UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x | Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 |
I.R.S. Employer | |||
1-14514 | Consolidated Edison, Inc. | New York | 13-3965100 | |||
4 Irving Place, New York, New York 10003 | ||||||
(212) 460-4600 | ||||||
1-1217 | Consolidated Edison Company of New York, Inc. | New York | 13-5009340 | |||
4 Irving Place, New York, New York 10003 | ||||||
(212) 460-4600 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Consolidated Edison, Inc. (Con Edison) | Yes x | No ¨ | ||||||
Consolidated Edison of New York, Inc. (CECONY) | Yes x | No ¨ |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Con Edison | Yes x | No ¨ | ||||||
CECONY | Yes x | No ¨ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Con Edison | ||||||
Large accelerated filer x | Accelerated filer ¨ | Non-accelerated filer ¨ | Smaller reporting company ¨ | |||
CECONY | ||||||
Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer x | Smaller reporting company ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Con Edison | Yes ¨ | No x | ||||||
CECONY | Yes ¨ | No x |
As of October 31, 2014, Con Edison had outstanding 292,887,896 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 | |
DER | Distributed energy resources | |
DSPP | Distributed system platform provider | |
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 | |
Moodys | Moodys Investors Service | |
REV proceeding | NYSPSC proceeding in regard to reforming the energy vision | |
S&P | Standard & Poors 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 | |
Third Quarter Form 10-Q | The Companies combined Quarterly Report on Form 10-Q for the quarterly period ended September 30 of the current year | |
VaR | Value-at-Risk |
3 |
PAGE | ||||||
PART IFinancial Information | ||||||
ITEM 1 | Financial Statements (Unaudited) |
|||||
Con Edison |
||||||
6 | ||||||
7 | ||||||
8 | ||||||
9 | ||||||
11 | ||||||
CECONY |
||||||
12 | ||||||
13 | ||||||
14 | ||||||
15 | ||||||
17 | ||||||
18 | ||||||
ITEM 2 | Managements Discussion and Analysis of Financial Condition and Results of Operations |
43 | ||||
ITEM 3 | 68 | |||||
ITEM 4 | 68 | |||||
PART IIOther Information | ||||||
ITEM 1 | 69 | |||||
ITEM 1A | 69 | |||||
ITEM 2 | 70 | |||||
ITEM 6 | 71 | |||||
Signatures | 73 |
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 Edisons 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. |
5 |
Consolidated Edison, Inc. |
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
(Millions of Dollars/Except Share Data) | ||||||||||||||||
OPERATING REVENUES |
||||||||||||||||
Electric |
$2,786 | $2,822 | $7,158 | $6,799 | ||||||||||||
Gas |
237 | 225 | 1,514 | 1,333 | ||||||||||||
Steam |
46 | 72 | 485 | 522 | ||||||||||||
Non-utility |
321 | 365 | 934 | 833 | ||||||||||||
TOTAL OPERATING REVENUES |
3,390 | 3,484 | 10,091 | 9,487 | ||||||||||||
OPERATING EXPENSES |
||||||||||||||||
Purchased power |
875 | 946 | 2,621 | 2,421 | ||||||||||||
Fuel |
41 | 56 | 231 | 261 | ||||||||||||
Gas purchased for resale |
76 | 74 | 627 | 443 | ||||||||||||
Other operations and maintenance |
857 | 795 | 2,483 | 2,400 | ||||||||||||
Depreciation and amortization |
270 | 258 | 796 | 764 | ||||||||||||
Taxes, other than income taxes |
452 | 500 | 1,419 | 1,431 | ||||||||||||
TOTAL OPERATING EXPENSES |
2,571 | 2,629 | 8,177 | 7,720 | ||||||||||||
Gain on sale of solar energy projects |
| | 45 | | ||||||||||||
OPERATING INCOME |
819 | 855 | 1,959 | 1,767 | ||||||||||||
OTHER INCOME (DEDUCTIONS) |
||||||||||||||||
Investment and other income |
28 | 8 | 53 | 19 | ||||||||||||
Allowance for equity funds used during construction |
1 | 1 | 4 | 2 | ||||||||||||
Other deductions |
(3 | ) | (4 | ) | (12 | ) | (12 | ) | ||||||||
TOTAL OTHER INCOME |
26 | 5 | 45 | 9 | ||||||||||||
INCOME BEFORE INTEREST AND INCOME TAX EXPENSE |
845 | 860 | 2,004 | 1,776 | ||||||||||||
INTEREST EXPENSE |
||||||||||||||||
Interest on long-term debt |
145 | 145 | 438 | 433 | ||||||||||||
Other interest |
5 | 2 | (1 | ) | 143 | |||||||||||
Allowance for borrowed funds used during construction |
| (1 | ) | (2 | ) | (1 | ) | |||||||||
NET INTEREST EXPENSE |
150 | 146 | 435 | 575 | ||||||||||||
INCOME BEFORE INCOME TAX EXPENSE |
695 | 714 | 1,569 | 1,201 | ||||||||||||
INCOME TAX EXPENSE |
259 | 250 | 559 | 373 | ||||||||||||
NET INCOME FOR COMMON STOCK |
$ 436 | $ 464 | $1,010 | $ 828 | ||||||||||||
Net income for common stock per common sharebasic |
$ 1.49 | $ 1.58 | $ 3.45 | $ 2.83 | ||||||||||||
Net income for common stock per common sharediluted |
$ 1.48 | $ 1.58 | $ 3.44 | $ 2.81 | ||||||||||||
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK |
$0.630 | $0.615 | $1.890 | $1.845 | ||||||||||||
AVERAGE NUMBER OF SHARES OUTSTANDINGBASIC (IN MILLIONS) |
292.9 | 292.9 | 292.9 | 292.9 | ||||||||||||
AVERAGE NUMBER OF SHARES OUTSTANDINGDILUTED (IN MILLIONS) |
294.0 | 294.3 | 294.0 | 294.3 |
The accompanying notes are an integral part of these financial statements.
6 |
Consolidated Edison, Inc. |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
(Millions of Dollars) | ||||||||||||||||
NET INCOME |
$436 | $464 | $1,010 | $828 | ||||||||||||
OTHER COMPREHENSIVE INCOME, NET OF TAXES |
||||||||||||||||
Pension and other postretirement benefit plan liability adjustments, net of taxes |
1 | 2 | 6 | 7 | ||||||||||||
TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAXES |
1 | 2 | 6 | 7 | ||||||||||||
COMPREHENSIVE INCOME FOR COMMON STOCK |
$437 | $466 | $1,016 | $835 |
The accompanying notes are an integral part of these financial statements.
