Form 10-Q
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2013

OR

 

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

For the transition period from                      to                     

 

Commission

File Number

 

Exact name of registrant as specified in its charter

and principal office address and telephone number

  

State of
Incorporation

  

I.R.S. Employer
ID. Number

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

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

 

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

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

 

Con Edison      Yes x         No ¨   
CECONY      Yes x         No ¨   

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

 

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

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

 

Con Edison        Yes ¨          No x  
CECONY        Yes ¨           No x  

As of October 30, 2013, Con Edison had outstanding 292,888,192 Common Shares ($.10 par value). All of the outstanding common equity of CECONY is held by Con Edison.

Filing Format

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


Table of Contents

Glossary of Terms

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

 

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

 

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Table of Contents

 

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

 

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Table of Contents

TABLE OF CONTENTS

          PAGE  
PART I—Financial Information  
ITEM 1  

Financial Statements (Unaudited)

 
 

Con Edison

 
 

Consolidated Income Statement

    6   
 

Consolidated Statement of Comprehensive Income

    7   
 

Consolidated Statement of Cash Flows

    8   
 

Consolidated Balance Sheet

    9   
 

Consolidated Statement of Common Shareholders’ Equity

    11   
 

CECONY

 
 

Consolidated Income Statement

    12   
 

Consolidated Statement of Comprehensive Income

    13   
 

Consolidated Statement of Cash Flows

    14   
 

Consolidated Balance Sheet

    15   
 

Consolidated Statement of Common Shareholder’s Equity

    17   
 

Notes to Financial Statements (Unaudited)

    18   
ITEM 2  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

    48   
ITEM 3  

Quantitative and Qualitative Disclosures About Market Risk

    80   
ITEM 4  

Controls and Procedures

    80   
PART II—Other Information  
ITEM 1  

Legal Proceedings

    81   
ITEM 1A  

Risk Factors

    81   
ITEM 2  

Unregistered Sales of Equity Securities and Use of Proceeds

    82   
ITEM 6  

Exhibits

    83   
  Signatures     85   

 

4     


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FORWARD-LOOKING STATEMENTS

 

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

 

   

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

 

   

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

 

   

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

 

   

the Companies are extensively regulated and are subject to penalties;

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

a cyber attack could adversely affect the Companies; and

 

   

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

 

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Consolidated Edison, Inc.

CONSOLIDATED INCOME STATEMENT (UNAUDITED)

  
     For the Three Months
Ended September 30,
    For the Nine Months
Ended September 30,
 
     2013     2012     2013     2012  
    (Millions of Dollars/Except Share Data)  

OPERATING REVENUES

       

Electric

  $ 2,822      $ 2,810      $ 6,799      $ 6,762   

Gas

    225        216        1,333        1,161   

Steam

    72        68        522        414   

Non-utility

    365        344        833        950   

TOTAL OPERATING REVENUES

    3,484        3,438        9,487        9,287   

OPERATING EXPENSES

       

Purchased power

    946        930        2,421        2,440   

Fuel

    56        59        261        213   

Gas purchased for resale

    74        56        443        314   

Other operations and maintenance

    795        826        2,400        2,365   

Depreciation and amortization

    258        240        764        709   

Taxes, other than income taxes

    500        476        1,431        1,360   

TOTAL OPERATING EXPENSES

    2,629        2,587        7,720        7,401   

OPERATING INCOME

    855        851        1,767        1,886   

OTHER INCOME (DEDUCTIONS)

       

Investment and other income

    8        4        19        14   

Allowance for equity funds used during construction

    1        1        2        3   

Other deductions

    (4     (3     (12     (13

TOTAL OTHER INCOME (DEDUCTIONS)

    5        2        9        4   

INCOME BEFORE INTEREST AND INCOME TAX EXPENSE

    860        853        1,776        1,890   

INTEREST EXPENSE

       

Interest on long-term debt

    145        146        433        440   

Other interest

    2        6        143        17   

Allowance for borrowed funds used during construction

    (1            (1     (2

NET INTEREST EXPENSE

    146        152        575        455   

INCOME BEFORE INCOME TAX EXPENSE

    714        701        1,201        1,435   

INCOME TAX EXPENSE

    250        261        373        501   

NET INCOME

    464        440        828        934   

Preferred stock dividend requirements of subsidiary

                         (3

NET INCOME FOR COMMON STOCK

  $ 464      $ 440      $ 828      $ 931   

Net income for common stock per common share—basic

  $ 1.58      $ 1.50      $ 2.83      $ 3.18   

Net income for common stock per common share—diluted

  $ 1.58      $ 1.49      $ 2.81      $ 3.16   

DIVIDENDS DECLARED PER SHARE OF COMMON STOCK

  $ 0.615      $ 0.605      $ 1.845      $ 1.815   

AVERAGE NUMBER OF SHARES OUTSTANDING—BASIC (IN MILLIONS)

