10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x
Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2016
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 executive 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 Company 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 April 29, 2016, Con Edison had outstanding 293,996,588 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 wholly-owned 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 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.
Con Edison Transmission
 
Con Edison Transmission, Inc.
CET Electric
 
Consolidated Edison Transmission, LLC
CET Gas
 
Con Edison Gas Pipeline and Storage, LLC
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 Other Organizations
EPA
 
U. S. Environmental Protection Agency
FASB
 
Financial Accounting Standards Board
FERC
 
Federal Energy Regulatory Commission
IASB
 
International Accounting Standards Board
IRS
 
Internal Revenue Service
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
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
 
 
ASU
 
Accounting Standards Update
GAAP
 
Generally Accepted Accounting Principles in the United States of America
OCI
 
Other Comprehensive Income
VIE
 
Variable interest entity

2

Table of Contents

Environmental
 
 
CO2
 
Carbon dioxide
GHG
 
Greenhouse gases
MGP Sites
 
Manufactured gas plant sites
PCBs
 
Polychlorinated biphenyls
PRP
 
Potentially responsible party
RGGI
 
Regional Greenhouse Gas Initiative
Superfund
 
Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 and similar state statutes
 
 
 
Units of Measure
 
 
AC
 
Alternating current
Dt
 
Dekatherms
kV
 
Kilovolt
kWh
 
Kilowatt-hour
MDt
 
Thousand dekatherms
MMlb
 
Million pounds
MVA
 
Megavolt ampere
MW
 
Megawatt or thousand kilowatts
MWh
 
Megawatt hour
 
 
 
Other
 
 
AFUDC
 
Allowance for funds used during construction
AMI
 
Advanced metering infrastructure
COSO
 
Committee of Sponsoring Organizations of the Treadway Commission
DER
 
Distributed energy resources
EGWP
 
Employer Group Waiver Plan
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, 2015
LTIP
 
Long Term Incentive Plan
Moody’s
 
Moody’s Investors Service
REV
 
Reforming the Energy Vision
S&P
 
Standard & Poor’s Financial Services LLC
VaR
 
Value-at-Risk



3

Table of Contents

TABLE OF CONTENTS
 
  
  
PAGE
 
ITEM 1
Financial Statements (Unaudited)
 
 
Con Edison
 
 
 
 
 
 
 
CECONY
 
 
 
 
 
 
 
ITEM 2
ITEM 3
ITEM 4
ITEM 1
ITEM 1A
ITEM 6
 
 

4

Table of Contents



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 “forecasts,” “expects,” “estimates,” “anticipates,” “intends,” “believes,” “plans,” “will” and similar expressions identify forward-looking statements. Forward-looking statements are based on information available at the time the statements are made, and accordingly speak only as of that time. Actual results or developments might differ materially from those included in the forward-looking statements because of various factors including:
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 intentional misconduct of employees or contractors could adversely affect the Companies;
the failure of, or damage to, the Companies’ facilities could adversely affect the Companies;
a cyber attack could adversely affect the Companies;
the Companies are exposed to risks from the environmental consequences of their operations;
a disruption in the wholesale energy markets or failure by an energy supplier could adversely affect the Companies;
the Companies have substantial unfunded pension and other postretirement benefit liabilities;
Con Edison’s ability to pay dividends or interest depends on dividends from its subsidiaries;
the Companies require access to capital markets to satisfy funding requirements;
the Companies’ strategies may not be effective to address changes in the external business environment; and
the Companies also face other risks that are beyond their control.




5

Table of Contents

Consolidated Edison, Inc.
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
  
For the Three Months Ended March 31,
  
2016
2015
 
(Millions of Dollars/ Except Share Data)
OPERATING REVENUES
 
 
Electric
$1,912
$2,135
Gas
676
732
Steam
258
375
Non-utility
310
374
TOTAL OPERATING REVENUES
3,156
3,616
OPERATING EXPENSES
 
 
Purchased power
691
884
Fuel
71
154
Gas purchased for resale
158
262
Other operations and maintenance
787
814
Depreciation and amortization
297
279
Taxes, other than income taxes
510
497
TOTAL OPERATING EXPENSES
2,514
2,890
OPERATING INCOME
642
726
OTHER INCOME (DEDUCTIONS)
 
 
Investment and other income
4
5
Allowance for equity funds used during construction
2
1
Other deductions
(5)
(2)
TOTAL OTHER INCOME
1
4
INCOME BEFORE INTEREST AND INCOME TAX EXPENSE
643
730
INTEREST EXPENSE
 
 
Interest on long-term debt
163
156
Other interest
7
6
Allowance for borrowed funds used during construction
(1)
(1)
NET INTEREST EXPENSE
169
161
INCOME BEFORE INCOME TAX EXPENSE
474
569
INCOME TAX EXPENSE
164
199
NET INCOME
$310
$370
Net income per common share—basic
$1.05
$1.26
Net income per common share—diluted
$1.05
$1.26
DIVIDENDS DECLARED PER COMMON SHARE
$0.67
$0.65
AVERAGE NUMBER OF SHARES OUTSTANDING—BASIC (IN MILLIONS)
293.7
292.9
AVERAGE NUMBER OF SHARES OUTSTANDING—DILUTED (IN MILLIONS)
294.8
293.9
The accompanying notes are an integral part of these financial statements.

6

Table of Contents

Consolidated Edison, Inc.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
  
For the Three Months Ended March 31,
  
2016
2015
 
(Millions of Dollars)
NET INCOME
$310
$370
OTHER COMPREHENSIVE INCOME, NET OF TAXES
 
 
Pension and other postretirement benefit plan liability adjustments, net of taxes

5
TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAXES

5
COMPREHENSIVE INCOME
$310
$375
The accompanying notes are an integral part of these financial statements.


7

Table of Contents

Consolidated Edison, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
  
For the Three Months Ended March 31,
  
2016
2015
 
(Millions of Dollars)
OPERATING ACTIVITIES
 
 
Net income
$310
$370
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME
 
 
Depreciation and amortization
297
279
Deferred income taxes
174
178
Rate case amortization and accruals
(63)
(8)
Common equity component of allowance for funds used during construction
(2)
(1)
Net derivative (gains)/losses
64
(8)
Other non-cash items, net
35
5
CHANGES IN ASSETS AND LIABILITIES
 
 
Accounts receivable – customers
(30)
(243)
Materials and supplies, including fuel oil and gas in storage
8
40
Other receivables and other current assets
(40)
(3)
Income taxes receivable
151
224
Prepayments
(374)
(307)
Accounts payable
(84)
(58)
Pensions and retiree benefits obligations, net
139
185
Pensions and retiree benefits contributions
(153)
(204)
Accrued taxes
(11)
8
Accrued interest
54
48
Superfund and environmental remediation costs, net
55
8
Distributions from equity investments
24
17
Deferred charges, noncurrent assets and other regulatory assets
(149)
29
Deferred credits and other regulatory liabilities
110
33
Other current and noncurrent liabilities
9
(33)
NET CASH FLOWS FROM OPERATING ACTIVITIES
524
559
INVESTING ACTIVITIES
 
 
Utility construction expenditures
(603)
(550)
Cost of removal less salvage
(44)
(50)
Non-utility construction expenditures
(210)
(42)
Investments in/acquisitions of renewable electric production and gas transmission projects
(247)
(35)
Restricted cash
(1)
4
Other investing activities
(13)
6
NET CASH FLOWS USED IN INVESTING ACTIVITIES
(1,118)
(667)
FINANCING ACTIVITIES
 
 
Net payment of short-term debt
(330)
(281)
Issuance of long-term debt
218

Retirement of long-term debt
(1)

Debt issuance costs
(3)
(1)
Common stock dividends
(185)
(190)
Issuance of common shares for stock plans, net of repurchases
15
(2)
Distribution to noncontrolling interest
(1)

NET CASH FLOWS USED IN FINANCING ACTIVITIES
(287)
(474)
CASH AND TEMPORARY CASH INVESTMENTS:
 
 
NET CHANGE FOR THE PERIOD
(881)
(582)
BALANCE AT BEGINNING OF PERIOD
944
699
BALANCE AT END OF PERIOD
63
117
LESS: CHANGE IN CASH BALANCES HELD FOR SALE
2

BALANCE AT END OF PERIOD EXCLUDING HELD FOR SALE
$61
$117
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION
 
 
Cash paid/(received) during the period for:
 
 
Interest
$109
$105
Income taxes
$(143)
$(197)
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION
 
 
Construction expenditures in accounts payable
$263
$190
Issuance of common shares for dividend reinvestment
$12
$3
The accompanying notes are an integral part of these financial statements. 

8

Table of Contents

Consolidated Edison, Inc.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
 
March 31,
2016
December 31,
2015
 
(Millions of Dollars)
ASSETS
 
 
CURRENT ASSETS
 
 
Cash and temporary cash investments
$61
$944
Special deposits
10
3
Accounts receivable – customers, less allowance for uncollectible accounts of $79 and $85 in 2016 and 2015, respectively
1,085
1,052
Other receivables, less allowance for uncollectible accounts of $11 in 2016 and 2015
362
304
Income taxes receivable
15
166
Accrued unbilled revenue
285
360
Fuel oil, gas in storage, materials and supplies, at average cost
342
350
Prepayments
550
177
Regulatory assets
152
132
Assets held for sale
166
157
Other current assets
157
191
TOTAL CURRENT ASSETS
3,185
3,836
INVESTMENTS
865
884
UTILITY PLANT, AT ORIGINAL COST
 
 
Electric
26,616
26,358
Gas
6,967
6,858
Steam
2,356
2,336
General
2,625
2,622
TOTAL
38,564
38,174
Less: Accumulated depreciation
8,174
8,044
Net
30,390
30,130
Construction work in progress
1,115
1,003
NET UTILITY PLANT
31,505
31,133
NON-UTILITY PLANT
 
 
Non-utility property, less accumulated depreciation of $105 and $95 in 2016 and 2015, respectively
859
832
Construction work in progress
607
244
NET PLANT
32,971
32,209
OTHER NONCURRENT ASSETS
 
 
Goodwill
429
429
Intangible assets, less accumulated amortization of $5 and $4 in 2016 and 2015, respectively
2
2
Regulatory assets
7,930
8,096
Other deferred charges and noncurrent assets
198
186
TOTAL OTHER NONCURRENT ASSETS
8,559
8,713
TOTAL ASSETS
$45,580
$45,642
The accompanying notes are an integral part of these financial statements.
 


