Form 10-Q
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2014

OR

 

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

For the transition period from                      to                     

 

Commission
File Number

 

Exact name of registrant as specified in its charter

and principal office address and telephone number

  

State of
Incorporation

  

I.R.S. Employer
ID. Number

1-14514   Consolidated Edison, Inc.    New York    13-3965100
  4 Irving Place, New York, New York 10003      
  (212) 460-4600      
1-1217   Consolidated Edison Company of New York, Inc.    New York    13-5009340
  4 Irving Place, New York, New York 10003      
  (212) 460-4600      

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

 

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

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

 

Con Edison        Yes x           No ¨   
CECONY        Yes x           No ¨   

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

 

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

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

 

Con Edison        Yes ¨           No x   
CECONY        Yes ¨           No x   

As of July 31, 2014, Con Edison had outstanding 292,885,004 Common Shares ($.10 par value). All of the outstanding common equity of CECONY is held by Con Edison.

Filing Format

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


Table of Contents

Glossary of Terms

 

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

 

Con Edison Companies     
Con Edison    Consolidated Edison, Inc.
CECONY    Consolidated Edison Company of New York, Inc.
Con Edison Development    Consolidated Edison Development, Inc.
Con Edison Energy    Consolidated Edison Energy, Inc.
Con Edison Solutions    Consolidated Edison Solutions, Inc.
O&R    Orange and Rockland Utilities, Inc.
Pike    Pike County Light & Power Company
RECO    Rockland Electric Company
The Companies    Con Edison and CECONY
The Utilities    CECONY and O&R
Regulatory Agencies, Government Agencies, and Quasi-governmental Not-for-Profits
EPA    U. S. Environmental Protection Agency
FERC    Federal Energy Regulatory Commission
IRS    Internal Revenue Service
ISO-NE    ISO New England Inc.
NJBPU    New Jersey Board of Public Utilities
NJDEP    New Jersey Department of Environmental Protection
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

 

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Table of Contents

 

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, 2013
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

 

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Table of Contents

TABLE OF CONTENTS

 

          PAGE  
PART I—Financial Information  
ITEM 1  

Financial Statements (Unaudited)

 
 

Con Edison

 
 

Consolidated Income Statement

    6   
 

Consolidated Statement of 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 the 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

    65   
ITEM 4  

Controls and Procedures

    65   
PART II—Other Information  
ITEM 1  

Legal Proceedings

    66   
ITEM 1A  

Risk Factors

    66   
ITEM 2  

Unregistered Sales of Equity Securities and Use of Proceeds

    67   
ITEM 6  

Exhibits

    68   
  Signatures     70   

 

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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;

 

   

a cyber attack could adversely affect the Companies; and

 

   

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

 

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Consolidated Edison, Inc.

CONSOLIDATED INCOME STATEMENT (UNAUDITED)

  

 

    

For the Three Months

Ended June 30,

   

For the Six Months

Ended June 30,

 
     2014     2013     2014     2013  
    (Millions of Dollars/Except Share Data)  

OPERATING REVENUES

       

Electric

    $2,134        $2,018        $4,372        $3,977   

Gas

    395        366        1,277        1,108   

Steam

    98        118        439        450   

Non-utility

    284        316        612        468   

TOTAL OPERATING REVENUES

    2,911        2,818        6,700        6,003   

OPERATING EXPENSES

       

Purchased power

    783        768        1,746        1,475   

Fuel

    34        58        189        205   

Gas purchased for resale

    151        118        551        368   

Other operations and maintenance

    801        776        1,627        1,606   

Depreciation and amortization

    265        255        526        506   

Taxes, other than income taxes

    467        457        966        931   

TOTAL OPERATING EXPENSES

    2,501        2,432        5,605        5,091   

Gain on sale of solar energy projects

    45               45          

OPERATING INCOME

    455        386        1,140        912   

OTHER INCOME (DEDUCTIONS)

       

Investment and other income

    14        7        25        10   

Allowance for equity funds used during construction

    1        1        3        1   

Other deductions

    (6     (6     (8     (8

TOTAL OTHER INCOME

    9        2        20        3   

INCOME BEFORE INTEREST AND INCOME TAX EXPENSE

    464        388        1,160        915   

INTEREST EXPENSE

       

Interest on long-term debt

    147        145        293        288   

Other interest

    4        6        (5     142   

Allowance for borrowed funds used during construction

    (1            (2     (1

NET INTEREST EXPENSE

    150        151        286        429   

INCOME BEFORE INCOME TAX EXPENSE

    314        237        874        486   

INCOME TAX EXPENSE

    102        65        300        122   

NET INCOME FOR COMMON STOCK

    $    212        $   172        $    574        $    364   

Net income for common stock per common share—basic

    $   0.73        $  0.59        $   1.96        $   1.24   

Net income for common stock per common share—diluted

    $   0.72        $  0.59        $   1.95        $   1.24   

DIVIDENDS DECLARED PER SHARE OF COMMON STOCK

    $0.630        $0.615        $1.260        $1.230   

AVERAGE NUMBER OF SHARES OUTSTANDING—BASIC (IN MILLIONS)

    292.9        292.9        292.9        292.9   

AVERAGE NUMBER OF SHARES OUTSTANDING—DILUTED (IN MILLIONS)

    294.0        294.3        294.0        294.3   

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

 

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Consolidated Edison, Inc.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

  

 

     For the Three Months
Ended June 30,
    For the Six Months
Ended June 30,
 
     2014     2013     2014     2013  
    (Millions of Dollars)  

NET INCOME

    $212        $172        $574        $364   

OTHER COMPREHENSIVE INCOME, NET OF TAXES

       

Pension and other postretirement benefit plan liability adjustments, net of taxes

    1        2        5        5   

TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAXES

    1        2        5        5   

COMPREHENSIVE INCOME FOR COMMON STOCK

    $213        $174        $579        $369   

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

 

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Consolidated Edison, Inc.