    292.9        292.9        292.9        292.9   

AVERAGE NUMBER OF SHARES OUTSTANDING—DILUTED (IN MILLIONS)

    294.3        294.6        294.3        294.6   

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 September 30,
    For the Nine Months
Ended September 30,
 
     2013     2012     2013     2012  
    (Millions of Dollars)  

NET INCOME

    $464        $440        $828        $934   

OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES

       

Pension plan liability adjustments, net of $1 and $4 in 2013 and $1 and $5 taxes in 2012, respectively

    2        2        7        8   

TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES

    2        2        7        8   

COMPREHENSIVE INCOME

    466        442        835        942   

Preferred stock dividend requirements of subsidiary

                         (3

COMPREHENSIVE INCOME FOR COMMON STOCK

    $466        $442        $835        $939   

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 Nine Months

Ended September 30,

 
       2013         2012    
    (Millions of Dollars)  

OPERATING ACTIVITIES

   

Net Income

  $ 828      $ 934   

PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME

   

Depreciation and amortization

    764        709   

Deferred income taxes

    116        344   

Rate case amortization and accruals

    1        32   

Common equity component of allowance for funds used during construction

    (2     (3

Net derivative (gains)/losses

    (6     (61

Pre-tax gains on the termination of LILO transactions

    (95       

Other non-cash items (net)

    46        (53

CHANGES IN ASSETS AND LIABILITIES

   

Accounts receivable – customers, less allowance for uncollectibles

    (51     (196

Special deposits

    (305       

Materials and supplies, including fuel oil and gas in storage

    (38     1   

Other receivables and other current assets

    (8     54   

Prepayments

    (362     (288

Accounts payable

    (193     18   

Pensions and retiree benefits obligations

    665        713   

Pensions and retiree benefits contributions

    (887     (821

Accrued taxes

    217        (80

Accrued interest

    171        46   

Superfund and environmental remediation costs (net)

    (6     7   

Deferred charges, noncurrent assets and other regulatory assets

    (6     183   

Deferred credits and other regulatory liabilities

    291        83   

Other assets

    51          

Other liabilities

    47        16   

NET CASH FLOWS FROM OPERATING ACTIVITIES

    1,238        1,638   

INVESTING ACTIVITIES

   

Utility construction expenditures

    (1,701     (1,450

Cost of removal less salvage

    (144     (118

Non-utility construction expenditures

    (149     (68

Investments in solar energy projects

    (174     (258

Proceeds from grants related to solar energy projects

    88        27   

Increase in restricted cash

    (15       

Proceeds from the termination of LILO transactions

    200          

NET CASH FLOWS USED IN INVESTING ACTIVITIES

    (1,895     (1,867

FINANCING ACTIVITIES

   

Net proceeds of short-term debt

    681        340   

Preferred stock redemption

           (239

Issuance of long-term debt

    919        400   

Retirement of long-term debt

    (707     (304

Issuance of common shares for stock plans, net of repurchases

    (4     (16

Debt issuance costs

    (12     (4

Common stock dividends

    (540     (524

Preferred stock dividends

           (3

NET CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES

    337        (350

CASH AND TEMPORARY CASH INVESTMENTS:

   

NET CHANGE FOR THE PERIOD

    (320     (579

BALANCE AT BEGINNING OF PERIOD

    394        648   

BALANCE AT END OF PERIOD

  $ 74      $  69   

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

   

Cash paid during the period for:

   

Interest

  $ 372      $ 379   

Income taxes

  $ 27      $ 46   

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

 

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Consolidated Edison, Inc.