9

Table of Contents

Consolidated Edison, Inc.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
 
 
 
March 31,
2016
December 31,
2015
 
(Millions of Dollars)
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
CURRENT LIABILITIES
 
 
Long-term debt due within one year
$739
$739
Notes payable
1,199
1,529
Accounts payable
909
1,008
Customer deposits
356
354
Accrued taxes
51
62
Accrued interest
190
136
Accrued wages
98
97
Fair value of derivative liabilities
90
66
Regulatory liabilities
125
115
Liabilities held for sale
150
89
Other current liabilities
529
525
TOTAL CURRENT LIABILITIES
4,436
4,720
NONCURRENT LIABILITIES
 
 
Provision for injuries and damages
193
185
Pensions and retiree benefits
2,599
2,911
Superfund and other environmental costs
767
765
Asset retirement obligations
247
242
Fair value of derivative liabilities
92
39
Deferred income taxes and unamortized investment tax credits
9,770
9,537
Regulatory liabilities
1,858
1,977
Other deferred credits and noncurrent liabilities
195
199
TOTAL NONCURRENT LIABILITIES
15,721
15,855
LONG-TERM DEBT
12,222
12,006
EQUITY
 
 
Common shareholders’ equity
13,193
13,052
Noncontrolling interest
8
9
TOTAL EQUITY (See Statement of Equity)
13,201
13,061
TOTAL LIABILITIES AND EQUITY
$45,580
$45,642
The accompanying notes are an integral part of these financial statements.


10

Table of Contents

Consolidated Edison, Inc.
CONSOLIDATED STATEMENT OF EQUITY (UNAUDITED)
 
(In Millions)
Common Stock
Additional
Paid-In
Capital
Retained
Earnings
Treasury Stock
Capital
Stock
Expense
Accumulated
Other
Comprehensive
Income/(Loss)
Noncontrolling
Interest
Total
Shares
Amount
Shares
Amount
BALANCE AS OF
DECEMBER 31, 2014
293
$32
$4,991
$8,691
23
$(1,032)
$(61)
$(45)
$9
$12,585
Net income
 
 
 
370
 
 
 
 
 
370
Common stock dividends
 
 
 
(190)
 
 
 
 
 
(190)
Issuance of common shares for stock plans, net of repurchases


2
 

(2)

 
 

Other comprehensive income
 
 
 
 
 
 
 
5
 
5
BALANCE AS OF
MARCH 31, 2015
293
$32
$4,993
$8,871
23
$(1,034)
$(61)
$(40)
$9
$12,770
BALANCE AS OF DECEMBER 31, 2015
293
$32
$5,030
$9,123
23
$(1,038)
$(61)
$(34)
$9
$13,061
Net income
 
 
 
310
 
 
 
 
 
310
Common stock dividends
 
 
 
(197)
 
 
 
 
 
(197)
Issuance of common shares for stock plans, net of repurchases
1

28





 
 
28
Other comprehensive income
 
 
 
 
 
 
 

 

Noncontrolling interest
 
 
 
 
 
 
 
 
(1)
(1)
BALANCE AS OF
MARCH 31, 2016
294
$32
$5,058
$9,236
23
$(1,038)
$(61)
$(34)
$8
$13,201
The accompanying notes are an integral part of these financial statements.
 


11

Table of Contents

Consolidated Edison Company of New York, Inc.
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
  
For the Three Months Ended March 31,
  
2016
2015
 
(Millions of Dollars)
OPERATING REVENUES
 
 
Electric
$1,773
$1,980
Gas
601
655
Steam
258
375
TOTAL OPERATING REVENUES
2,632
3,010
OPERATING EXPENSES
 
 
Purchased power
352
539
Fuel
71
154
Gas purchased for resale
132
198
Other operations and maintenance
681
703
Depreciation and amortization
272
257
Taxes, other than income taxes
484
475
TOTAL OPERATING EXPENSES
1,992
2,326
OPERATING INCOME
640
684
OTHER INCOME (DEDUCTIONS)
 
 
Investment and other income
1
2
Allowance for equity funds used during construction
2
1
Other deductions
(5)
(2)
TOTAL OTHER INCOME (DEDUCTIONS)
(2)
1
INCOME BEFORE INTEREST AND INCOME TAX EXPENSE
638
685
INTEREST EXPENSE
 
 
Interest on long-term debt
144
141
Other interest
5
4
Allowance for borrowed funds used during construction
(1)

NET INTEREST EXPENSE
148
145
INCOME BEFORE INCOME TAX EXPENSE
490
540
INCOME TAX EXPENSE
180
192
NET INCOME
$310
$348
The accompanying notes are an integral part of these financial statements.
 


12

Table of Contents

Consolidated Edison Company of New York, Inc.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
 
  
For the Three Months Ended March 31,
  
2016
2015
 
(Millions of Dollars)
NET INCOME
$310
$348
OTHER COMPREHENSIVE INCOME, NET OF TAXES
 
 
Pension and other postretirement benefit plan liability adjustments, net of taxes


TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAXES


COMPREHENSIVE INCOME
$310
$348
The accompanying notes are an integral part of these financial statements.
 


13

Table of Contents

Consolidated Edison Company of New York, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
 
  
For the Three Months Ended March 31,
  
2016
2015
 
(Millions of Dollars)
OPERATING ACTIVITIES
 
 
Net income
$310
$348
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME
 
 
Depreciation and amortization
272
257
Deferred income taxes
236
127
Rate case amortization and accruals
(67)
(14)
Common equity component of allowance for funds used during construction
(2)
(1)
Other non-cash items, net
16
1
CHANGES IN ASSETS AND LIABILITIES
 
 
Accounts receivable – customers
(30)
(196)
Materials and supplies, including fuel oil and gas in storage
18
40
Other receivables and other current assets
13
57
Accounts receivable from affiliated companies
71
108
Prepayments
(324)
(278)
Accounts payable
(106)
(48)
Pensions and retiree benefits obligations, net
132
178
Pensions and retiree benefits contributions
(153)
(203)
Superfund and environmental remediation costs, net
55
7
Accrued taxes
(10)

Accrued taxes to affiliated companies
(2)
25
Accrued interest
41
39
Deferred charges, noncurrent assets and other regulatory assets
(148)
28
Deferred credits and other regulatory liabilities
111
43
Other current and noncurrent liabilities
25
(38)
NET CASH FLOWS FROM OPERATING ACTIVITIES
458
480
INVESTING ACTIVITIES
 
 
Utility construction expenditures
(565)
(519)
Cost of removal less salvage
(43)
(49)
Restricted cash
2

NET CASH FLOWS USED IN INVESTING ACTIVITIES
(606)
(568)
FINANCING ACTIVITIES
 
 
Net payment of short-term debt
(513)
(182)
Debt issuance costs
(1)
(1)
Capital contribution by parent
23

Dividend to parent
(186)
(338)
NET CASH FLOWS USED IN FINANCING ACTIVITIES
(677)
(521)
CASH AND TEMPORARY CASH INVESTMENTS:
 
 
NET CHANGE FOR THE PERIOD
(825)
(609)
BALANCE AT BEGINNING OF PERIOD
843
645
BALANCE AT END OF PERIOD
$18
$36
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION
 
 
Cash paid/(received) during the period for:
 
 
Interest
$100
$99
Income taxes
$(143)
$(86)
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION
 
 
Construction expenditures in accounts payable
$210
$138
The accompanying notes are an integral part of these financial statements 


14

Table of Contents

Consolidated Edison Company of New York, Inc.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
 
 
March 31,
2016
December 31,
2015
 
(Millions of Dollars)
ASSETS
 
 
CURRENT ASSETS
 
 
Cash and temporary cash investments
$18
$843
Special deposits
2
2
Accounts receivable – customers, less allowance for uncollectible accounts of $75 and $80 in 2016 and 2015, respectively
1,022
987
Other receivables, less allowance for uncollectible accounts of $11 in 2016 and 2015
80
70
Accrued unbilled revenue
255
327
Accounts receivable from affiliated companies
119
190
Fuel oil, gas in storage, materials and supplies, at average cost
270
288
Prepayments
437
113
Regulatory assets
139
121
Other current assets
92
131
TOTAL CURRENT ASSETS
2,434
3,072
INVESTMENTS
275
286
UTILITY PLANT, AT ORIGINAL COST
 
 
Electric
25,075
24,828
Gas
6,291
6,191
Steam
2,356
2,336
General
2,411
2,411
TOTAL
36,133
35,766
Less: Accumulated depreciation
7,496
7,378
Net
28,637
28,388
Construction work in progress
1,029
922
NET UTILITY PLANT
29,666
29,310
NON-UTILITY PROPERTY
 
 
Non-utility property, less accumulated depreciation of $25 in 2016 and 2015
5
5
NET PLANT
29,671
29,315
OTHER NONCURRENT ASSETS
 
 
Regulatory assets
7,336
7,482
Other deferred charges and noncurrent assets
70
75
TOTAL OTHER NONCURRENT ASSETS
7,406
7,557
TOTAL ASSETS
$39,786
$40,230
The accompanying notes are an integral part of these financial statements.
 


