Edgar Filing: CONSOLIDATED EDISON INC

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2018



¨	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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

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As of July 31, 2018, Con Edison had outstanding 311,102,989 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.

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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.
Clean Energy Businesses		Con Edison Clean Energy Businesses, Inc., together with its subsidiaries
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., together with its subsidiaries
CET Electric		Consolidated Edison Transmission, LLC
CET Gas		Con Edison Gas Pipeline and Storage, LLC
O&R		Orange and Rockland Utilities, Inc.
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
PJM		PJM Interconnection LLC
SEC		U.S. Securities and Exchange Commission

Accounting
AFUDC		Allowance for funds used during construction
ASU		Accounting Standards Update
GAAP		Generally Accepted Accounting Principles in the United States of America
OCI		Other Comprehensive Income
VIE		Variable Interest Entity

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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
Bcf		Billion cubic feet
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
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
Second Quarter Form 10-Q		The Companies' combined Quarterly Report on Form 10-Q for the quarterly period ended June 30 of the current year
Form 10-K		The Companies’ combined Annual Report on Form 10-K for the year ended December 31, 2017
LTIP		Long Term Incentive Plan
Moody’s		Moody’s Investors Service
REV		Reforming the Energy Vision
S&P		S&P Global Ratings
TCJA		The federal Tax Cuts and Jobs Act of 2017, as enacted on December 22, 2017
VaR		Value-at-Risk

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TABLE OF CONTENTS



		PAGE
PART I—Financial Information
ITEM 1	Financial Statements (Unaudited)
	Con Edison
	Consolidated Income Statement	7
	Consolidated Statement of Comprehensive Income	8
	Consolidated Statement of Cash Flows	9
	Consolidated Balance Sheet	10
	Consolidated Statement of Equity	12
	CECONY
	Consolidated Income Statement	13
	Consolidated Statement of Comprehensive Income	14
	Consolidated Statement of Cash Flows	15
	Consolidated Balance Sheet	16
	Consolidated Statement of Shareholder’s Equity	18
	Notes to the Financial Statements (Unaudited)	19
ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
ITEM 3	Quantitative and Qualitative Disclosures About Market Risk	73
ITEM 4	Controls and Procedures	73
PART II—Other Information		74
ITEM 1	Legal Proceedings	74
ITEM 1A	Risk Factors	74
ITEM 6	Exhibits	74
	Signatures	75

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FORWARD-LOOKING STATEMENTS

This report includes forward-looking statements intended to qualify for the safe-harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements of future expectation and not facts. Words such as “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, but not limited to:


•	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;


•	changes to tax laws could adversely affect the Companies;


•	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.

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Consolidated Edison, Inc.

CONSOLIDATED INCOME STATEMENT (UNAUDITED)



	For the Three Months Ended June 30,		For the Six Months Ended June 30,
(Millions of Dollars/Except Share Data)	2018	2017	2018	2017
OPERATING REVENUES
Electric	$1,951	$1,965	$3,828	$3,899
Gas	489	435	1,428	1,297
Steam	96	88	410	385
Non-utility	160	145	394	280
TOTAL OPERATING REVENUES	2,696	2,633	6,060	5,861
OPERATING EXPENSES
Purchased power	388	408	742	793
Fuel	38	38	162	139
Gas purchased for resale	194	149	572	470
Other operations and maintenance	756	732	1,592	1,471
Depreciation and amortization	354	332	702	662
Taxes, other than income taxes	540	511	1,110	1,052
TOTAL OPERATING EXPENSES	2,270	2,170	4,880	4,587
Gain on sale of retail electric supply business and solar electric production project	—	1	—	1
OPERATING INCOME	426	464	1,180	1,275
OTHER INCOME (DEDUCTIONS)
Investment income	36	34	57	53
Other income	6	3	11	9
Allowance for equity funds used during construction	3	2	7	5
Other deductions	(48)	(46)	(92)	(89)
TOTAL OTHER INCOME (DEDUCTIONS)	(3)	(7)	(17)	(22)
INCOME BEFORE INTEREST AND INCOME TAX EXPENSE	423	457	1,163	1,253
INTEREST EXPENSE
Interest on long-term debt	190	179	380	356
Other interest	9	3	16	7
Allowance for borrowed funds used during construction	(2)	(2)	(5)	(3)
NET INTEREST EXPENSE	197	180	391	360
INCOME BEFORE INCOME TAX EXPENSE	226	277	772	893
INCOME TAX EXPENSE	38	102	156	330
NET INCOME	$188	$175	$616	$563
Net income per common share—basic	$0.60	$0.57	$1.98	$1.84
Net income per common share—diluted	$0.60	$0.57	$1.98	$1.84
DIVIDENDS DECLARED PER COMMON SHARE	$0.72	$0.69	$1.43	$1.38
AVERAGE NUMBER OF SHARES OUTSTANDING—BASIC (IN MILLIONS)	310.8	305.4	310.6	305.3
AVERAGE NUMBER OF SHARES OUTSTANDING—DILUTED (IN MILLIONS)	311.9	306.8	311.7	306.7

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

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Consolidated Edison, Inc.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)



	For the Three Months Ended June 30,		For the Six Months Ended June 30,
(Millions of Dollars)	2018	2017	2018	2017
NET INCOME	$188	$175	$616	$563
OTHER COMPREHENSIVE INCOME, NET OF TAXES
Pension and other postretirement benefit plan liability adjustments, net of taxes	2	1	6	—
TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAXES	2	1	6	—
COMPREHENSIVE INCOME	$190	$176	$622	$563

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

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Consolidated Edison, Inc.

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)



	For the Six Months Ended June 30,
(Millions of Dollars)	2018	2017
OPERATING ACTIVITIES
Net income	$616	$563
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME
Depreciation and amortization	702	662
Deferred income taxes	155	359
Rate case amortization and accruals	(56)	(62)
Common equity component of allowance for funds used during construction	(7)	(5)
Net derivative gains	2	2
Unbilled revenue and net unbilled revenue deferrals	113	18
Gain on sale of solar electric production project	—	(1)
Other non-cash items, net	(55)	(61)
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable – customers	5	128
Materials and supplies, including fuel oil and gas in storage	16	(18)
Other receivables and other current assets	(68)	12
Taxes receivable	49	29
Prepayments	(36)	(36)
Accounts payable	(61)	(94)
Pensions and retiree benefits obligations, net	171	213
Pensions and retiree benefits contributions	(368)	(283)
Accrued taxes	(63)	(22)
Accrued interest	(4)	(18)
Superfund and environmental remediation costs, net	(6)	(6)
Distributions from equity investments	54	52
System benefit charge	94	132
Deferred charges, noncurrent assets and other regulatory assets	(233)	(45)
Deferred credits and other regulatory liabilities	244	(17)
Other current and noncurrent liabilities	(224)	72
NET CASH FLOWS FROM OPERATING ACTIVITIES	1,040	1,574
INVESTING ACTIVITIES
Utility construction expenditures	(1,602)	(1,425)
Cost of removal less salvage	(121)	(122)
Non-utility construction expenditures	(109)	(225)
Investments in electric and gas transmission projects	(51)	(16)
Investments in/acquisitions of renewable electric production projects	—	(1)
Proceeds from sale of assets	—	34
Other investing activities	17	24
NET CASH FLOWS USED IN INVESTING ACTIVITIES	(1,866)	(1,731)
FINANCING ACTIVITIES
Net issuance/(payment) of short-term debt	292	(18)
Issuance of long-term debt	1,640	997
Retirement of long-term debt	(619)	(426)
Debt issuance costs	(16)	(11)
Common stock dividends	(420)	(398)
Issuance of common shares for stock plans	26	25
NET CASH FLOWS FROM FINANCING ACTIVITIES	903	169
CASH, TEMPORARY CASH INVESTMENTS, AND RESTRICTED CASH:
NET CHANGE FOR THE PERIOD	77	12
BALANCE AT BEGINNING OF PERIOD	844	830
BALANCE AT END OF PERIOD	$921	$842
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION
Cash paid/(received) during the period for:
Interest	$389	$372
Income taxes	$(2)	$(35)
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION
Construction expenditures in accounts payable	$333	$308
Issuance of common shares for dividend reinvestment	$24	$23
Software licenses acquired but unpaid as of end of period	$94	—

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

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Consolidated Edison, Inc.