CONSOLIDATED BALANCE SHEET (UNAUDITED)

  
     September 30,
2013
    December 31,
2012
 
    (Millions of Dollars)  

ASSETS

   

CURRENT ASSETS

   

Cash and temporary cash investments

  $ 74      $ 394   

Special deposits

    375        70   

Accounts receivable – customers, less allowance for uncollectible accounts of $95 and $94 in 2013 and 2012, respectively

    1,273        1,222   

Accrued unbilled revenue

    425        516   

Other receivables, less allowance for uncollectible accounts of $8 and $10 in 2013 and 2012, respectively

    257        228   

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

    368        330   

Prepayments

    521        159   

Deferred tax assets – current

    186        296   

Regulatory assets

    46        74   

Other current assets

    179        162   

TOTAL CURRENT ASSETS

    3,704        3,451   

INVESTMENTS

    444        467   

UTILITY PLANT, AT ORIGINAL COST

   

Electric

    23,041        22,376   

Gas

    5,388        5,120   

Steam

    2,117        2,049   

General

    2,301        2,302   

TOTAL

    32,847        31,847   

Less: Accumulated depreciation

    6,952        6,573   

Net

    25,895        25,274   

Construction work in progress

    1,450        1,027   

NET UTILITY PLANT

    27,345        26,301   

NON-UTILITY PLANT

   

Non-utility property, less accumulated depreciation of $84 and $68 in 2013 and 2012, respectively

    581        555   

Construction work in progress

    29        83   

NET PLANT

    27,955        26,939   

OTHER NONCURRENT ASSETS

   

Goodwill

    429        429   

Intangible assets, less accumulated amortization of $4 in 2013 and 2012

    4        2   

Regulatory assets

    9,190        9,705   

Other deferred charges and noncurrent assets

    238        216   

TOTAL OTHER NONCURRENT ASSETS

    9,861        10,352   

TOTAL ASSETS

  $ 41,964      $ 41,209   

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

 

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Consolidated Edison, Inc.

CONSOLIDATED BALANCE SHEET (UNAUDITED)

  

 

     September 30,
2013
    December 31,
2012
 
    (Millions of Dollars)  

LIABILITIES AND SHAREHOLDERS’ EQUITY

   

CURRENT LIABILITIES

   

Long-term debt due within one year

  $ 483      $ 706   

Notes payable

    1,220        539   

Accounts payable

    925        1,215   

Customer deposits

    316        304   

Accrued taxes

    379        162   

Accrued interest

    324        153   

Accrued wages

    93        94   

Fair value of derivative liabilities

    25        47   

Regulatory liabilities

    117        183   

Uncertain income tax liabilities

           44   

Other current liabilities

    491        498   

TOTAL CURRENT LIABILITIES

    4,373       3,945   

NONCURRENT LIABILITIES

   

Obligations under capital leases

    2        2   

Provision for injuries and damages

    195        149   

Pensions and retiree benefits

    3,816        4,678   

Superfund and other environmental costs

    512        545   

Asset retirement obligations

    164        159   

Fair value of derivative liabilities

    29        31   

Uncertain income tax liabilities

    8          

Other noncurrent liabilities

    120        125   

TOTAL NONCURRENT LIABILITIES

    4,846       5,689   

DEFERRED CREDITS AND REGULATORY LIABILITIES

   

Deferred income taxes and investment tax credits

    8,481        8,372   

Regulatory liabilities

    1,557        1,202   

Other deferred credits

    48        70   

TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES

    10,086       9,644   

LONG-TERM DEBT

    10,493       10,062   

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

    12,166       11,869   

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

  $ 41,964     $ 41,209   

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

 

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Consolidated Edison, Inc.

CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS’ EQUITY (UNAUDITED)

 

    Common Stock    

Additional
Paid-In
Capital

   

Retained
Earnings

    Treasury Stock    

Capital
Stock
Expense

    Accumulated
Other
Comprehensive
Income/(Loss)
       
(Millions of Dollars/Except Share Data)   Shares     Amount         Shares     Amount         Total  

BALANCE AS OF DECEMBER 31, 2011

    292,888,521      $ 32      $ 4,991      $ 7,568        23,194,075        $(1,033     $(64     $(58     $11,436   

Net income for common stock

          277                277   

Common stock dividends

          (177             (177

Issuance of common shares for stock plans, net of repurchases

    (7,225           7,225        (2         (2

Preferred stock redemption

                4          4   

Other comprehensive income

                                                            7        7   

BALANCE AS OF MARCH 31, 2012

    292,881,296      $ 32      $ 4,991      $ 7,668        23,201,300        $(1,035     $(60     $(51     $11,545   