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

  

 

     For the Six Months
Ended June 30,
 
       2014         2013    
    (Millions of Dollars)  

OPERATING ACTIVITIES

   

Net Income

    $574        $364   

PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME

   

Depreciation and amortization

    526        506   

Deferred income taxes

    162        (134

Rate case amortization and accruals

    55        19   

Common equity component of allowance for funds used during construction

    (3     (1

Net derivative gains

    (15     30   

Pre-tax gain on termination of a LILO transaction

           (49

Pre-tax gain on sale of solar energy projects

    (45       

Other non-cash items (net)

    (6     46   

CHANGES IN ASSETS AND LIABILITIES

   

Accounts receivable – customers, less allowance for uncollectibles

    24        11   

Special deposits

    312        (335

Materials and supplies, including fuel oil and gas in storage

    40        9   

Other receivables and other current assets

    2        2   

Prepayments

    (11     40   

Accounts payable

    21        (121

Pensions and retiree benefits obligations

    411        467   

Pensions and retiree benefits contributions

    (413     (361

Accrued taxes

    (407     160   

Accrued interest

    (76     124   

Superfund and environmental remediation costs (net)

    16        (6

Deferred charges, noncurrent assets and other regulatory assets

    (16     (34

Deferred credits and other regulatory liabilities

    154        79   

Other assets

    (9     66   

Other liabilities

    (39     (17

NET CASH FLOWS FROM OPERATING ACTIVITIES

    1,257        865   

INVESTING ACTIVITIES

   

Utility construction expenditures

    (1,073     (1,114

Cost of removal less salvage

    (99     (93

Non-utility construction expenditures

    (113     (129

Investments in solar energy projects

    (107     (2

Proceeds from grants related to solar energy projects

    36        18   

Proceeds from sale of solar energy projects

    108          

Decrease in restricted cash

    15          

Proceeds from the termination of a LILO transaction

           108   

NET CASH FLOWS USED IN INVESTING ACTIVITIES

    (1,233     (1,212

FINANCING ACTIVITIES

   

Net issuance of short-term debt

    80        861   

Issuance of long-term debt

    850        919   

Retirement of long-term debt

    (478     (706

Debt issuance costs

    (6     (12

Common stock dividends

    (368     (360

Issuance of common shares for stock plans, net of repurchases

    (2     (2

NET CASH FLOWS FROM FINANCING ACTIVITIES

    76        700   

CASH AND TEMPORARY CASH INVESTMENTS:

   

NET CHANGE FOR THE PERIOD

    100        353   

BALANCE AT BEGINNING OF PERIOD

    674        394   

BALANCE AT END OF PERIOD

    $774        $747   

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

   

Cash paid during the period for:

   

Interest

    $277        $281   

Income taxes

    $518        $27   

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

 

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Consolidated Edison, Inc.

CONSOLIDATED BALANCE SHEET (UNAUDITED)

  

 

     June 30,
2014
    December 31,
2013
 
    (Millions of Dollars)  

ASSETS

   

CURRENT ASSETS

   

Cash and temporary cash investments

  $ 774      $ 674   

Special deposits

    8        327   

Accounts receivable – customers, less allowance for uncollectible accounts of $96 and $93 in 2014 and 2013, respectively

    1,221        1,251   

Other receivables, less allowance for uncollectible accounts of $12 and $10 in 2014 and 2013, respectively

    239        240   

Accrued unbilled revenue

    456        514   

Fuel oil, gas in storage, materials and supplies, at average cost

    322        363   

Prepayments

    146        136   

Regulatory assets

    24        29   

Deferred tax assets – current

    43        122   

Other current assets

    224        235   

TOTAL CURRENT ASSETS

    3,457        3,891   

INVESTMENTS

    693        461   

UTILITY PLANT, AT ORIGINAL COST

   

Electric

    24,338        23,450   

Gas

    5,805        5,494   

Steam

    2,219        2,194   

General

    2,434        2,336   

TOTAL

    34,796        33,474   

Less: Accumulated depreciation

    7,342        7,072   

Net

    27,454        26,402   

Construction work in progress

    995        1,393   

NET UTILITY PLANT

    28,449        27,795   

NON-UTILITY PLANT

   

Non-utility property, less accumulated depreciation of $84 and $90 in 2014 and 2013, respectively

    197        605   

Construction work in progress

    108        36   

NET PLANT

    28,754        28,436   

OTHER NONCURRENT ASSETS

   

Goodwill

    429        429   

Intangible assets, less accumulated amortization of $5 and $4 in 2014 and 2013, respectively

    3        4   

Regulatory assets

    6,782        7,201   

Other deferred charges and noncurrent assets

    193        225   

TOTAL OTHER NONCURRENT ASSETS

    7,407        7,859   

TOTAL ASSETS

  $ 40,311      $ 40,647   

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

 

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Consolidated Edison, Inc.

CONSOLIDATED BALANCE SHEET (UNAUDITED)

  

 

     June 30,
2014
    December 31,
2013
 
    (Millions of Dollars)  

LIABILITIES AND SHAREHOLDERS’ EQUITY

   

CURRENT LIABILITIES

   

Long-term debt due within one year

  $ 45      $ 485   

Notes payable

    1,531        1,451   

Accounts payable

    967        1,017   

Customer deposits

    333        321   

Accrued taxes

    69        476   

Accrued interest

    169        249   

Accrued wages

    123        92   

Fair value of derivative liabilities

    4        13   

Regulatory liabilities

    227        148   

Other current liabilities

    371        478   

TOTAL CURRENT LIABILITIES

    3,839        4,730   

NONCURRENT LIABILITIES

   

Obligations under capital leases

    1        1   

Provision for injuries and damages

    190        195   

Pensions and retiree benefits

    1,291        1,727   

Superfund and other environmental costs

    738        749   

Asset retirement obligations

    147        143   

Fair value of derivative liabilities

    6        5   

Deferred income taxes and investment tax credits

    8,505        8,466   

Regulatory liabilities

    1,861        1,728   

Other deferred credits and noncurrent liabilities

    194        169   

TOTAL NONCURRENT LIABILITIES

    12,933        13,183   

LONG-TERM DEBT

    11,084        10,489   

COMMON SHAREHOLDERS’ EQUITY (See Statement of Common Shareholders’ Equity)

    12,455        12,245   

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

  $ 40,311      $ 40,647   

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

 

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Consolidated Edison, Inc.   

CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS’ EQUITY (UNAUDITED)

 

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

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   

BALANCE AS OF DECEMBER 31, 2013

    292,872,396        $32        $4,995        $8,338        23,210,200        $(1,034)        $(61     $(25     $12,245   

Net income for common stock

          361                361   

Common stock dividends

          (184             (184

Issuance of common shares for stock plans, net of repurchases

    51,656          (2       (51,656     2              

Other comprehensive income

                                                            4        4   

BALANCE AS OF MARCH 31, 2014

    292,924,052        $32        $4,993        $8,515        23,158,544        $(1,032)        $(61     $(21     $12,426   

Net income for common stock

          212                212   

Common stock dividends

          (184             (184

Issuance of common shares for stock plans, net of repurchases

    (45,658                45,658                     

Other comprehensive income

                                                            1        1   

BALANCE AS OF JUNE 30, 2014

    292,878,394        $32        $4,993        $8,543        23,204,202        $(1,032)        $(61     $(20     $12,455   

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

 

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Consolidated Edison Company of New York, Inc.   