7 |
Consolidated Edison, Inc. |
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended September 30, |
||||||||
2014 | 2013 | |||||||
(Millions of Dollars) | ||||||||
OPERATING ACTIVITIES |
||||||||
Net Income |
$ | 1,010 | $ | 828 | ||||
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME |
||||||||
Depreciation and amortization |
796 | 764 | ||||||
Deferred income taxes |
424 | 116 | ||||||
Rate case amortization and accruals |
77 | 1 | ||||||
Common equity component of allowance for funds used during construction |
(4 | ) | (2 | ) | ||||
Net derivative gains |
(14 | ) | (6 | ) | ||||
Pre-tax gains on termination of LILO transactions |
| (95 | ) | |||||
Pre-tax gain on sale of solar energy projects |
(45 | ) | | |||||
Other non-cash items (net) |
10 | 46 | ||||||
CHANGES IN ASSETS AND LIABILITIES |
||||||||
Accounts receivable customers, less allowance for uncollectibles |
(35 | ) | (51 | ) | ||||
Special deposits |
312 | (305 | ) | |||||
Materials and supplies, including fuel oil and gas in storage |
19 | (38 | ) | |||||
Other receivables and other current assets |
(7 | ) | (8 | ) | ||||
Prepayments |
(508 | ) | (362 | ) | ||||
Accounts payable |
54 | (193 | ) | |||||
Pensions and retiree benefits obligations (net) |
612 | 665 | ||||||
Pensions and retiree benefits contributions |
(584 | ) | (887 | ) | ||||
Accrued taxes |
(428 | ) | 217 | |||||
Accrued interest |
(81 | ) | 171 | |||||
Superfund and environmental remediation costs (net) |
24 | (6 | ) | |||||
Deferred charges, noncurrent assets and other regulatory assets |
(97 | ) | (6 | ) | ||||
Deferred credits and other regulatory liabilities |
234 | 291 | ||||||
Other assets |
(3 | ) | 51 | |||||
Other liabilities |
(15 | ) | 47 | |||||
NET CASH FLOWS FROM OPERATING ACTIVITIES |
1,751 | 1,238 | ||||||
INVESTING ACTIVITIES |
||||||||
Utility construction expenditures |
(1,663 | ) | (1,701 | ) | ||||
Cost of removal less salvage |
(168 | ) | (144 | ) | ||||
Non-utility construction expenditures |
(152 | ) | (149 | ) | ||||
Investments in solar energy projects |
(172 | ) | (174 | ) | ||||
Proceeds from grants related to solar energy projects |
36 | 88 | ||||||
Proceeds from sale of solar energy projects |
108 | | ||||||
Restricted cash |
15 | (15 | ) | |||||
Proceeds from the termination of LILO transactions |
| 200 | ||||||
NET CASH FLOWS USED IN INVESTING ACTIVITIES |
(1,996 | ) | (1,895 | ) | ||||
FINANCING ACTIVITIES |
||||||||
Net issuance of short-term debt |
(26 | ) | 681 | |||||
Issuance of long-term debt |
850 | 919 | ||||||
Retirement of long-term debt |
(478 | ) | (707 | ) | ||||
Debt issuance costs |
(9 | ) | (12 | ) | ||||
Common stock dividends |
(553 | ) | (540 | ) | ||||
Issuance of common shares for stock plans, net of repurchases |
(8 | ) | (4 | ) | ||||
NET CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES |
(224 | ) | 337 | |||||
CASH AND TEMPORARY CASH INVESTMENTS: |
||||||||
NET CHANGE FOR THE PERIOD |
(469 | ) | (320 | ) | ||||
BALANCE AT BEGINNING OF PERIOD |
674 | 394 | ||||||
BALANCE AT END OF PERIOD |
$ | 205 | $ | 74 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
||||||||
Cash paid during the period for: |
||||||||
Interest |
$ | 382 | $ | 372 | ||||
Income taxes |
$ | 635 | $ | 27 |
The accompanying notes are an integral part of these financial statements.
8 |
Consolidated Edison, Inc. |
CONSOLIDATED BALANCE SHEET (UNAUDITED)
September 30, 2014 |
December 31, 2013 |
|||||||
(Millions of Dollars) | ||||||||
ASSETS |
||||||||
CURRENT ASSETS |
||||||||
Cash and temporary cash investments |
$ | 205 | $ | 674 | ||||
Special deposits |
8 | 327 | ||||||
Accounts receivable customers, less allowance for uncollectible accounts of $97 and $93 in 2014 and 2013, respectively |
1,280 | 1,251 | ||||||
Other receivables, less allowance for uncollectible accounts of $13 and $10 in 2014 and 2013, respectively |
198 | 240 | ||||||
Accrued unbilled revenue |
456 | 514 | ||||||
Fuel oil, gas in storage, materials and supplies, at average cost |
343 | 363 | ||||||
Prepayments |
644 | 136 | ||||||
Regulatory assets |
14 | 29 | ||||||
Deferred tax assets current |
33 | 122 | ||||||
Other current assets |
338 | 235 | ||||||
TOTAL CURRENT ASSETS |
3,519 | 3,891 | ||||||
INVESTMENTS |
740 | 461 | ||||||
UTILITY PLANT, AT ORIGINAL COST |
||||||||
Electric |
24,776 | 23,450 | ||||||
Gas |
5,945 | 5,494 | ||||||
Steam |
2,233 | 2,194 | ||||||
General |
2,437 | 2,336 | ||||||
TOTAL |
35,391 | 33,474 | ||||||
Less: Accumulated depreciation |
7,482 | 7,072 | ||||||
Net |
27,909 | 26,402 | ||||||
Construction work in progress |
899 | 1,393 | ||||||
NET UTILITY PLANT |
28,808 | 27,795 | ||||||
NON-UTILITY PLANT |
||||||||
Non-utility property, less accumulated depreciation of $87 and $90 in 2014 and 2013, respectively |
349 | 605 | ||||||
Construction work in progress |
82 | 36 | ||||||
NET PLANT |
29,239 | 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 |
6,552 | 7,201 | ||||||
Other deferred charges and noncurrent assets |
185 | 225 | ||||||
TOTAL OTHER NONCURRENT ASSETS |
7,169 | 7,859 | ||||||
TOTAL ASSETS |
$ | 40,667 | $ | 40,647 |
The accompanying notes are an integral part of these financial statements.