Net income for common stock

          214                214   

Common stock dividends

          (178             (178

Issuance of common shares for stock plans, net of repurchases

    1,700              (1,700       (1       (1

Other comprehensive loss

                                                            (1     (1

BALANCE AS OF JUNE 30, 2012

    292,882,996      $ 32      $ 4,991      $ 7,704        23,199,600        $(1,035     $(61     $(52     $11,579   

Net income for common stock

          440                440   

Common stock dividends

          (177             (177

Issuance of common shares for stock plans, net of repurchases

    (11,100           11,100        (2         (2

Other comprehensive income

                                                            2        2   

BALANCE AS OF SEPTEMBER 30, 2012

    292,871,896      $ 32      $ 4,991      $ 7,967        23,210,700        $(1,037     $(61     $(50     $11,842   

BALANCE AS OF DECEMBER 31, 2012

    292,871,896      $ 32      $ 4,991      $ 7,997        23,210,700        $(1,037     $(61     $(53     $11,869   

Net income for common stock

          192                192   

Common stock dividends

          (180             (180

Issuance of common shares for stock plans, net of repurchases

    95,468          (2       (95,468     7            5   

Other comprehensive income

                                                            3        3   

BALANCE AS OF MARCH 31, 2013

    292,967,364      $ 32      $ 4,989      $ 8,009        23,115,232        $(1,030     $(61     $(50     $11,889   

Net income for common stock

          172                172   

Common stock dividends

          (180             (180

Issuance of common shares for stock plans, net of repurchases

    (4,078       1          4,078        (1           

Other comprehensive income

                                                            2        2   

BALANCE AS OF JUNE 30, 2013

    292,963,286      $ 32      $ 4,990      $ 8,001        23,119,310        $(1,031     $(61     $(48     $11,883   

Net income for common stock

          464                464   

Common stock dividends

          (180             (180

Issuance of common shares for stock plans, net of repurchases

    (34,931           34,931        (3         (3

Other comprehensive income

                                                            2        2   

BALANCE AS OF SEPTEMBER 30, 2013

    292,928,355      $ 32      $ 4,990      $ 8,285        23,154,241        $(1,034     $(61     $(46     $12,166   

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 September 30,
    For the Nine Months
Ended September 30,
 
     2013     2012     2013     2012  
    (Millions of Dollars)  

OPERATING REVENUES

       

Electric

  $ 2,622      $ 2,611      $ 6,309      $ 6,307   

Gas

    199        189        1,190        1,017   

Steam

    72        68        522        414   

TOTAL OPERATING REVENUES

    2,893        2,868        8,021        7,738   

OPERATING EXPENSES

       

Purchased power

    624        604        1,548        1,554   

Fuel

    56        59        261        213   

Gas purchased for resale

    58        45        376        264   

Other operations and maintenance

    686        725        2,102        2,065   

Depreciation and amortization

    237        225        705        664   

Taxes, other than income taxes

    480        456        1,370        1,300   

TOTAL OPERATING EXPENSES

    2,141        2,114        6,362        6,060   

OPERATING INCOME

    752        754        1,659        1,678   

OTHER INCOME (DEDUCTIONS)

       

Investment and other income

    1        2        7        6   

Allowance for equity funds used during construction

    1               1        2   

Other deductions

    (3     (2     (10     (10

TOTAL OTHER INCOME (DEDUCTIONS)

    (1            (2     (2

INCOME BEFORE INTEREST AND INCOME TAX EXPENSE

    751        754        1,657        1,676   

INTEREST EXPENSE

       

Interest on long-term debt

    127        130        384        395   

Other interest

    1        8        12        19   

Allowance for borrowed funds used during construction

                  (1     (1

NET INTEREST EXPENSE

    128        138        395        413   

INCOME BEFORE INCOME TAX EXPENSE

    623        616        1,262        1,263   

INCOME TAX EXPENSE

    222        227        431        436   

NET INCOME

    401        389        831        827   

Preferred stock dividend requirements

                         (3

NET INCOME FOR COMMON STOCK

  $ 401      $ 389      $ 831      $ 824   

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 Month
Ended September 30,
    For the Nine Months
Ended September 30,
 
     2013     2012     2013     2012  
    (Millions of Dollars)  

NET INCOME

  $ 401      $ 389      $ 831      $ 827   

OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES

       

