF JUNE 30, 2012		292,882,996			$32		$4,991			$7,704			23,199,600			$(1,035	)		$(61	)		$(52	)		$11,579
BALANCE AS OF DECEMBER 31, 2012		292,871,896			$32		$4,991			$7,997			23,210,700			$(1,037	)		$(61	)		$(53	)		$11,869
Net income for common stock										192															192
Common stock dividends										(180	)														(180	)
Issuance of common shares for stock plans, net of repurchases		95,468					(2	)					(95,468	)		7									5
Other comprehensive income																						3			3
BALANCE AS OF MARCH 31, 2013		292,967,364			$32		$4,989			$8,009			23,115,232			$(1,030	)		$(61	)		$(50	)		$11,889
Net income for common stock										172															172
Common stock dividends										(180	)														(180	)
Issuance of common shares for stock plans, net of repurchases		(4,078	)				1						4,078			(1	)								—
Other comprehensive income																						2			2
BALANCE AS OF JUNE 30, 2013		292,963,286			$32		$4,990			$8,001			23,119,310			$(1,031	)		$(61	)		$(48	)		$11,883

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


					11


Consolidated Edison Company of New York, Inc.

CONSOLIDATED INCOME STATEMENT (UNAUDITED)


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2013			2012			2013			2012
	*(Millions of Dollars)*
OPERATING REVENUES
Electric		$1,872			$1,961			$3,686			$3,696
Gas		331			265			991			828
Steam		118			83			450			346
TOTAL OPERATING REVENUES		2,321			2,309			5,127			4,870
OPERATING EXPENSES
Purchased power		469			504			924			950
Fuel		58			46			205			154
Gas purchased for resale		98			50			317			219
Other operations and maintenance		676			693			1,417			1,339
Depreciation and amortization		235			221			468			439
Taxes, other than income taxes		439			415			890			844
TOTAL OPERATING EXPENSES		1,975			1,929			4,221			3,945
OPERATING INCOME		346			380			906			925
OTHER INCOME (DEDUCTIONS)
Investment and other income		3			1			5			5
Allowance for equity funds used during construction		—			1			1			1
Other deductions		(5	)		(5	)		(7	)		(8	)
TOTAL OTHER INCOME (DEDUCTIONS)		(2	)		(3	)		(1	)		(2	)
INCOME BEFORE INTEREST AND INCOME TAX EXPENSE		344			377			905			923
INTEREST EXPENSE
Interest on long-term debt		129			135			256			266
Other interest		5			5			11			10
Allowance for borrowed funds used during construction		—			(1	)		(1	)		(1	)
NET INTEREST EXPENSE		134			139			266			275
INCOME BEFORE INCOME TAX EXPENSE		210			238			639			648
INCOME TAX EXPENSE		57			75			209			209
NET INCOME		153			163			430			439
Preferred stock dividend requirements		—			—			—			(3	)
NET INCOME FOR COMMON STOCK		$153			$163			$430			$436

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


12


Consolidated Edison Company of New York, Inc.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)


	For the Three Month Ended June 30,					For the Six Month Ended June 30,
	2013		2012			2013		2012
	*(Millions of Dollars)*
NET INCOME		$153		$163			$430		$439
OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES
Pension plan liability adjustments, net of $(1) taxes in 2012		—		(2	)		—		(2	)
TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAXES		—		(2	)		—		(2	)
COMPREHENSIVE INCOME		$153		$161			$430		$437

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


					13


Consolidated Edison Company of New York, Inc.

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)


	For the Six Months Ended June 30,
	2013			2012
	*(Millions of Dollars)*
OPERATING ACTIVITIES
Net income		$430			$439
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME
Depreciation and amortization		468			439
Deferred income taxes		191			106
Rate case amortization and accruals		19			22
Common equity component of allowance for funds used during construction		(1	)		(1	)
Other non-cash items (net)		(25	)		(37	)
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable—customers, less allowance for uncollectibles		22			63
Materials and supplies, including fuel oil and gas in storage		2			18
Other receivables and other current assets		18			(8	)
Prepayments		(8	)		5
Accounts payable		(119	)		(57	)
Pensions and retiree benefits obligations		435			422
Pensions and retiree benefits contributions		(361	)		(450	)
Superfund and environmental remediation costs (net)		(4	)		(1	)
Accrued taxes		(114	)		(3	)
Accrued interest		4			7
Deferred charges, noncurrent assets and other regulatory assets		(11	)		59
Deferred credits and other regulatory liabilities		68			70
Other liabilities		29			12
NET CASH FLOWS FROM OPERATING ACTIVITIES		1,043			1,105
INVESTING ACTIVITIES
Utility construction expenditures		(1,062	)		(974	)
Cost of removal less salvage		(89	)		(83	)
NET CASH FLOWS USED IN INVESTING ACTIVITIES		(1,151	)		(1,057	)
FINANCING ACTIVITIES
Net proceeds of short-term debt		809			800
Preferred stock redemption		—			(239	)
Issuance of long-term debt		700			400
Retirement of long-term debt		(700	)		—
Debt issuance costs		(7	)		(4	)
Dividend to parent		(364	)		(341	)
Preferred stock dividends		—			(3	)
NET CASH FLOWS FROM FINANCING ACTIVITIES		438			613
CASH AND TEMPORARY CASH INVESTMENTS:
NET CHANGE FOR THE PERIOD		330			661
BALANCE AT BEGINNING OF PERIOD		353			372
BALANCE AT END OF PERIOD		$683			$1,033
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest		$251			$252
Income taxes		$104			$45

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


14


Consolidated Edison Company of New York, Inc.

CONSOLIDATED BALANCE SHEET (UNAUDITED)


	June 30, 2013		December 31, 2012
	*(Millions of Dollars)*

ASSETS
CURRENT ASSETS
Cash and temporary cash investments		$ 683		$ 353
Special deposits		86		65
Accounts receivable – customers, less allowance for uncollectible accounts of $87 in 2013 and 2012		1,086		1,108
Other receivables, less allowance for uncollectible accounts of $7 and $9 in 2013 and 2012, respectively		88		106
Accrued unbilled revenue		390		406
Accounts receivable from affiliated companies		46		61
Fuel oil, gas in storage, materials and supplies, at average cost		283		285
Prepayments		89		81
Regulatory assets		51		60
Deferred tax assets – current		179		193
Other current assets		58		69
TOTAL CURRENT ASSETS		3,039		2,787
INVESTMENTS		232		207
UTILITY PLANT AT ORIGINAL COST
Electric		21,505		21,079
Gas		4,705		4,547
Steam		2,106		2,049
General		2,118		2,126
TOTAL		30,434		29,801
Less: Accumulated depreciation		6,253		6,009
Net		24,181		23,792
Construction work in progress		1,186		947
NET UTILITY PLANT		25,367		24,739
NON-UTILITY PROPERTY
Non-utility property, less accumulated depreciation of $25 in 2013 and 2012		6		6
NET PLANT		25,373		24,745
OTHER NONCURRENT ASSETS
Regulatory assets		8,595		8,972
Other deferred charges and noncurrent assets		185		174
TOTAL OTHER NONCURRENT ASSETS		8,780		9,146
TOTAL ASSETS		$37,424		$36,885

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


					15


Consolidated Edison Company of New York, Inc.