15

Table of Contents

Consolidated Edison Company of New York, Inc.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
 

 
March 31,
2016
December 31,
2015
 
(Millions of Dollars)
LIABILITIES AND SHAREHOLDER’S EQUITY
 
 
CURRENT LIABILITIES
 
 
Long-term debt due within one year
$650
$650
Notes payable
520
1,033
Accounts payable
665
771
Accounts payable to affiliated companies
12
12
Customer deposits
341
339
Accrued taxes
39
49
Accrued taxes to affiliated companies

2
Accrued interest
159
118
Accrued wages
89
88
Fair value of derivative liabilities
76
50
Regulatory liabilities
97
84
Other current liabilities
461
443
TOTAL CURRENT LIABILITIES
3,109
3,639
NONCURRENT LIABILITIES
 
 
Provision for injuries and damages
186
178
Pensions and retiree benefits
2,263
2,565
Superfund and other environmental costs
667
665
Asset retirement obligations
236
234
Fair value of derivative liabilities
84
36
Deferred income taxes and unamortized investment tax credits
9,056
8,755
Regulatory liabilities
1,672
1,789
Other deferred credits and noncurrent liabilities
163
167
TOTAL NONCURRENT LIABILITIES
14,327
14,389
LONG-TERM DEBT
10,788
10,787
COMMON SHAREHOLDER’S EQUITY (See Statement of Shareholder’s Equity)
11,562
11,415
TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY
$39,786
$40,230
The accompanying notes are an integral part of these financial statements.
 

16

Table of Contents

Consolidated Edison Company of New York, Inc.
CONSOLIDATED STATEMENT OF 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
(In Millions)
Shares
Amount
BALANCE AS OF
DECEMBER 31, 2014
235

$589
$4,234
$7,399
$(962)
$(61)
$(11)
$11,188
Net income
 
 
 
348
 
 
 
348
Common stock dividend to parent
 
 
 
(338)
 
 
 
(338)
Other comprehensive income
 
 
 
 
 
 


BALANCE AS OF MARCH 31, 2015
235

$589
$4,234
$7,409
$(962)
$(61)
$(11)
$11,198
BALANCE AS OF
DECEMBER 31, 2015
235

$589
$4,247
$7,611
$(962)
$(61)
$(9)
$11,415
Net income
 
 
 
310
 
 
 
310
Common stock dividend to parent
 
 
 
(186)
 
 
 
(186)
Capital contribution by parent
 
 
23

 
 
 
23
Other comprehensive income
 
 
 
 
 
 


BALANCE AS OF MARCH 31, 2016
235

$589
$4,270
$7,735
$(962)
$(61)
$(9)
$11,562
The accompanying notes are an integral part of these financial statements.

17

Table of Contents

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), Con Edison Transmission, Inc. (Con Edison Transmission) (discussed below) 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, 2015. 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 (see Note O) 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 (see Note O), 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 develops, owns and operates renewable and energy infrastructure projects. In addition, Con Edison has a subsidiary, Con Edison Transmission, that invests in electric transmission facilities through its subsidiary, Consolidated Edison Transmission, LLC (CET Electric), and invests in gas pipeline and storage facilities through its subsidiary Con Edison Gas Pipeline and Storage, LLC (CET Gas).

Note A – Summary of Significant Accounting Policies
Earnings Per Common Share
For the three months ended March 31, 2016 and 2015, basic and diluted earnings per share (EPS) for Con Edison are calculated as follows:
 
 
For the Three Months Ended March 31,
(Millions of Dollars, except per share amounts/Shares in Millions)
2016
2015
Net income
$310
$370
Weighted average common shares outstanding – basic
293.7
292.9
Add: Incremental shares attributable to effect of potentially dilutive securities
1.1
1.0
Adjusted weighted average common shares outstanding – diluted
294.8
293.9
Net Income per common share – basic
$1.05
$1.26
Net Income per common share – diluted
$1.05
$1.26
The computation of diluted EPS for the three months ended March 31, 2016 and 2015 excludes immaterial amounts of performance share awards that were not included because of their anti-dilutive effect.


18

Table of Contents

Changes in Accumulated Other Comprehensive Income/(Loss) by Component
For the three months ended March 31, 2016 and 2015, changes to accumulated other comprehensive income/(loss) (OCI) for Con Edison and CECONY are as follows:
 
 
For the Three Months Ended March 31,
 
        Con Edison
        CECONY
(Millions of Dollars)
2016

2015
2016

2015

Beginning balance, accumulated OCI, net of taxes (a)
$(34)
$(45)
$(9)
$(11)
OCI before reclassifications, net of tax of $1 and $(2) for Con Edison in 2016 and 2015, respectively
(1)
3


Amounts reclassified from accumulated OCI related to pension plan liabilities, net of tax of $(1) for Con Edison in 2016 and 2015 (a)(b)
1
2


Current period OCI, net of taxes

5


Ending balance, accumulated OCI, net of taxes
$(34)
$(40)
$(9)
$(11)
(a)
Tax reclassified from accumulated OCI is reported in the income tax expense line item of the income statement.
(b)
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 total periodic pension and other postretirement benefit cost. See Notes E and F.

Note B — Regulatory Matters
Rate Plans
CECONY - Electric
In March 2016, CECONY filed a preliminary update to its January 2016 request to the New York State Public Service Commission (NYSPSC) for an electric rate increase effective January 2017. The company decreased its requested January 2017 rate increase by $2 million to $480 million, decreased its illustrated January 2018 rate increase by $3 million to $177 million and did not change its illustrated January 2019 rate increase of $141 million.

In April 2016, the Federal Energy Regulatory Commission (FERC) rejected CECONY’s challenge to FERC’s approval of substantially increased charges allocated to CECONY for transmission service provided pursuant to the open access tariff of PJM Interconnection LLC (PJM). CECONY intends to continue to challenge FERC’s approval of the increased charges. Also, in April 2016, CECONY notified PJM that CECONY will not be exercising its option to continue the service beyond April 2017.

CECONY - Gas
In March 2016, CECONY filed a preliminary update to its January 2016 request to the NYSPSC for a gas rate increase effective January 2017. The company increased its requested January 2017 rate increase by $5 million to $159 million, and decreased its illustrated January 2018 and 2019 rate increases by $4 million to $93 million and by $5 million to $104 million, respectively.

Other Regulatory Matters
In April 2016, the NYSPSC approved the September 2015 Joint Proposal among, CECONY, the NYSPSC staff and others with respect to the prudence proceeding the NYSPSC commenced in February 2009 and related matters. Pursuant to the Joint Proposal, the company is required to credit $116 million to customers and, for the period 2017 through 2044, to not seek to recover from customers an aggregate $55 million relating to return on its capital expenditures. In addition, the company’s revenues that were made subject to potential refund in this proceeding are no longer subject to refund. At March 31, 2016, the company had a $98 million regulatory liability for the remaining amount to be credited to customers related to this matter.
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 fusion to join plastic pipe. CECONY and O&R have requalified their workers who perform plastic pipe fusions. In May 2015, the NYSPSC, which indicated that it would address enforcement at a later date, ordered CECONY, O&R and other gas utilities to perform risk assessment and remediation plans, additional

19

Table of Contents

leakage surveying and reporting; CECONY to hire an independent statistician to develop a risk assessment and remediation plan; and the gas utilities to implement certain new plastic fusion requirements. In December 2015, the NYSPSC staff informed O&R that the company had satisfactorily completed its risk assessment and remediation plan. CECONY expects to submit its risk assessment and remediation plan to the NYSPSC staff in 2016. The Companies are unable to estimate the amount or range of their possible loss related to this proceeding.
In November 2015, the NYSPSC ordered CECONY to show cause why the NYSPSC should not commence proceedings to penalize the company for alleged violations of gas safety regulations identified by the NYSPSC staff in its investigation of a March 2014 explosion and fire and to review the prudence of the company's conduct associated with the incident. See "Manhattan Explosion and Fire" in Note H. In December 2015, the company responded that the NYSPSC should not institute the proceedings and disputed the alleged violations. The company is unable to estimate the amount or range of its possible loss related to any such proceedings that may be instituted.
 


20

Table of Contents

Regulatory Assets and Liabilities
Regulatory assets and liabilities at March 31, 2016 and December 31, 2015 were comprised of the following items:
 
  
         Con Edison
 
        CECONY
(Millions of Dollars)
2016

2015
 
2016

2015

Regulatory assets
 
 
 
 
 
Unrecognized pension and other postretirement costs
$3,663
$3,876

$3,502
$3,697
Future income tax
2,363
2,350

2,246
2,232
Environmental remediation costs
851
904

746
800
Revenue taxes
293
253

279
240
Deferred storm costs
154
185

84
110
Deferred derivative losses
106
50

97
46
Surcharge for New York State assessment
55
44

50
40
Unamortized loss on reacquired debt
48
50

46
48
O&R property tax reconciliation
44
46



Pension and other postretirement benefits deferrals
41
45

11
16
Net electric deferrals
39
44

39
44
Preferred stock redemption
26
26

26
26
O&R transition bond charges
19
21



Workers’ compensation
16
11

16
11
Recoverable energy costs

16


15
Other
212
175

194
157
Regulatory assets – noncurrent
7,930
8,096

7,336
7,482
Deferred derivative losses
143
113

131
103
Recoverable energy costs
9
19

8
18
Regulatory assets – current
152
132

139
121
Total Regulatory Assets
$8,082
$8,228

$7,475
$7,603
Regulatory liabilities





Allowance for cost of removal less salvage
$693
$676

$586
$570
Property tax reconciliation
259
303

259
303
Prudence proceeding
98
99

98
99
Unrecognized other postretirement costs
96
28

96
28
Base rate change deferrals
95
128

95
128
Pension and other postretirement benefit deferrals
89
76

59
46
New York State income tax rate change
71
75

69
72
Variable-rate tax-exempt debt – cost rate reconciliation
67
70

58
60
Carrying charges on repair allowance and bonus depreciation
51
49

49
48
Net unbilled revenue deferrals
44
109

44
109
Property tax refunds
33
44

33
44
Net utility plant reconciliations
30
32

30
31
Earnings sharing – electric and steam
27
80

27
80
World Trade Center settlement proceeds
15
21

15
21
Other
190
187

154
150
Regulatory liabilities – noncurrent
1,858
1,977

1,672
1,789
Revenue decoupling mechanism
69
45

69
45
Refundable energy costs
53
64

26
33
Deferred derivative gains
3
6

2
6
Regulatory liabilities – current
125
115

97
84
Total Regulatory Liabilities
$1,983
$2,092

$1,769
$1,873
 


21

Table of Contents

Note C — Capitalization
In February 2016, a Con Edison Development subsidiary issued $218 million aggregate principal amount of 4.21 percent senior notes, due 2041, secured by the company's Texas Solar 7 solar project.