9 |
Consolidated Edison, Inc. |
CONSOLIDATED BALANCE SHEET (UNAUDITED)
September 30, 2014 |
December 31, 2013 |
|||||||
(Millions of Dollars) | ||||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
CURRENT LIABILITIES |
||||||||
Long-term debt due within one year |
$ | 210 | $ | 485 | ||||
Notes payable |
1,425 | 1,451 | ||||||
Accounts payable |
972 | 1,017 | ||||||
Customer deposits |
338 | 321 | ||||||
Accrued taxes |
48 | 476 | ||||||
Accrued interest |
164 | 249 | ||||||
Accrued wages |
97 | 92 | ||||||
Fair value of derivative liabilities |
7 | 13 | ||||||
Regulatory liabilities |
194 | 148 | ||||||
Other current liabilities |
418 | 478 | ||||||
TOTAL CURRENT LIABILITIES |
3,873 | 4,730 | ||||||
NONCURRENT LIABILITIES |
||||||||
Obligations under capital leases |
1 | 1 | ||||||
Provision for injuries and damages |
188 | 195 | ||||||
Pensions and retiree benefits |
1,106 | 1,727 | ||||||
Superfund and other environmental costs |
734 | 749 | ||||||
Asset retirement obligations |
150 | 143 | ||||||
Fair value of derivative liabilities |
3 | 5 | ||||||
Deferred income taxes and investment tax credits |
8,817 | 8,466 | ||||||
Regulatory liabilities |
1,901 | 1,728 | ||||||
Other deferred credits and noncurrent liabilities |
193 | 169 | ||||||
TOTAL NONCURRENT LIABILITIES |
13,093 | 13,183 | ||||||
LONG-TERM DEBT |
10,985 | 10,489 | ||||||
EQUITY |
||||||||
Common shareholders equity |
12,707 | 12,245 | ||||||
Noncontrolling interest |
9 | | ||||||
TOTAL EQUITY (See Statement of Equity) |
12,716 | 12,245 | ||||||
TOTAL LIABILITIES AND EQUITY |
$ | 40,667 | $ | 40,647 |
The accompanying notes are an integral part of these financial statements.
10 |
Consolidated Edison, Inc. |
CONSOLIDATED STATEMENT OF EQUITY (UNAUDITED)
Common Stock | Additional Paid-In Capital |
Retained Earnings |
Treasury Stock | Capital Expense |
Accumulated Comprehensive Income/(Loss) |
Noncontrolling Interest |
||||||||||||||||||||||||||||||||||
(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 | ||||||||||||||||||||||||||||
Net income for common stock |
464 | 464 | ||||||||||||||||||||||||||||||||||||||
Common stock dividends |
(180 | ) | (180 | ) | ||||||||||||||||||||||||||||||||||||
Issuance of common shares for stock plans, net of repurchases |
(34,931 | ) | | 34,931 | (3 | ) | (3 | ) | ||||||||||||||||||||||||||||||||
Other comprehensive income |
2 | 2 | ||||||||||||||||||||||||||||||||||||||
BALANCE AS OF SEPTEMBER 30, 2013 |
292,928,355 | $32 | $4,990 | $8,285 | 23,154,241 | $(1,034) | $(61 | ) | $(46 | ) | $ | $12,166 | ||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||
Net income for common stock |
436 | 436 | ||||||||||||||||||||||||||||||||||||||
Common stock dividends |
(185 | ) | (185 | ) | ||||||||||||||||||||||||||||||||||||
Issuance of common shares for stock plans, net of repurchases |
(6,426 | ) | | 6,426 | | | ||||||||||||||||||||||||||||||||||
Other comprehensive income |
1 | 1 | ||||||||||||||||||||||||||||||||||||||
Noncontrolling interest |
9 | 9 | ||||||||||||||||||||||||||||||||||||||
BALANCE AS OF SEPTEMBER 30, 2014 |
292,871,968 | $32 | $4,993 | $8,794 | 23,210,628 | $(1,032) | $(61 | ) | $(19 | ) | $9 | $12,716 |
The accompanying notes are an integral part of these financial statements.
11 |
Consolidated Edison Company of New York, Inc. |
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
(Millions of Dollars) | ||||||||||||||||
OPERATING REVENUES |
||||||||||||||||
Electric |
$ | 2,582 | $ | 2,622 | $ | 6,635 | $ | 6,309 | ||||||||
Gas |
210 | 199 | 1,359 | 1,190 | ||||||||||||
Steam |
46 | 72 | 485 | 522 | ||||||||||||
TOTAL OPERATING REVENUES |
2,838 | 2,893 | 8,479 | 8,021 | ||||||||||||
OPERATING EXPENSES |
||||||||||||||||
Purchased power |
573 | 624 | 1,707 | 1,548 | ||||||||||||
Fuel |
42 | 56 | 231 | 261 | ||||||||||||
Gas purchased for resale |
36 | 58 | 487 | 376 | ||||||||||||
Other operations and maintenance |
748 | 686 | 2,172 | 2,102 | ||||||||||||
Depreciation and amortization |
250 | 237 | 737 | 705 | ||||||||||||
Taxes, other than income taxes |
433 | 480 | 1,359 | 1,370 | ||||||||||||
TOTAL OPERATING EXPENSES |
2,082 | 2,141 | 6,693 | 6,362 | ||||||||||||
OPERATING INCOME |
756 | 752 | 1,786 | 1,659 | ||||||||||||
OTHER INCOME (DEDUCTIONS) |
||||||||||||||||
Investment and other income |
12 | 1 | 20 | 7 | ||||||||||||
Allowance for equity funds used during construction |
1 | 1 | 3 | 1 | ||||||||||||
Other deductions |
(3 | ) | (3 | ) | (10 | ) | (10 | ) | ||||||||
TOTAL OTHER INCOME (DEDUCTIONS) |
10 | (1 | ) | 13 | (2 | ) | ||||||||||
INCOME BEFORE INTEREST AND INCOME TAX EXPENSE |
766 | 751 | 1,799 | 1,657 | ||||||||||||
INTEREST EXPENSE |
||||||||||||||||
Interest on long-term debt |
130 | 127 | 388 | 384 | ||||||||||||
Other interest |
4 | 1 | 11 | 12 | ||||||||||||
Allowance for borrowed funds used during construction |
| | (1 | ) | (1 | ) | ||||||||||
NET INTEREST EXPENSE |
134 | 128 | 398 | 395 | ||||||||||||
INCOME BEFORE INCOME TAX EXPENSE |
632 | 623 | 1,401 | 1,262 | ||||||||||||
INCOME TAX EXPENSE |
233 | 222 | 496 | 431 | ||||||||||||
NET INCOME FOR COMMON STOCK |
$ | 399 | $ | 401 | $ | 905 | $ | 831 |
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 Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
(Millions of Dollars) | ||||||||||||||||
NET INCOME |
$399 | $401 | $905 | $831 | ||||||||||||
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 |
$399 | $401 | $906 | $831 |
The accompanying notes are an integral part of these financial statements.