CONSOLIDATED BALANCE SHEET (UNAUDITED)


	June 30, 2013		December 31, 2012
	*(Millions of Dollars)*
LIABILITIES AND SHAREHOLDER’S EQUITY
CURRENT LIABILITIES
Long-term debt due within one year		$475		$700
Notes payable		1,230		421
Accounts payable		799		989
Accounts payable to affiliated companies		20		22
Customer deposits		298		292
Accrued taxes		27		37
Accrued taxes to affiliated companies		111		215
Accrued interest		137		133
Accrued wages		86		84
Fair value of derivative liabilities		23		28
Uncertain income tax liabilities		7		36
Regulatory liabilities		54		145
Other current liabilities		424		410
TOTAL CURRENT LIABILITIES		3,691		3,512
NONCURRENT LIABILITIES
Obligations under capital leases		2		2
Provision for injuries and damages		137		141
Pensions and retiree benefits		3,877		4,220
Superfund and other environmental costs		413		433
Asset retirement obligations		162		158
Fair value of derivative liabilities		10		11
Other noncurrent liabilities		110		115
TOTAL NONCURRENT LIABILITIES		4,711		5,080
DEFERRED CREDITS AND REGULATORY LIABILITIES
Deferred income taxes and investment tax credits		7,721		7,452
Regulatory liabilities		1,269		1,077
Other deferred credits		49		67
TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES		9,039		8,596
LONG-TERM DEBT		9,365		9,145
COMMON SHAREHOLDER’S EQUITY (See Statement of Common Shareholder’s Equity)		10,618		10,552
TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY		$37,424		$36,885

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


16

Consolidated Edison Company of New York, Inc.

CONSOLIDATED STATEMENT OF COMMON SHAREHOLDER’S EQUITY (UNAUDITED)


	Common Stock				Additional Paid-In Capital		Retained Earnings			Repurchased Con Edison Stock		Capital Stock Expense		Accumulated Other Comprehensive Income/(Loss)			Total
*(Millions of Dollars/Except Share Data)*	Shares		Amount		Additional Paid-In Capital		Retained Earnings			Repurchased Con Edison Stock		Capital Stock Expense		Accumulated Other Comprehensive Income/(Loss)			Total
BALANCE AS OF DECEMBER 31, 2011		235,488,094		$589		$4,234		$6,429			$(962)		$(64)		$ (8	)		$10,218
Net income								276										276
Common stock dividend to parent								(171	)									(171	)
Cumulative preferred dividends								(3	)									(3	)
Preferred stock redemption													4					4
Other comprehensive income															—			—
BALANCE AS OF MARCH 31, 2012		235,488,094		$589		$4,234		$6,531			$(962)		$(60)		$ (8	)		$10,324
Net income								163										163
Common stock dividend to parent								(171	)									(171	)
Other comprehensive loss															(2	)		(2	)
BALANCE AS OF JUNE 30, 2012		235,488,094		$589		$4,234		$6,523			$(962)		$(60)		$(10	)		$10,314
BALANCE AS OF DECEMBER 31, 2012		235,488,094		$589		$4,234		$6,761			$(962)		$(61)		$ (9	)		$10,552
Net income								277										277
Common stock dividend to parent								(182	)									(182	)
Other comprehensive income															—			—
BALANCE AS OF MARCH 31, 2013		235,488,094		$589		$4,234		$6,856			$(962)		$(61)		$ (9	)		$10,647
Net income								153										153
Common stock dividend to parent								(182	)									(182	)
Other comprehensive income															—			—
BALANCE AS OF JUNE 30, 2013		235,488,094		$589		$4,234		$6,827			$(962)		$(61)		$ (9	)		$10,618

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


					17

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)

General

These combined notes accompany and form an integral part of the separate consolidated financial statements of each of the two separate registrants: Consolidated Edison, Inc. and its subsidiaries (Con Edison) and Consolidated Edison Company of New York, Inc. and its subsidiaries (CECONY). CECONY is a subsidiary of Con Edison and as such its financial condition and results of operations and cash flows, which are presented separately in the CECONY consolidated financial statements, are also consolidated, along with those of Con Edison’s other utility subsidiary, Orange and Rockland Utilities, Inc. (O&R), and Con Edison’s competitive energy businesses (discussed below) in Con Edison’s consolidated financial statements. The term “Utilities” is used in these notes to refer to CECONY and O&R.

As used in these notes, the term “Companies” refers to Con Edison and CECONY and, except as otherwise noted, the information in these combined notes relates to each of the Companies. However, CECONY makes no representation as to information relating to Con Edison or the subsidiaries of Con Edison other than itself.

The separate interim consolidated financial statements of each of the Companies are unaudited but, in the opinion of their respective managements, reflect all adjustments (which include only normally recurring adjustments) necessary for a fair presentation of the results for the interim periods presented. The Companies’ separate interim consolidated financial statements should be read together with their separate audited financial statements (including the combined notes thereto) included in Item 8 of their combined Annual Report on Form 10-K for the year ended December 31, 2012 and their separate unaudited financial statements (including the combined notes thereto) included in Part I, Item 1 of their combined Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013. Certain prior period amounts have been reclassified to conform to the current period presentation.

Con Edison has two regulated utility subsidiaries: CECONY and O&R. CECONY provides electric service and gas service in New York City and Westchester County. The company also provides steam service in parts of Manhattan. O&R, along with its regulated utility subsidiaries, provides electric service in southeastern New York and adjacent areas of northern New Jersey and eastern Pennsylvania and gas service in southeastern New York and adjacent areas of eastern Pennsylvania. Con Edison has the following competitive energy businesses: Consolidated Edison Solutions, Inc. (Con Edison Solutions), a retail energy services company that sells electricity and also offers energy-related services; Consolidated Edison Energy, Inc. (Con Edison Energy), a wholesale energy services company; and Consolidated Edison Development, Inc. (Con Edison Development), a company that develops and participates in infrastructure projects.


18

Note A — Summary of Significant Accounting Policies

Earnings Per Common Share

For the three and six months ended June 30, 2013 and 2012, basic and diluted earnings per share (EPS) for Con Edison are calculated as follows:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
*(Millions of Dollars, except per share amounts/Shares in Millions)*	2013		2012		2013		2012
Net income for common stock		$ 172		$ 214		$ 364		$ 491
Weighted average common shares outstanding – basic		292.9		292.9		292.9		292.9
Add: Incremental shares attributable to effect of potentially dilutive securities		1.4		1.5		1.4		1.5
Adjusted weighted average common shares outstanding – diluted		294.3		294.4		294.3		294.4
Net Income for common stock per common share – basic		$ 0.59		$ 0.73		$ 1.24		$ 1.68
Net Income for common stock per common share – diluted		$ 0.59		$ 0.73		$ 1.24		$ 1.67

The computation of diluted EPS for the three and six months ended June 30, 2013 and 2012 excludes immaterial amounts of performance share awards which were not included because of their anti-dilutive effect.