The carrying amounts and fair values of long-term debt at March 31, 2016 and December 31, 2015 were:
 
(Millions of Dollars)
2016
2015
Long-Term Debt (including current portion)
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Con Edison
$12,961
$14,710
$12,745
$13,856
CECONY
$11,438
$12,995
$11,437
$12,427
 
Fair values of long-term debt have been estimated primarily using available market information. For Con Edison, $14,074 million and $636 million of the fair value of long-term debt at March 31, 2016 are classified as Level 2 and Level 3, respectively. For CECONY, $12,359 million and $636 million of the fair value of long-term debt at March 31, 2016 are classified as Level 2 and Level 3, respectively (see Note L). The $636 million of long-term debt classified as Level 3 is CECONY’s tax-exempt, auction-rate securities for which the market is highly illiquid and there is a lack of observable inputs.

Note D — Short-Term Borrowing
At March 31, 2016, Con Edison had $1,199 million of commercial paper outstanding of which $520 million was outstanding under CECONY’s program. The weighted average interest rate at March 31, 2016 was 0.7 percent for both Con Edison and CECONY. At December 31, 2015, Con Edison had $1,529 million of commercial paper outstanding of which $1,033 million was outstanding under CECONY’s program. The weighted average interest rate at December 31, 2015 was 0.7 percent for both Con Edison and CECONY.
At March 31, 2016 and December 31, 2015, no loans were outstanding under the credit agreement (Credit Agreement) and $2 million (including $2 million for CECONY) and $15 million of letters of credit were outstanding under the Credit Agreement, respectively.

Note E — Pension Benefits
Total Periodic Benefit Cost
The components of the Companies’ total periodic benefit costs for the three months ended March 31, 2016 and 2015 were as follows:
 
 
For the Three Months Ended March 31,
  
           Con Edison
         CECONY
(Millions of Dollars)
2016
2015
2016

2015

Service cost – including administrative expenses
$69
$74
$65
$70
Interest cost on projected benefit obligation
149
144
140
135
Expected return on plan assets
(237)
(222)
(225)
(210)
Recognition of net actuarial loss
149
194
141
183
Recognition of prior service costs
1
1


TOTAL PERIODIC BENEFIT COST
$131
$191
$121
$178
Cost capitalized
(52)
(68)
(49)
(65)
Reconciliation to rate level
12
(24)
13
(24)
Cost charged to operating expenses
$91
$99
$85
$89

Expected Contributions
Based on estimates as of March 31, 2016, the Companies expect to make contributions to the pension plans during 2016 of $507 million (of which $469 million is to be contributed by CECONY) and $17 million related to the CECONY external trust for supplemental retirement plans. The Companies’ policy is to fund the total periodic benefit cost of the qualified plan to the extent tax deductible and to also contribute to the non-qualified supplemental plans. During the first three months of 2016, the Companies contributed $153 million to the pension plans, nearly all of which was contributed by CECONY.
 

22

Table of Contents

Note F — Other Postretirement Benefits
Total Periodic Benefit Cost
The components of the Companies’ total periodic other postretirement benefit costs for the three months ended March 31, 2016 and 2015 were as follows:
 
 
For the Three Months Ended March 31,
  
          Con Edison
          CECONY
(Millions of Dollars)
2016
2015
2016
2015
Service cost
$4
$5
$3
$4
Interest cost on accumulated other postretirement benefit obligation
12
13
10
11
Expected return on plan assets
(19)
(20)
(17)
(17)
Recognition of net actuarial loss
1
8
1
7
Recognition of prior service cost
(5)
(5)
(4)
(4)
TOTAL PERIODIC OTHER POSTRETIREMENT BENEFIT COST
$(7)
$1
$(7)
$1
Cost capitalized
2
(1)
2
(1)
Reconciliation to rate level
7
4
7
2
Cost charged to operating expenses
$2
$4
$2
$2

Contributions
Based on estimates as of March 31, 2016, Con Edison expects to make a contribution of $6 million, nearly all of which is for CECONY, to the other postretirement benefit plans in 2016. The Companies' policy is to fund the total periodic benefit cost of the plans to the extent tax deductible.

Note G — Environmental Matters
Superfund Sites
Hazardous substances, such as asbestos, polychlorinated biphenyls (PCBs) and coal tar, have been used or generated in the course of operations of the Utilities and their predecessors and are present at sites and in facilities and equipment they currently or previously owned, including sites at which gas was manufactured or stored.
The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 and similar state statutes (Superfund) impose joint and several liability, regardless of fault, upon generators of hazardous substances for investigation and remediation costs (which include costs of demolition, removal, disposal, storage, replacement, containment and monitoring) and natural resource damages. Liability under these laws can be material and may be imposed for contamination from past acts, even though such past acts may have been lawful at the time they occurred. The sites at which the Utilities have been asserted to have liability under these laws, including their manufactured gas plant sites and any neighboring areas to which contamination may have migrated, are referred to herein as “Superfund Sites.”
For Superfund Sites where there are other potentially responsible parties and the Utilities are not managing the site investigation and remediation, the accrued liability represents an estimate of the amount the Utilities will need to pay to investigate and, where determinable, discharge their related obligations. For Superfund Sites (including the manufactured gas plant sites) for which one of the Utilities is managing the investigation and remediation, the accrued liability represents an estimate of the company’s share of the 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 March 31, 2016 and December 31, 2015 were as follows:
 
        Con Edison
        CECONY
(Millions of Dollars)
2016
2015
2016
2015
Accrued Liabilities:
 
 
 
 
Manufactured gas plant sites
$678
$679
$578
$579
Other Superfund Sites
89
86
89
86
Total
$767
$765
$667
$665
Regulatory assets
$851
$904
$746
$800

23

Table of Contents

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. The Companies are unable to estimate the time period over which the remaining accrued liability will be incurred because, among other things, the required remediation has not been determined for some of the sites. 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 related to Superfund Sites for the three months ended March 31, 2016 and 2015 were as follows: 
 
For the Three Months Ended March 31,
 
          Con Edison
     CECONY
(Millions of Dollars)
2016
2015
2016
2015
Remediation costs incurred
$3
$7
$3
$6

No insurance recoveries were received by Con Edison or CECONY for the three months ended March 31, 2016 or 2015.
In 2015, Con Edison and CECONY estimated that for their manufactured gas plant sites (including CECONY’s Astoria site), the aggregate undiscounted potential liability for the investigation and remediation of coal tar and/or other environmental contaminants could range up to $2.8 billion and $2.7 billion, respectively. 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. At March 31, 2016, Con Edison and CECONY had accrued their estimated aggregate undiscounted potential liabilities for these suits and additional suits that may be brought over the next 15 years as shown in the following table. The estimates were based upon a combination of modeling, historical data analysis and risk factor assessment. Trial courts have begun, and unless otherwise determined by an appellate court may continue, to apply a different standard for determining liability in asbestos suits than the standard that applied historically. As a result, the Companies currently believe that there is a reasonable possibility of an exposure to loss in excess of the liability accrued for the suits. The Companies are unable to estimate the amount or range of such loss. In addition, certain current and former employees have claimed or are claiming workers’ compensation benefits based on alleged disability from exposure to asbestos. Under its current rate 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 March 31, 2016 and December 31, 2015 were as follows:
 
 
          Con Edison
     CECONY
(Millions of Dollars)
2016
2015
2016
2015
Accrued liability – asbestos suits
$8
$8
$7
$7
Regulatory assets – asbestos suits
$8
$8
$7
$7
Accrued liability – workers’ compensation
$91
$86
$86
$81
Regulatory assets – workers’ compensation
$16
$11
$16
$11


24

Table of Contents

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 eighty suits are pending against the company seeking generally unspecified compensatory and, in some cases, punitive damages, for wrongful death, 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. In the company’s 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 March 31, 2016, the company has 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 50 people were injured. Additional buildings were also damaged. The National Transportation Safety Board (NTSB) investigated. The parties to the investigation included the company, the City of New York, the Pipeline and Hazardous Materials Safety Administration and the NYSPSC (which also conducted an investigation). In June 2015, the NTSB issued a final report concerning the incident, its probable cause and safety recommendations. The NTSB determined that the probable cause of the incident was (1) the failure of a defective fusion joint at a service tee (which joined a plastic service line to a plastic distribution main) installed by the company that allowed gas to leak from the distribution main and migrate into a building where it ignited and (2) a breach in a City sewer line that allowed groundwater and soil to flow into the sewer, resulting in a loss of support for the distribution main, which caused it to sag and overstressed the defective fusion joint. The NTSB also made safety recommendations, including recommendations to the company that addressed its procedures for the preparation and examination of plastic fusions, training of its staff on conditions for notifications to the City’s Fire Department and extension of its gas main isolation valve installation program. Approximately 70 suits are pending against the company seeking generally unspecified damages and, in some cases, punitive damages, for wrongful death, 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, 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 March 31, 2016, the company had not accrued a liability for the incident.
Other Contingencies
See “Other Regulatory Matters” in Note B and “Uncertain Tax Positions” in Note I.
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 $2,705 million and $2,856 million at March 31, 2016 and December 31, 2015, respectively.
A summary, by type and term, of Con Edison’s total guarantees at March 31, 2016 is as follows:
 