13 |
Consolidated Edison Company of New York, Inc. |
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended September 30, |
||||||||
2014 | 2013 | |||||||
(Millions of Dollars) | ||||||||
OPERATING ACTIVITIES |
||||||||
Net income |
$ | 905 | $ | 831 | ||||
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME |
||||||||
Depreciation and amortization |
737 | 705 | ||||||
Deferred income taxes |
267 | 364 | ||||||
Rate case amortization and accruals |
77 | 1 | ||||||
Common equity component of allowance for funds used during construction |
(3 | ) | (1 | ) | ||||
Other non-cash items (net) |
(11 | ) | (72 | ) | ||||
CHANGES IN ASSETS AND LIABILITIES |
||||||||
Accounts receivable customers, less allowance for uncollectibles |
(11 | ) | (39 | ) | ||||
Materials and supplies, including fuel oil and gas in storage |
26 | (26 | ) | |||||
Other receivables and other current assets |
(264 | ) | (27 | ) | ||||
Prepayments |
(353 | ) | (347 | ) | ||||
Accounts payable |
(47 | ) | (180 | ) | ||||
Pensions and retiree benefits obligations (net) |
580 | 616 | ||||||
Pensions and retiree benefits contributions |
(544 | ) | (830 | ) | ||||
Superfund and environmental remediation costs (net) |
27 | (6 | ) | |||||
Accrued taxes |
(188 | ) | (92 | ) | ||||
Accrued interest |
1 | 43 | ||||||
Deferred charges, noncurrent assets and other regulatory assets |
(100 | ) | 63 | |||||
Deferred credits and other regulatory liabilities |
218 | 302 | ||||||
Other liabilities |
(11 | ) | 64 | |||||
NET CASH FLOWS FROM OPERATING ACTIVITIES |
1,306 | 1,369 | ||||||
INVESTING ACTIVITIES |
||||||||
Utility construction expenditures |
(1,554 | ) | (1,614 | ) | ||||
Cost of removal less salvage |
(163 | ) | (139 | ) | ||||
NET CASH FLOWS USED IN INVESTING ACTIVITIES |
(1,717 | ) | (1,753 | ) | ||||
FINANCING ACTIVITIES |
||||||||
Net Issuance of short-term debt |
(9 | ) | 621 | |||||
Issuance of long-term debt |
850 | 700 | ||||||
Retirement of long-term debt |
(475 | ) | (700 | ) | ||||
Debt issuance costs |
(9 | ) | (7 | ) | ||||
Dividend to parent |
(534 | ) | (545 | ) | ||||
NET CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES |
(177 | ) | 69 | |||||
CASH AND TEMPORARY CASH INVESTMENTS: |
||||||||
NET CHANGE FOR THE PERIOD |
(588 | ) | (315 | ) | ||||
BALANCE AT BEGINNING OF PERIOD |
633 | 353 | ||||||
BALANCE AT END OF PERIOD |
$ | 45 | $ | 38 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
||||||||
Cash paid during the period for: |
||||||||
Interest |
$ | 349 | $ | 336 | ||||
Income taxes |
$ | 749 | $ | 117 |
The accompanying notes are an integral part of these financial statements.
14 |
Consolidated Edison Company of New York, Inc. |
CONSOLIDATED BALANCE SHEET (UNAUDITED)
September 30, 2014 |
December 31, 2013 |
|||||||
(Millions of Dollars) | ||||||||
ASSETS |
||||||||
CURRENT ASSETS |
||||||||
Cash and temporary cash investments |
$ | 45 | $ | 633 | ||||
Special deposits |
2 | 86 | ||||||
Accounts receivable customers, less allowance for uncollectible accounts of $90 and $87 in 2014 and 2013, respectively |
1,134 | 1,123 | ||||||
Other receivables, less allowance for uncollectible accounts of $10 and $8 in 2014 and 2013, respectively |
120 | 127 | ||||||
Accrued unbilled revenue |
364 | 405 | ||||||
Accounts receivable from affiliated companies |
352 | 119 | ||||||
Fuel oil, gas in storage, materials and supplies, at average cost |
274 | 300 | ||||||
Prepayments |
455 | 102 | ||||||
Regulatory assets |
12 | 26 | ||||||
Deferred tax assets current |
14 | 100 | ||||||
Other current assets |
198 | 55 | ||||||
TOTAL CURRENT ASSETS |
2,970 | 3,076 | ||||||
INVESTMENTS |
272 | 247 | ||||||
UTILITY PLANT AT ORIGINAL COST |
||||||||
Electric |
23,309 | 22,073 | ||||||
Gas |
5,323 | 4,891 | ||||||
Steam |
2,233 | 2,194 | ||||||
General |
2,247 | 2,154 | ||||||
TOTAL |
33,112 | 31,312 | ||||||
Less: Accumulated depreciation |
6,846 | 6,469 | ||||||
Net |
26,266 | 24,843 | ||||||
Construction work in progress |
832 | 1,303 | ||||||
NET UTILITY PLANT |
27,098 | 26,146 | ||||||
NON-UTILITY PROPERTY |
||||||||
Non-utility property, less accumulated depreciation of $25 in 2014 and 2013 |
5 | 4 | ||||||
NET PLANT |
27,103 | 26,150 | ||||||
OTHER NONCURRENT ASSETS |
||||||||
Regulatory assets |
6,011 | 6,639 | ||||||
Other deferred charges and noncurrent assets |
132 | 146 | ||||||
TOTAL OTHER NONCURRENT ASSETS |
6,143 | 6,785 | ||||||
TOTAL ASSETS |
$ | 36,488 | $ | 36,258 |
The accompanying notes are an integral part of these financial statements.
15 |
Consolidated Edison Company of New York, Inc. |
CONSOLIDATED BALANCE SHEET (UNAUDITED)
September 30, 2014 |
December 31, 2013 |
|||||||
(Millions of Dollars) | ||||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
CURRENT LIABILITIES |
||||||||
Long-term debt due within one year |
$ | | $ | 475 | ||||
Notes payable |
1,201 | 1,210 | ||||||
Accounts payable |
737 | 824 | ||||||
Accounts payable to affiliated companies |
26 | 45 | ||||||
Customer deposits |
324 | 308 | ||||||
Accrued taxes |
39 | 46 | ||||||
Accrued taxes to affiliated companies |
232 | 413 | ||||||
Accrued interest |
140 | 139 | ||||||
Accrued wages |
92 | 82 | ||||||
Fair value of derivative liabilities |
2 | 12 | ||||||
Regulatory liabilities |
149 | 107 | ||||||
Other current liabilities |
346 | 385 | ||||||
TOTAL CURRENT LIABILITIES |
3,288 | 4,046 | ||||||
NONCURRENT LIABILITIES |
||||||||
Obligations under capital leases |
1 | 1 | ||||||
Provision for injuries and damages |
178 | 180 | ||||||
Pensions and retiree benefits |
877 | 1,453 | ||||||
Superfund and other environmental costs |
636 | 644 | ||||||
Asset retirement obligations |
147 | 143 | ||||||
Fair value of derivative liabilities |
2 | 3 | ||||||
Deferred income taxes and investment tax credits |
8,041 | 7,832 | ||||||
Regulatory liabilities |
1,738 | 1,598 | ||||||
Other deferred credits and noncurrent liabilities |
145 | 145 | ||||||
TOTAL NONCURRENT LIABILITIES |
11,765 | 11,999 | ||||||
LONG-TERM DEBT |
10,216 | 9,366 | ||||||
COMMON SHAREHOLDERS EQUITY (See Statement of Equity) |
11,219 | 10,847 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
$ | 36,488 | $ | 36,258 |
The accompanying notes are an integral part of these financial statements.