CONSOLIDATED INCOME STATEMENT (UNAUDITED)

 

     For the Three Months
Ended June 30,
    For the Six Months
Ended June 30,
 
     2014     2013     2014     2013  
    (Millions of Dollars)     (Millions of Dollars)  

OPERATING REVENUES

       

Electric

  $ 1,978      $ 1,872      $ 4,053      $ 3,686   

Gas

    360        331        1,149        991   

Steam

    98        118        439        450   

TOTAL OPERATING REVENUES

    2,436        2,321        5,641        5,127   

OPERATING EXPENSES

       

Purchased power

    517        469        1,135        924   

Fuel

    34        58        189        205   

Gas purchased for resale

    104        98        451        317   

Other operations and maintenance

    699        676        1,424        1,417   

Depreciation and amortization

    247        235        486        468   

Taxes, other than income taxes

    449        439        926        890   

TOTAL OPERATING EXPENSES

    2,050        1,975        4,611        4,221   

OPERATING INCOME

    386        346        1,030        906   

OTHER INCOME (DEDUCTIONS)

       

Investment and other income

    1        3        8        5   

Allowance for equity funds used during construction

    1               1        1   

Other deductions

    (5     (5     (7     (7

TOTAL OTHER INCOME (DEDUCTIONS)

    (3     (2     2        (1

INCOME BEFORE INTEREST AND INCOME TAX EXPENSE

    383        344        1,032        905   

INTEREST EXPENSE

       

Interest on long-term debt

    130        129        258        256   

Other interest

    3        5        7        11   

Allowance for borrowed funds used during construction

                  (1     (1

NET INTEREST EXPENSE

    133        134        264        266   

INCOME BEFORE INCOME TAX EXPENSE

    250        210        768        639   

INCOME TAX EXPENSE

    78        57        262        209   

NET INCOME FOR COMMON STOCK

  $ 172      $ 153      $ 506      $ 430   

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

 

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Consolidated Edison Company of New York, Inc.   

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

 

     For the Three Months
Ended June 30,
    For the Six Months
Ended June 30,
 
     2014     2013     2014     2013  
    (Millions of Dollars)     (Millions of Dollars)  

NET INCOME

    $172        $153        $506        $430   

OTHER COMPREHENSIVE INCOME, NET OF TAXES

       

Pension and other postretirement benefit plan liability adjustments, net of taxes

                  1          

TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAXES

                  1          

COMPREHENSIVE INCOME

    $172        $153        $507        $430   

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

 

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Consolidated Edison Company of New York, Inc.   

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

 

     For the Six Months
Ended June 30,
 
     2014     2013  
   

(Millions of

Dollars)

 

OPERATING ACTIVITIES

   

Net income

  $ 506      $ 430   

PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME

   

Depreciation and amortization

    486        468   

Deferred income taxes

    135        191   

Rate case amortization and accruals

    55        19   

Common equity component of allowance for funds used during construction

    (2     (1

Other non-cash items (net)

    (17     (25

CHANGES IN ASSETS AND LIABILITIES

   

Accounts receivable—customers, less allowance for uncollectibles

    44        22   

Materials and supplies, including fuel oil and gas in storage

    37        2   

Other receivables and other current assets

    (93     18   

Prepayments

    13        (8

Accounts payable

    (71     (119

Pensions and retiree benefits obligations

    390        435   

Pensions and retiree benefits contributions

    (413     (361

Superfund and environmental remediation costs (net)

    17        (4

Accrued taxes

    (240     (114

Accrued interest

    12        4   

Deferred charges, noncurrent assets and other regulatory assets

    (86     (11

Deferred credits and other regulatory liabilities

    142        68   

Other liabilities

    (33     29   

NET CASH FLOWS FROM OPERATING ACTIVITIES

    882        1,043   

INVESTING ACTIVITIES

   

Utility construction expenditures

    (1,007     (1,062

Cost of removal less salvage

    (97     (89

NET CASH FLOWS USED IN INVESTING ACTIVITIES

    (1,104     (1,151

FINANCING ACTIVITIES

   

Net issuance of short-term debt

    272        809   

Issuance of long-term debt

    850        700   

Retirement of long-term debt

    (475     (700

Debt issuance costs

    (6     (7

Dividend to parent

    (356     (364

NET CASH FLOWS FROM FINANCING ACTIVITIES

    285        438   

CASH AND TEMPORARY CASH INVESTMENTS:

   

NET CHANGE FOR THE PERIOD

    63        330   

BALANCE AT BEGINNING OF PERIOD

    633        353   

BALANCE AT END OF PERIOD

  $ 696      $ 683   

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

   

Cash paid during the period for:

   

Interest

  $ 248      $ 251   

Income taxes

  $ 392      $ 104   

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

 

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Consolidated Edison Company of New York, Inc.   

CONSOLIDATED BALANCE SHEET (UNAUDITED)

 

     June 30,
2014
    December 31,
2013
 
    (Millions of Dollars)  

ASSETS

   

CURRENT ASSETS

   

Cash and temporary cash investments

  $ 696      $ 633   

Special deposits

    2        86   

Accounts receivable – customers, less allowance for uncollectible accounts of $90 and $87 in 2014 and 2013, respectively

    1,079        1,123   

Other receivables, less allowance for uncollectible accounts of $10 and $8 in 2014 and 2013, respectively

    127        127   

Accrued unbilled revenue

    360        405   

Accounts receivable from affiliated companies

    285        119   

Fuel oil, gas in storage, materials and supplies, at average cost

    263        300   

Prepayments

    89        102   

Regulatory assets

    21        26   

Deferred tax assets – current

    23        100   

Other current assets

    115        55   

TOTAL CURRENT ASSETS

    3,060        3,076   

INVESTMENTS

    267        247   

UTILITY PLANT AT ORIGINAL COST

   

Electric

    22,898        22,073   

Gas

    5,192        4,891   

Steam

    2,219        2,194   

General

    2,245        2,154   

TOTAL

    32,554        31,312   

Less: Accumulated depreciation

    6,716        6,469   

Net

    25,838        24,843   

Construction work in progress

    925        1,303   

NET UTILITY PLANT

    26,763        26,146   

NON-UTILITY PROPERTY

   

Non-utility property, less accumulated depreciation of $25 in 2014 and 2013

    5        4   

NET PLANT

    26,768        26,150   

OTHER NONCURRENT ASSETS

   

Regulatory assets

    6,235        6,639   

Other deferred charges and noncurrent assets

    137        146   

TOTAL OTHER NONCURRENT ASSETS

    6,372        6,785   

TOTAL ASSETS

  $ 36,467      $ 36,258   

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

 

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Consolidated Edison Company of New York, Inc.   