Guarantee Type
0 – 3 years
4 – 10 years

> 10 years

Total
 
(Millions of Dollars)
Con Edison Transmission
$791
$592

$—

$1,383
Energy transactions
707
41
90
838
Renewable electric production projects
388

21
409
Other
75


75
Total
$1,961
$633
$111
$2,705
Con Edison Transmission — Con Edison has guaranteed payment by CET Electric of the contributions CET Electric agreed to make to New York Transco LLC (NY Transco). CET Electric acquired a 45.7 percent interest in NY Transco when it was formed in 2014. NY Transco’s transmission projects are expected to be developed initially by CECONY and other New York transmission owners and then transferred to NY Transco. The project transfers are subject to authorizations from the NYSPSC, the FERC and, as applicable, other federal, state and local

25

Table of Contents

agencies. Guarantee amount shown is for the maximum possible required amount of Con Edison Transmission’s contributions, which assumes that all of the NY Transco projects proposed when NY Transco was formed receive all required regulatory approvals and are completed at 175 percent of their estimated costs and that NY Transco does not use any debt financing for the projects. Guarantee term shown is assumed as the timing of the contributions is not certain. Also included within the table above is a guarantee for $25 million from Con Edison on behalf of CET Gas in relation to a proposed gas transmission project in West Virginia and Virginia. See Note P.
Energy Transactions — Con Edison guarantees payments on behalf of its competitive energy businesses in order to facilitate physical and financial transactions in electricity, gas, pipeline capacity, transportation, oil, renewable energy credits and energy services. To the extent that liabilities exist under the contracts subject to these guarantees, such liabilities are included in Con Edison’s consolidated balance sheet.
Renewable Electric Production Projects — Con Edison, Con Edison Development, and Con Edison Solutions guarantee payments associated with the investment in solar and wind energy facilities on behalf of their wholly-owned subsidiaries.
Other — Other guarantees primarily relate to $70 million in guarantees provided by Con Edison to Travelers Insurance Company for indemnity agreements for surety bonds in connection with energy service projects and operation of solar energy facilities of Con Edison Solutions and Con Edison Development, respectively. In addition, Con Edison issued a guarantee estimated at $5 million to the Public Utility Commission of Texas covering obligations of Con Edison Solutions as a retail electric provider.
In addition to the guarantees included in the table above, in April 2016, Con Edison guaranteed (subject to a $946 million maximum amount) certain obligations of a CET Gas subsidiary under the agreement to purchase a 50 percent equity interest in a gas pipeline and storage joint venture. See Note P.

Note I — Income Tax
Con Edison’s income tax expense decreased to $164 million for the three months ended March 31, 2016 from $199 million for the three months ended March 31, 2015. Con Edison's effective tax rate for the three months ended March 31, 2016 and 2015 was 35 percent. For the three months ended March 31, 2016, Con Edison recorded income tax benefits for research and development tax credits, which were primarily offset by a decrease in tax benefits for plant-related flow through items due to a change in regulatory accounting.

CECONY’s income tax expense decreased to $180 million for the three months ended March 31, 2016 from $192 million for the three months ended March 31, 2015. CECONY's effective tax rate for the three months ended March 31, 2016 and 2015 was 37 percent and 36 percent, respectively. The increase in CECONY's effective tax rate is primarily related to a decrease in tax benefits for plant-related flow through items due to a change in regulatory accounting, partially offset by research and development tax credits.

Con Edison anticipates a federal consolidated net operating loss for 2016, primarily due to bonus depreciation. Con Edison expects to carryback a portion of its 2016 net operating loss to 2014 and recover $10 million of income tax. General business tax credits that became available as a result of the net operating loss carryback to 2014, as well as the remaining 2016 net operating loss will be carried forward to future tax years. A deferred tax asset for these tax attribute carryforwards were recorded, and no valuation allowance has been provided, as it is more likely than not that the deferred tax asset will be realized.

Uncertain Tax Positions
At March 31, 2016, the estimated liability for uncertain tax positions for Con Edison was $36 million ($4 million for CECONY). Con Edison reasonably expects to resolve approximately $27 million ($18 million, net of federal taxes) of its uncertain tax positions within the next twelve months, of which the entire amount, if recognized, would reduce Con Edison’s effective tax rate. The amount related to CECONY is approximately $4 million ($3 million, net of federal taxes), of which the entire amount, if recognized, would reduce CECONY’s effective tax rate. The total amount of unrecognized tax benefits, if recognized, that would reduce Con Edison’s effective tax rate is $36 million ($24 million, net of federal taxes).
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 three months ended March 31, 2016, the Companies recognized an immaterial amount of interest expense and no penalties for uncertain tax positions in their consolidated income statements. At March 31, 2016 and December 31, 2015, the Companies recognized an immaterial amount of accrued interest on their consolidated balance sheets.

26

Table of Contents


Note J — Financial Information by Business Segment
The financial data for the business segments are as follows:
 
  
For the Three Months Ended March 31,
  
Operating
revenues
Inter-segment
revenues
Depreciation and
amortization
Operating
income
(Millions of Dollars)
2016

2015

2016

2015

2016

2015

2016

2015

CECONY
 
 
 
 
 
 
 
 
Electric
$1,773
$1,980
$4
$4
$213
$202
$273
$279
Gas
601
655
1
1
38
35
253
241
Steam
258
375
22
22
21
20
114
164
Consolidation adjustments


(27)
(27)




Total CECONY
$2,632
$3,010

$—


$—

$272
$257
$640
$684
O&R
 
 
 
 
 
 
 
 
Electric
$140
$156

$—


$—

$12
$12
$18
$18
Gas
75
77


5
5
35
27
Total O&R
$215
$233

$—


$—

$17
$17
$53
$45
Competitive energy businesses
$310
$374
$6
$(3)
$9
$5
$(51)
$(3)
Other (a)
(1)
(1)
(6)
3
(1)



Total Con Edison
$3,156
$3,616

$—


$—

$297
$279
$642
$726
(a)
Parent company, consolidation adjustments and Con Edison Transmission. Other does not represent a business segment.

Note K — Derivative Instruments and Hedging Activities
Con Edison’s subsidiaries hedge market price fluctuations associated with physical purchases and sales of electricity, natural gas, steam and, to a lesser extent, refined fuels by using derivative instruments including futures, forwards, basis swaps, options, transmission congestion contracts and financial transmission rights contracts. Derivatives are recognized on the consolidated balance sheet at fair value (see Note L), unless an exception is available under the accounting rules for derivatives and hedging. Qualifying derivative contracts that have been designated as normal purchases or normal sales contracts are not reported at fair value under the accounting rules.
 

27

Table of Contents

The fair values of the Companies’ commodity derivatives including the offsetting of assets and liabilities on the consolidated balance sheet at March 31, 2016 and December 31, 2015 were:
 
(Millions of Dollars)
2016
 
2015
 
Balance Sheet Location
Gross Amounts of
Recognized
Assets/(Liabilities)
Gross
Amounts
Offset
Net Amounts
of Assets/
(Liabilities) (a)
 
Gross Amounts of
Recognized
Assets/(Liabilities)
Gross
Amounts
Offset
Net Amounts
of Assets/
(Liabilities) (a)
 
Con Edison
 
 
 
 
 
 
 
 
Fair value of derivative assets
 
 
 
 
 
 
 
 
Current
$42
$(34)
$8
(b)
$59
$(41)
$18
(b)
Current - assets held for sale (c)
55
(54)
1
 
51
(50)
1
 
Noncurrent
25
(24)
1
 
57
(54)
3
 
Noncurrent - assets held for sale (c)
13
(13)

 
15
(15)

 
Total fair value of derivative assets
$135
$(125)
$10
 
$182
$(160)
$22
 
Fair value of derivative liabilities
 
 
 
 
 
 
 
 
Current
$(169)
$79
$(90)
 
$(144)
$78
$(66)
 
Current - liabilities held for sale (c)
(152)
54
(98)
 
(115)
50
(65)
 
Noncurrent
(128)
36
(92)
 
(102)
63
(39)
 
Noncurrent - liabilities held for sale (c)
(54)
13
(41)
 
(28)
15
(13)
 
Total fair value of derivative liabilities
$(503)
$182
$(321)
 
$(389)
$206
$(183)
 
Net fair value derivative assets/(liabilities)
$(368)
$57
$(311)
(b)
$(207)
$46
$(161)
(b)
CECONY
 
 
 
 
 
 
 
 
Fair value of derivative assets
 
 
 
 
 
 
 
 
Current
$25
$(23)
$2
(b)
$40
$(32)
$8
(b)
Noncurrent
15
(15)

 
48
(47)
1
 
Total fair value of derivative assets
$40
$(38)
$2
 
$88
$(79)
$9
 
Fair value of derivative liabilities
 
 
 
 
 
 
 
 
Current
$(145)
$69
$(76)
 
$(121)
$71
$(50)
 
Noncurrent
(112)
28
(84)
 
(92)
56
(36)
 
Total fair value of derivative liabilities
$(257)
$97
$(160)
 
$(213)
$127
$(86)
 
Net fair value derivative assets/(liabilities)
$(217)
$59
$(158)
(b)
$(125)
$48
$(77)
(b)
(a)
Derivative instruments and collateral were offset on the consolidated balance sheet as applicable under the accounting rules. The Companies enter into master agreements for their commodity derivatives. These agreements typically provide offset in the event of contract termination. In such case, generally the non-defaulting party’s payable will be offset by the defaulting 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.
(b)
At March 31, 2016 and December 31, 2015, margin deposits for Con Edison ($18 million and $26 million, respectively) and CECONY ($18 million and $26 million, respectively) were classified as derivative assets on the consolidated balance sheet, but not included in the table. Margin is collateral, typically cash, that the holder of a derivative instrument is required to deposit in order to transact on an exchange and to cover its potential losses with its broker or the exchange.
(c)
Amounts represent derivative assets and liabilities included in assets and liabilities held for sale on the consolidated balance sheet (see Note O).