CONSOLIDATED BALANCE SHEET (UNAUDITED)



(Millions of Dollars)	June 30, 2018	December 31, 2017
ASSETS
CURRENT ASSETS
Cash and temporary cash investments	$866	$797
Accounts receivable – customers, less allowance for uncollectible accounts of $64 and $63 in 2018 and 2017, respectively	1,097	1,103
Other receivables, less allowance for uncollectible accounts of $7 and $8 in 2018 and 2017, respectively	264	160
Taxes receivable	27	76
Accrued unbilled revenue	382	598
Fuel oil, gas in storage, materials and supplies, at average cost	318	334
Prepayments	214	178
Regulatory assets	90	67
Restricted cash	55	47
Other current assets	123	177
TOTAL CURRENT ASSETS	3,436	3,537
INVESTMENTS	2,057	2,001
UTILITY PLANT, AT ORIGINAL COST
Electric	29,702	28,994
Gas	8,690	8,256
Steam	2,496	2,473
General	3,167	3,008
TOTAL	44,055	42,731
Less: Accumulated depreciation	9,385	9,063
Net	34,670	33,668
Construction work in progress	1,714	1,605
NET UTILITY PLANT	36,384	35,273
NON-UTILITY PLANT
Non-utility property, less accumulated depreciation of $233 and $201 in 2018 and 2017, respectively	1,791	1,776
Construction work in progress	592	551
NET PLANT	38,767	37,600
OTHER NONCURRENT ASSETS
Goodwill	428	428
Intangible assets, less accumulated amortization of $19 and $15 in 2018 and 2017, respectively	127	131
Regulatory assets	4,097	4,266
Other deferred charges and noncurrent assets	152	148
TOTAL OTHER NONCURRENT ASSETS	4,804	4,973
TOTAL ASSETS	$49,064	$48,111

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

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Consolidated Edison, Inc.

CONSOLIDATED BALANCE SHEET (UNAUDITED)



(Millions of Dollars)	June 30, 2018	December 31, 2017
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Long-term debt due within one year	$1,815	$1,298
Notes payable	869	577
Accounts payable	1,130	1,286
Customer deposits	349	346
Accrued taxes	45	108
Accrued interest	139	143
Accrued wages	108	105
Fair value of derivative liabilities	40	17
Regulatory liabilities	60	101
System benefit charge	629	535
Other current liabilities	272	386
TOTAL CURRENT LIABILITIES	5,456	4,902
NONCURRENT LIABILITIES
Provision for injuries and damages	159	153
Pensions and retiree benefits	959	1,443
Superfund and other environmental costs	728	737
Asset retirement obligations	320	314
Fair value of derivative liabilities	28	38
Deferred income taxes and unamortized investment tax credits	5,710	5,495
Regulatory liabilities	4,551	4,577
Other deferred credits and noncurrent liabilities	273	296
TOTAL NONCURRENT LIABILITIES	12,728	13,053
LONG-TERM DEBT	15,225	14,731
EQUITY
Common shareholders’ equity	15,648	15,418
Noncontrolling interest	7	7
TOTAL EQUITY (See Statement of Equity)	15,655	15,425
TOTAL LIABILITIES AND EQUITY	$49,064	$48,111

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

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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
(In Millions)	Shares	Amount	Additional Paid-In Capital	Retained Earnings	Shares	Amount	Capital Stock Expense	Accumulated Other Comprehensive Income/(Loss)	Noncontrolling Interest	Total
BALANCE AS OF DECEMBER 31, 2017	310	$34	$6,298	$10,235	23	$(1,038)	$(85)	$(26)	$7	$15,425
Net income				616						616
Common stock dividends				(444)						(444)
Issuance of common shares for stock plans	1		52							52
Other comprehensive income								6		6
BALANCE AS OF JUNE 30, 2018	311	$34	$6,350	$10,407	23	$(1,038)	$(85)	$(20)	$7	$15,655

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

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Consolidated Edison Company of New York, Inc.

CONSOLIDATED INCOME STATEMENT (UNAUDITED)



	For the Three Months Ended June 30,		For the Six Months Ended June 30,
(Millions of Dollars)	2018	2017	2018	2017
OPERATING REVENUES
Electric	$1,807	$1,817	$3,536	$3,610
Gas	435	388	1,276	1,153
Steam	96	88	410	386
TOTAL OPERATING REVENUES	2,338	2,293	5,222	5,149
OPERATING EXPENSES
Purchased power	343	363	645	710
Fuel	38	38	162	139
Gas purchased for resale	118	84	391	314
Other operations and maintenance	629	602	1,260	1,229
Depreciation and amortization	316	296	626	591
Taxes, other than income taxes	512	487	1,051	1,003
TOTAL OPERATING EXPENSES	1,956	1,870	4,135	3,986
OPERATING INCOME	382	423	1,087	1,163
OTHER INCOME (DEDUCTIONS)
Investment and other income	4	3	8	7
Allowance for equity funds used during construction	3	2	6	5
Other deductions	(42)	(40)	(81)	(78)
TOTAL OTHER INCOME (DEDUCTIONS)	(35)	(35)	(67)	(66)
INCOME BEFORE INTEREST AND INCOME TAX EXPENSE	347	388	1,020	1,097
INTEREST EXPENSE
Interest on long-term debt	162	151	324	301
Other interest	7	4	12	8
Allowance for borrowed funds used during construction	(2)	(1)	(4)	(3)
NET INTEREST EXPENSE	167	154	332	306
INCOME BEFORE INCOME TAX EXPENSE	180	234	688	791
INCOME TAX EXPENSE	31	91	150	309
NET INCOME	$149	$143	$538	$482

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

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Consolidated Edison Company of New York, Inc.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)



	For the Three Months Ended June 30,		For the Six Months Ended June 30,
(Millions of Dollars)	2018	2017	2018	2017
NET INCOME	$149	$143	$538	$482
OTHER COMPREHENSIVE INCOME, NET OF TAXES	1	—	1	—
COMPREHENSIVE INCOME	$150	$143	$539	$482

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

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Consolidated Edison Company of New York, Inc.

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)



	For the Six Months Ended June 30,
(Millions of Dollars)	2018	2017
OPERATING ACTIVITIES
Net income	$538	$482
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME
Depreciation and amortization	626	591
Deferred income taxes	149	326
Rate case amortization and accruals	(65)	(72)
Common equity component of allowance for funds used during construction	(6)	(5)
Unbilled revenue and net unbilled revenue deferrals	36	18
Other non-cash items, net	(13)	(36)
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable – customers	14	125
Materials and supplies, including fuel oil and gas in storage	10	(4)
Other receivables and other current assets	(74)	56
Accounts receivable from affiliated companies	(149)	17
Prepayments	(17)	(20)
Accounts payable	(71)	(60)
Accounts payable to affiliated companies	9	3
Pensions and retiree benefits obligations, net	157	191
Pensions and retiree benefits contributions	(367)	(281)
Superfund and environmental remediation costs, net	(9)	(4)
Accrued taxes	(66)	(17)
Accrued taxes to affiliated companies	(72)	(119)
Accrued interest	(1)	—
System benefit charge	86	120
Deferred charges, noncurrent assets and other regulatory assets	(164)	(72)
Deferred credits and other regulatory liabilities	229	11
Other current and noncurrent liabilities	(125)	(16)
NET CASH FLOWS FROM OPERATING ACTIVITIES	655	1,234
INVESTING ACTIVITIES
Utility construction expenditures	(1,509)	(1,341)
Cost of removal less salvage	(118)	(119)
NET CASH FLOWS USED IN INVESTING ACTIVITIES	(1,627)	(1,460)
FINANCING ACTIVITIES
Net issuance of short-term debt	400	150
Issuance of long-term debt	1,640	500
Retirement of long-term debt	(600)	—
Debt issuance costs	(16)	(6)
Capital contribution by parent	70	45
Dividend to parent	(423)	(398)
NET CASH FLOWS FROM FINANCING ACTIVITIES	1,071	291
CASH, TEMPORARY CASH INVESTMENTS, AND RESTRICTED CASH:
NET CHANGE FOR THE PERIOD	99	65
BALANCE AT BEGINNING OF PERIOD	730	704
BALANCE AT END OF PERIOD	$829	$769
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION
Cash paid/(received) during the period for:
Interest	$324	$296
Income taxes	$227	$86
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION
Construction expenditures in accounts payable	$284	$234
Software licenses acquired but unpaid as of end of period	$89	—

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

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Consolidated Edison Company of New York, Inc.