Changes in Accumulated Other Comprehensive Income by Component

For the three and six months ended June 30, 2013, changes to accumulated other comprehensive income (OCI) for Con Edison and CECONY are as follows:


*(Millions of Dollars)*	Con Edison			CECONY
Accumulated OCI, net of taxes, at December 31, 2012		$(53	)		$ (9	)
OCI before reclassifications		1			—
Amounts reclassified from accumulated OCI related to pension plan liabilities, net of tax of $1 and $- for Con Edison and CECONY, respectively (a)(b)		2			—
Total OCI, net of taxes, at March 31, 2013		$ 3			$ —
Accumulated OCI, net of taxes, at March 31, 2013 (b)		$(50	)		$ (9	)
OCI before reclassifications		—			—
Amounts reclassified from accumulated OCI related to pension plan liabilities, net of tax of $1 and $- for Con Edison and CECONY, respectively (a)(b)		2			—
Total OCI, net of taxes, at June 30, 2013		$ 2			$ —
Accumulated OCI, net of taxes, at June 30, 2013 (b)		$(48	)		$ (9	)

(a)

For the portion of unrecognized pension and other postretirement benefit costs relating to the regulated Utilities, costs are recorded into, and amortized out of, regulatory assets instead of OCI. The net actuarial losses and prior service costs recognized during the period are included in the computation of net periodic pension and other postretirement benefit cost. See Notes E and F.

(b)	Tax reclassified from accumulated OCI is reported in the income tax expense line item of the income statement.

Note B — Regulatory Matters

Rate Agreements

CECONY – Electric, Gas and Steam

In January 2013, CECONY filed requests for electric, gas and steam rate changes, effective January 1, 2014. The company requested electric and gas rate increases of $375 million and $25 million, respectively, and a steam rate decrease of $5 million, reflecting, among other things, a return on common equity of 10.35 percent and a common equity ratio of approximately 50 percent. In May 2013, the New York State Public Service Commission (NYSPSC) staff submitted testimony which, as revised in July 2013, supports decreases in the company’s electric, gas and steam rates of $187 million, $122 million and $28 million, respectively, reflecting, among other things, a return on common equity of 8.7 percent and a common equity ratio of 48 percent. In June 2013, to update its rate change requests, the company submitted testimony supporting increases in its electric, gas and steam rates of $425 million, $26 million and $11 million, respectively, reflecting, among other things, a return on common equity of 10.1 percent and a common equity ratio of approximately 50 percent.

Other Regulatory Matters

In February 2009, the NYSPSC commenced a proceeding to examine the prudence of certain


					19

CECONY expenditures following the arrests of employees for accepting illegal payments from a construction contractor. Subsequently, additional employees were arrested for accepting illegal payments from materials suppliers and an engineering firm. The arrested employees were terminated by the company and have pled guilty or been convicted. Pursuant to NYSPSC orders, a portion of the company’s revenues (currently, $249 million, $32 million and $6 million on an annual basis for electric, gas and steam service, respectively) is being collected subject to potential refund to customers. The amount of electric revenues collected subject to refund, which was established in a different proceeding, and the amount of gas and steam revenues collected subject to refund were not established as indicative of the company’s potential liability in this proceeding. At June 30, 2013, the company had collected an estimated $1,246 million from customers subject to potential refund in connection with this proceeding. In January 2013, a NYSPSC consultant reported its estimate, with which the company does not agree, of $208 million of overcharges with respect to a substantial portion of the company’s construction expenditures from January 2000 to January 2009. The company is disputing the consultant’s estimate, including its determinations as to overcharges regarding specific construction expenditures it selected to review and its methodology of extrapolating such determinations over a substantial portion of the construction expenditures during this period. The NYSPSC’s consultant has not reviewed the company’s other expenditures. The company and NYSPSC staff are exploring a settlement in this proceeding. There is no assurance that there will be a settlement, and any settlement would be subject to NYSPSC approval. At June 30, 2013, the company had a $16 million regulatory liability for refund to customers of amounts recovered from vendors, arrested employees and insurers relating to this matter. The company is unable to estimate the amount, if any, by which any refund required by the NYSPSC may exceed this regulatory liability. The company currently estimates that any refund required by the NYSPSC could range in amount from the $16 million regulatory liability up to an amount based on the NYSPSC consultant’s $208 million estimate of overcharges.

In late October 2012, Superstorm Sandy caused extensive damage to the Utilities’ electric distribution system and interrupted service to approximately 1.4 million customers. Superstorm Sandy also damaged CECONY’s steam system and interrupted service to many of its steam customers. As of June 30, 2013, CECONY and O&R incurred response and restoration costs for Superstorm Sandy of $457 million and $93 million, respectively (including capital expenditures of $141 million and $15 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 “Regulatory Assets and Liabilities” below. The Utilities’ New York electric rate plans include provisions for revenue decoupling, as a result of which delivery revenues generally are not affected by changes in delivery volumes from levels assumed when rates were approved. The provisions of the Utilities’ New York electric plans that impose penalties for operating performance provide for exceptions for major storms and catastrophic events beyond the control of the companies, including natural disasters such as hurricanes and floods. The NYSPSC and the New York State Attorney General are investigating the preparation and performance of the Utilities in connection with Superstorm Sandy and other major storms.

In June 2013, a commission appointed by the Governor of New York issued its final report on utility storm preparation and response. The commission identified deficiencies in the performance of the Utilities and other New York utilities and made recommendations regarding, among other things, preparation and response to flooding; estimation of customer restoration times; reliability of website outage maps; coordination with local governments and providers of other utility services; availability and allocation of staffing and other resources (including the utility industry’s mutual aid process); and communications with affected communities and local officials. The commission’s report also addressed the Long Island Power Authority, energy efficiency programs, utility infrastructure investment and regulatory deficiencies.

In March 2013, the New Jersey Board of Public Utilities established a proceeding to review the prudency of costs incurred by New Jersey utilities,


20

including Rockland Electric Company (RECO, an O&R subsidiary), in response to major storm events in 2011 and 2012. At June 30, 2013, RECO had $29 million of storm costs deferred for recovery as a regulatory asset and had incurred $6 million of capital expenditures related to the storms.