The Utilities generally recover their prudently incurred fuel, purchased power and gas costs, including hedging gains and losses, in accordance with rate provisions approved by the applicable state utility regulators. 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 purchased power, gas purchased for resale and non-utility revenue in the reporting period in which they occur. Management believes that these derivative instruments represent economic hedges that mitigate exposure to fluctuations in commodity prices.
 

28

Table of Contents

The following table presents the realized and unrealized gains or losses on commodity derivatives that have been deferred or recognized in earnings for the three months ended March 31, 2016 and 2015:
 
 
 
For the Three Months Ended March 31,
 
 
          Con Edison
 
          CECONY
(Millions of Dollars)
Balance Sheet Location
2016

 
2015

 
2016

2015

Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:
 
 
 
Current
Deferred derivative gains
$(4)
 
$3
 
$(4)
$3
Noncurrent
Deferred derivative gains

 

 
(1)

Total deferred gains/(losses)
 
$(4)
 
$3
 
$(5)
$3
Current
Deferred derivative losses
$(30)
 
$43
 
$(28)
$41
Current
Recoverable energy costs
(73)
 

 
(66)
(2)
Noncurrent
Deferred derivative losses
(56)
 
(19)
 
(51)
(16)
Total deferred gains/(losses)
 
$(159)
 
$24
 
$(145)
$23
Net deferred gains/(losses)
 
$(163)
 
$27
 
$(150)
$26
 
Income Statement Location
 
 
 
 
 
 
Pre-tax gain/(loss) recognized in income
 
 
 
 
 
 
 
Purchased power expense
$(114)
(a)
$21
(b)

$—


$—

 
Gas purchased for resale
(10)
 
(42)
 


 
Non-utility revenue
11
(a)
42
(b)


Total pre-tax gain/(loss) recognized in income
$(113)
 
$21
 

$—


$—

(a)
For the three months ended March 31, 2016, Con Edison recorded unrealized pre-tax losses in non-utility operating revenue ($1 million loss) and purchased power expense ($62 million loss).
(b)
For the three months ended March 31, 2015, Con Edison recorded unrealized pre-tax gains and losses in non-utility operating revenue ($4 million loss) and purchased power expense ($12 million gain).

The following table presents the hedged volume of Con Edison’s and CECONY’s derivative transactions at March 31, 2016:
 
 
Electric Energy
(MWh) (a)(b)
Capacity (MW) (a)
Natural Gas
(Dt) (a)(b)
Refined Fuels
(gallons)
Con Edison (c)
34,331,960

26,658

43,472,324

5,376,000

CECONY
17,173,925

12,000

40,280,000

5,376,000

(a)
Volumes are reported net of long and short positions, except natural gas collars where the volumes of long positions are reported.
(b)
Excludes electric congestion and gas basis swap contracts, which are associated with electric and gas contracts and hedged volumes.
(c)
Includes 15,495,945 MWh for electric energy, 11,817 MW for capacity and 552,073 Dt for natural gas derivative transactions that are held for sale.

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 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 to offset.
At March 31, 2016, Con Edison and CECONY had $209 million and $17 million of credit exposure in connection with energy supply and hedging activities, net of collateral, respectively. Con Edison’s net credit exposure consisted of $112 million with commodity exchange brokers, $63 million with independent system operators, $27 million with investment-grade counterparties and $7 million with non-investment grade/non-rated counterparties. CECONY’s net credit exposure was with commodity exchange brokers.
The collateral requirements associated with, and settlement of, derivative transactions are included in net cash flows from operating activities in the Companies’ consolidated statement of cash flows. Most derivative instrument contracts contain provisions that may require a party to provide collateral on its derivative instruments that are in a net liability position. The amount of collateral to be provided will depend on the fair value of the derivative instruments and the party’s credit ratings.

29

Table of Contents

 
The following table presents the aggregate fair value of the Companies’ derivative instruments with credit-risk-related contingent features that are in a net liability position, the collateral posted for such positions and the additional collateral that would have been required to be posted had the lowest applicable credit rating been reduced one level and to below investment grade at March 31, 2016:
 
(Millions of Dollars)
Con Edison (a)
 
CECONY (a)
 
Aggregate fair value – net liabilities
$187
 
$152
 
Collateral posted
45
 
44
 
Additional collateral (b) (downgrade one level from current ratings)
30
 
20
 
Additional collateral (b) (downgrade to below investment grade from current ratings)
192
(c)
148
(c)
(a)
Non-derivative transactions for the purchase and sale of electricity and gas and qualifying derivative instruments, which have been designated as normal purchases or normal sales, are excluded from the table. These transactions primarily include purchases of electricity from independent system operators. In the event the Utilities and the competitive energy businesses were no longer extended unsecured credit for such purchases, the Companies would be required to post additional collateral of $7 million at March 31, 2016. For certain other such non-derivative transactions, the Companies could be required to post collateral under certain circumstances, including in the event counterparties had reasonable grounds for insecurity.
(b)
The Companies measure the collateral requirements by taking into consideration the fair value amounts of derivative instruments that contain credit-risk-related contingent features that are in a net liabilities position plus amounts owed to counterparties for settled transactions and amounts required by counterparties for minimum financial security. The fair value amounts represent unrealized losses, net of any unrealized gains where the Companies have a legally enforceable right to offset.
(c)
Derivative instruments that are net assets have been excluded from the table. At March 31, 2016, if Con Edison had been downgraded to below investment grade, it would have been required to post additional collateral for such derivative instruments of $16 million.

Note L — Fair Value Measurements
The accounting rules for fair value measurements and disclosures define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in a principal or most advantageous market. Fair value is a market-based measurement that is determined based on inputs, which refer broadly to assumptions that market participants use in pricing assets or liabilities. These inputs can be readily observable, market corroborated, or generally unobservable firm inputs. The Companies often make certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, and the risks inherent in the inputs to valuation techniques. The Companies use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.
The accounting rules for fair value measurements and disclosures established a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value in three broad levels. The rules require that assets and liabilities be classified in their entirety based on the level of input that is significant to the fair value measurement. Assessing the significance of a particular input may require judgment considering factors specific to the asset or liability, and may affect the valuation of the asset or liability and their placement within the fair value hierarchy. The Companies classify fair value balances based on the fair value hierarchy defined by the accounting rules for fair value measurements and disclosures as follows:
Level 1 – Consists of assets or liabilities whose value is based on unadjusted quoted prices in active markets at the measurement date. An active market is one in which transactions for assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis. This category includes contracts traded on active exchange markets valued using unadjusted prices quoted directly from the exchange.
Level 2 – Consists of assets or liabilities valued using industry standard models and based on prices, other than quoted prices within Level 1, that are either directly or indirectly observable as of the measurement date. The industry standard models consider observable assumptions including time value, volatility factors and current market and contractual prices for the underlying commodities, in addition to other economic measures. This category includes contracts traded on active exchanges or in over-the-counter markets priced with industry standard models.
Level 3 – Consists of assets or liabilities whose fair value is estimated based on internally developed models or methodologies using inputs that are generally less readily observable and supported by little, if any, market activity at the measurement date. Unobservable inputs are developed based on the best available information and subject to cost benefit constraints. This category includes contracts priced using models that are internally developed and contracts placed in illiquid markets. It also includes contracts that expire after the period of time for which quoted prices are available and internal models are used to determine a significant portion of the value.

30

Table of Contents

 
Assets and liabilities measured at fair value on a recurring basis as of March 31, 2016 and December 31, 2015 are summarized below.
 
  
2016
2015
(Millions of Dollars)
Level 1
Level 2
Level 3
Netting
Adjustment (e)
Total
Level 1
Level 2
Level 3
Netting
Adjustment (e)
Total
Con Edison
 
 
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
 
 
Commodity (a)(b)(c)

$—

$19
$6
$2
$27
$2
$25
$13
$7
$47
Commodity held for sale (f)

51
2
(52)
1

63
1
(63)
1
Other (a)(b)(d)
174
113


287
185
112


297
Total assets
$174
$183
$8
$(50)
$315
$187
$200
$14
$(56)
$345
Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
Commodity (a)(b)(c)
$12
$241
$2
$(73)
$182
$16
$153
$1
$(65)
$105
Commodity held for sale (f)
1
180
10
(52)
139
1
133
7
(63)
78
Total liabilities
$13
$421
$12
$(125)
$321
$17
$286
$8
$(128)
$183
CECONY
 
 
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
 
 
Commodity (a)(b)(c)

$—

$2
$2
$16
$20
$1
$9
$8
$17
$35
Other (a)(b)(d)
160
106


266
171
105


276
Total assets
$160
$108
$2
$16
$286
$172
$114
$8
$17
$311
Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
Commodity (a)(b)(c)
$12
$209

$—

$(61)
$160
$14
$129

$—

$(57)
$86
(a)
The Companies’ policy is to review the fair value hierarchy and recognize transfers into and transfers out of the levels at the end of each reporting period. There were no transfers between levels 1, 2 and 3 for the three months ended March 31, 2016 and for the year ended December 31, 2015.
(b)
Level 2 assets and liabilities include investments held in the deferred compensation plan and/or non-qualified retirement plans, exchange-traded contracts where there is insufficient market liquidity to warrant inclusion in Level 1, certain over-the-counter derivative instruments for electricity, refined products and natural gas. Derivative instruments classified as Level 2 are valued using industry standard models that incorporate corroborated observable inputs; such as pricing services or prices from similar instruments that trade in liquid markets, time value and volatility factors.
(c)
The accounting rules for fair value measurements and disclosures require consideration of the impact of nonperformance risk (including credit risk) from a market participant perspective in the measurement of the fair value of assets and liabilities. At March 31, 2016 and December 31, 2015, the Companies determined that nonperformance risk would have no material impact on their financial position or results of operations.
(d)
Other assets are comprised of assets such as life insurance contracts within the deferred compensation plan and non-qualified retirement plans.
(e)
Amounts represent the impact of legally-enforceable master netting agreements that allow the Companies to net gain and loss positions and cash collateral held or placed with the same counterparties.
(f)
Amounts represent derivative assets and liabilities included in Assets and Liabilities held for sale on the consolidated balance sheet (see Note O).