CONSOLIDATED BALANCE SHEET (UNAUDITED)



(Millions of Dollars)	June 30, 2018	December 31, 2017
ASSETS
CURRENT ASSETS
Cash and temporary cash investments	$829	$730
Accounts receivable – customers, less allowance for uncollectible accounts of $59 and $58 in 2018 and 2017, respectively	994	1,009
Other receivables, less allowance for uncollectible accounts of $6 and $7 in 2018 and 2017, respectively	166	92
Taxes receivable	—	19
Accrued unbilled revenue	315	454
Accounts receivable from affiliated companies	213	64
Fuel oil, gas in storage, materials and supplies, at average cost	277	287
Prepayments	125	108
Regulatory assets	85	62
Other current assets	85	84
TOTAL CURRENT ASSETS	3,089	2,909
INVESTMENTS	406	383
UTILITY PLANT, AT ORIGINAL COST
Electric	27,960	27,299
Gas	7,909	7,499
Steam	2,496	2,473
General	2,896	2,753
TOTAL	41,261	40,024
Less: Accumulated depreciation	8,622	8,321
Net	32,639	31,703
Construction work in progress	1,622	1,502
NET UTILITY PLANT	34,261	33,205
NON-UTILITY PROPERTY
Non-utility property, less accumulated depreciation of $25 in 2018 and 2017	4	4
NET PLANT	34,265	33,209
OTHER NONCURRENT ASSETS
Regulatory assets	3,694	3,863
Other deferred charges and noncurrent assets	71	87
TOTAL OTHER NONCURRENT ASSETS	3,765	3,950
TOTAL ASSETS	$41,525	$40,451

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

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Consolidated Edison Company of New York, Inc.

CONSOLIDATED BALANCE SHEET (UNAUDITED)



(Millions of Dollars)	June 30, 2018	December 31, 2017
LIABILITIES AND SHAREHOLDER’S EQUITY
CURRENT LIABILITIES
Long-term debt due within one year	$1,711	$1,200
Notes payable	550	150
Accounts payable	922	1,057
Accounts payable to affiliated companies	19	10
Customer deposits	337	334
Accrued taxes	36	102
Accrued taxes to affiliated companies	—	72
Accrued interest	112	113
Accrued wages	97	95
Fair value of derivative liabilities	28	12
Regulatory liabilities	40	65
System benefit charge	569	483
Other current liabilities	215	245
TOTAL CURRENT LIABILITIES	4,636	3,938
NONCURRENT LIABILITIES
Provision for injuries and damages	153	147
Pensions and retiree benefits	665	1,140
Superfund and other environmental costs	631	637
Asset retirement obligations	293	287
Fair value of derivative liabilities	23	31
Deferred income taxes and unamortized investment tax credits	5,513	5,306
Regulatory liabilities	4,179	4,219
Other deferred credits and noncurrent liabilities	225	242
TOTAL NONCURRENT LIABILITIES	11,682	12,009
LONG-TERM DEBT	12,582	12,065
SHAREHOLDER’S EQUITY (See Statement of Shareholder’s Equity)	12,625	12,439
TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY	$41,525	$40,451

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

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Consolidated Edison Company of New York, Inc.

CONSOLIDATED STATEMENT OF 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	Additional Paid-In Capital	Retained Earnings	Repurchased Con Edison Stock	Capital Stock Expense	Accumulated Other Comprehensive Income/(Loss)	Total
BALANCE AS OF DECEMBER 31, 2017	235	$589	$4,649	$8,231	$(962)	$(62)	$(6)	$12,439
Net income				538				538
Common stock dividend to parent				(423)				(423)
Capital contribution by parent			70					70
Other comprehensive income							1	1
BALANCE AS OF JUNE 30, 2018	235	$589	$4,719	$8,346	$(962)	$(62)	$(5)	$12,625

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

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NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)

General

These combined notes accompany and form an integral part of the separate consolidated financial statements of each of the two separate registrants: Consolidated Edison, Inc. and its subsidiaries (Con Edison) and Consolidated Edison Company of New York, Inc. and its subsidiaries (CECONY). CECONY is a subsidiary of Con Edison and as such its financial condition and results of operations and cash flows, which are presented separately in the CECONY consolidated financial statements, are also consolidated, along with those of Orange and Rockland Utilities, Inc. (O&R), Con Edison Clean Energy Businesses, Inc. (together with its subsidiaries, the Clean Energy Businesses) and Con Edison Transmission, Inc. (together with its subsidiaries, Con Edison Transmission) 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, 2017 and their separate unaudited financial statements (including the combined notes thereto) included in Part 1, Item 1 of their combined Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018. 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 subsidiary, provides electric service in southeastern New York and northern New Jersey and gas service in southeastern New York. Con Edison Clean Energy Businesses, Inc. has three subsidiaries: Consolidated Edison Development, Inc. (Con Edison Development), a company that develops, owns and operates renewable and energy infrastructure projects; Consolidated Edison Energy, Inc. (Con Edison Energy), a company that provides energy-related products and services to wholesale customers; and Consolidated Edison Solutions, Inc. (Con Edison Solutions), a company that provides energy-related products and services to retail customers. Con Edison Transmission, Inc. 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

Revenues

Adoption of New Standard

On January 1, 2018, the Companies adopted Accounting Standards Codification (ASC) Topic 606, “Revenue from Contracts with Customers,” using the modified retrospective method applied to those contracts that were not completed. No charge to retained earnings for cumulative impact was required as a result of the Companies’ adoption of Topic 606.

Revenue Recognition

The following table presents, for the three and six months ended June 30, 2018, revenue from contracts with customers as defined in Topic 606, as well as additional revenue from sources other than contracts with customers, disaggregated by major source.

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	For the Three Months Ended June 30, 2018				For the Six Months Ended June 30, 2018
(Millions of Dollars)	Revenues from contracts with customers		Other revenues (a)	Total operating revenues	Revenues from contracts with customers		Other revenues (a)	Total operating revenues
CECONY
Electric	$1,771		$36	$1,807	$3,474		$62	$3,536
Gas	428		7	435	1,252		24	1,276
Steam	93		3	96	404		6	410
Total CECONY	$2,292		$46	$2,338	$5,130		$92	$5,222
O&R
Electric	146		(2)	144	293		—	293
Gas	47		7	54	148		4	152
Total O&R	$193		$5	$198	$441		$4	$445
Clean Energy Businesses
Renewables	73	(b)	—	73	205	(b)	—	205
Energy services	23		—	23	41		—	41
Other	—		62	62	—		145	145
Total Clean Energy Businesses	$96		$62	$158	$246		$145	$391
Con Edison Transmission	1		—	1	2		—	2
Other (c)	—		1	1	—		—	—
Total Con Edison	$2,582		$114	$2,696	$5,819		$241	$6,060

(a) For the Utilities, this includes revenue from alternative revenue programs, such as the revenue decoupling mechanisms under their New York electric and gas rate plans.For the Clean Energy Businesses, this includes revenue from wholesale services.