Pension plan liability adjustments, net of $(1) taxes in 2012

                         (2

TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAXES

                         (2

COMPREHENSIVE INCOME

  $ 401      $ 389      $ 831      $ 825   

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 Nine Months
Ended September 30,
 
     2013     2012  
    (Millions of Dollars)  

OPERATING ACTIVITIES

   

Net income

  $ 831      $ 827   

PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME

   

Depreciation and amortization

    705        664   

Deferred income taxes

    364        220   

Rate case amortization and accruals

    1        32   

Common equity component of allowance for funds used during construction

    (1     (2

Other non-cash items (net)

    (72     84   

CHANGES IN ASSETS AND LIABILITIES

   

Accounts receivable—customers, less allowance for uncollectibles

    (39     (197

Materials and supplies, including fuel oil and gas in storage

    (26     12   

Other receivables and other current assets

    (27     (41

Prepayments

    (347     (308

Accounts payable

    (180     50   

Pensions and retiree benefits obligations

    616        639   

Pensions and retiree benefits contributions

    (830     (761

Superfund and environmental remediation costs (net)

    (6     7   

Accrued taxes

    (92     40   

Accrued interest

    43        46   

Deferred charges, noncurrent assets and other regulatory assets

    63        84   

Deferred credits and other regulatory liabilities

    302        88   

Other liabilities

    64        (21

NET CASH FLOWS FROM OPERATING ACTIVITIES

    1,369        1,463   

INVESTING ACTIVITIES

   

Utility construction expenditures

    (1,614     (1,368

Cost of removal less salvage

    (139     (115

NET CASH FLOWS USED IN INVESTING ACTIVITIES

    (1,753     (1,483

FINANCING ACTIVITIES

   

Net proceeds of short-term debt

    621        332   

Preferred stock redemption

           (239

Issuance of long-term debt

    700        400   

Retirement of long-term debt

    (700     (300

Debt issuance costs

    (7     (4

Dividend to parent

    (545     (512

Preferred stock dividends

           (3

NET CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES

    69        (326

CASH AND TEMPORARY CASH INVESTMENTS:

   

NET CHANGE FOR THE PERIOD

    (315     (346

BALANCE AT BEGINNING OF PERIOD

    353        372   

BALANCE AT END OF PERIOD

  $ 38      $ 26   

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

   

Cash paid during the period for:

   

Interest

  $ 336      $ 344   

Income taxes

  $ 117      $ 50   

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)

  
     September 30,
2013
    December 31,
2012
 
    (Millions of Dollars)  
   

ASSETS

   

CURRENT ASSETS

   

Cash and temporary cash investments

  $ 38      $ 353   

Special deposits

    86        65   

Accounts receivable – customers, less allowance for uncollectible accounts of $89 and $87 in 2013 and 2012, respectively

    1,147        1,108   

Other receivables, less allowance for uncollectible accounts of $6 and $9 in 2013 and 2012, respectively

    142        106   

Accrued unbilled revenue

    329        406   

Accounts receivable from affiliated companies

    35        61   

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

    311        285   

Prepayments

    428        81   

Regulatory assets

    42        60   

Deferred tax assets – current

    123        193   

Other current assets

    60        69   

TOTAL CURRENT ASSETS

    2,741       2,787   

INVESTMENTS

    231       207   

UTILITY PLANT AT ORIGINAL COST

   

Electric

    21,680        21,079   

Gas

    4,794        4,547   

Steam

    2,117        2,049   

General

    2,123       2,126   

TOTAL

    30,714        29,801   

Less: Accumulated depreciation

    6,357       6,009   

Net

    24,357        23,792   

Construction work in progress

    1,373        947   

NET UTILITY PLANT

    25,730       24,739   

NON-UTILITY PROPERTY

   

Non-utility property, less accumulated depreciation of $25 in 2013 and 2012

    5        6   

NET PLANT

    25,735       24,745   

OTHER NONCURRENT ASSETS

   

Regulatory assets

    8,497        8,972   

Other deferred charges and noncurrent assets

    171       174   

TOTAL OTHER NONCURRENT ASSETS

    8,668       9,146   

TOTAL ASSETS

  $ 37,375     $ 36,885   

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)

  

 

     September 30,
2013
    December 31,
2012
 
    (Millions of Dollars)  

LIABILITIES AND SHAREHOLDER’S EQUITY

   

CURRENT LIABILITIES

   