The employees in the Companies’ risk management group develop and maintain the Companies’ valuation policies and procedures for, and verify pricing and fair value valuation of, commodity derivatives. Under the Companies’ policies and procedures, multiple independent sources of information are obtained for forward price curves used to value commodity derivatives. Fair value and changes in fair value of commodity derivatives are reported on a monthly basis to the Companies’ risk committees, comprised of officers and employees of the Companies that oversee energy hedging at the Utilities and the competitive energy businesses. The risk management group reports to the Companies’ Vice President and Treasurer.
 

31

Table of Contents

 
Fair Value of Level 3 at March 31, 2016
Valuation
Techniques
Unobservable Inputs
Range
 
(Millions of Dollars)
Con Edison – Commodity
Electricity
$(7)
Discounted Cash Flow
Forward energy prices (a)
$15.32-$74.99 per MWh
 
 
Discounted Cash Flow
Forward capacity prices (a)
$0.58-$8.10 per kW-month
Transmission Congestion Contracts/Financial Transmission Rights
3
Discounted Cash Flow
Discount to adjust auction prices for inter-zonal forward price curves (b)
40.8%-62.1%
 
 
 
Discount to adjust auction prices for historical monthly realized settlements (b)
1.6%-82.2%
 
 
 
Inter-zonal forward price curves adjusted for historical zonal losses (b)
$(5.10)-$2.25 per MWh
Total Con Edison—Commodity
$(4)
 
 
 
CECONY—Commodity
Transmission Congestion Contracts
$2
Discounted Cash Flow
Discount to adjust auction prices for inter-zonal forward price curves (b)
40.8%-62.1%
 
 
 
Discount to adjust auction prices for historical monthly realized settlements (b)
1.6%-82.2%
(a)
Generally, increases/(decreases) in this input in isolation would result in a higher/(lower) fair value measurement.
(b)
Generally, increases/(decreases) in this input in isolation would result in a lower/(higher) fair value measurement.
The table listed below provides a reconciliation of the beginning and ending net balances for assets and liabilities measured at fair value as of March 31, 2016 and 2015 and classified as Level 3 in the fair value hierarchy:
 
 
For the Three Months Ended March 31,
  
          Con Edison
          CECONY
(Millions of Dollars)
2016

2015

2016

2015

Beginning balance as of January 1,
$6
$20
$8
$13
Included in earnings
(7)
(10)
(1)
(2)
Included in regulatory assets and liabilities
(3)

(4)

Purchases

3

2
Settlements

(2)
(1)
(1)
Ending balance as of March 31,
$(4)
$11
$2
$12
 

For the Utilities, realized gains and losses on Level 3 commodity derivative assets and liabilities are reported as part of purchased power, gas and fuel costs. The Utilities generally recover these costs in accordance with rate provisions approved by the applicable state public utilities regulators. Unrealized gains and losses for commodity derivatives are generally deferred on the consolidated balance sheet in accordance with the accounting rules for regulated operations.
For the competitive energy businesses, realized and unrealized gains and losses on Level 3 commodity derivative assets and liabilities are reported in non-utility revenues (immaterial for both periods) and purchased power costs ($6 million loss and $8 million loss) on the consolidated income statement for the three months ended March 31, 2016 and 2015, respectively. The change in fair value relating to Level 3 commodity derivative assets and liabilities held at March 31, 2016 and 2015 is included in non-utility revenues (immaterial for both periods) and purchased power costs ($4 million loss and $5 million loss) on the consolidated income statement for the three months ended March 31, 2016 and 2015, respectively.

Note M — Variable Interest Entities
Con Edison enters into arrangements including leases, partnerships and electricity purchase agreements, with various entities. As a result of these arrangements, Con Edison retains or may retain a variable interest in these entities.
CECONY has a variable interest in a non-consolidated variable interest entity (VIE), Astoria Energy, LLC (Astoria Energy), with which CECONY has entered into a long-term electricity purchase agreement. CECONY is not the primary beneficiary of this VIE because CECONY does not have the power to direct activities that it deems most significant to the economic performance of Astoria Energy. In particular, CECONY has not invested in, or guaranteed the indebtedness of, Astoria Energy and CECONY does not operate or maintain Astoria Energy’s generating facilities. CECONY also has long-term electricity purchase agreements with the following two potential VIEs: Cogen Technologies Linden Venture, LP, and Brooklyn Navy Yard Cogeneration Partners, LP. In 2015,

32

Table of Contents

requests were made of these two counterparties for information necessary to determine whether the entity was a VIE and whether CECONY is the primary beneficiary; however, the information was not made available. The payments for these contracts constitute CECONY’s maximum exposure to loss with respect to the potential VIEs.

 
The following table summarizes the VIEs in which Con Edison Development has entered into as of March 31, 2016:
 
Project Name (a)
Generating
Capacity (b)
(MW AC)
Power Purchase Agreement Term (in Years)
Year of
Initial
Investment
Location
Maximum
Exposure to Loss
(Millions of Dollars) (c)
Copper Mountain Solar 3
128
20
2014
Nevada
$183
Panoche Valley
124
20
2015
California
133
Mesquite Solar 1
83
20
2013
Arizona
99
Copper Mountain Solar 2
75
25
2013
Nevada
82
California Solar
55
25
2012
California
65
Broken Bow II
38
25
2014
Nebraska
54
Texas Solar 4
32
25
2014
Texas
15
Pilesgrove
9
n/a (d)
2010
New Jersey
26
(a) With the exception of Texas Solar 4, Con Edison’s ownership interest is 50 percent and these projects are accounted for using the equity method of accounting. Con Edison is not the primary beneficiary since the power to direct the activities that most significantly impact the economics of the entities are shared equally between Con Edison Development and third parties. Con Edison’s ownership interest in Texas Solar 4 is 80 percent and is consolidated in the financial statements. Con Edison is the primary beneficiary since the power to direct the activities that most significantly impact the economics of Texas Solar 4 is held by Con Edison Development. The maximum exposure for Texas Solar 4 is the net assets of the investment offset by an $8 million noncontrolling interest.
(b) Represents Con Edison Development’s ownership interest in the project.
(c) For investments accounted for under the equity method, maximum exposure is equal to the carrying value of the investment on the consolidated balance sheet and any related receivables due from the project. For consolidated investments, maximum exposure is equal to the net assets of the investment on the consolidated balance sheet less any applicable noncontrolling interest. Con Edison did not provide any financial or other support during the year that was not previously contractually required.
(d) Pilesgrove has 3-4 year Solar Renewable Energy Credit hedges in place.

Note N — New Financial Accounting Standards
In May 2014, the FASB and the International Accounting Standards Board (IASB) jointly issued a revenue recognition standard that will supersede the revenue recognition requirements within Accounting Standards Codification Topic 605, “Revenue Recognition,” and most industry-specific guidance under the Codification through Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” The purpose of the new guidance is to create a consistent framework for revenue recognition. The guidance clarifies how to measure and recognize revenue arising from customer contracts to depict the transfer of goods or services in an amount that reflects the consideration the entity expects to receive. Additionally, in March and April 2016, respectively, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net)” to clarify how to apply the implementation guidance for principal versus agent considerations and ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” to clarify the guidance pertaining to identifying performance obligations and licensing implementation guidance. The new standard is effective for reporting periods beginning after December 15, 2017. Early adoption is permitted for reporting periods beginning after December 15, 2016. The Companies are in the process of evaluating the application and impact of the new guidance on the Companies’ financial position, results of operations and liquidity.

In January 2016, the FASB issued amendments on certain aspects of recognition, measurement, presentation, and disclosure of financial instruments through ASU No. 2016-01, “Financial Instruments (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The amendments require changes to the accounting for equity investments, the presentation and disclosure requirements for financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, clarification was provided related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. For public entities, the amendments are effective for reporting periods beginning after December 15, 2017. Early adoption is permitted for portions of the standard. The Companies are in the process of evaluating the potential impact of the new guidance on the Companies’ financial position, results of operations and liquidity.

In February 2016, the FASB issued amendments on financial reporting of leasing transactions through ASU No. 2016-02, “Leases (Topic 842)." The amendments require lessees to recognize assets and liabilities on the balance

33

Table of Contents

sheet and disclose key information about leasing arrangements. Lessees will need to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model. For income statement purposes, the pattern of expense recognition will be dependent on whether transactions are designated as operating leases or finance leases. The amendments are effective for reporting periods beginning after December 15, 2018. Early adoption is permitted. The amendments must be adopted using a modified retrospective transition and provide for certain practical expedients. The Companies are in the process of evaluating the potential impact of the new guidance on the Companies’ financial position, results of operations and liquidity.

In March 2016, the FASB issued amendments to the guidance for Derivatives and Hedging accounting through ASU 2016-05, “Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships." The amendments clarify that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument under Topic 815 does not, in and of itself, require discontinuation of the application of hedge accounting. The amendments in this update are effective for financial statements issued for reporting periods beginning after December 15, 2016. Early adoption is permitted. The application of this guidance is not expected to have a material impact on the Companies’ financial position, results of operations and liquidity.