CONSOLIDATED BALANCE SHEET (UNAUDITED)

 

     June 30,
2014
    December 31,
2013
 
    (Millions of Dollars)  

LIABILITIES AND SHAREHOLDER’S EQUITY

   

CURRENT LIABILITIES

   

Long-term debt due within one year

  $      $ 475   

Notes payable

    1,482        1,210   

Accounts payable

    748        824   

Accounts payable to affiliated companies

    21        45   

Customer deposits

    320        308   

Accrued taxes

    30        46   

Accrued taxes to affiliated companies

    189        413   

Accrued interest

    151        139   

Accrued wages

    115        82   

Fair value of derivative liabilities

    1        12   

Regulatory liabilities

    180        107   

Other current liabilities

    309        385   

TOTAL CURRENT LIABILITIES

    3,546        4,046   

NONCURRENT LIABILITIES

   

Obligations under capital leases

    1        1   

Provision for injuries and damages

    177        180   

Pensions and retiree benefits

    1,024        1,453   

Superfund and other environmental costs

    637        644   

Asset retirement obligations

    146        143   

Fair value of derivative liabilities

    6        3   

Deferred income taxes and investment tax credits

    7,870        7,832   

Regulatory liabilities

    1,702        1,598   

Other deferred credits and noncurrent liabilities

    144        145   

TOTAL NONCURRENT LIABILITIES

    11,707        11,999   

LONG-TERM DEBT

    10,216        9,366   

COMMON SHAREHOLDER’S EQUITY (See Statement of Common Shareholder’s Equity)

    10,998        10,847   

TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY

  $ 36,467      $ 36,258   

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

 

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Consolidated Edison Company of New York, Inc.

CONSOLIDATED STATEMENT OF COMMON SHAREHOLDER’S EQUITY (UNAUDITED)

  

 

    Common Stock     Additional
Paid-In
Capital
   

Retained

Earnings

   

Repurchased
Con Edison

Stock

   

Capital
Stock

Expense

   

Accumulated
Other
Comprehensive

Income/(Loss)

    Total  
(Millions of Dollars/Except Share Data)   Shares     Amount              
         

BALANCE AS OF DECEMBER 31, 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   

BALANCE AS OF DECEMBER 31, 2013

    235,488,094        $589        $4,234        $7,053        $(962     $(61     $(6     $10,847   

Net income

          334              334   

Common stock dividend to parent

          (178           (178

Other comprehensive income

                                                    1        1   

BALANCE AS OF MARCH 31, 2014

    235,488,094        $589        $4,234        $7,209        $(962     $(61     $(5     $11,004   

Net income

          172              172   

Common stock dividend to parent

          (178           (178

Other comprehensive income

                                                             

BALANCE AS OF JUNE 30, 2014

    235,488,094        $589        $4,234        $7,203        $(962     $(61     $(5     $10,998   

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

 

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NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)

 

General

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

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

The separate interim consolidated financial statements of each of the Companies are unaudited but, in the opinion of their respective managements, reflect all adjustments (which include only normally recurring adjustments) necessary for a fair presentation of the results for the interim periods presented. The Companies’ separate interim consolidated financial statements should be read together with their separate audited financial statements (including the combined notes thereto) included in Item 8 of their combined Annual Report on Form 10-K for the year ended December 31, 2013 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, 2014. 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 company which sells to retail customers electricity purchased in wholesale markets and enters into related hedging transactions and also provides energy-related products and services to retail customers; Consolidated Edison Energy, Inc. (Con Edison Energy), a company that provides energy-related products and services to wholesale customers; and Consolidated Edison Development, Inc. (Con Edison Development), a company that participates in energy infrastructure projects.

 

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Note A — Summary of Significant Accounting Policies

Earnings Per Common Share

For the three and six months ended June 30, 2014 and 2013, 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)   2014     2013     2014     2013  

Net income for common stock

  $ 212      $ 172      $ 574      $ 364   

Weighted average common shares outstanding – basic

    292.9        292.9        292.9        292.9   

Add: Incremental shares attributable to effect of potentially dilutive securities

    1.1        1.4        1.1        1.4   

Adjusted weighted average common shares outstanding – diluted

    294.0        294.3        294.0        294.3   

Net Income for common stock per common share – basic

  $ 0.73      $ 0.59      $ 1.96      $ 1.24   

Net Income for common stock per common share – diluted

  $ 0.72      $ 0.59      $ 1.95      $ 1.24   

The computation of diluted EPS for the three and six months ended June 30, 2014 and 2013 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, 2014 and 2013, changes to accumulated other comprehensive income (OCI) for Con Edison and CECONY are as follows:

 

     For the Three Months Ended June 30,  
     Con Edison     CECONY  
(Millions of Dollars)   2014     2013     2014     2013  

Beginning balance, accumulated OCI, net of taxes

  $ (21   $ (50   $ (5   $ (9

OCI before reclassifications, net of tax of $- and $- for both Con Edison and CECONY

                           

Amounts reclassified from accumulated OCI related to pension and other postretirement benefit plan liabilities, net of tax of $1 and $1 for Con Edison and $- and $- for CECONY, respectively (a)(b)

    1        2                 

Current period total OCI, net of taxes

  $ 1      $ 2      $      $   

Ending balance, accumulated OCI, net of taxes (b)

  $ (20   $ (48   $ (5   $ (9
     For the Six Months Ended June 30,  
     Con Edison     CECONY  
(Millions of Dollars)   2014     2013     2014     2013  

Beginning balance, accumulated OCI, net of taxes

  $ (25   $ (53   $ (6   $ (9

OCI before reclassifications, net of tax of $1 and $1 for Con Edison and $- and $- for CECONY, respectively

    2        1                 

Amounts reclassified from accumulated OCI related to pension and other postretirement benefit plan liabilities, net of tax of $2 and $2 for Con Edison and $- and $- for CECONY, respectively (a)(b)

    3        4        1          

Current period total OCI, net of taxes

  $ 5      $ 5      $ 1      $   

Ending balance, accumulated OCI, net of taxes (b)

  $ (20   $ (48   $ (5   $ (9

 

(a) For the portion of unrecognized pension and other postretirement benefit costs relating to the 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 income tax expense.

 

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Reclassifications and Revisions

Prior period amounts have been reclassified where necessary to conform to the current period presentation.

Con Edison’s consolidated statement of cash flows for the six months ended June 30, 2013, incorrectly reduced net cash flows from financing activities and increased net cash flows from operating activities by an amount equal to the $108 million of net cash proceeds from the termination of the 1999 LILO transaction (see Note I). A revision was made on Con Edison’s consolidated statement of cash flows for the six months ended June 30, 2013. The company does not deem this revision material to its consolidated financial statements for the six months ended June 30, 2013.

Note B — Regulatory Matters

Rate Plans

In July 2014, the New Jersey Board of Public Utilities (NJBPU) approved an electric rate increase, effective August 1, 2014, of $13 million for O&R’s New Jersey regulated utility subsidiary, Rockland Electric Company (RECO). The new rates, among other things, reflect a return on common equity of 9.75 percent, a common equity ratio of approximately 50 percent and recovery of $25.6 million of deferred storm costs over a four-year period. The NJBPU continued provisions with respect to recovery from customers of the cost of purchased power and did not provide for reconciliation of actual expenses to amounts reflected in electric rates for pension and other postretirement benefit costs.