(b) Included within the total for Renewables revenue at the Clean Energy Businesses is $9 million and $97 million for the three and six months ended June 30, 2018, respectively, of revenue related to engineering, procurement and construction services.


(c)	Parent company and consolidation adjustments.

The Utilities recognize revenues for tariff-based sales as they deliver electricity, gas and steam energy to their customers. The amount of revenues recognized reflects the consideration the Utilities expect to receive in exchange for delivering the energy. The transaction price for full-service customers includes the Utilities’ energy cost and for all customers includes delivery charges determined based on customer class and in accordance with established tariffs and guidelines of the New York State Public Service Commission (NYSPSC) or the New Jersey Board of Public Utilities (NJBPU), as applicable. Accordingly, there is no unsatisfied performance obligation associated with these customers. The transaction price is allocated to the Utilities’ revenue generating activities through the customer billing process. Because energy is delivered over time, the Utilities use output methods that recognize revenue based on direct measurement of the value transferred, such as units delivered, which provides an accurate measure of value for the energy delivered. The Utilities accrue revenues at the end of each month for estimated energy delivered but not yet billed to customers. The Utilities defer over a 12-month period net interruptible gas revenues, other than those authorized by the NYSPSC to be retained by the Utilities, for refund to firm gas sales and transportation customers.

Con Edison Development recognizes revenue for the sale of energy from renewable electric production projects as energy is generated and billed to counterparties. Con Edison Development accrues revenues at the end of each month for energy generated but not yet billed to counterparties. Con Edison Energy recognizes revenue as energy is delivered and services are provided for managing energy supply assets leased from others and managing the dispatch, fuel requirements and risk management activities for generating plants and merchant transmission in the northeastern United States. Con Edison Solutions recognizes revenue for providing energy-efficiency services to government and commercial customers, and Con Edison Development recognizes revenue for engineering, procurement and construction services, under the percentage-of-completion method of revenue recognition.

Sales and profits on each percentage-of-completion contract are recorded each month based on the ratio of actual cumulative costs incurred to the total estimated costs at completion of the contract, multiplied by the total estimated contract revenue, less cumulative revenues recognized in prior periods (the ‘‘cost-to-cost’’ method). The impact of revisions of contract estimates, which may result from contract modifications, performance or other reasons, are recognized on a cumulative catch-up basis in the period in which the revisions are made.

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(Millions of Dollars)	Unbilled contract revenue (a)	Unearned revenue (b)
Beginning balance as of January 1, 2018	$58	$87
Additions (c)	73	31
Subtractions (c)	88	105	(d)
Ending balance as of June 30, 2018	$43	$13

(a)

Unbilled contract revenue represents accumulated incurred costs and earned profits on contracts (revenue arrangements), which have been recorded as revenue, but have not yet been billed to customers, and which represent contract assets as defined in Topic 606. Substantially all accrued unbilled contract revenue is expected to be collected within one year. Unbilled contract revenue arises from the cost-to-cost method of revenue recognition. Unbilled contract revenue from fixed-price type contracts is converted to billed receivables when amounts are invoiced to customers according to contractual billing terms, which generally occur when deliveries or other performance milestones are completed.


(b)	Unearned revenue represents a liability for billings to customers in excess of earned revenue, which are contract liabilities as defined in Topic 606.


(c)	Additions for unbilled contract revenue and subtractions for unearned revenue represent additional revenue earned. Additions for unearned revenue and subtractions for unbilled contract revenue represent billings. Activity also includes appropriate balance sheet classification for the period.


(d)	Of the $105 million in subtractions from unearned revenue, $50 million was included in the balance as of December 31, 2017.

As of June 30, 2018, the aggregate amount of the remaining fixed performance obligations is $109 million, of which $72 million will be recognized within the next two years, and the remaining $37 million will be recognized pursuant to long-term service and maintenance agreements.

Revenues are recorded as energy is delivered, generated or services are provided and billed to customers. Amounts billed are recorded in accounts receivable - customers, with payment generally due the following month. Con Edison’s and the Utilities’ accounts receivable - customers balance also reflects the Utilities’ purchase of receivables from energy service companies to support retail choice programs. Accrued revenues not yet billed to customers are recorded as accrued unbilled revenues.

Utility Plant

At June 30, 2018, utility plant of Con Edison and CECONY included $94 million and $89 million, respectively, related to a May 2018 acquisition of software licenses. The software licenses asset is being amortized over a period of 15 years, and the estimated aggregate annual amortization expense for Con Edison and CECONY is $6 million. At June 30, 2018, the accumulated amortization was immaterial.

Earnings Per Common Share

Con Edison presents basic and diluted earnings per share (EPS) on the face of its consolidated income statement. Basic EPS is calculated by dividing earnings available to common shareholders (“Net income” on Con Edison’s consolidated income statement) by the weighted average number of Con Edison common shares outstanding during the period. In the calculation of diluted EPS, weighted average shares outstanding are increased for additional shares that would be outstanding if potentially dilutive securities were converted to common stock.

Potentially dilutive securities for Con Edison consist of restricted stock units and deferred stock units for which the average market price of the common shares for the period was greater than the exercise price.

For the three and six months ended June 30, 2018 and 2017, basic and diluted EPS for Con Edison are calculated as follows:



	For the Three Months Ended June 30,		For the Six Months Ended June 30,
(Millions of Dollars, except per share amounts/Shares in Millions)	2018	2017	2018	2017
Net income	$188	$175	$616	$563
Weighted average common shares outstanding – basic	310.8	305.4	310.6	305.3
Add: Incremental shares attributable to effect of potentially dilutive securities	1.1	1.4	1.1	1.4
Adjusted weighted average common shares outstanding – diluted	311.9	306.8	311.7	306.7
Net Income per common share – basic	$0.60	$0.57	$1.98	$1.84
Net Income per common share – diluted	$0.60	$0.57	$1.98	$1.84

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The computation of diluted EPS for the three and six months ended June 30, 2018 excludes immaterial amounts of performance share awards that were not included because of their anti-dilutive effect.

Changes in Accumulated Other Comprehensive Income/(Loss) by Component

For the three and six months ended June 30, 2018 and 2017, changes to accumulated other comprehensive income/(loss) (OCI) for Con Edison and CECONY are as follows:



	For the Three Months Ended June 30,
	Con Edison		CECONY
(Millions of Dollars)	2018	2017	2018	2017
Beginning balance, accumulated OCI, net of taxes (a)	$(22)	$(28)	$(6)	$(7)
Amounts reclassified from accumulated OCI related to pension plan liabilities, net of tax of $(1) for Con Edison in 2018 and 2017 (a)(b)	2	1	1	—
Current period OCI, net of taxes	2	1	1	—
Ending balance, accumulated OCI, net of taxes	$(20)	$(27)	$(5)	$(7)



	For the Six Months Ended June 30,
	Con Edison		CECONY
(Millions of Dollars)	2018	2017	2018	2017
Beginning balance, accumulated OCI, net of taxes (a)	$(26)	$(27)	$(6)	$(7)
OCI before reclassifications, net of tax of $(1) and $1 for Con Edison in 2018 and 2017, respectively	3	(2)	—	—
Amounts reclassified from accumulated OCI related to pension plan liabilities, net of tax of $(1) and $(2) for Con Edison in 2018 and 2017, respectively (a)(b)	3	2	1	—
Current period OCI, net of taxes	6	—	1	—
Ending balance, accumulated OCI, net of taxes	$(20)	$(27)	$(5)	$(7)


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

Reconciliation of Cash, Temporary Cash Investments and Restricted Cash

On January 1, 2018, the Companies adopted Accounting Standard Update (ASU) 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash," which they applied retrospectively for each prior period presented. Pursuant to ASU 2016-18, cash, temporary cash investments and restricted cash are presented on a combined basis in the Companies’ consolidated statements of cash flows. At June 30, 2018 and 2017, cash, temporary cash investments and restricted cash for Con Edison and CECONY are as follows:



	At June 30,
	Con Edison		CECONY
(Millions of Dollars)	2018	2017	2018	2017
Cash and temporary cash investments	$866	$816	$829	$767
Restricted cash (a)	55	26	—	2
Total cash, temporary cash investments and restricted cash	$921	$842	$829	$769

(a)

Restricted cash is comprised of funding reserved for CECONY construction expenditures ($2 million at June 30, 2017), RECO transition bond charge collections, net of principal, interest, trustee and service fees ($1 million and $2 million at June 30, 2018 and 2017, respectively) that are restricted until the bond matures in 2019, and the CEBs' cash collateral held for project finance agreements ($54 million and $22 million at June 30, 2018 and 2017, respectively) that are restricted until varying maturity dates. For these projects, such funds are restricted to being used for normal operating expenses and capital expenditures, debt service, and required reserves.