16 |
Consolidated Edison Company of New York, Inc. |
CONSOLIDATED STATEMENT OF EQUITY (UNAUDITED)
Common Stock | Additional Paid-In Capital |
Retained Earnings |
Repurchased Con Edison Stock |
Capital Expense |
Accumulated 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 | |||||||||||||||||||||
Net income |
401 | 401 | ||||||||||||||||||||||||||||||
Common stock dividend to parent |
(181 | ) | (181 | ) | ||||||||||||||||||||||||||||
Other comprehensive income |
| | ||||||||||||||||||||||||||||||
BALANCE AS OF SEPTEMBER 30, 2013 |
235,488,094 | $589 | $4,234 | $7,047 | $(962 | ) | $(61 | ) | $(9 | ) | $10,838 | |||||||||||||||||||||
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 | |||||||||||||||||||||
Net income |
399 | 399 | ||||||||||||||||||||||||||||||
Common stock dividend to parent |
(178 | ) | (178 | ) | ||||||||||||||||||||||||||||
Other comprehensive income |
| | ||||||||||||||||||||||||||||||
BALANCE AS OF SEPTEMBER 30, 2014 |
235,488,094 | $589 | $4,234 | $7,424 | $(962 | ) | $(61 | ) | $(5 | ) | $11,219 |
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 Edisons other utility subsidiary, Orange and Rockland Utilities, Inc. (O&R), and Con Edisons competitive energy businesses (discussed below) in Con Edisons 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 Reports on Form 10-Q for the quarterly periods ended March 31, 2014 and June 30, 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.
18 |
Note A Summary of Significant Accounting Policies
Earnings Per Common Share
For the three and nine months ended September 30, 2014 and 2013, basic and diluted earnings per share (EPS) for Con Edison are calculated as follows:
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
(Millions of Dollars, except per share amounts/Shares in Millions) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Net income for common stock |
$ | 436 | $ | 464 | $ | 1,010 | $ | 828 | ||||||||
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 |
$ | 1.49 | $ | 1.58 | $ | 3.45 | $ | 2.83 | ||||||||
Net Income for common stock per common share diluted |
$ | 1.48 | $ | 1.58 | $ | 3.44 | $ | 2.81 |
The computation of diluted EPS for the three and nine months ended September 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 nine months ended September 30, 2014 and 2013, changes to accumulated other comprehensive income (OCI) for Con Edison and CECONY are as follows:
For the Three Months Ended September 30, | ||||||||||||||||
Con Edison | CECONY | |||||||||||||||
(Millions of Dollars) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Beginning balance, accumulated OCI, net of taxes |
$ | (20 | ) | $ | (48 | ) | $ | (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) |
$ | (19 | ) | $ | (46 | ) | $ | (5 | ) | $ | (9 | ) | ||||
For the Nine Months Ended September 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 $3 and $3 for Con Edison and $- and $- for CECONY, respectively (a)(b) |
4 | 6 | 1 | | ||||||||||||
Current period total OCI, net of taxes |
$ | 6 | $ | 7 | $ | 1 | $ | | ||||||||
Ending balance, accumulated OCI, net of taxes (b) |
$ | (19 | ) | $ | (46 | ) | $ | (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. |
19 |
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&Rs 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 September 2014, the Pennsylvania Public Utility Commission (PAPUC) approved an electric rate increase, effective September 15, 2014, of $1.25 million for O&Rs Pennsylvania regulated utility subsidiary, Pike County Light & Power Company (Pike). In August 2014, the PAPUC approved a gas rate increase, effective September 1, 2014, of $100,000 for Pike.
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 companys 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 companys potential liability in this proceeding. At September 30, 2014, the company had collected an estimated $1,603 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 companys construction expenditures from January 2000 to January 2009. The company is disputing the consultants 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 NYSPSCs consultant has not reviewed the companys other expenditures. The company and NYSPSC staff are exploring a settlement in this proceeding. In May 2014, the NYSPSCs 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 September 30, 2014, the company had a $36 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 NYSPSC requires the company to refund to customers could range in amount from $25 million up to an amount based on the NYSPSC consultants $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 CECONYs steam system and interrupted service to many of its steam customers. As of September 30, 2014, CECONY and O&R incurred response and restoration costs for Superstorm Sandy of $500 million and $91 million, respectively (including capital expenditures of $148 million and $15 million, respectively). Most of the costs that were not capitalized were deferred for recovery as a regulatory
20 |
asset under the Utilities electric rate plans. See Regulatory Assets and Liabilities below. CECONYs 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. RECOs 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. CECONYs 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 fusion to join plastic pipe. CECONY and O&R have requalified their workers who perform fusion to join plastic pipe. In October 2014, CECONY and O&R submitted for NYSPSC staff review their plans for testing fusion to join plastic pipe that was performed on their gas delivery systems, additional leakage surveying and reporting.
21 |
Regulatory Assets and Liabilities
Regulatory assets and liabilities at September 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 |
$ | 2,284 | $ | 2,730 | $ | 2,185 | $ | 2,610 | ||||||||
Future income tax |
2,191 | 2,145 | 2,078 | 2,030 | ||||||||||||
Environmental remediation costs |
899 | 938 | 795 | 830 | ||||||||||||
Deferred storm costs |
348 | 441 | 252 | 334 | ||||||||||||
Revenue taxes |
218 | 207 | 207 | 196 | ||||||||||||
Surcharge for New York State assessment |
144 | 78 | 134 | 74 | ||||||||||||
Pension and other postretirement benefits deferrals |
83 | 237 | 57 | 211 | ||||||||||||
Net electric deferrals |
68 | 83 | 68 | 83 | ||||||||||||
Unamortized loss on reacquired debt |
59 | 65 | 57 | 62 | ||||||||||||
Property tax reconciliation |
32 | 22 | | | ||||||||||||
O&R transition bond charges |
28 | 33 | | | ||||||||||||
Preferred stock redemption |
27 | 28 | 27 | 28 | ||||||||||||
Workers compensation |
10 | 12 | 10 | 12 | ||||||||||||
Deferred derivative losses noncurrent |
5 | 8 | 5 | 7 | ||||||||||||
Other |
156 | 174 | 136 | 162 | ||||||||||||
Regulatory assets noncurrent |
6,552 | 7,201 | 6,011 | 6,639 | ||||||||||||
Deferred derivative losses current |
13 | 25 | 12 | 22 | ||||||||||||
Recoverable energy costs current |
1 | 4 | | 4 | ||||||||||||
Regulatory assets current |
14 | 29 | 12 | 26 | ||||||||||||
Total Regulatory Assets |
$ | 6,566 | $ | 7,230 | $ | 6,023 | $ | 6,665 | ||||||||
Regulatory liabilities |
||||||||||||||||
Allowance for cost of removal less salvage |
$ | 572 | $ | 540 | $ | 475 | $ | 453 | ||||||||
Property tax reconciliation |
294 | 322 | 294 | 322 | ||||||||||||
Net unbilled revenue deferrals |
120 | 133 | 120 | 133 | ||||||||||||
2014 rate plan base rate revenue deferral |
118 | | 118 | | ||||||||||||
Property tax refunds |