In June 2014, O&R’s Pennsylvania regulated utility subsidiary, Pike County Light & Power Company, the staff of the Pennsylvania Public Utility Commission (PAPUC) and other parties entered into settlement agreements with respect to the company’s requests to increase the rates it can charge for electric and gas delivery service. The settlements, which provide for electric and gas rate increases, effective September 1, 2014, of $1.25 million and $100,000 respectively, are subject to approval by the PAPUC.

Other Regulatory Matters

In February 2009, the New York State Public Service Commission (NYSPSC) commenced a proceeding to examine the prudence of certain 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, 2014, the company had collected an estimated $1,531 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. In May 2014, the NYSPSC’s Chief Administrative Law Judge appointed a settlement judge to assist the parties. There is no assurance that there will be a settlement, and any settlement would be subject to NYSPSC approval. At June 30, 2014, the company had a $37 million regulatory liability relating to this matter. Included in the regulatory liability was $16 million the company recovered from vendors, arrested employees and insurers relating to this matter. Pursuant to the current rate plans, the company is applying $15 million of these recovered amounts for the benefit of customers to offset a like amount of regulatory assets. The company currently estimates that any additional amount the

 

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NYSPSC requires the company to refund to customers could range in amount from $25 million 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, 2014, CECONY and O&R incurred response and restoration costs for Superstorm Sandy of $495 million and $92 million, respectively (including capital expenditures of $147 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. CECONY’s current electric rate plan includes collection from customers of deferred storm costs (including for Superstorm Sandy), subject to refund following NYSPSC review of the costs. O&R expects to request recovery of deferred storm costs for its New York electric operations, which are also subject to NYSPSC review, when it next files with the NYSPSC for a new electric rate plan. RECO’s current electric rate plan includes collection from customers of deferred storm costs. See “Rate Plans” above.

In June 2014, the NYSPSC initiated a proceeding to investigate the practices of qualifying persons to perform plastic fusions on gas facilities. New York State regulations require gas utilities to qualify and, except in certain circumstances, annually requalify workers that perform fusion to join plastic pipe. The NYSPSC directed the New York gas utilities to provide information in this proceeding about their compliance with the qualification and requalification requirements and related matters; their procedures for compliance with all gas safety regulations; and their annual chief executive officer certifications regarding these and other procedures. CECONY’s qualification and requalification procedures had not included certain required testing to evaluate specimen fuses. In addition, CECONY and O&R had not timely requalified certain workers that had been qualified under their respective procedures to perform plastic fusions. CECONY and O&R have requalified their workers who perform plastic fusions.

 

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Regulatory Assets and Liabilities

Regulatory assets and liabilities at June 30, 2014 and December 31, 2013 were comprised of the following items:

 

     Con Edison     CECONY  
(Millions of Dollars)   2014     2013     2014     2013  

Regulatory assets

       

Unrecognized pension and other postretirement costs

    $2,438        $2,730        $2,331        $2,610   

Future income tax

    2,158        2,145        2,049        2,030   

Environmental remediation costs

    911        938        806        830   

Deferred storm costs

    382        441        280        334   

Revenue taxes

    214        207        203        196   

Pension and other postretirement benefits deferrals

    135        237        109        211   

Surcharge for New York State assessment

    110        78        103        74   

Net electric deferrals

    73        83        73        83   

Unamortized loss on reacquired debt

    61        65        58        62   

O&R transition bond charges

    30        33                 

Preferred stock redemption

    28        28        28        28   

Property tax reconciliation

    28        22                 

Workers’ compensation

    12        12        12        12   

Deferred derivative losses – noncurrent

    8        8        8        7   

Other

    194        174        175        162   

Regulatory assets – noncurrent

    6,782        7,201        6,235        6,639   

Recoverable energy costs – current

    16        4        14        4   

Deferred derivative losses – current

    8        25        7        22   

Regulatory assets – current

    24        29        21        26   

Total Regulatory Assets

    $6,806        $7,230        $6,256        $6,665   

Regulatory liabilities

       

Allowance for cost of removal less salvage

    $   569        $   540        $   475        $   453   

Property tax reconciliation

    282        322        282        322   

Net unbilled revenue deferrals

    115        133        115        133   

Property tax refunds

    108        130        108        130   

Long-term interest rate reconciliation

    92        105        92        105   

Carrying charges on repair allowance and bonus depreciation

    87        98        72        87   

2014 rate plan base rate revenue deferral

    82               82          

New York State income tax rate change

    69               65          

World Trade Center settlement proceeds

    52        62        52        62   

Other postretirement benefits deferrals

    49        50        43        50   

Unrecognized other postretirement benefits costs

    41               32          

Prudence proceeding

    37        40        37        40   

Carrying charges on T&D net plant – electric and steam

    24        28        21        20   

Electric excess earnings

    21        22        20        18   

Other

    233        198        206        178   

Regulatory liabilities – noncurrent

    1,861        1,728        1,702        1,598   

Refundable energy costs – current

    147        100        110        66   

Deferred derivative gains – current

    45        14        36        11   

Revenue decoupling mechanism

    18        34        18        30   

Future income tax

    17               16          

Regulatory liabilities – current

    227        148        180        107   

Total Regulatory Liabilities

    $2,088        $1,876        $1,882        $1,705   

 

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Note C — Capitalization

In February 2014, CECONY redeemed at maturity $200 million of 4.70 percent 10-year debentures.

In March 2014, CECONY issued $850 million aggregate principal amount of 4.45 percent 30-year debentures. In April 2014, CECONY redeemed at maturity $275 million of 5.55 percent 5-year debentures. In May 2014, Con Edison deconsolidated $217 million of long-term debt of a subsidiary in which Con Edison Development sold a 50 percent interest. See Note N.

 

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

 

(Millions of Dollars)   June 30, 2014     December 31, 2013  
Long-Term Debt (including current portion)  

Carrying

Amount

    Fair
Value
   

Carrying

Amount

    Fair
Value
 

Con Edison

  $ 11,129      $ 12,707      $ 10,974      $ 12,082   

CECONY

  $ 10,216      $ 11,605      $ 9,841      $ 10,797   

 

Fair values of long-term debt have been estimated primarily using available market information. For Con Edison, $12,071 million and $636 million of the fair value of long-term debt at June 30, 2014 are classified as Level 2 and Level 3, respectively. For CECONY, $10,969 million and $636 million of the fair value of long-term debt at June 30, 2014 are classified as Level 2 and Level 3, respectively (see Note M). 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, 2014, Con Edison had $1,531 million of commercial paper outstanding of which $1,482 million was outstanding under CECONY’s program. The weighted average interest rate was 0.2 percent for both Con Edison and CECONY. At December 31, 2013, Con Edison had $1,451 million of commercial paper outstanding of which $1,210 million was outstanding under CECONY’s program. The weighted average interest rate was 0.2 percent for both Con Edison and CECONY. At June 30, 2014 and December 31, 2013, no loans were outstanding under the Companies’ credit agreement and $49 million (including $11 million for CECONY) and $26 million (including $11 million for CECONY) of letters of credit were outstanding, respectively, under the credit agreement.