Long-term debt due within one year

  $ 475      $ 700   

Notes payable

    1,042        421   

Accounts payable

    737        989   

Accounts payable to affiliated companies

    16        22   

Customer deposits

    304        292   

Accrued taxes

    20        37   

Accrued taxes to affiliated companies

    140        215   

Accrued interest

    176        133   

Accrued wages

    89        84   

Fair value of derivative liabilities

    19        28   

Uncertain income tax liabilities

           36   

Regulatory liabilities

    86        145   

Other current liabilities

    419        410   

TOTAL CURRENT LIABILITIES

    3,523       3,512   

NONCURRENT LIABILITIES

   

Obligations under capital leases

    2        2   

Provision for injuries and damages

    188        141   

Pensions and retiree benefits

    3,414        4,220   

Superfund and other environmental costs

    403        433   

Asset retirement obligations

    163        158   

Fair value of derivative liabilities

    7        11   

Other noncurrent liabilities

    109        115   

TOTAL NONCURRENT LIABILITIES

    4,286       5,080   

DEFERRED CREDITS AND REGULATORY LIABILITIES

   

Deferred income taxes and investment tax credits

    7,888        7,452   

Regulatory liabilities

    1,431        1,077   

Other deferred credits

    43        67   

TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES

    9,362       8,596   

LONG-TERM DEBT

    9,366       9,145   

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

    10,838       10,552   

TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY

  $ 37,375     $ 36,885   

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

 

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Consolidated Edison Company of New York, Inc.

CONSOLIDATED STATEMENT OF COMMON SHAREHOLDER’S EQUITY (UNAUDITED)

    Common Stock    

Additional
Paid-In
Capital

   

Retained
Earnings

   

Repurchased
Con Edison
Stock

   

Capital
Stock
Expense

    Accumulated
Other
Comprehensive
Income/(Loss)
   

Total

 
(Millions of Dollars/Except Share Data)   Shares     Amount              

BALANCE AS OF DECEMBER 31, 2011

    235,488,094      $ 589      $ 4,234      $ 6,429      $ (962)      $ (64)      $ (8   $ 10,218   

Net income

          276              276   

Common stock dividend to parent

          (171           (171

Cumulative preferred dividends

          (3           (3

Preferred stock redemption

              4          4   

Other comprehensive income

                                                             

BALANCE AS OF MARCH 31, 2012

    235,488,094      $ 589      $ 4,234      $ 6,531      $ (962)      $ (60)      $ (8   $ 10,324   

Net income

          163              163   

Common stock dividend to parent

          (171           (171

Other comprehensive loss

                                                    (2     (2

BALANCE AS OF JUNE 30, 2012

    235,488,094      $ 589      $ 4,234      $ 6,523      $ (962)      $ (60)      $ (10   $ 10,314   

Net income

          389              389   

Common stock dividend to parent

          (171           (171

Cumulative preferred dividends

                         

Other comprehensive loss

                                                             

BALANCE AS OF SEPTEMBER 30, 2012

    235,488,094      $ 589      $ 4,234      $ 6,741      $ (962)      $ (60)      $ (10   $ 10,532   

BALANCE AS OF DECEMBER 31, 2012

    235,488,094      $ 589      $ 4,234      $ 6,761      $ (962)      $ (61)      $ (9   $ 10,552   

Net income

          277              277   

Common stock dividend to parent

          (182           (182

Other comprehensive income

                                                             

BALANCE AS OF MARCH 31, 2013

    235,488,094      $ 589      $ 4,234      $ 6,856      $ (962   $ (61   $ (9   $ 10,647   

Net income

          153              153   

Common stock dividend to parent

          (182           (182

Other comprehensive income

                                                             

BALANCE AS OF JUNE 30, 2013

  $ 235,488,094      $ 589      $ 4,234      $ 6,827      $ (962   $ (61   $ (9   $ 10,618   

Net income

          401              401   

Common stock dividend to parent

          (181           (181

Other comprehensive income

                                                             

BALANCE AS OF SEPTEMBER 30, 2013

  $ 235,488,094      $ 589      $ 4,234      $ 7,047      $ (962   $ (61   $ (9   $ 10,838   

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

 

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NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)

 

General

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

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

The separate interim consolidated financial statements of each of the Companies are unaudited but, in the opinion of their respective managements, reflect all adjustments (which include only normally recurring adjustments) necessary for a fair presentation of the results for the interim periods presented. The Companies’ separate interim consolidated financial statements should be read together with their separate audited financial statements (including the combined notes thereto) included in Item 8 of their combined Annual Report on Form 10-K for the year ended December 31, 2012 and their separate unaudited financial statements (including the combined notes thereto) included in Part I, Item 1 of their combined Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2013 and June 30, 2013.