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Note B – Regulatory Matters

Rate Plans

O&R New York – Electric

In May 2018, in O&R's electric rate proceeding, the NYSPSC staff recommended a $10.6 million increase in O&R's electric rates (reflecting an authorized return on common equity of 8.6 percent). In June 2018, O&R filed an update to its requested rate increase, changing its request to a $30.4 million increase (reflecting an authorized return on common equity of 9.75 percent).

O&R New York – Gas

In May 2018, in O&R's gas rate proceeding, the NYSPSC staff recommended a $6.7 million decrease in O&R's gas rates (reflecting an authorized return on common equity of 8.6 percent). In June 2018, O&R filed an update to its requested rate increase, changing its request to a $0.5 million decrease (reflecting an authorized return on common equity of 9.75 percent).

Other Regulatory Matters

In August and November 2017, the NYSPSC issued orders in its proceeding investigating an April 21, 2017 Metropolitan Transportation Authority (MTA) subway power outage. The orders indicated that the investigation determined that the outage was caused by a failure of CECONY’s electricity supply to a subway station, which led to a loss of the subway signals, and that one of the secondary services to the MTA facility had been improperly rerouted and was not properly documented by the company. The orders also indicated that the loss of power to the subway station affected multiple subway lines and caused widespread delays across the subway system. Pursuant to the orders, the company is required to take certain actions, including inspecting, repairing and installing certain electrical equipment that serves the subway system, analyzing power supply and power quality events affecting the MTA’s signaling services, and filing monthly reports with the NYSPSC on all of the company's activities related to the subway system. Through June 30, 2018, the company incurred costs related to this matter of $180 million. Included in this amount is $30 million in capital and operating and maintenance costs reflected in the company's electric rate plan and $150 million deferred as a regulatory asset pursuant to the rate plan. The company, which plans to complete the required actions in 2018, expects to incur costs related to this matter during the remainder of 2018 of $84 million. Included in this amount is $2 million in expected capital and operating and maintenance costs reflected in the rate plan and $82 million expected to be deferred as a regulatory asset pursuant to the rate plan.

In December 2017, the NYSPSC issued an order initiating a proceeding to study the potential effects of the federal Tax Cuts and Jobs Act of 2017 (TCJA) on income tax expense and liabilities of New York State utilities and the regulatory treatment to preserve the resulting benefits for customers. Upon enactment of the TCJA in December 2017, CECONY and O&R re-measured their deferred tax assets and liabilities and accrued net regulatory liabilities for future income taxes of $3,513 million and $161 million, respectively. Under the rate normalization requirements continued by the TCJA, the portion of their net regulatory liabilities related to certain accelerated tax depreciation benefits ($2,542 million and $126 million, respectively) is to be amortized over the remaining lives of the related assets. The remainder, or "unprotected portion," ($971 million and $35 million, respectively) will be amortized as determined by the NYSPSC.

In March 2018, the NYSPSC staff recommended that the NYSPSC require most New York State utilities to begin on October 1, 2018 to credit their customers’ bills with the net benefits of the TCJA as measured based on amounts reflected in their rate plans prior to the enactment of the TCJA. The net benefits include the revenue requirement impact of the reduction in the corporate federal income tax rate to 21 percent, the elimination for utilities of bonus depreciation and the amortization of excess deferred federal income taxes the utilities collected from their customers that will not need to be paid to the Internal Revenue Service under the TCJA.

In June 2018, CECONY, O&R and other New York State utilities filed comments on the March 2018 NYSPSC staff recommendation. CECONY proposed to defer providing its electric customers with the net benefits of the TCJA allocable to them until its next electric rate proceeding, unless the NYSPSC determines that CECONY's electric customers should be credited sooner with a portion of the net benefits (for example, 20 percent). CECONY also proposed to begin on October 1, 2018 to credit its gas and steam customers’ bills with the net benefits allocable to them. CECONY’s proposals reflect deferral and amortization over a five-year period of the revenue requirement impact of the company’s net reduction in federal income tax expense in 2018 and 2019 due to the TCJA (except that for steam customers the impact after September 30, 2018 would be credited on a current monthly basis) and amortization over the remaining lives of the related assets of CECONY’s net regulatory liability for future income taxes (except that, for electric customers, the unprotected portion of the net regulatory liability would be amortized

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over a five-year period). In its ongoing rate proceedings (see “Rate Plans,” above), O&R has proposed and the NYSPSC staff has recommended that the company amortize over a five-year period the impact of its net reduction in federal income tax expense in 2018 due to the TCJA and amortize its net regulatory liability for future income taxes over the remaining lives of the related assets.

For the six months ended June 30, 2018, the Utilities deferred as regulatory liabilities estimated net benefits of the TCJA of $217 million, which represented approximately half of their estimated annual net benefits.

In January 2018, the NYSPSC issued an order initiating a focused operations audit of the income tax accounting of certain utilities, including CECONY and O&R.

In January 2018, the NJBPU issued an order initiating a proceeding to consider the TCJA. In June 2018, the NJBPU made permanent its previously approved $2.9 million interim decrease in Rockland Electric Company's (RECO) electric base rates, effective April 1, 2018, and ordered RECO to pay to its customers in July 2018 its approximately $1 million of net benefits of the TCJA for the three-month period ended March 31, 2018 and to begin in July 2018 to refund to its customers the unprotected portion of its net regulatory liability for future income taxes over a three-year period. Also in March 2018, the Federal Energy Regulatory Commission (FERC) issued an order directing RECO to propose revisions to its transmission revenue requirement to reflect the TCJA. RECO’s net regulatory liability for future income taxes resulting from its re-measurement of its deferred tax asset and liabilities is $28 million (including $16 million subject to the normalization requirements continued by the TCJA).

In March 2018, Winter Storms Riley and Quinn caused damage to the Utilities’ electric distribution systems and interrupted service to approximately 209,000 CECONY customers, 93,000 O&R customers and 44,000 RECO customers. Through June 30, 2018, CECONY's costs related to March 2018 storms, including Riley and Quinn, amounted to $126 million, including operation and maintenance expenses reflected in its electric rate plan ($17 million), operation and maintenance expenses charged against a storm reserve pursuant to its electric rate plan ($75 million), capital expenditures ($28 million) and removal costs ($6 million). O&R and RECO had storm-related costs of $48 million and $18 million, respectively, most of which were deferred as regulatory assets pursuant to their electric rate plans. Recovery of CECONY and O&R storm-related costs is subject to review by the NYSPSC, and recovery of RECO storm-related costs is subject to review by the NJBPU. The NYSPSC is investigating the preparation and response to the storms by CECONY, O&R, and other New York electric utilities, including all aspects of their emergency response plans, and may penalize them. In July 2018, the NJBPU adopted NJBPU staff's recommendations to increase requirements for New Jersey utilities, including RECO, relating to pre-storm preparations, restoration of service and communications and outreach. The Companies are unable to estimate the amount or range of their possible loss in connection with the storms.