 

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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, 2014 and 2013 were as follows:

 

     For the Three Months Ended June 30,  
     Con Edison     CECONY  
(Millions of Dollars)   2014     2013     2014     2013  

Service cost – including administrative expenses

  $     57      $     67      $     53      $     62   

Interest cost on projected benefit obligation

    143        134        134        126   

Expected return on plan assets

    (208     (187     (198     (178

Recognition of net actuarial loss

    154        208        146        197   

Recognition of prior service costs

    1        1        1        1   

NET PERIODIC BENEFIT COST

  $  147      $  223      $  136      $  208   

Amortization of regulatory asset

    1        1        1        1   

TOTAL PERIODIC BENEFIT COST

  $ 148      $ 224      $ 137      $ 209   

Cost capitalized

    (57     (88     (54     (84

Reconciliation to rate level

    30        (30     28        (29

Cost charged to operating expenses

  $  121      $  106      $  111      $  96   

 

     For the Six Months Ended June 30,  
     Con Edison     CECONY  
(Millions of Dollars)   2014     2013     2014     2013  

Service cost – including administrative expenses

  $   113      $   133      $   106      $   124   

Interest cost on projected benefit obligation

    286        268        268        252   

Expected return on plan assets

    (416     (375     (395     (356

Recognition of net actuarial loss

    309        416        293        394   

Recognition of prior service costs

    2        3        1        2   

NET PERIODIC BENEFIT COST

  $  294      $  445      $  273      $  416   

Amortization of regulatory asset

    1        1        1        1   

TOTAL PERIODIC BENEFIT COST

  $ 295      $ 446      $ 274      $ 417   

Cost capitalized

    (109     (170     (103     (163

Reconciliation to rate level

    57        (24     51        (23

Cost charged to operating expenses

  $  243      $  252      $  222      $  231   

 

Expected Contributions

Based on estimates as of June 30, 2014, the Companies expect to make contributions to the pension plan during 2014 of $564 million (of which $524 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 2014, CECONY contributed $400 million to the pension plan and funded $13 million for the non-qualified supplemental plans.

 

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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, 2014 and 2013 were as follows:

 

     For the Three Months Ended June 30,  
     Con Edison     CECONY  
(Millions of Dollars)   2014     2013     2014     2013  

Service cost

  $    5      $    6      $    4      $    5   

Interest cost on accumulated other postretirement benefit obligation

    15        13        13        12   

Expected return on plan assets

    (19     (19     (17     (17

Recognition of net actuarial loss

    14        16        13        14   

Recognition of prior service cost

    (5     (7     (4     (6

NET PERIODIC POSTRETIREMENT BENEFIT COST

  $  10      $  9      $  9      $  8   

Cost capitalized

    (4     (4     (4     (4

Reconciliation to rate level

    3        16        1        13   

Cost charged to operating expenses

  $  9      $  21      $  6      $  17   

 

     For the Six Months Ended June 30,  
     Con Edison     CECONY  
(Millions of Dollars)   2014     2013     2014     2013  

Service cost

  $ 10      $ 12      $ 7      $ 9   

Interest cost on accumulated other postretirement benefit obligation

    30        27        26        23   

Expected return on plan assets

    (38     (39     (34     (34

Recognition of net actuarial loss

    28        32        26        28   

Recognition of prior service cost

    (10     (13     (7     (11

NET PERIODIC POSTRETIREMENT BENEFIT COST

  $ 20      $ 19      $ 18      $ 15   

Cost capitalized

    (8     (7     (7     (6

Reconciliation to rate level

    6        29        1        25   

Cost charged to operating expenses

  $ 18      $ 41      $ 12      $ 34   

 

Expected Contributions

Based on estimates as of June 30, 2014, Con Edison expects to make a contribution of $7 million, nearly all of which is for CECONY, to the other postretirement benefit plans in 2014.

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

 

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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, 2014 and December 31, 2013 were as follows:

 

     Con Edison     CECONY  
(Millions of Dollars)   2014     2013     2014     2013  

Accrued Liabilities:

       

Manufactured gas plant sites

    $658        $665        $558        $562   

Other Superfund Sites

    80        84        79        82   

Total

    $738        $749        $637        $644   

Regulatory assets

    $911        $938        $806        $830   

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 plans, 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, 2014 and 2013 were as follows:

 

     For the Three Months Ended June 30,  
     Con Edison     CECONY  
(Millions of Dollars)   2014     2013     2014     2013  

Remediation costs incurred

    $5        $14        $2        $13   

Insurance recoveries received

                           

 

     For the Six Months Ended June 30,  
     Con Edison     CECONY  
(Millions of Dollars)   2014     2013     2014     2013  

Remediation costs incurred

    $14        $24        $10        $20   

Insurance recoveries received*

    5               5          

* Reduced amount deferred for recovery from customers

  

In 2013, CECONY estimated that for its manufactured gas plant sites, its aggregate undiscounted potential liability for the investigation and remediation of coal tar and/or other manufactured gas plant-related environmental contaminants could range up to $2.4 billion. In 2013, 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 $167 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 2013, Con Edison and CECONY estimated that their aggregate undiscounted potential liabilities for these suits and additional suits that may be brought over the next 15 years were $8 million and $7 million, respectively. The estimates were 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

 

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workers’ compensation benefits based on alleged disability from exposure to asbestos. Under its current rate plans, 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, 2014 and December 31, 2013 were as follows:

 

     Con Edison     CECONY  
(Millions of Dollars)   2014     2013     2014     2013  

Accrued liability – asbestos suits

  $ 8      $ 8      $ 7      $ 7   

Regulatory assets – asbestos suits

  $ 8      $ 8      $ 7      $ 7   

Accrued liability – workers’ compensation

  $ 88      $ 87      $ 82      $ 82   

Regulatory assets – workers’ compensation

  $ 12      $ 12      $ 12      $ 12   

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 90 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 notified its insurers of the incident and believes that the policies in force at the time of the incident will cover the company’s costs to satisfy its liability to others in connection with the suits. At June 30, 2014, the company had accrued its estimated liability for the suits of $50 million and an insurance receivable in the same amount.

Manhattan Explosion and Fire

On March 12, 2014, two multi-use five-story tall buildings located on Park Avenue between 116th and 117th Street in Manhattan were destroyed by an explosion and fire. CECONY had delivered gas to the buildings through service lines from a distribution main located below ground on Park Avenue. Eight people died and more than 48 people were injured. Additional buildings were also damaged. The National Transportation Safety Board is investigating. The parties to the investigation include the company, the City of New York, the Pipeline and Hazardous Materials Safety Administration and the NYSPSC (which is also conducting an investigation). Several suits are pending against the company seeking generally unspecified damages for personal injury and property damage. The company has notified its insurers of the incident and believes that the policies in force at the time of the incident will cover the company’s costs, in excess of a required retention (the amount of which is not material), to satisfy any liability it may have for damages in connection with the incident. The company is unable to estimate the amount or range of its possible loss related to the incident. At June 30, 2014, the company had not accrued a liability for the incident.