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

 

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Note A — Summary of Significant Accounting Policies

Reclassifications and Revisions

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

Con Edison’s consolidated statement of cash flows for the six months ended June 30, 2013, incorrectly reduced net cash flows from financing activities and increased net cash flows from operating activities by an amount equal to the $108 million of net cash proceeds from the termination of the 1999 LILO transaction. A revision will be made on Con Edison’s consolidated statement of cash flows for the six months ended June 30, 2013 when the company files its Form 10-Q for the quarterly period ended June 30, 2014. The company does not deem this revision material to its consolidated financial statements for the six months ended June 30, 2013.

Earnings Per Common Share

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

 

     For the Three Months
Ended September 30,
    For the Nine Months
Ended September 30,
 
(Millions of Dollars, except per share amounts/Shares in Millions)   2013     2012     2013     2012  

Net income for common stock

  $ 464      $ 440      $ 828      $ 931   

Weighted average common shares outstanding – basic

    292.9        292.9        292.9        292.9   

Add: Incremental shares attributable to effect of potentially dilutive securities

    1.4        1.7        1.4        1.7   

Adjusted weighted average common shares outstanding – diluted

    294.3        294.6        294.3        294.6   

Net income for common stock per common share – basic

  $ 1.58      $ 1.50      $ 2.83      $ 3.18   

Net income for common stock per common share – diluted

  $ 1.58      $ 1.49      $ 2.81      $ 3.16   

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

Changes in Accumulated Other Comprehensive Income by Component

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

 

(Millions of Dollars)   Con Edison     CECONY  

Accumulated OCI, net of taxes, at December 31, 2012

  $ (53   $ (9

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

    1          

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

    2          

Total OCI, net of taxes, at March 31, 2013

  $ 3      $   

Accumulated OCI, net of taxes, at March 31, 2013 (b)

  $ (50   $ (9

OCI before reclassifications

             

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

    2          

Total OCI, net of taxes, at June 30, 2013

  $ 2      $   

Accumulated OCI, net of taxes, at June 30, 2013 (b)

  $ (48   $ (9

OCI before reclassifications

             

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

    2          

Total OCI, net of taxes, at September 30, 2013

  $ 2      $   

Accumulated OCI, net of taxes, at September 30, 2013 (b)

  $ (46   $ (9

 

(a) For the portion of unrecognized pension and other postretirement benefit costs relating to the regulated Utilities, costs are recorded into, and amortized out of, regulatory assets instead of OCI. The net actuarial losses and prior service costs recognized during the period are included in the computation of net periodic pension and other postretirement benefit cost. See Notes E and F.
(b) Tax reclassified from accumulated OCI is reported in the income tax expense line item of the income statement.

 

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Note B — Regulatory Matters

Rate Agreements

CECONY – Electric, Gas and Steam

In January 2013, CECONY filed requests for electric, gas and steam rate changes, effective January 1, 2014. The company requested electric and gas rate increases of $375 million and $25 million, respectively, and a steam rate decrease of $5 million, reflecting, among other things, a return on common equity of 10.35 percent and a common equity ratio of approximately 50 percent. In August 2013, the New York State Public Service Commission (NYSPSC) staff submitted its initial briefs which support decreases in the company’s electric, gas and steam rates of $146 million, $95 million and $10 million, respectively, reflecting, among other things, a return on common equity of 8.7 percent and a common equity ratio of 48 percent. In September 2013, the company submitted its reply briefs supporting increases in its electric, gas and steam rates of $418 million, $27 million and $8 million, respectively, reflecting, among other things, a return on common equity of 10.1 percent and a common equity ratio of approximately 50 percent. In October 2013, the NYSPSC’s Chief Administrative Law Judge appointed a settlement judge to assist in settlement discussions among the parties in these rate proceedings. There is no assurance that there will be a settlement, and any settlement would be subject to NYSPSC approval. Also, in October 2013, the company agreed to extend by one month the date by which the NYSPSC is required to issue a decision on the company’s rate requests, subject to a “make whole” provision that would keep the company and its customers in the same position they would have been absent the extension.