Regulatory Assets and Liabilities

Regulatory assets and liabilities at June 30, 2013 and December 31, 2012 were comprised of the following items:


	Con Edison				CECONY
*(Millions of Dollars)*	2013		2012		2013		2012
Regulatory assets
Unrecognized pension and other postretirement costs		$5,227		$5,677		$4,985		$5,407
Future income tax		1,996		1,922		1,889		1,831
Environmental remediation costs		713		730		599		615
Deferred storm costs		454		432		336		309
Pension and other postretirement benefits deferrals		201		183		170		154
Revenue taxes		183		176		176		170
Net electric deferrals		92		102		92		102
Unamortized loss on reacquired debt		69		74		66		70
Surcharge for New York State assessment		55		73		53		68
Deferred derivative losses – long-term		41		40		20		20
O&R transition bond charges		36		39		—		—
Preferred stock redemption		29		29		29		29
Workers’ compensation		18		19		18		19
Property tax reconciliation		18		16		—		—
Other		172		193		162		178
Regulatory assets – long-term		9,304		9,705		8,595		8,972
Deferred derivative losses – current		55		69		51		60
Recoverable energy costs – current		1		5		—		—
Regulatory assets – current		56		74		51		60
Total Regulatory Assets		$9,360		$9,779		$8,646		$9,032
Regulatory liabilities
Allowance for cost of removal less salvage		$ 518		$ 503		$ 433		$ 420
Property tax reconciliation		273		187		273		187
Net unbilled revenue deferrals		137		136		137		136
Long-term interest rate reconciliation		83		62		83		62
World Trade Center settlement proceeds		62		62		62		62
Carrying charges on T&D net plant – electric and steam		26		31		14		13
Expenditure prudence proceeding		16		14		16		14
Other		278		207		251		183
Regulatory liabilities – long-term		1,393		1,202		1,269		1,077
Refundable energy costs – current		63		82		32		48
Revenue decoupling mechanism		23		72		21		68
Deferred derivative gains – current		2		—		1		—
Electric surcharge offset		—		29		—		29
Regulatory liabilities – current		88		183		54		145
Total Regulatory Liabilities		$1,481		$1,385		$1,323		$1,222

“Deferred storm costs” represent response and restoration costs, other than capital expenditures, in connection with Superstorm Sandy and other major storms that were deferred by the Utilities. See “Other Regulatory Matters,” above.

Note C — Capitalization

In February 2013, CECONY issued $700 million aggregate principal amount of 3.95 percent 30-year debentures and redeemed at maturity $500 million of 4.875 percent 10-year debentures. In June 2013, CECONY redeemed at maturity $200 million of 3.85 percent 10-year debentures. In April 2013, a Con Edison Development subsidiary issued $219 million aggregate principal amount of 4.78 percent senior notes secured by the company’s California solar projects. The notes have a weighted average life of 15 years and final maturity of 2037.


					21

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


*(Millions of Dollars)*	June 30, 2013				December 31, 2012
Long-Term Debt (including current portion)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Con Edison		$10,977		$12,313		$10,768		$12,935
CECONY		$ 9,840		$10,991		$ 9,845		$11,751

Fair values of long-term debt have been estimated primarily using available market information. For Con Edison, $11,677 million and $636 million of the fair value of long-term debt at June 30, 2013 are classified as Level 2 and Level 3, respectively. For CECONY, $10,355 million and $636 million of the fair value of long-term debt at June 30, 2013 are classified as Level 2 and Level 3, respectively (see Note L). The $636 million of long-term debt classified as Level 3 is CECONY’s tax-exempt, auction-rate securities for which the market is highly illiquid and there is a lack of observable inputs.

Note D — Short-Term Borrowing

At June 30, 2013, Con Edison had $1,400 million of commercial paper outstanding of which $1,230 million was outstanding under CECONY’s program. The weighted average interest rate was 0.3 percent for both Con Edison and CECONY. At December 31, 2012, Con Edison had $539 million of commercial paper outstanding of which $421 million was outstanding under CECONY’s program. The weighted average interest rate was 0.3 percent for both Con Edison and CECONY. At June 30, 2013 and December 31, 2012, no loans were outstanding under the Companies’ credit agreement and $34 million (including $11 million for CECONY) and $131 million (including $121 million for CECONY) of letters of credit were outstanding, respectively, under the credit agreement.

Note E — Pension Benefits

Net Periodic Benefit Cost

The components of the Companies’ net periodic benefit costs for the three and six months ended June 30, 2013 and 2012 were as follows:


	For the Three Months Ended June 30,
	Con Edison						CECONY
*(Millions of Dollars)*	2013			2012			2013			2012
Service cost – including administrative expenses		$ 67			$ 59			$ 62			$ 55
Interest cost on projected benefit obligation		134			137			126			128
Expected return on plan assets		(187	)		(177	)		(178	)		(168	)
Recognition of net actuarial loss		208			177			197			168
Recognition of prior service costs		1			2			1			2
NET PERIODIC BENEFIT COST		$ 223			$ 198			$ 208			$ 185
Amortization of regulatory asset		1			1			1			1
TOTAL PERIODIC BENEFIT COST		$ 224			$ 199			$ 209			$ 186
Cost capitalized		(88	)		(68	)		(84	)		(63	)
Reconciliation to rate level		(30	)		3			(29	)		2
Cost charged to operating expenses		$ 106			$ 134			$ 96			$ 125


22


	For the Six Months Ended June 30,
	Con Edison						CECONY
*(Millions of Dollars)*	2013			2012			2013			2012
Service cost – including administrative expenses		$ 133			$ 118			$ 124			$ 110
Interest cost on projected benefit obligation		268			274			252			257
Expected return on plan assets		(375	)		(352	)		(356	)		(335	)
Recognition of net actuarial loss		416			354			394			335
Recognition of prior service costs		3			4			2			3
NET PERIODIC BENEFIT COST		$ 445			$ 398			$ 416			$ 370
Amortization of regulatory asset		1			1			1			1
TOTAL PERIODIC BENEFIT COST		$ 446			$ 399			$ 417			$ 371
Cost capitalized		(170	)		(135	)		(163	)		(126	)
Reconciliation to rate level		(24	)		(32	)		(23	)		(36	)
Cost charged to operating expenses		$ 252			$ 232			$ 231			$ 209

Expected Contributions

Based on estimates as of June 30, 2013, the Companies expect to make contributions to the pension plan during 2013 of $867 million (of which $810 million is to be contributed by CECONY). The Companies’ policy is to fund their accounting cost to the extent tax deductible. During the first six months of 2013, CECONY contributed $350 million to the pension plan and funded $11 million for the non-qualified supplemental plans.