Other Contingencies

See “Other Regulatory Matters” in Note B.

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 $1,428 million and $1,331 million at June 30, 2014 and December 31, 2013, respectively.

A summary, by type and term, of Con Edison’s total guarantees at June 30, 2014 is as follows:

 

Guarantee Type   0 – 3 years     4 – 10 years     > 10 years     Total  
    (Millions of Dollars)  

Energy transactions

  $ 744      $ 25      $ 68      $ 837   

Solar energy projects

    560                      560   

Other

    31                      31   

Total

  $ 1,335      $ 25      $ 68      $ 1,428   

Energy Transactions — Con Edison guarantees payments on behalf of its competitive energy businesses in order to facilitate physical and financial transactions in natural gas, pipeline capacity, transportation, oil, electricity, renewable energy credits and energy services. To the extent that liabilities exist under the

 

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contracts subject to these guarantees, such liabilities are included in Con Edison’s consolidated balance sheet.

Solar Energy Projects — Con Edison and Con Edison Development guarantee payments associated with the investment in solar energy facilities on behalf of their wholly-owned subsidiaries. In addition, Con Edison Development has entered into two guarantees ($80 million maximum and $120 million maximum, respectively) on behalf of two entities in which it has a 50 percent interest in connection with the construction of solar energy facilities. Con Edison Development also provided $3 million in guarantees to Travelers Insurance Company for indemnity agreements for surety bonds in connection with the construction and operation of solar energy facilities performed by its subsidiaries.

Other — Other guarantees primarily relate to 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 ($25 million). In addition, Con Edison issued a guarantee to the Public Utility Commission of Texas covering obligations of Con Edison Solutions as a retail electric provider. Con Edison’s estimate of the maximum potential obligation for this guarantee is $5 million as of June 30, 2014.

Note I — Lease In/Lease Out Transactions

As a result of the January 2013 Court of Appeals decision, in March 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 its 1997 and 1999 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. In the second quarter of 2013, the 1999 LILO transaction was terminated, as a result of which the company realized a $29 million gain (after-tax). In the first quarter of 2014, the interest accrued on the liability was reduced by $13 million ($7 million, net of tax).

The effect of the LILO transactions on Con Edison’s consolidated income statement for the three and six months ended as of June 30, 2014 and 2013 was as follows:

 

     For the Three Months
Ended June 30,
    For the Six Months
Ended June 30,
 
(Millions of Dollars)   2014     2013     2014     2013  

Increase/(decrease) to non-utility operating revenues

  $      $ 51      $      $ (70)   

(Increase)/decrease to other interest expense

                  13        (131)   

Income tax benefit/(expense)

           (22)        (6)        80   

Total increase/(decrease) in net income

  $      $ 29      $ 7      $ (121)   

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 the LILO transactions in past tax years and interest thereon. During 2013, $125 million of the deposit was returned from the IRS at the company’s request. Also in 2013, the deposit balance was reduced by an additional $48 million, due to a $10 million refund from the IRS and the application of $38 million toward the settlement of tax and interest for certain tax years, primarily relating to tax liability from the LILO transactions. In the first quarter of 2014, Con Edison applied the remainder of the deposit against its federal and state tax liabilities, including interest. See “Uncertain Tax Positions” in Note J.

Note J — Income Tax

Con Edison’s income tax expense increased by $37 million for the three months ended June 30, 2014, compared to the three months ended June 30, 2013. The effective tax rate for the three months ended June 30, 2014 and 2013 was 32 percent and 27 percent, respectively. The increase in the effective tax rate was primarily attributable to lower flow-through tax deductions related to plant in the 2014 period than in the 2013 period. The lower effective tax rate in 2013 also reflected more favorable rate reconciling items related to plant.

Con Edison’s income tax expense increased by $178 million for the six months ended June 30, 2014,

 

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compared to the six months ended June 30, 2013. The effective tax rate for the six months ended June 30, 2014 and 2013 was 34 percent and 25 percent, respectively. The increase in the effective tax rate was primarily attributable to lower flow-through tax deductions related to plant in the 2014 period than in the 2013 period. Additionally, in the first quarter of 2013, the IRS accepted on audit the Company’s claim for a manufacturing tax deduction, which reduced its income tax expense by $15 million.

CECONY’s income tax expense increased by $21 million for the three months ended June 30, 2014, compared to the three months ended June 30, 2013. The effective tax rate for the three months ended June 30, 2014 and 2013 was 31 percent and 27 percent, respectively. The increase in CECONY’s effective tax rate is due primarily to higher amortization of New York State’s Metropolitan Transportation Authority business tax and lower flow-through tax deductions related to plant in the 2014 period than in the 2013 period. CECONY’s income tax expense increased by $53 million for the six months ended June 30, 2014, compared to the six months ended June 30, 2013. The effective tax for the six months ended June 30, 2014 and 2013 was 34 percent and 33 percent, respectively.

In March 2014, tax legislation was enacted in the State of New York that reduces the corporate franchise tax rate from 7.1 percent to 6.5 percent, beginning January 1, 2016. The application of this legislation decreased Con Edison’s accumulated deferred tax liabilities by $80 million ($75 million for CECONY), decreased Con Edison’s regulatory asset for future income tax by $11 million ($10 million for CECONY) and increased Con Edison’s regulatory liability by $69 million ($65 million for CECONY). The impact of this tax legislation on Con Edison’s effective tax rate was not material and there was no impact on CECONY’s effective tax rate for the six months ended June 30, 2014.

Uncertain Tax Positions

In 2014, Con Edison filed various amended state tax returns to reflect its June 2013 closing agreement with the IRS regarding the 1997 and 1999 LILO transactions (see Note I). As a result of positions taken on the amended state tax returns, Con Edison increased its estimated liabilities for uncertain tax positions by $22 million. The amended state tax returns contain uncertain tax positions unique to the states, and the returns remain open for examination. At June 30, 2014, the estimated liability for uncertain tax positions for Con Edison was $31 million and was reflected as a noncurrent liability on its consolidated balance sheet. CECONY had no liabilities for uncertain tax positions.

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 six months ended June 30, 2014, Con Edison recognized an immaterial amount of interest expense and no penalties for uncertain tax positions in its consolidated income statements. In the six months ended June 30, 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). At June 30, 2014 and December 31, 2013, Con Edison recognized an immaterial amount of accrued interest on its consolidated balance sheets.

As of June 30, 2014, Con Edison reasonably expects to resolve approximately $13 million ($8 million, net of federal taxes) of its uncertainties related to certain tax matters within the next twelve months, of which the entire amount, if recognized, would reduce Con Edison’s effective tax rate. The total amount of unrecognized tax benefits, if recognized, that would reduce Con Edison’s effective tax rate is $31 million ($20 million, net of federal taxes).