97 | 130 | 97 | 130 | ||||||||||||
Long-term interest rate reconciliation |
85 | 105 | 85 | 105 | ||||||||||||
Carrying charges on repair allowance and bonus depreciation |
80 | 98 | 64 | 87 | ||||||||||||
New York State income tax rate change |
61 | | 57 | | ||||||||||||
Unrecognized other postretirement benefits costs |
50 | | 42 | | ||||||||||||
Pension and other postretirement benefits deferrals |
49 | 50 | 41 | 50 | ||||||||||||
World Trade Center settlement proceeds |
46 | 62 | 46 | 62 | ||||||||||||
Prudence proceeding |
36 | 40 | 36 | 40 | ||||||||||||
Carrying charges on T&D net plant electric and steam |
24 | 28 | 22 | 20 | ||||||||||||
Electric excess earnings |
21 | 22 | 20 | 18 | ||||||||||||
Other |
248 | 198 | 221 | 178 | ||||||||||||
Regulatory liabilities noncurrent |
1,901 | 1,728 | 1,738 | 1,598 | ||||||||||||
Refundable energy costs current |
118 | 100 | 82 | 66 | ||||||||||||
Deferred derivative gains current |
39 | 14 | 31 | 11 | ||||||||||||
Revenue decoupling mechanism |
21 | 34 | 20 | 30 | ||||||||||||
Future income tax |
16 | | 16 | | ||||||||||||
Regulatory liabilities current |
194 | 148 | 149 | 107 | ||||||||||||
Total Regulatory Liabilities |
$ | 2,095 | $ | 1,876 | $ | 1,887 | $ | 1,705 |
22 |
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) | September 30, 2014 | December 31, 2013 | ||||||||||||||
Long-Term Debt (including current portion) | Carrying Amount |
Fair Value |
Carrying Amount |
Fair Value |
||||||||||||
Con Edison |
$ | 11,195 | $ | 12,696 | $ | 10,974 | $ | 12,082 | ||||||||
CECONY |
$ | 10,216 | $ | 11,537 | $ | 9,841 | $ | 10,797 |
Fair values of long-term debt have been estimated primarily using available market information. For Con Edison, $12,060 million and $636 million of the fair value of long-term debt at September 30, 2014 are classified as Level 2 and Level 3, respectively. For CECONY, $10,901 million and $636 million of the fair value of long-term debt at September 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 CECONYs tax-exempt, auction-rate securities for which the market is highly illiquid and there is a lack of observable inputs.
Note D Short-Term Borrowing
At September 30, 2014, Con Edison had $1,425 million of commercial paper outstanding of which $1,201 million was outstanding under CECONYs 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 CECONYs program. The weighted average interest rate was 0.2 percent for both Con Edison and CECONY. At September 30, 2014 and December 31, 2013, no loans were outstanding under the Companies credit agreement and $11 million and $26 million (including $11 million in both periods for CECONY) of letters of credit were outstanding, respectively, under the credit agreement.
23 |
Note E Pension Benefits
Net Periodic Benefit Cost
The components of the Companies net periodic benefit costs for the three and nine months ended September 30, 2014 and 2013 were as follows:
For the Three Months Ended September 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 | ) | (86 | ) | (54 | ) | (78 | ) | ||||||||
Reconciliation to rate level |
30 | (31 | ) | 28 | (34 | ) | ||||||||||
Cost charged to operating expenses |
$ | 121 | $ | 107 | $ | 111 | $ | 97 |
For the Nine Months Ended September 30, | ||||||||||||||||
Con Edison | CECONY | |||||||||||||||
(Millions of Dollars) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Service cost including administrative expenses |
$ | 170 | $ | 200 | $ | 158 | $ | 186 | ||||||||
Interest cost on projected benefit obligation |
429 | 403 | 402 | 377 | ||||||||||||
Expected return on plan assets |
(624 | ) | (563 | ) | (592 | ) | (534 | ) | ||||||||
Recognition of net actuarial loss |
464 | 624 | 439 | 591 | ||||||||||||
Recognition of prior service costs |
3 | 4 | 2 | 3 | ||||||||||||
NET PERIODIC BENEFIT COST |
$ | 442 | $ | 668 | $ | 409 | $ | 623 | ||||||||
Amortization of regulatory asset |
2 | 2 | 2 | 2 | ||||||||||||
TOTAL PERIODIC BENEFIT COST |
$ | 444 | $ | 670 | $ | 411 | $ | 625 | ||||||||
Cost capitalized |
(166 | ) | (256 | ) | (156 | ) | (241 | ) | ||||||||
Reconciliation to rate level |
86 | (55 | ) | 78 | (56 | ) | ||||||||||
Cost charged to operating expenses |
$ | 364 | $ | 359 | $ | 333 | $ | 328 |
Contributions
The Companies made contributions to the pension plan during 2014 of $564 million (of which $524 million was contributed by CECONY). The Companies policy is to fund their accounting cost to the extent tax deductible. During the first nine months of 2014, CECONY also funded $13 million for the non-qualified supplemental plans.
Mortality Table Revision
In October 2014, the Society of Actuaries issued revised mortality tables for use in estimating pension and other postretirement benefit plan obligations, accounting costs and required contribution amounts. The new mortality tables indicate substantial life expectancy improvements since the last tables published in 2000 (RP 2000). These improvements are expected to result in significant increases in future pension and other postretirement benefit plan obligations, accounting costs, and required contribution amounts for many plan sponsors. The Companies are currently evaluating the impact of the revised mortality tables on the December 31, 2014 plan obligations, future accounting costs and expected plan contributions. The Utilities, under their current New York rate plans, defer as a regulatory asset or liability, as the case may be, the differences between the actual level of expenses for pension and other postretirement benefits and amounts for those expenses reflected in rates.
24 |
Note F Other Postretirement Benefits
Net Periodic Benefit Cost
The components of the Companies net periodic postretirement benefit costs for the three and nine months ended September 30, 2014 and 2013 were as follows:
For the Three Months Ended September 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 | ) | (3 | ) | (4 | ) | (3 | ) | ||||||||
Reconciliation to rate level |
3 | 14 | 1 | 12 | ||||||||||||
Cost charged to operating expenses |
$ | 9 | $ | 20 | $ | 6 | $ | 17 |
For the Nine Months Ended September 30, | ||||||||||||||||
Con Edison | CECONY | |||||||||||||||
(Millions of Dollars) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Service cost |
$ | 14 | $ | 18 | $ | 11 | $ | 14 | ||||||||
Interest cost on accumulated other postretirement benefit obligation |
45 | 40 | 39 | 34 | ||||||||||||
Expected return on plan assets |
(58 | ) | (58 | ) | (51 | ) | (51 | ) | ||||||||
Recognition of net actuarial loss |
43 | 48 | 38 | 43 | ||||||||||||
Recognition of prior service cost |
(14 | ) | (20 | ) | (11 | ) | (17 | ) | ||||||||
NET PERIODIC POSTRETIREMENT BENEFIT COST |
$ | 30 | $ | 28 | $ | 26 | $ | 23 | ||||||||
Cost capitalized |
(11 | ) | (10 | ) | (10 | ) | (9 | ) | ||||||||
Reconciliation to rate level |
8 | 43 | 2 | 37 | ||||||||||||
Cost charged to operating expenses |
$ | 27 | $ | 61 | $ | 18 | $ | 51 |
Contributions
The Companies made 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 represents an estimate of the companys share of
25 |
undiscounted cost to investigate the sites and, for sites that have been investigated in whole or in part, the cost to remediate the sites, if remediation is necessary and if a reasonable estimate of such cost can be made. Remediation costs are estimated in light of the information available, applicable remediation standards, and experience with similar sites.