Note F — Other Postretirement Benefits

Net Periodic Benefit Cost

The components of the Companies’ net periodic postretirement benefit costs for the three and six months ended June 30, 2013 and 2012 were as follows:


	For the Three Months Ended June 30,
	Con Edison						CECONY
*(Millions of Dollars)*	2013			2012			2013			2012
Service cost		$ 6			$ 6			$ 5			$ 5
Interest cost on accumulated other postretirement benefit obligation		13			18			12			15
Expected return on plan assets		(19	)		(21	)		(17	)		(18	)
Recognition of net actuarial loss		16			24			14			21
Recognition of prior service cost		(7	)		(5	)		(6	)		(4	)
Recognition of transition obligation		—			1			—			1
NET PERIODIC POSTRETIREMENT BENEFIT COST		$ 9			$ 23			$ 8			$ 20
Cost capitalized		(4	)		(8	)		(4	)		(7	)
Reconciliation to rate level		16			5			13			4
Cost charged to operating expenses		$ 21			$ 20			$ 17			$ 17


	For the Six Months Ended June 30,
	Con Edison						CECONY
*(Millions of Dollars)*	2013			2012			2013			2012
Service cost		$ 12			$ 13			$ 9			$ 10
Interest cost on accumulated other postretirement benefit obligation		27			36			23			32
Expected return on plan assets		(39	)		(42	)		(34	)		(38	)
Recognition of net actuarial loss		32			49			28			44
Recognition of prior service cost		(13	)		(11	)		(11	)		(9	)
Recognition of transition obligation		—			1			—			1
NET PERIODIC POSTRETIREMENT BENEFIT COST		$ 19			$ 46			$ 15			$ 40
Cost capitalized		(7	)		(16	)		(6	)		(14	)
Reconciliation to rate level		29			14			25			8
Cost charged to operating expenses		$ 41			$ 44			$ 34			$ 34


					23

Expected Contributions

Based on estimates as of June 30, 2013, Con Edison expects to make a contribution of $10 million, nearly all of which is for CECONY, to the other postretirement benefit plans in 2013.

Note G — Environmental Matters

Superfund Sites

Hazardous substances, such as asbestos, polychlorinated biphenyls (PCBs) and coal tar, have been used or generated in the course of operations of the Utilities and their predecessors and are present at sites and in facilities and equipment they currently or previously owned, including sites at which gas was manufactured or stored.

The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 and similar state statutes (Superfund) impose joint and several liability, regardless of fault, upon generators of hazardous substances for investigation and remediation costs (which include costs of demolition, removal, disposal, storage, replacement, containment, and monitoring) and natural resource damages. Liability under these laws can be material and may be imposed for contamination from past acts, even though such past acts may have been lawful at the time they occurred. The sites at which the Utilities have been asserted to have liability under these laws, including their manufactured gas plant sites and any neighboring areas to which contamination may have migrated, are referred to herein as “Superfund Sites.”

For Superfund Sites where there are other potentially responsible parties and the Utilities are not managing the site investigation and remediation, the accrued liability represents an estimate of the amount the Utilities will need to pay to investigate and, where determinable, discharge their related obligations. For Superfund Sites (including the manufactured gas plant sites) for which one of the Utilities is managing the investigation and remediation, the accrued liability represents an estimate of the company’s share of undiscounted cost to investigate the sites and, for sites that have been investigated in whole or in part, the cost to remediate the sites, if remediation is necessary and if a reasonable estimate of such cost can be made. Remediation costs are estimated in light of the information available, applicable remediation standards, and experience with similar sites.

The accrued liabilities and regulatory assets related to Superfund Sites at June 30, 2013 and December 31, 2012 were as follows:


	Con Edison				CECONY
*(Millions of Dollars)*	2013		2012		2013		2012
Accrued Liabilities:
Manufactured gas plant sites		$447		$462		$339		$351
Other Superfund Sites		75		83		74		82
Total		$522		$545		$413		$433
Regulatory assets		$713		$730		$599		$615

Most of the accrued Superfund Site liability relates to sites that have been investigated, in whole or in part. However, for some of the sites, the extent and associated cost of the required remediation has not yet been determined. As investigations progress and information pertaining to the required remediation becomes available, the Utilities expect that additional liability may be accrued, the amount of which is not presently determinable but may be material. Under their current rate agreements, the Utilities are permitted to recover or defer as regulatory assets (for subsequent recovery through rates) certain site investigation and remediation costs.

Environmental remediation costs incurred and insurance recoveries received related to Superfund Sites for the three and six months ended June 30, 2013 and 2012 were as follows:


	For the Three Months Ended June 30,
	Con Edison				CECONY
*(Millions of Dollars)*	2013		2012		2013		2012
Remediation costs incurred		$14		$8		$13		$7
Insurance recoveries received		—		—		—		—


	For the Six Months Ended June 30,
	Con Edison				CECONY
*(Millions of Dollars)*	2013		2012		2013		2012
Remediation costs incurred		$24		$15		$20		$14
Insurance recoveries received		—		—		—		—

In 2010, CECONY estimated that for its manufactured gas plant sites, its aggregate undiscounted potential


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liability for the investigation and remediation of coal tar and/or other manufactured gas plant-related environmental contaminants could range up to $1.9 billion. In 2010, O&R estimated that for its manufactured gas plant sites, each of which has been investigated, the aggregate undiscounted potential liability for the remediation of such contaminants could range up to $200 million. These estimates were based on the assumption that there is contamination at all sites, including those that have not yet been fully investigated and additional assumptions about the extent of the contamination and the type and extent of the remediation that may be required. Actual experience may be materially different.

Asbestos Proceedings

Suits have been brought in New York State and federal courts against the Utilities and many other defendants, wherein a large number of plaintiffs sought large amounts of compensatory and punitive damages for deaths and injuries allegedly caused by exposure to asbestos at various premises of the Utilities. The suits that have been resolved, which are many, have been resolved without any payment by the Utilities, or for amounts that were not, in the aggregate, material to them. The amounts specified in all the remaining thousands of suits total billions of dollars; however, the Utilities believe that these amounts are greatly exaggerated, based on the disposition of previous claims. In 2010, CECONY estimated that its aggregate undiscounted potential liability for these suits and additional suits that may be brought over the next 15 years is $10 million. The estimate was based upon a combination of modeling, historical data analysis and risk factor assessment. Actual experience may be materially different. In addition, certain current and former employees have claimed or are claiming workers’ compensation benefits based on alleged disability from exposure to asbestos. Under its current rate agreements, CECONY is permitted to defer as regulatory assets (for subsequent recovery through rates) costs incurred for its asbestos lawsuits and workers’ compensation claims. The accrued liability for asbestos suits and workers’ compensation proceedings (including those related to asbestos exposure) and the amounts deferred as regulatory assets for the Companies at June 30, 2013 and December 31, 2012 were as follows:


	Con Edison				CECONY
*(Millions of Dollars)*	2013		2012		2013		2012
Accrued liability – asbestos suits		$10		$10		$10		$10
Regulatory assets – asbestos suits		$10		$10		$10		$10
Accrued liability – workers’ compensation		$93		$94		$88		$89
Regulatory assets – workers’ compensation		$18		$19		$18		$19

Note H — Other Material Contingencies

Manhattan Steam Main Rupture

In July 2007, a CECONY steam main located in midtown Manhattan ruptured. It has been reported that one person died and others were injured as a result of the incident. Several buildings in the area were damaged. Debris from the incident included dirt and mud containing asbestos. The response to the incident required the closing of several buildings and streets for various periods. Approximately 93 suits are pending against the company seeking generally unspecified compensatory and, in some cases, punitive damages, for personal injury, property damage and business interruption. The company has not accrued a liability for the suits. The company has notified its insurers of the incident and believes that the policies in force at the time of the incident will cover most of the company’s costs, which the company is unable to estimate, but which could be substantial, to satisfy its liability to others in connection with the incident.