In May 2018, FERC denied a complaint the NJBPU filed with FERC seeking the re-allocation to CECONY of certain PJM Interconnection LLC (PJM) transmission costs that had been allocated to the company prior to April 2017 when transmission service provided to the company pursuant to the PJM open access transmission tariff terminated. The transmission service terminated because the company did not exercise its option to continue the service following a series of requests PJM had submitted to FERC that substantially increased the charges for the transmission service. CECONY challenged each of these requests. FERC rejected all but one of CECONY’s protests. In June 2015 and May 2016, CECONY filed appeals of certain FERC decisions with the U.S. Court of Appeals. In July 2018, FERC established a settlement proceeding relating to the allocation of PJM transmission costs. Under CECONY’s electric rate plan, unless and until changed by the NYSPSC, the company will recover all charges incurred associated with the transmission service.

In July 2018, the NYSPSC commenced an investigation into the rupture of a CECONY steam main (see Note H).

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Regulatory Assets and Liabilities

Regulatory assets and liabilities at June 30, 2018 and December 31, 2017 were comprised of the following items:



	Con Edison		CECONY
(Millions of Dollars)	2018	2017	2018	2017
Regulatory assets
Unrecognized pension and other postretirement costs	$2,167	$2,526	$2,039	$2,376
Environmental remediation costs	772	793	662	677
Revenue taxes	276	260	264	248
MTA power reliability deferral	150	50	150	50
Pension and other postretirement benefits deferrals	74	79	57	58
Property tax reconciliation	77	51	57	25
Municipal infrastructure support costs	72	56	72	56
Recoverable energy costs	66	60	59	52
Deferred storm costs	82	38	—	—
Deferred derivative losses	36	44	30	37
Unamortized loss on reacquired debt	34	37	32	35
Meadowlands heater odorization project	33	18	33	18
Brooklyn Queens demand management program	30	37	30	37
Preferred stock redemption	24	24	24	24
Indian Point Energy Center program costs	20	29	20	29
Recoverable REV demonstration project expenses	18	19	16	17
Gate station upgrade project	14	13	14	13
Net electric deferrals	8	9	8	9
Workers’ compensation	6	10	6	10
O&R transition bond charges	5	9	—	—
Other	133	104	121	92
Regulatory assets – noncurrent	4,097	4,266	3,694	3,863
Deferred derivative losses	44	40	39	37
Recoverable energy costs	46	27	46	25
Regulatory assets – current	90	67	85	62
Total Regulatory Assets	$4,187	$4,333	$3,779	$3,925
Regulatory liabilities
Future income tax	$2,512	$2,545	$2,359	$2,390
Allowance for cost of removal less salvage	872	846	741	719
TCJA net benefits*	217	—	202	—
Pension and other postretirement benefit deferrals	145	207	122	181
Energy efficiency portfolio standard unencumbered funds	125	127	119	122
Net unbilled revenue deferrals	96	183	96	183
Unrecognized other postretirement costs	78	92	78	92
Property tax reconciliation	76	107	76	107
Settlement of prudence proceeding	51	66	51	66
Property tax refunds	45	44	45	44
Carrying charges on repair allowance and bonus depreciation	29	43	29	42
Earnings sharing - electric, gas and steam	28	29	18	19
New York State income tax rate change	26	36	26	35
Settlement of gas proceedings	24	27	24	27
Variable-rate tax-exempt debt – cost rate reconciliation	16	30	14	26
Base rate change deferrals	15	21	15	21
Net utility plant reconciliations	9	12	5	8
Other	187	162	159	137
Regulatory liabilities – noncurrent	4,551	4,577	4,179	4,219
Refundable energy costs	34	41	16	16
Deferred derivative gains	14	31	12	28
Revenue decoupling mechanism	12	29	12	21
Regulatory liabilities – current	60	101	40	65
Total Regulatory Liabilities	$4,611	$4,678	$4,219	$4,284

* See "Other Regulatory Matters," above.

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Note C – Capitalization

In April 2018, CECONY redeemed at maturity $600 million of 5.85 percent 10-year debentures. In May 2018, CECONY issued $300 million of 3.80 percent 10-year debentures and $700 million of 4.50 percent 40-year debentures. In June 2018, the $636 million of CECONY's tax-exempt debt for which the interest rates were to be determined pursuant to periodic auctions was called for redemption on various dates in July and August 2018, and CECONY issued $640 million of floating rate debentures.

The carrying amounts and fair values of long-term debt at June 30, 2018 and December 31, 2017 were:



(Millions of Dollars)	2018		2017
Long-Term Debt (including current portion) (a)	Carrying Amount	Fair Value	Carrying Amount	Fair Value
Con Edison	$17,040	$17,944	$16,029	$18,147
CECONY	$14,293	$15,108	$13,265	$15,163


(a)	Amounts shown are net of unamortized debt expense and unamortized debt discount of $152 million and $133 million for Con Edison and CECONY, respectively, as of June 30, 2018 and $142 million and $121 million for Con Edison and CECONY, respectively, as of December 31, 2017.

Fair values of long-term debt have been estimated primarily using available market information. For Con Edison, $636 million and $17,308 million of the fair value of long-term debt at June 30, 2018 are classified as Level 1 and Level 2, respectively. For CECONY, $636 million and $14,472 million of the fair value of long-term debt at June 30, 2018 are classified as Level 1 and Level 2, respectively (see Note L).

Note D – Short-Term Borrowing

At June 30, 2018, Con Edison had $869 million of commercial paper outstanding of which $550 million was outstanding under CECONY’s program. The weighted average interest rate at June 30, 2018 was 2.2 percent for both Con Edison and CECONY. At December 31, 2017, Con Edison had $577 million of commercial paper outstanding of which $150 million was outstanding under CECONY’s program. The weighted average interest rate at December 31, 2017 was 1.8 percent for both Con Edison and CECONY.

At June 30, 2018 and December 31, 2017, no loans were outstanding under the credit agreement (Credit Agreement). An immaterial amount of letters of credit were outstanding under the Credit Agreement as of June 30, 2018 and December 31, 2017.

Note E – Pension Benefits

Total Periodic Benefit Cost

The components of the Companies’ total periodic benefit costs for the three and six months ended June 30, 2018 and 2017 were as follows:



	For the Three Months Ended June 30,
	Con Edison		CECONY
(Millions of Dollars)	2018	2017	2018	2017
Service cost – including administrative expenses	$72	$66	$68	$61
Interest cost on projected benefit obligation	140	148	131	139
Expected return on plan assets	(258)	(243)	(245)	(229)
Recognition of net actuarial loss	172	149	163	141
Recognition of prior service cost/(credit)	(4)	(4)	(5)	(5)
TOTAL PERIODIC BENEFIT COST	$122	$116	$112	$107
Cost capitalized	(31)	(51)	(29)	(48)
Reconciliation to rate level	(23)	(3)	(25)	(5)
Total expense recognized	$68	$62	$58	$54

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	For the Six Months Ended June 30,
	Con Edison		CECONY
(Millions of Dollars)	2018	2017	2018	2017
Service cost – including administrative expenses	$145	$132	$136	$123
Interest cost on projected benefit obligation	280	296	263	277
Expected return on plan assets	(516)	(484)	(490)	(459)
Recognition of net actuarial loss	344	297	326	282
Recognition of prior service cost/(credit)	(9)	(9)	(10)	(10)
TOTAL PERIODIC BENEFIT COST	$244	$232	$225	$213
Cost capitalized	(62)	(94)	(59)	(88)
Reconciliation to rate level	(46)	(14)	(50)	(16)
Total expense recognized	$136	$124	$116	$109

In March 2017, the FASB issued amendments to the guidance for retirement benefits through ASU 2017-07, “Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The Companies adopted ASU 2017-07 beginning on January 1, 2018. The guidance requires that components of net periodic benefit cost other than service cost be presented outside of operating income on consolidated income statements, and that only the service cost component is eligible for capitalization. Accordingly, the service cost components are included in the line "Other operations and maintenance" and the non-service cost components are included in the line “Other deductions” in the Companies' consolidated income statements. As permitted by a practical expedient under ASU 2017-07, the Companies applied the presentation requirements retrospectively for both pension and other postretirement benefit costs using amounts disclosed in prior-period financial statements as appropriate estimates.