The accrued liabilities and regulatory assets related to Superfund Sites at September 30, 2014 and December 31, 2013 were as follows:
Con Edison | CECONY | |||||||||||||||
(Millions of Dollars) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Accrued Liabilities: |
||||||||||||||||
Manufactured gas plant sites |
$655 | $665 | $558 | $562 | ||||||||||||
Other Superfund Sites |
79 | 84 | 78 | 82 | ||||||||||||
Total |
$734 | $749 | $636 | $644 | ||||||||||||
Regulatory assets |
$899 | $938 | $795 | $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 nine months ended September 30, 2014 and 2013 were as follows:
For the Three Months Ended September 30, | ||||||||||||||||
Con Edison | CECONY | |||||||||||||||
(Millions of Dollars) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Remediation costs incurred |
$5 | $10 | $2 | $10 | ||||||||||||
Insurance recoveries received |
| | | |
For the Nine Months Ended September 30, | ||||||||||||||||
Con Edison | CECONY | |||||||||||||||
(Millions of Dollars) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Remediation costs incurred |
$19 | $35 | $12 | $30 | ||||||||||||
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 liability for these suits and additional suits that may be brought over the next 15 years was $8 million and $7 million, respectively. The estimates were based upon a combination of modeling, historical data analysis and risk factor assessment. In addition, certain current and former employees have claimed or are claiming
26 |
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. In the Companies estimation, there is not a reasonable possibility that an exposure to loss exists for the asbestos proceedings that is materially in excess of the estimated liability accrued. The accrued liability for asbestos suits and workers compensation proceedings (including those related to asbestos exposure) and the amounts deferred as regulatory assets for the Companies at September 30, 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 |
$ | 86 | $ | 87 | $ | 81 | $ | 82 | ||||||||
Regulatory assets workers compensation |
$ | 10 | $ | 12 | $ | 10 | $ | 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 companys costs to satisfy its liability to others in connection with the suits. In the companys estimation, there is not a reasonable possibility that an exposure to loss exists for the suits that is materially in excess of the estimated liability accrued. At September 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). Approximately 20 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 companys 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 September 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 $1,418 million and $1,331 million at September 30, 2014 and December 31, 2013, respectively.
A summary, by type and term, of Con Edisons total guarantees at September 30, 2014 is as follows:
Guarantee Type | 0 3 years | 4 10 years | > 10 years | Total | ||||||||||||
(Millions of Dollars) | ||||||||||||||||
Energy transactions |
$ | 760 | $ | 25 | $ | 96 | $ | 881 | ||||||||
Solar energy projects |
507 | | | 507 | ||||||||||||
Other |
30 | | | 30 | ||||||||||||
Total |
$ | 1,297 | $ | 25 | $ | 96 | $ | 1,418 |
27 |
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 contracts subject to these guarantees, such liabilities are included in Con Edisons 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 ($78 million maximum and $69 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 Edisons estimate of the maximum potential obligation for this guarantee is $5 million as of September 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 Lease in/Lease Out (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 and third quarters of 2013, the 1999 and the 1997 LILO transactions were terminated, as a result of which the company realized a $29 million gain (after-tax) and a $26 million gain (after-tax), respectively. 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 Edisons consolidated income statement for the three and nine months ended as of September 30, 2014 and 2013 was as follows:
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
(Millions of Dollars) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Increase/(decrease) to non-utility operating revenues |
$ | | $ | 44 | $ | | $ | (27 | ) | |||||||
(Increase)/decrease to other interest expense |
| | 13 | (131 | ) | |||||||||||
Income tax benefit/(expense) |
| (18 | ) | (6 | ) | 63 | ||||||||||
Total increase/(decrease) in net income |
$ | | $ | 26 | $ | 7 | $ | (95 | ) |
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 Internal Revenue Service (IRS) at the companys 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.
Note J Income Tax
Con Edisons income tax expense increased to $259 million for the three months ended September 30, 2014 from $250 million for the three months ended September 30, 2013. The effective tax rate for the three months ended September 30, 2014 and 2013 was 37 percent and 35 percent, respectively.
28 |
The increase in the effective tax rate was primarily attributable to the reduction in liabilities for uncertain tax positions recorded in the third quarter of 2013 (see Uncertain Tax Positions below) and lower favorable tax adjustments related to flow-through federal income tax benefits associated with plant and renewable energy credits recorded in conjunction with filing Con Edisons consolidated federal tax return in September of 2014.
Con Edisons income tax expense increased to $559 million for the nine months ended September 30, 2014 from $373 million for the nine months ended September 30, 2013. The effective tax rate for the nine months ended September 30, 2014 and 2013 was 36 percent and 31 percent, respectively. The increase in the effective tax rate was primarily attributable to the tax items discussed above and the IRS acceptance in the first quarter of 2013 of the Companys claim for a manufacturing tax deduction, which reduced the 2013 income tax expense by $15 million. Additionally, the effective tax rate is impacted by consistent flow-through items relative to lower consolidated income before income tax expense for Con Edison for the nine months ended September 30, 2013, compared to the same period in 2014.
CECONYs income tax expense increased to $233 million for the three months ended September 30, 2014 from $222 million for the three months ended September 30, 2013. The effective tax rate for the three months ended September 30, 2014 and 2013 was 37 percent and 36 percent, respectively. CECONYs income tax expense increased to $496 million for the nine months ended September 30, 2014 from $431 million for the nine months ended September 30, 2013. The effective tax rate for the nine months ended September 30, 2014 and 2013 was 35 percent and 34 percent, respectively. The increases in the effective tax rate for the three and nine months ended September 30, 2014, was primarily attributable to lower favorable tax adjustments related to flow-through federal income tax benefits associated with plant recorded in conjunction with filing CECONYs federal tax return in September of 2014.
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 Edisons accumulated deferred tax liabilities by $72 million ($67 million for CECONY), decreased Con Edisons regulatory asset for future income tax by $11 million ($10 million for CECONY) and increased Con Edisons regulatory liability by $61 million ($57 million for CECONY). The impact of this tax legislation on Con Edisons effective tax rate was not material, and there was no impact on CECONYs effective tax rate for the nine months ended September 30, 2014.
Uncertain Tax Positions
In the third quarter of 2013, the IRS completed its audits for the tax years 1998 through 2011 and the Companies recognized approximately $13 million of income tax benefits ($7 million for CECONY), including $6 million that favorably affected Con Edisons effective tax rate for the three and nine months ended September 30, 2013.