Lease In/Lease Out Transactions

In each of 1997 and 1999, Con Edison Development entered into transactions in which it leased property and then immediately subleased the properties back to the lessor (termed “Lease In/Lease Out,” or LILO transactions). The transactions respectively involved electric generating and gas distribution facilities in the Netherlands, with a total investment of $259 million. The transactions were financed with $93 million of equity and $166 million of non-recourse, long-term debt secured by the underlying assets. In accordance with the accounting rules for leases, Con Edison accounted for the two LILO transactions as leveraged leases. Accordingly, the company’s investment in these


					25

leases, net of non-recourse debt, was carried as a single amount in Con Edison’s consolidated balance sheet and income was recognized pursuant to a method that incorporated a level rate of return for those years when net investment in the lease was positive.

On audit of Con Edison’s tax return for 1997, the Internal Revenue Service (IRS) disallowed tax losses in connection with the 1997 LILO transaction and assessed the company a $0.3 million income tax deficiency. On audits of Con Edison’s 1998 through 2011 tax returns, the IRS disallowed $574 million of tax losses taken with respect to both LILO transactions. In December 2005, Con Edison paid the $0.3 million deficiency asserted by the IRS for the tax year 1997 with respect to the 1997 LILO transaction. In April 2006, the company paid interest of $0.2 million associated with the deficiency and commenced an action in the United States Court of Federal Claims, entitled Consolidated Edison Company of New York, Inc. v. United States, to obtain a refund of tax and interest. A trial was completed in November 2007. In October 2009, the court issued a decision in favor of the company concluding that the 1997 LILO transaction was, in substance, a true lease that possessed economic substance, the loans relating to the lease constituted bona fide indebtedness, and the deductions for the 1997 LILO transactions claimed by the company in its 1997 federal income tax return are allowable. In January 2013, the United States Court of Appeals for the Federal Circuit reversed the October 2009 trial court decision and disallowed the tax losses claimed by the company relating to the 1997 LILO transaction. In March 2013, the Court of Appeals denied the company’s request to grant rehearing en banc of the January 2013 decision. In June 2013, Con Edison entered into a closing agreement with the IRS regarding the 1997 and 1999 LILO transactions.

As a result of the January 2013 Court of Appeals decision, in the three months ended March 31, 2013, Con Edison recorded an after-tax charge of $150 million to reflect, as required by the accounting rules for leveraged lease transactions, the recalculation of the accounting effect of the LILO transactions based on the revised after-tax cash flows projected from the inception of the leveraged leases as well as the interest on the potential tax liability resulting from the disallowance of federal and state income tax losses with respect to the LILO transactions (see “Uncertain Tax Positions” in Note I). In June 2013, the 1999 LILO transaction was terminated, as a result of which the company realized a $29 million gain (after-tax) and received net cash proceeds of $108 million. The effect on Con Edison’s consolidated income statement is as follows:


*(Millions of Dollars)*	For the Three Months Ended June 30, 2013			For the Six Months Ended June 30, 2013
Increase/(decrease) to non-utility operating revenues		$51			$ (70	)
(Increase)/decrease to other interest expense		—			(131	)
Income tax benefit/(expense)		(22	)		80
Total increase/(decrease) in net income		$29			$(121	)

The transactions did not impact earnings in 2012.

At June 30, 2013, the company’s net investment in the 1997 LILO transaction was $43 million, comprised of a $47 million gross investment less $4 million of deferred tax liabilities. At December 31, 2012, the company’s net investment in the LILO transactions was $(76) million, comprised of a $228 million gross investment less $304 million of deferred tax liabilities.

In January 2013, to defray interest charges, the company deposited $447 million with federal and state tax agencies relating primarily to the potential tax liability from these LILO transactions in past tax years and interest thereon. In June 2013, at the company’s request the IRS returned $95 million of the deposit. The company estimates that if it were to negotiate the termination of the 1997 LILO transaction, it could receive cash proceeds of approximately $90 million (pre-tax), which amount could be higher or lower depending on the negotiations.

Other Contingencies

See “Other Regulatory Matters” in Note B and “Uncertain Tax Positions” in Note I.


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Guarantees

Con Edison and its subsidiaries enter into various agreements providing financial or performance assurance primarily to third parties on behalf of their subsidiaries. Maximum amounts guaranteed by Con Edison totaled $883 million and $859 million at June 30, 2013 and December 31, 2012, respectively.

A summary, by type and term, of Con Edison’s total guarantees at June 30, 2013 is as follows:


Guarantee Type	0 – 3 years		4 – 10 years		> 10 years		Total
	*(Millions of Dollars)*
Energy transactions		$777		$31		$28		$836
Intra-company guarantees		16		—		—		16
Other guarantees		31		—		—		31
Total		$824		$31		$28		$883

Energy Transactions — Con Edison guarantees payments on behalf of its competitive energy businesses in order to facilitate physical and financial transactions in gas, pipeline capacity, transportation, oil, electricity, renewable energy credits and energy services. To the extent that liabilities exist under the contracts subject to these guarantees, such liabilities are included in Con Edison’s consolidated balance sheet.

Intra-company Guarantees — Con Edison guarantees electricity sales made by Con Edison Energy and Con Edison Solutions to O&R and CECONY.

Other Guarantees — Con Edison and Con Edison Development also guarantee the following:

•

$2 million relates to guarantees issued by Con Edison to CECONY covering a former Con Edison subsidiary’s lease payment to use CECONY’s conduit system in accordance with a tariff approved by the NYSPSC and a guarantee issued by Con Edison to a landlord to guarantee the former subsidiary’s obligations under a building lease. The former subsidiary is obligated to reimburse Con Edison for any payments made under these guarantees. This obligation is fully secured by letters of credit;

•

$25 million for guarantees provided by Con Edison to Travelers Insurance Company for indemnity agreements for surety bonds in connection with energy service projects performed by Con Edison Solutions;

•

$4 million for guarantees provided by Con Edison Development to Travelers Insurance Company for indemnity agreements for surety bonds in connection with the construction and operation of solar facilities performed by its subsidiaries; and

•

Con Edison, on behalf of Con Edison Solutions, as a retail electric provider, issued a guarantee to the Public Utility Commission of Texas with no specified limitation on the amount guaranteed, covering the payment of all obligations of a retail electric provider. Con Edison’s estimate of the maximum potential obligation is $5 million as of June 30, 2013.

Note I — Income Tax

Con Edison’s income tax expense decreased to $65 million for the three months ended June 30, 2013, from $106 million for the three months ended June 30, 2012. The effective tax rate for the three months ended June 30, 2013 and 2012 was 27 percent and 33 percent, respectively. The reduction in the effective tax rate is due primarily to the impact of comparable favorable reconciling items on reduced income before income tax expense in the 2013 period compared with the 2012 period. Comparable favorable rate reconciling items have a greater impact on the effective tax rate as income before income tax expense decreases. The reduction in the effective tax rate also reflects favorable rate reconciling items in the 2013 period related to plant and deductions for injuries and damages.