Expected Contributions

Based on estimates as of June 30, 2018, the Companies expect to make contributions to the pension plans during 2018 of $472 million (of which $433 million is to be contributed by CECONY). 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 six months of 2018, the Companies contributed $368 million to the pension plans, nearly all of which was contributed by CECONY. CECONY also contributed $17 million to the external trust for its non-qualified supplemental plan.

Note F – Other Postretirement Benefits

Total Periodic Benefit Cost

The components of the Companies’ total periodic other postretirement benefit costs for the three and six months ended June 30, 2018 and 2017 were as follows:



	For the Three Months Ended June 30,
	Con Edison		CECONY
(Millions of Dollars)	2018	2017	2018	2017
Service cost	$5	$5	$3	$3
Interest cost on accumulated other postretirement benefit obligation	11	11	9	10
Expected return on plan assets	(18)	(17)	(16)	(15)
Recognition of net actuarial loss/(gain)	2	1	1	(1)
Recognition of prior service cost/(credit)	(2)	(4)	(1)	(3)
TOTAL PERIODIC OTHER POSTRETIREMENT BENEFIT COST/(CREDIT)	$(2)	$(4)	$(4)	$(6)
Cost capitalized	(2)	2	(1)	3
Reconciliation to rate level	2	(1)	2	(1)
Total expense/(credit) recognized	$(2)	$(3)	$(3)	$(4)

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	For the Six Months Ended June 30,
	Con Edison		CECONY
(Millions of Dollars)	2018	2017	2018	2017
Service cost	$10	$10	$7	$7
Interest cost on accumulated other postretirement benefit obligation	21	23	17	19
Expected return on plan assets	(37)	(35)	(31)	(30)
Recognition of net actuarial loss/(gain)	4	1	1	(2)
Recognition of prior service cost/(credit)	(3)	(8)	(1)	(6)
TOTAL PERIODIC OTHER POSTRETIREMENT BENEFIT COST/(CREDIT)	$(5)	$(9)	$(7)	$(12)
Cost capitalized	(4)	4	(3)	5
Reconciliation to rate level	5	(2)	5	(1)
Total expense/(credit) recognized	$(4)	$(7)	$(5)	$(8)

For information about the adoption of ASU 2017-07, “Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” see Note E.

Contributions

Based on estimates as of June 30, 2018, Con Edison and CECONY expect to make a contribution of $6 million (substantially all of which is to be contributed by CECONY) to the other postretirement benefit plans in 2018. 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 June 30, 2018 and December 31, 2017 were as follows:



	Con Edison		CECONY
(Millions of Dollars)	2018	2017	2018	2017
Accrued Liabilities:
Manufactured gas plant sites	$645	$651	$548	$551
Other Superfund Sites	83	86	83	86
Total	$728	$737	$631	$637
Regulatory assets	$772	$793	$662	$677

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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 Utilities are permitted to recover or defer as regulatory assets (for subsequent recovery through rates) prudently incurred site investigation and remediation costs.

Environmental remediation costs incurred related to Superfund Sites for the three and six months ended June 30, 2018 and 2017 were as follows:



	For the Three Months Ended June 30,
	Con Edison		CECONY
(Millions of Dollars)	2018	2017	2018	2017
Remediation costs incurred	$6	$7	$5	$4



	For the Six Months Ended June 30,
	Con Edison		CECONY
(Millions of Dollars)	2018	2017	2018	2017
Remediation costs incurred	$9	$14	$8	$11

Insurance and other third-party recoveries received by Con Edison or CECONY were immaterial for the three and six months ended June 30, 2018 and 2017.

In 2017, 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 $2.7 billion and $2.5 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 June 30, 2018, Con Edison and CECONY have 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. These estimates were based upon a combination of modeling, historical data analysis and risk factor assessment. Courts have begun, and unless otherwise determined on appeal may continue, to apply different standards 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. CECONY is permitted to defer as regulatory assets (for subsequent recovery through rates) costs incurred for its asbestos lawsuits and workers’ compensation claims.

The accrued liability for asbestos suits and workers’ compensation proceedings (including those related to asbestos exposure) and the amounts deferred as regulatory assets for the Companies at June 30, 2018 and December 31, 2017 were as follows:

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	Con Edison		CECONY
(Millions of Dollars)	2018	2017	2018	2017
Accrued liability – asbestos suits	$8	$8	$7	$7
Regulatory assets – asbestos suits	$8	$8	$7	$7
Accrued liability – workers’ compensation	$81	$84	$77	$80
Regulatory assets – workers’ compensation	$6	$10	$6	$10

Note H – Other Material Contingencies

Manhattan Explosion and Fire

On March 12, 2014, two multi-use five-story tall buildings located on Park Avenue between 116^th and 117^th Streets 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. 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. In February 2017, the NYSPSC approved a settlement agreement with the company related to the NYSPSC's investigations of the incident and the practices of qualifying persons to perform plastic fusions. Pursuant to the agreement, the company is providing $27 million of future benefits to customers (for which it has accrued a regulatory liability) and will not recover from customers $126 million of costs for gas emergency response activities that it had previously incurred and expensed. Approximately eighty 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 for damages related to the incident. At June 30, 2018, the company had not accrued a liability for damages related to the incident.

Manhattan Steam Main Rupture

In July 2018, a CECONY steam main located on Fifth Avenue and 21^st street in Manhattan ruptured. Debris from the incident included dirt and mud containing asbestos. The response to the incident required the closing of buildings and streets for various periods. The NYSPSC has commenced an investigation. The company has notified its insurers of the incident and believes that the policies currently in force 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 to others in connection with the incident. The company is unable to estimate the amount or range of its possible loss related to the incident. At June 30, 2018, the company had not accrued a liability related to 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 $2,012 million and $2,073 million at June 30, 2018 and December 31, 2017, respectively.

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A summary, by type and term, of Con Edison’s total guarantees at June 30, 2018 is as follows:



Guarantee Type	0 – 3 years	4 – 10 years	> 10 years		Total
	(Millions of Dollars)
Con Edison Transmission	$744	$404		$—	$1,148
Energy transactions	426	31	204		661
Renewable electric production projects	109	—	24		133
Other	70	—	—		70
Total	$1,349	$435	$228		$2,012

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. In May 2016, the transmission owners transferred certain projects to NY Transco, for which CET Electric made its required contributions. NY Transco has proposed other transmission projects in the New York Independent System Operator's competitive bidding process. These other projects are subject to certain authorizations from the NYSPSC, the FERC and, as applicable, other federal, state and local agencies. Guarantee amount shown is for the maximum possible required amount of CET Electric’s contributions for these other projects as calculated based on the assumptions that the projects are completed at 175 percent of their estimated costs and NY Transco does not use any debt financing for the projects. Guarantee term shown is assumed as the selection of the projects and resulting timing of the contributions is not certain. Also included within the table above are guarantees for $125 million from Con Edison on behalf of CET Gas in relation to a proposed gas transmission project in West Virginia and Virginia.

Energy Transactions — Con Edison guarantees payments on behalf of the Clean 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 on behalf of their wholly-owned subsidiaries associated with their investment in, or development for others of, solar and wind energy facilities.

Other — Other guarantees include $70 million in guarantees provided by Con Edison to Travelers Insurance Company for indemnity agreements for surety bonds in connection with operation of solar energy facilities and energy service projects of Con Edison Development and Con Edison Solutions, respectively.

Note I – Income Tax

Con Edison’s income tax expense decreased to $38 million for the three months ended June 30, 2018 from $102 million for the three months ended June 30, 2017. CECONY’s income tax expense decreased to $31 million for the three months ended June 30, 2018 from $91 million for the three months ended June 30, 2017. The decrease in income tax expense for both Companies is due primarily to lower income before income tax expense and the lower corporate federal income tax rate of 21 percent in 2018 resulting from the enactment of the TCJA.