In 2014 following the conclusion of its IRS audit, Con Edison filed amended state tax returns for tax years 1998 through 2011. As a result of positions taken on the amended state tax returns, Con Edison increased its estimated liabilities for uncertain tax positions by $25 million. The amended returns contain uncertain tax positions unique to the states, and the returns remain open for examination. At September 30, 2014, the estimated liability for uncertain tax positions for Con Edison was $34 million ($2 million for CECONY) and was reflected as a noncurrent liability on its consolidated balance sheet.
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 nine months ended September 30, 2014, Con Edison recognized an immaterial amount of interest expense and no penalties for uncertain tax positions in its consolidated income statements. At September 30, 2014 and December 31, 2013, Con Edison recognized an immaterial amount of accrued interest on its consolidated balance sheets.
29 |
As of September 30, 2014, Con Edison reasonably expects to resolve approximately $25 million ($16 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 Edisons effective tax rate. The amount related to CECONY is approximately $2 million ($1 million, net of federal taxes), of which the entire amount, if recognized, would reduce CECONYs effective tax rate. The total amount of unrecognized tax benefits, if recognized, that would reduce Con Edisons effective tax rate is $34 million ($22 million, net of federal taxes).
Note K Financial Information by Business Segment
The financial data for the business segments are as follows:
For the Three Months Ended September 30, | ||||||||||||||||||||||||||||||||
Operating revenues |
Inter-segment revenues |
Depreciation and amortization |
Operating income |
|||||||||||||||||||||||||||||
(Millions of Dollars) | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | ||||||||||||||||||||||||
CECONY |
||||||||||||||||||||||||||||||||
Electric |
$ | 2,582 | $ | 2,622 | $ | 4 | $ | 4 | $ | 198 | $ | 188 | $ | 811 | $ | 811 | ||||||||||||||||
Gas |
210 | 199 | 1 | 1 | 33 | 33 | (14 | ) | (24 | ) | ||||||||||||||||||||||
Steam |
46 | 72 | 21 | 22 | 19 | 16 | (41 | ) | (35 | ) | ||||||||||||||||||||||
Consolidation adjustments |
| | (26 | ) | (27 | ) | | | | | ||||||||||||||||||||||
Total CECONY |
$ | 2,838 | $ | 2,893 | $ | | $ | | $ | 250 | $ | 237 | $ | 756 | $ | 752 | ||||||||||||||||
O&R |
||||||||||||||||||||||||||||||||
Electric |
$ | 205 | $ | 200 | $ | | $ | | $ | 12 | $ | 10 | $ | 51 | $ | 46 | ||||||||||||||||
Gas |
27 | 26 | | | 4 | 4 | (8 | ) | (7 | ) | ||||||||||||||||||||||
Total O&R |
$ | 232 | $ | 226 | $ | | $ | | $ | 16 | $ | 14 | $ | 43 | $ | 39 | ||||||||||||||||
Competitive energy businesses |
$ | 321 | $ | 365 | $ | (3 | ) | $ | | $ | 3 | $ | 6 | $ | 20 | $ | 63 | |||||||||||||||
Other* |
(1 | ) | | 3 | | 1 | 1 | | 1 | |||||||||||||||||||||||
Total Con Edison |
$ | 3,390 | $ | 3,484 | $ | | $ | | $ | 270 | $ | 258 | $ | 819 | $ | 855 |
* | Parent company expenses, primarily interest, and consolidation adjustments. Other does not represent a business segment. |
For the Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||
Operating revenues |
Inter-segment revenues |
Depreciation and amortization |
Operating Income |
|||||||||||||||||||||||||||||
(Millions of Dollars) | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | ||||||||||||||||||||||||
CECONY |
||||||||||||||||||||||||||||||||
Electric |
$ | 6,635 | $ | 6,309 | $ | 12 | $ | 12 | $ | 581 | $ | 559 | $ | 1,416 | $ | 1,307 | ||||||||||||||||
Gas |
1,359 | 1,190 | 4 | 4 | 98 | 97 | 273 | 272 | ||||||||||||||||||||||||
Steam |
485 | 522 | 62 | 60 | 58 | 49 | 97 | 80 | ||||||||||||||||||||||||
Consolidation adjustments |
| | (78 | ) | (76 | ) | | | | | ||||||||||||||||||||||
Total CECONY |
$ | 8,479 | $ | 8,021 | $ | | $ | | $ | 737 | $ | 705 | $ | 1,786 | $ | 1,659 | ||||||||||||||||
O&R |
||||||||||||||||||||||||||||||||
Electric |
$ | 525 | $ | 492 | $ | | $ | | $ | 33 | $ | 31 | $ | 87 | $ | 81 | ||||||||||||||||
Gas |
155 | 143 | | | 12 | 11 | 15 | 20 | ||||||||||||||||||||||||
Total O&R |
$ | 680 | $ | 635 | $ | | $ | | $ | 45 | $ | 42 | $ | 102 | $ | 101 | ||||||||||||||||
Competitive energy businesses |
$ | 934 | $ | 834 | $ | (2 | ) | $ | 4 | $ | 14 | $ | 16 | $ | 70 | $ | 7 | |||||||||||||||
Other* |
(2 | ) | (3 | ) | 2 | (4 | ) | | 1 | 1 | | |||||||||||||||||||||
Total Con Edison |
$ | 10,091 | $ | 9,487 | $ | | $ | | $ | 796 | $ | 764 | $ | 1,959 | $ | 1,767 |
* | 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.
30 |
Energy Price Hedging
Con Edisons 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 partys payable will be set-off by the other partys 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 September 30, 2014 were:
(Millions of Dollars) | ||||||||||||||||||||||||
Commodity Derivatives | Gross Amounts of Recognized |
Gross Amounts Offset in the Statement of Financial Position |
Net Amounts of the Statement of Financial |
Gross Amounts Not Offset in the Statement of Financial Position |
Net Amount |
|||||||||||||||||||
Financial instruments |
Cash collateral received |
|||||||||||||||||||||||
Con Edison |
||||||||||||||||||||||||
Derivative assets |
$ | 240 | $ | (138 | ) | $ | 102 | (a) | $ | | $ | | $ | 102 | (a) | |||||||||
Derivative liabilities |
(124 | ) | 114 | (10 | ) | | | (10 | ) | |||||||||||||||
Net derivative assets/(liabilities) |
$ | 116 | $ | (24 | ) | $ | 92 | (a) | $ | | $ | | $ | 92 | (a) | |||||||||
CECONY |
||||||||||||||||||||||||
Derivative assets |
$ | 103 | $ | (63 | ) | $ | 40 | (a) | $ | | $ | | $ | 40 | (a) | |||||||||
Derivative liabilities |
(69 | ) | 65 | (4) | | | (4) | |||||||||||||||||
Net derivative assets/(liabilities) |
$ | 34 | $ | 2 | $ | 36 | (a) | $ | | $ | | $ | 36 | (a) |
(a) | At September 30, 2014, Con Edison and CECONY had margin deposits of $8 million 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 |