Con Edison’s income tax expense decreased to $122 million for the six months ended June 30, 2013, from $240 million for the six months ended June 30, 2012. The effective tax rate for the six months ended June 30, 2013 and 2012 was 25 percent and 33 percent, respectively. The reduction in the effective rate is due primarily to the impact of comparable favorable reconciling items on reduced income before income tax expense in the 2013 period compared with the 2012 period. Additionally, in the first quarter of 2013, the IRS accepted on audit the Company’s claim for manufacturing tax deductions. This deduction, plus higher state income taxes in 2012, also resulted in a reduction in the 2013 effective tax rate.


					27

CECONY’s income tax expense decreased to $57 million for the three months ended June 30, 2013, from $75 million for the three months ended June 30, 2012. CECONY’s income tax expense was $209 million in each of the six months ended June 30, 2013 and 2012. CECONY’s effective tax rate was 27 percent and 33 percent for the three and six months ended June 30, 2013, respectively, compared to 32 percent for each of the three and six months ended June 30, 2012. The decrease in the effective tax rate for the three months ended June 30, 2013, was due primarily to an increase in plant related rate reconciling items and an increase in deductions for injuries and damages.

Uncertain Tax Positions

During the first quarter of 2013, the IRS accepted Con Edison’s deductions for repair costs to utility plant (the “repair allowance deductions”). As a result of this settlement, Con Edison and CECONY reduced their estimated liabilities for prior year uncertain tax positions by $72 million and $66 million, respectively, with a corresponding increase to accumulated deferred income tax liabilities. In addition, as a result of the January 2013 Court of Appeals decision (see “Lease In/Lease Out Transactions” in Note H), Con Edison increased its estimated prior year liabilities for federal and state uncertain tax positions by $238 million in the first quarter of 2013, with a corresponding reduction to accumulated deferred income tax liabilities. In June 2013, Con Edison entered into a closing agreement with the IRS regarding the 1997 and 1999 LILO transactions, as a result of which the company decreased its estimated prior year liabilities for federal and state uncertain tax positions by $238 million in the second quarter of 2013, with a corresponding increase to its current income tax liability. These changes to the Companies’ estimated liabilities for uncertain tax positions had no impact on income tax expense for the six months ended June 30, 2013. There were no material changes to the Companies’ estimated liabilities for uncertain tax positions during the six months ended June 30, 2012. At June 30, 2013, the estimated liabilities for uncertain tax positions for Con Edison and CECONY were $16 million and $7 million, respectively.

The Companies recognize interest on liabilities for uncertain tax positions in interest expense and would recognize penalties, if any, in operating expenses in the Companies’ consolidated income statements. In the first quarter of 2013, Con Edison recognized $126 million of interest expense ($131 million related to the LILO transactions, less a reduction of $5 million in accrued interest expense primarily associated with repair allowance deductions). In the second quarter of 2013, Con Edison recognized an immaterial amount of interest expense. The Companies’ accrued interest on uncertain tax positions at June 30, 2013 and December 31, 2012 was immaterial.

The Companies reasonably expect to resolve $13 million ($7 million for CECONY) of their uncertain tax positions with the IRS within the next twelve months, and accordingly have reflected their estimated liability for uncertain tax positions as current liabilities on their respective consolidated balance sheets. At June 30, 2013, the total amount of unrecognized tax benefits that, if recognized, would affect the Companies’ effective tax rate is $6 million for Con Edison and no impact to CECONY.


28

Note J — Financial Information by Business Segment

The financial data for the business segments are as follows:


	For the Three Months Ended June 30,
	Operating revenues						Inter-segment revenues						Depreciation and amortization				Operating income
*(Millions of Dollars)*	2013			2012			2013			2012			2013		2012		2013			2012
CECONY
Electric	$	1,872		$	1,961		$	4		$	4		$	186	$	175	$	307		$	348
Gas		331			265			2			2			32		30		53			54
Steam		118			83			19			19			17		16		(14	)		(22	)
Consolidation adjustments		—			—			(25	)		(25	)		—		—		—			—
Total CECONY	$	2,321		$	2,309		$	—		$	—		$	235	$	221	$	346		$	380
O&R
Electric	$	146		$	129		$	—		$	—		$	10	$	9	$	14		$	16
Gas		35			35			—			—			4		4		(1	)		1
Total O&R	$	181		$	164		$	—		$	—		$	14	$	13	$	13		$	17
Competitive energy businesses	$	317		$	300		$	2		$	2		$	5	$	2	$	27		$	78
Other*		(1	)		(2	)		(2	)		(2	)		1		—		—			—
Total Con Edison	$	2,818		$	2,771		$	—		$	—		$	255	$	236	$	386		$	475

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


	For the Six Months Ended June 30,
	Operating revenues						Inter-segment revenues						Depreciation and amortization				Operating income
*(Millions of Dollars)*	2013			2012			2013			2012			2013		2012		2013		2012
CECONY
Electric	$	3,686		$	3,696		$	8		$	7		$	371	$	348	$	495	$	573
Gas		991			828			3			3			64		59		296		275
Steam		450			346			38			38			33		32		115		77
Consolidation adjustments		—			—			(49	)		(48	)		—		—		—		—
Total CECONY	$	5,127		$	4,870		$	—		$	—		$	468	$	439	$	906	$	925
O&R
Electric	$	291		$	257		$	—		$	—		$	20	$	19	$	34	$	24
Gas		117			117			—			—			8		7		27		31
Total O&R	$	408		$	374		$	—		$	—		$	28	$	26	$	61	$	55
Competitive energy businesses	$	469		$	610		$	4		$	4		$	10	$	4	$	(56)	$	59
Other*		(1	)		(5	)		(4	)		(4	)		—		—		1		(3	)
Total Con Edison	$	6,003		$	5,849		$	—		$	—		$	506	$	469	$	912	$	1,036

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


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Note K – Derivative Instruments and Hedging Activities

Under the accounting rules for derivatives and hedging, derivatives are recognized on the balance sheet at fair value, unless an exception is available under the accounting rules. Certain qualifying derivative contracts have been designated as normal purchases or normal sales contracts. These contracts are not reported at fair value under the accounting rules.

Energy Price Hedging

Con Edison’s subsidiaries hedge market price fluctuations associated with physical purchases and sales of electricity, natural gas, and steam by using derivative instruments including futures, forwards, basis swaps, options, transmission congestion contracts and financial transmission rights contracts.

Effective January 1, 2013, the Companies adopted Accounting Standards Updates (ASUs) No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities” and No. 2013-01, “Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities”. The amendments require the Companies to disclose certain quantitative information concerning financial and derivative instruments that are offset in the balance sheet and a description of the rights of setoff, including the nature of such rights, associated with recognized assets and liabilities that are subject to an enforceable master netting arrangement or similar agreement.