Reconciliation of the difference between income tax expense and the amount computed by applying the prevailing statutory income tax rate to income before income taxes for the three months ended June 30 is as follows:

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	Con Edison				CECONY
(% of Pre-tax income)	2018		2017		2018		2017
STATUTORY TAX RATE
Federal	21	%	35	%	21	%	35	%
Changes in computed taxes resulting from:
State income tax	5		3		4		3
Cost of removal	2		3		2		3
Other plant-related items	(1	)	(2	)	(1	)	(2	)
Renewable energy credits	(3	)	(2	)	—		—
Amortization of excess deferred federal income taxes	(7	)	—		(8	)	—
Other	—		—		(1	)	—
Effective tax rate	17	%	37	%	17	%	39	%

Con Edison’s income tax expense decreased to $156 million for the six months ended June 30, 2018 from $330 million for the six months ended June 30, 2017. CECONY’s income tax expense decreased to $150 million for the six months ended June 30, 2018 from $309 million for the six months ended June 30, 2017. The decrease in income tax expense for both Companies is due primarily to lower income before income tax expense and the lower corporate federal income tax rate of 21 percent in 2018 resulting from the enactment of the TCJA.

Reconciliation of the difference between income tax expense and the amount computed by applying the prevailing statutory income tax rate to income before income taxes for the six months ended June 30 is as follows:



	Con Edison				CECONY
(% of Pre-tax income)	2018		2017		2018		2017
STATUTORY TAX RATE
Federal	21	%	35	%	21	%	35	%
Changes in computed taxes resulting from:
State income tax	5		4		5		4
Cost of removal	1		2		1		2
Other plant-related items	(1	)	(1	)	(1	)	(1	)
Change in deferred taxes	—		(1	)	—		—
Renewable energy credits	(2	)	(1	)	—		—
Amortization of excess deferred federal income taxes	(4	)	—		(4	)	—
Other	—		(1	)	—		(1	)
Effective tax rate	20	%	37	%	22	%	39	%

CECONY and O&R deferred as regulatory liabilities their estimated net benefits under the TCJA for the six months ended June 30, 2018. RECO deferred as a regulatory liability its estimated net benefits under the TCJA for the three months ended March 31, 2018. The net benefits include the revenue requirement impact of the reduction in the corporate federal income tax rate to 21 percent, the elimination for utilities of bonus depreciation and the amortization of excess deferred federal income taxes the utilities collected from customers that will not need to be paid to the Internal Revenue Service under the TCJA. See “Other Regulatory Matters” in Note B.

At December 31, 2017, the Companies recorded provisional income tax amounts in its accounting for certain effects of the provisions of the TCJA as allowed under SEC Staff Accounting Bulletin 118 (SAB 118). SAB 118 allowed for a measurement period for companies to finalize the provisional amounts recorded as of December 31, 2017, not to exceed one year. As of June 30, 2018, the Companies have not yet finalized their assessment of the provisional amounts, and there were no adjustments recorded in the second quarter of 2018. The Companies expect to complete their assessment and record any final adjustments to the provisional amounts by the fourth quarter of 2018.

Uncertain Tax Positions

In March 2018, Con Edison received approval of its tax refunds by the Joint Committee on Taxation for tax years 2012 through 2015. The approval effectively settled approximately $3 million in uncertain federal tax positions. Federal tax returns for 2016 remain under examination.

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At June 30, 2018, the estimated liability for uncertain tax positions for Con Edison was $10 million ($4 million for CECONY). Con Edison reasonably expects to resolve within the next twelve months approximately $5 million ($4 million, net of federal taxes) of various federal and state uncertainties due to the expected completion of ongoing tax examinations and expiration of statute of limitations, of which the entire amount, if recognized, would reduce Con Edison's effective tax rate. The amount related to CECONY is approximately $2 million, which, 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 $10 million ($9 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 and six months ended June 30, 2018, the Companies recognized an immaterial amount of interest expense and no penalties for uncertain tax positions in their consolidated income statements. At June 30, 2018 and December 31, 2017, the Companies recognized an immaterial amount of accrued interest on their consolidated balance sheets.

Note J – Financial Information by Business Segment

Con Edison’s principal business segments are CECONY’s regulated utility activities, O&R’s regulated utility activities, the Clean Energy Businesses and Con Edison Transmission. CECONY’s principal business segments are its regulated electric, gas and steam utility activities. The financial data for the business segments for the three and six months ended June 30, 2018 and 2017 were as follows:



	For the Three Months Ended June 30,
	Operating revenues		Inter-segment revenues				Depreciation and amortization		Operating income/(loss)
(Millions of Dollars)	2018	2017	2018		2017		2018	2017	2018	2017
CECONY
Electric	$1,807	$1,817	$4		$4		$243	$229	$318	$358
Gas	435	388	2		2		51	45	82	89
Steam	96	88	18		18		22	22	(18)	(24)
Consolidation adjustments	—	—	(24)		(24)		—	—	—	—
Total CECONY	$2,338	$2,293		$—		$—	$316	$296	$382	$423
O&R
Electric	$144	$148		$—		$—	$14	$13	$18	$18
Gas	54	47	—		—		5	4	5	6
Total O&R	$198	$195		$—		$—	$19	$17	$23	$24
Clean Energy Businesses	$158	$146		$—		$—	$19	$18	$24	$18
Con Edison Transmission	1	—	—		—		—	—	(1)	(2)
Other (a)	1	(1)	—		—		—	1	(2)	1
Total Con Edison	$2,696	$2,633		$—		$—	$354	$332	$426	$464

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	For the Six Months Ended June 30,
	Operating revenues		Inter-segment revenues				Depreciation and amortization		Operating income/(loss)
(Millions of Dollars)	2018	2017	2018		2017		2018	2017	2018	2017
CECONY
Electric	$3,536	$3,610	$8		$8		$483	$458	$571	$678
Gas	1,276	1,153	4		3		100	90	404	385
Steam	410	386	37		37		43	43	112	100
Consolidation adjustments	—	—	(49)		(48)		—	—	—	—
Total CECONY	$5,222	$5,149		$—		$—	$626	$591	$1,087	$1,163
O&R
Electric	$293	$289		$—		$—	$28	$25	$26	$35
Gas	152	144	—		—		10	10	42	46
Total O&R	$445	$433		$—		$—	$38	$35	$68	$81
Clean Energy Businesses	391	283	—		—		38	36	33	34
Con Edison Transmission	2	—	—		—		—	—	(3)	(5)
Other (a)	—	(4)	—		—		—	—	(5)	2
Total Con Edison	$6,060	$5,861		$—		$—	$702	$662	$1,180	$1,275

(a) Parent company and consolidation adjustments. 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.

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The fair values of the Companies’ commodity derivatives including the offsetting of assets and liabilities on the consolidated balance sheet at June 30, 2018 and December 31, 2017 were:



(Millions of Dollars)	2018				2017
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	$48	$(31)	$17	(b)	$83	$(51)		$32	(b)
Noncurrent	26	(18)	8		10	(4)		6
Total fair value of derivative assets	$74	$(49)	$25		$93	$(55)		$38
Fair value of derivative liabilities
Current	$(69)	$29	$(40)		$(67)	$50		$(17)
Noncurrent	(46)	18	(28)		(43)	5		(38)
Total fair value of derivative liabilities	$(115)	$47	$(68)		$(110)	$55		$(55)
Net fair value derivative assets/(liabilities)	$(41)	$(2)	$(43)	(b)	$(17)		$—	$(17)	(b)
CECONY
Fair value of derivative assets
Current	$26	$(16)	$10	(b)	$39	$(15)		$24	(b)
Noncurrent	20	(15)	5		9	(4)		5
Total fair value of derivative assets	$46	$(31)	$15