 

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Note K — 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)   2014     2013     2014     2013     2014     2013     2014     2013  

CECONY

               

Electric

  $ 1,978      $ 1,872      $ 4      $ 4      $ 195      $ 186      $ 347      $ 307   

Gas

    360        331        2        2        33        32        54        53   

Steam

    98        118        21        19        19        17        (15     (14

Consolidation adjustments

                  (27     (25                            

Total CECONY

  $ 2,436      $ 2,321      $      $      $ 247      $ 235      $ 386      $ 346   

O&R

               

Electric

  $ 157      $ 146      $      $      $ 11      $ 10      $ 25      $ 14   

Gas

    35        35                      4        4        (5     (1

Total O&R

  $ 192      $ 181      $      $      $ 15      $ 14      $ 20      $ 13   

Competitive energy businesses

  $ 284      $ 317      $ (1   $ 2      $ 4      $ 5      $ 48      $ 27   

Other*

    (1     (1     1        (2     (1     1        1          

Total Con Edison

  $ 2,911      $ 2,818      $      $      $ 265      $ 255      $ 455      $ 386   

 

* 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)   2014     2013     2014     2013     2014     2013     2014     2013  

CECONY

               

Electric

  $ 4,053      $ 3,686      $ 8      $ 8      $ 383      $ 371      $ 605      $ 495   

Gas

    1,149        991        3        3        64        64        287        296   

Steam

    439        450        41        38        39        33        138        115   

Consolidation adjustments

                  (52     (49                            

Total CECONY

  $ 5,641      $ 5,127      $      $      $ 486      $ 468      $ 1,030      $ 906   

O&R

               

Electric

  $ 320      $ 291      $      $      $ 21      $ 20      $ 37      $ 34   

Gas

    128        117                      8        8        22        27   

Total O&R

  $ 448      $ 408      $      $      $ 29      $ 28      $ 59      $ 61   

Competitive energy businesses

  $ 612      $ 469      $ 1      $ 4      $ 11      $ 10      $ 50      $ (56

Other*

    (1     (1     (1     (4                   1        1   

Total Con Edison

  $ 6,700      $ 6,003      $      $      $ 526      $ 506      $ 1,140      $ 912   

 

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

 

Note L — Derivative Instruments and Hedging Activities

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

Energy Price Hedging

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

The Companies enter into master agreements for their commodity derivatives. These agreements typically provide for 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.

 

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The fair values of the Companies’ commodity derivatives including the offsetting of assets and liabilities at June 30, 2014 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

  $ 242      $ (127   $ 115 (a)    $      $      $ 115 (a) 

Derivative liabilities

    (110     100        (10                   (10

Net derivative assets/(liabilities)

  $ 132      $ (27   $ 105 (a)    $      $      $ 105 (a) 

CECONY

           

Derivative assets

  $ 95      $ (45   $ 50 (a)    $      $      $ 50 (a) 

Derivative liabilities

    (49     43        (6)                      (6)   

Net derivative assets/(liabilities)

  $ 46      $ (2   $ 44 (a)    $      $      $ 44 (a) 

 

(a) At June 30, 2014, Con Edison and CECONY had margin deposits of $2 million and $1 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.

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

  $ 166      $ (101   $ 65 (a)    $      $      $ 65 (a) 

Derivative liabilities

    (113     98        (15                   (15

Net derivative assets/(liabilities)

  $ 53      $ (3   $ 50 (a)    $      $      $ 50 (a) 

CECONY

           

Derivative assets

  $ 41      $ (32   $ 9 (a)    $      $      $ 9 (a) 

Derivative liabilities

    (51     37        (14                   (14

Net derivative assets/(liabilities)

  $ (10   $ 5      $ (5 )(a)    $      $      $ (5 )(a) 

 

(a) At December 31, 2013, Con Edison and CECONY had margin deposits of $17 million and $16 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. Credit risk relates to the loss that may result from a counterparty’s nonperformance. 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. The Companies measure credit risk exposure as the replacement cost for open energy commodity and derivative positions plus amounts

 

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owed from counterparties for settled transactions. The replacement cost of open positions represents unrealized gains, net of any unrealized losses where the Companies have a legally enforceable right of setoff.

At June 30, 2014, Con Edison and CECONY had $141 million and $26 million of credit exposure in connection with energy supply and hedging activities, net of collateral, respectively. Con Edison’s net credit exposure consisted of $47 million with independent system operators, $49 million with commodity exchange brokers, $43 million with investment-grade counterparties and $2 million with non-investment grade/non-rated counterparties. CECONY’s net credit exposure consisted of $15 million with commodity exchange brokers and $11 million with investment-grade counterparties.

Economic Hedges

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

 

The fair values of the Companies’ commodity derivatives at June 30, 2014 were:

 

(Millions of Dollars)  

Fair Value of Commodity Derivatives(a)

Balance Sheet Location

  Con Edison     CECONY  
Derivative Assets  

Current

  Other current assets   $ 190      $ 69   

Noncurrent

  Other deferred charges and noncurrent assets     52        26   

Total derivative assets

    $ 242      $ 95   

Impact of netting

        (125     (44

Net derivative assets

  $ 117      $ 51   
Derivative Liabilities  

Current

  Fair value of derivative liabilities   $ 72      $ 25   

Noncurrent

  Fair value of derivative liabilities     38        24   

Total derivative liabilities

    $ 110      $ 49   

Impact of netting

        (100     (43

Net derivative liabilities

  $ 10      $ 6   

 

(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, 2013 were:

 

(Millions of Dollars)  

Fair Value of Commodity Derivatives(a)

Balance Sheet Location

  Con Edison     CECONY  
Derivative Assets  

Current

  Other current assets   $ 134      $ 27   

Noncurrent

  Other deferred charges and noncurrent assets     32        14   

Total derivative assets

  $ 166      $ 41   

Impact of netting

    (84     (16

Net derivative assets

  $ 82      $ 25   
Derivative Liabilities  

Current

  Fair value of derivative liabilities   $ 82      $ 32   

Noncurrent

  Fair value of derivative liabilities     31        19   

Total derivative liabilities

  $ 113      $ 51   

Impact of netting

    (98     (37

Net derivative liabilities

  $ 15      $ 14   

 

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

 

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

 

The following table presents 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, 2014:

 

Realized and Unrealized Gains/(Losses) on Commodity Derivatives(a)

Deferred or Recognized in Income for the Three Months Ended June 30, 2014

 
(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   $ 1      $ 1   

Noncurrent

  Deferred derivative gains     2        2   

Total deferred gains/(losses)

  $ 3      $ 3   

Current

  Deferred derivative losses   $ (2   $ (2

Current

  Recoverable energy costs     (7     (6

Noncurrent

  Deferred derivative losses