The Companies’ enter into master agreements for their commodity derivatives. These agreements typically provide setoff in the event of contract termination. In such case, generally the non-defaulting or non-affected party’s payable will be set-off by the other party’s payable. The non-defaulting party will customarily notify the defaulting party within a specific time period and come to an agreement on the early termination amount.

The fair values of the Companies’ commodity derivatives including the offsetting of assets and liabilities at June 30, 2013 were:


*(Millions of Dollars)*
Commodity Derivatives	Gross Amounts of Recognized Assets/(Liabilities)			Gross Amounts Offset in the Statement of Financial Position			Net Amounts of Assets/(Liabilities) Presented in the Statement of Financial Position			Gross Amounts Not Offset in the Statement of Financial Position				Net Amount
										Financial instruments		Cash collateral received
Con Edison
Derivative assets		$ 78			$(49	)		$ 29	(a)		$—		$—		$ 29	(a)
Derivative liabilities		(146	)		87			(59	)						(59	)
Net derivative assets/(liabilities)		$ (68	)		$ 38			$(30	)(a)		$—		$—		$(30	)(a)
CECONY
Derivative assets		$ 22			$(13	)		$ 9	(a)		$—		$—		$ 9	(a)
Derivative liabilities		(71	)		37			(34	)						(34	)
Net derivative assets/(liabilities)		$ (49	)		$ 24			$(25	)(a)		$—		$—		$(25	)(a)

(a)

At June 30, 2013, Con Edison and CECONY had margin deposits of $31 million and $15 million, respectively, classified as derivative assets in the balance sheet, but not included in the table. As required by an exchange, a margin is collateral, typically cash, that the holder of a derivative instrument has to deposit in order to transact on an exchange and to cover its potential losses with its broker or the exchange.


30

The fair values of the Companies’ commodity derivatives including the offsetting of assets and liabilities at December 31, 2012 were:


*(Millions of Dollars)*
Commodity Derivatives	Gross Amounts of Recognized Assets/ (Liabilities)			Gross Amounts Offset in the Statement of Financial Position			Net Amounts of Assets/ (Liabilities) Presented in the Statement of Financial Position			Gross Amounts Not Offset in the Statement of Financial Position				Net Amount
										Financial instruments		Cash collateral received
Con Edison
Derivative assets		$ 86			$ (57	)		$ 29	(a)		$ —		$ —		$ 29	(a)
Derivative liabilities		(176	)		104			(72	)		—		—		(72	)
Net derivative assets/(liabilities)		$ (90	)		$ 47			$ (43	)(a)		$ —		$ —		$ (43	)(a)
CECONY
Derivative assets		$ 27			$ (15	)		$ 12	(a)		$ —		$ —		$ 12	(a)
Derivative liabilities		(83	)		44			(39	)		—		—		(39	)
Net derivative assets/(liabilities)		$ (56	)		$ 29			$ (27	)(a)		$ —		$ —		$ (27	)(a)

(a)

At December 31, 2012, Con Edison and CECONY had margin deposits of $37 million and $18 million, respectively, classified as derivative assets in the balance sheet, but not included in the table. As required by an exchange, a margin is collateral, typically cash, that the holder of a derivative instrument has to deposit in order to transact on an exchange and to cover its potential losses with its broker or the exchange.

Credit Exposure

The Companies are exposed to credit risk related to transactions entered into primarily for the various energy supply and hedging activities by the Utilities and the competitive energy businesses. The Companies use credit policies to manage this risk, including an established credit approval process, monitoring of counterparty limits, netting provisions within agreements, collateral or prepayment arrangements, credit insurance and credit default swaps.

At June 30, 2013, Con Edison and CECONY had $146 million and $15 million of credit exposure in connection with energy supply and hedging activities, net of collateral, respectively. Con Edison’s net credit exposure consisted of $69 million with independent system operators, $38 million with investment-grade counterparties, $37 million with commodity exchange brokers and $2 million with non-investment grade/non-rated counterparties. CECONY’s entire net credit exposure was with commodity exchange brokers.

Economic Hedges

The Companies enter into certain derivative instruments that do not qualify or are not designated as hedges under the accounting rules for derivatives and hedging. However, management believes these instruments represent economic hedges that mitigate exposure to fluctuations in commodity prices.


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The fair values of the Companies’ commodity derivatives at June 30, 2013 were:



*(Millions of Dollars)*	Fair Value of Commodity Derivatives(a) Balance Sheet Location	Con Edison			CECONY
Derivative Assets
Current	Other current assets		$ 56			$ 15
Long-term	Other deferred charges and noncurrent assets		22			7
Total derivative assets			$ 78			$ 22
Impact of netting			(18	)		2
Net derivative assets			$ 60			$ 24
Derivative Liabilities
Current	Fair value of derivative liabilities		$ 91			$ 48
Long-term	Fair value of derivative liabilities		55			23
Total derivative liabilities			$ 146			$ 71
Impact of netting			(87	)		(37	)
Net derivative liabilities			$ 59			$ 34

(a)	Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.

The fair values of the Companies’ commodity derivatives at December 31, 2012 were:


*(Millions of Dollars)*	Fair Value of Commodity Derivatives(a) Balance Sheet Location	Con Edison			CECONY
Derivative Assets
Current	Other current assets		$ 64			$ 18
Long-term	Other deferred charges and noncurrent assets		22			9
Total derivative assets			$ 86			$ 27
Impact of netting			(20	)		3
Net derivative assets			$ 66			$ 30
Derivative Liabilities
Current	Fair value of derivative liabilities		$122			$ 58
Long-term	Fair value of derivative liabilities		54			25
Total derivative liabilities			$176			$ 83
Impact of netting			(104	)		(44	)
Net derivative liabilities			$ 72			$ 39

(a)	Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.

The Utilities generally recover all of their prudently incurred fuel, purchased power and gas cost, including hedging gains and losses, in accordance with rate provisions approved by the applicable state utility commissions. In accordance with the accounting rules for regulated operations, the Utilities record a regulatory asset or liability to defer recognition of unrealized gains and losses on their electric and gas derivatives. As gains and losses are realized in future periods, they will be recognized as purchased power, gas and fuel costs in the Companies’ consolidated income statements. Con Edison’s competitive energy businesses record realized and unrealized gains and losses on their derivative contracts in earnings in the reporting period in which they occur.


32

The following tables present the changes in the fair values of commodity derivatives that have been deferred or recognized in earnings for the three and six months ended June 30, 2013:


Realized and Unrealized Gains/(Losses) on Commodity Derivatives(a) Deferred or Recognized in Income for the Three Months Ended June 30, 2013
*(Millions of Dollars)*	Balance Sheet Location	Con Edison			CECONY
Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:
Current	Deferred derivative gains		$ (7	)		$ (7	)
Long-term	Regulatory liabilities		(2	)		(1	)
Total deferred gains/(losses)			$ (9	)		$ (8	)
Current	Deferred derivative losses		$ (24	)		$ (23	)
Current

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