In March 2016, the FASB issued amendments to clarify the guidance for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts through ASU No. 2016-06, “Derivatives & Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments.” An entity performing the assessment under the amendments is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. The amendments are effective for financial statements issued for reporting periods beginning after December 15, 2016. Early adoption is permitted. The application of this guidance is not expected to have a material impact on the Companies’ financial position, results of operations and liquidity.

In March 2016, the FASB issued amendments to eliminate the requirement to retroactively adopt the equity method of accounting when a company increases its level of ownership or degree of influence over an investment through ASU No. 2016-07, “Investments-Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting.” This amendment requires that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in Accumulated Other Comprehensive Income at the date the investment qualifies for the equity method. The amendments in this Update are effective for reporting periods beginning after December 15, 2016. The application of this guidance is not expected to have a material impact on the Companies’ financial position, results of operations and liquidity.

In March 2016, the FASB issued amendments to simplify several aspects of the accounting for share-based payment transactions through ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” The amendments simplify areas such as income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments are effective for reporting periods beginning after December 15, 2016. Early adoption is permitted. The application of this guidance is not expected to have a material impact on the Companies’ financial position, results of operations and liquidity.

Note O — Assets Held For Sale
In June 2015, upon evaluating strategic alternatives, Con Edison initiated a plan to actively market and sell the retail electric supply business of its competitive energy businesses. The company expects the sale to close within the next twelve months. The company classified as held for sale the related assets and liabilities and ceased recording depreciation expense on these assets. There was no impairment of the assets held for sale, as the estimated fair value less costs to sell exceeded the carrying amount.

In October 2015, upon evaluating strategic alternatives, O&R entered into an agreement to sell Pike County Light & Power Company (Pike) to Corning Natural Gas Holding Corporation for $16 million, including estimated working capital adjustments. The closing of the sale, which the company expects to occur in 2016, is subject to certain regulatory approvals by the FERC and Pennsylvania Public Utility Commission. In 2015, the company classified the related electric and gas assets and liabilities as held for sale and ceased recording depreciation expense on these assets. At September 30, 2015, O&R recorded an impairment charge of $5 million ($3 million net of taxes), representing the difference between the carrying amount of Pike’s assets and the estimated sales proceeds. The

34

Table of Contents

impairment is reflected in the amount included in assets held for sale on the company's consolidated balance sheet at March 31, 2016.

At March 31, 2016, the carrying amounts of the assets and liabilities designated as held for sale were as follows:

(Millions of Dollars)
Retail Electric Supply Business
Pike

Total
Cash and temporary cash investments

$—

$7
$7
Accounts receivable less allowance for uncollectible accounts of $2
67

67
Accrued unbilled revenue
67
1
68
Other assets
2
1
3
Total current assets
136
9
145
Utility plant, less accumulated depreciation of $6

14
14
Non-utility property, less accumulated depreciation of $13
3

3
Non-utility property construction work in progress
1

1
Regulatory assets

3
3
Total assets held for sale
$140
$26
$166
 
 
 
 
Fair value of derivative liabilities
$98

$—

$98
Accounts payable
3

3
Other
3
2
5
Total current liabilities
104
2
106
Fair value of derivative liabilities
41

41
Long-term debt

3
3
Total liabilities held for sale
$145
$5
$150

Note P — Acquisitions, Investments and Dispositions
Texas Solar 7
In January 2016, Con Edison Development acquired a company that is the owner of a 106 MW (AC) solar electric production project in Texas (Texas Solar 7) for $227 million; $218 million was recorded as non-utility construction work in progress and the remaining $9 million was recorded as other receivables. The total cost of this project is expected to be approximately $375 million. The project will be financed, in part, by debt secured by the project (see Note C). Electricity generated by this project is to be purchased by the City of San Antonio pursuant to a long-term power purchase agreement. The project is targeted to be fully in-service during 2016.

Mountain Valley Pipeline
In January 2016, CET Gas acquired a 12.5 percent ownership interest in Mountain Valley Pipeline, LLC (MVP), a company developing a proposed gas transmission project in West Virginia and Virginia. The company's initial contribution to MVP was $18 million . MVP has indicated that the estimated total project cost is $3,000 million to $3,500 million. Con Edison is accounting for its equity interest in MVP as an equity method investment. Subject to FERC approval, MVP is targeting to be fully in-service during the fourth quarter of 2018.
Stagecoach Gas Services
In April 2016, a CET Gas subsidiary agreed with a subsidiary of Crestwood Equity Partners LP (Crestwood) to form a joint venture to own, operate and further develop existing natural gas pipeline and storage businesses located in northern Pennsylvania and southern New York. Subject to customary closing conditions, Crestwood will contribute these businesses to a new entity, Stagecoach Gas Services LLC (Stagecoach), and the CET Gas subsidiary will purchase a 50 percent equity interest in Stagecoach for $975 million (subject to closing adjustments). Con Edison, which has guaranteed (subject to a $946 million maximum amount) certain obligations of the CET Gas subsidiary under the agreement, will account for its equity interest in Stagecoach as an equity method investment. The transaction is expected to be substantially completed in the second quarter of 2016.
NY Transco
In January 2016, CECONY entered into an agreement to transfer certain electric transmission projects to NY Transco, a company in which CET Electric has a 45.7 percent ownership interest. In April 2016, the NYSPSC authorized CECONY, subject to certain conditions, to transfer the projects to NY Transco for a purchase price

35

Table of Contents

limited to CECONY's actual costs associated with the projects and a $7.6 million payment for the lease of certain associated property. At March 31, 2016, CECONY had costs of $96 million in utility construction work in progress related to the projects. The projects are targeted to be in-service in June 2016.


36

Table of Contents

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations 
 
This combined management’s discussion and analysis of financial condition and results of operations (MD&A) relates to the consolidated financial statements (the First Quarter Financial Statements) included in this report of two separate registrants: Consolidated Edison, Inc. (Con Edison) and Consolidated Edison Company of New York, Inc. (CECONY) and should be read in conjunction with the financial statements and the notes thereto. As used in this report, the term the “Companies” refers to Con Edison and CECONY. CECONY is a subsidiary of Con Edison and, as such, information in this management’s discussion and analysis about CECONY applies to Con Edison.

This MD&A should be read in conjunction with the First Quarter Financial Statements and the notes thereto, the MD&A in Item 7 of the Companies’ combined Annual Report on Form 10-K for the year ended December 31, 2015 (File Nos. 1-14514 and 1-1217, the Form 10-K).

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

Con Edison, incorporated in New York State in 1997, is a holding company that owns all of the outstanding common stock of CECONY, Orange and Rockland Utilities, Inc. (O&R), the competitive energy businesses and Consolidated Edison Transmission, Inc. (Con Edison Transmission). As used in this report, the term the “Utilities” refers to CECONY and O&R.
 
 
Con Edison’s principal business operations are those of CECONY, O&R and the competitive energy businesses. CECONY’s principal business operations are its regulated electric, gas and steam delivery businesses. O&R’s principal business operations are its regulated electric and gas delivery businesses. The competitive energy businesses sell electricity to retail customers, provide energy-related products and services, and develop, own and operate renewable and energy infrastructure projects. In addition, Con Edison Transmission is investing in electric transmission facilities and gas pipeline and storage facilities.

Con Edison seeks to provide shareholder value through continued dividend growth, supported by earnings growth in regulated utilities and contracted assets. The company invests to provide reliable, resilient, safe and clean energy critical for New York City’s growing economy. The company is an industry leading owner and operator of contracted, large-scale solar generation in the United States. Con Edison is a responsible neighbor, helping the communities it serves become more sustainable.


37

Table of Contents

CECONY
Electric
CECONY provides electric service to approximately 3.4 million customers in all of New York City (except a part of Queens) and most of Westchester County, an approximately 660 square mile service area with a population of more than nine million.

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

Steam
CECONY operates the largest steam distribution system in the United States by producing and delivering approximately 22,000 MMlb of steam annually to approximately 1,700 customers in parts of Manhattan.

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

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

Assets Held for Sale
In October 2015, O&R entered into an agreement to sell Pike to Corning Natural Gas Holding Corporation (see Note O to the First Quarter Financial Statements).

Competitive Energy Businesses
Con Edison pursues competitive energy opportunities through three wholly-owned subsidiaries: Con Edison Solutions, Con Edison Energy and Con Edison Development. These businesses sell to retail customers electricity purchased in wholesale markets and enter into related hedging transactions, provide energy-related products and services to wholesale and retail customers, and develop, own and operate renewable and energy infrastructure projects.

Assets Held for Sale
In June 2015, Con Edison initiated a plan to sell the retail electric supply business of its competitive energy businesses (see Note O to the First Quarter Financial Statements).

Con Edison Transmission
Con Edison Transmission invests in electric and gas transmission projects through its wholly-owned subsidiaries, Consolidated Edison Transmission, LLC (CET Electric) and Con Edison Pipeline and Storage, LLC (formerly known as Con Edison Gas Midstream, LLC, CET Gas). CET Electric, which was formed in 2014, is investing in a company that is expected to own electric transmission assets being developed in New York. CET Gas, which was formed in 2016, is investing in a company developing a proposed gas transmission project in West Virginia and Virginia and its subsidiary has agreed to acquire a 50 percent equity interest in a joint venture to own, operate and further develop an existing gas pipeline and storage business located in northern Pennsylvania and southern New York. At March 31, 2016, Con Edison’s capital contribution to Con Edison Transmission was $24 million. See “Con Edison Transmission,” below.


38

Table of Contents

Certain financial data of Con Edison’s businesses are presented below:

  
For the Three Months Ended
March 31