Other Regulatory Matters

In February 2009, the NYSPSC commenced a proceeding to examine the prudence of certain CECONY expenditures following the arrests of employees for accepting illegal payments from a construction contractor. Subsequently, additional employees were arrested for accepting illegal payments from materials suppliers and an engineering firm. The arrested employees were terminated by the company and have pled guilty or been convicted. Pursuant to NYSPSC orders, a portion of the company’s revenues (currently, $249 million, $32 million and $6 million on an annual basis for electric, gas and steam service, respectively) is being collected subject to potential refund to customers. The amount of electric revenues collected subject to refund, which was established in a different proceeding, and the amount of gas and steam revenues collected subject to refund were not established as indicative of the company’s potential liability in this proceeding. At September 30, 2013, the company had collected an estimated $1,318 million from customers subject to potential refund in connection with this proceeding. In January 2013, a NYSPSC consultant reported its estimate, with which the company does not agree, of $208 million of overcharges with respect to a substantial portion of the company’s construction expenditures from January 2000 to January 2009. The company is disputing the consultant’s estimate, including its determinations as to overcharges regarding specific construction expenditures it selected to review and its methodology of extrapolating such determinations over a substantial portion of the construction expenditures

 

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during this period. The NYSPSC’s consultant has not reviewed the company’s other expenditures. The company and NYSPSC staff are exploring a settlement in this proceeding. There is no assurance that there will be a settlement, and any settlement would be subject to NYSPSC approval. At September 30, 2013, the company had a $16 million regulatory liability for refund to customers of amounts recovered from vendors, arrested employees and insurers relating to this matter. The company is unable to estimate the amount, if any, by which any refund required by the NYSPSC may exceed this regulatory liability. The company currently estimates that any refund required by the NYSPSC could range in amount from the $16 million regulatory liability up to an amount based on the NYSPSC consultant’s $208 million estimate of overcharges.

In late October 2012, Superstorm Sandy caused extensive damage to the Utilities’ electric distribution system and interrupted service to approximately 1.4 million customers. Superstorm Sandy also damaged CECONY’s steam system and interrupted service to many of its steam customers. As of September 30, 2013, CECONY and O&R incurred response and restoration costs for Superstorm Sandy of $471 million and $92 million, respectively (including capital expenditures of $143 million and $15 million, respectively). Most of the costs that were not capitalized were deferred for recovery as a regulatory asset under the Utilities’ electric rate plans. See “Regulatory Assets and Liabilities,” below. The Utilities’ New York electric rate plans include provisions for revenue decoupling, as a result of which delivery revenues generally are not affected by changes in delivery volumes from levels assumed when rates were approved. The provisions of the Utilities’ New York electric plans that impose penalties for operating performance provide for exceptions for major storms and catastrophic events beyond the control of the companies, including natural disasters such as hurricanes and floods. The NYSPSC is investigating, and the New York State Attorney General investigated, the preparation and performance of the Utilities in connection with Superstorm Sandy and other major storms.

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

In March 2013, the New Jersey Board of Public Utilities established a proceeding to review the prudency of costs incurred by New Jersey utilities, including Rockland Electric Company (RECO, an O&R subsidiary), in response to major storm events in 2011 and 2012. At September 30, 2013, RECO had $28 million of storm costs deferred for recovery as a regulatory asset and had incurred $6 million of capital expenditures related to the storms.

 

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Regulatory Assets and Liabilities

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

 

     Con Edison     CECONY  
(Millions of Dollars)   2013     2012     2013     2012  

Regulatory assets

       

Unrecognized pension and other postretirement costs

    $5,011        $5,677        $4,779        $5,407   

Future income tax

    2,035        1,922        1,929        1,831   

Environmental remediation costs

    704        730        591        615   

Deferred storm costs

    451        432        340        309   

Pension and other postretirement benefits deferrals

    229        183        201        154   

Revenue taxes

    191        176        182        170   

Surcharge for New York State assessment

    119        73        113        68   

Net electric deferrals

    88        102        88        102   

Unamortized loss on reacquired debt

    67        74        64        70   

Deferred derivative losses – long-term

    34        40        13        20   

O&R transition bond charges

    34        39                 

Preferred stock redemption

    28        29        28        29   

Property tax reconciliation

    20        16                 

Workers’ compensation

    16        19        16        19   

Other

    163        193        153        178   

Regulatory assets – long-term

    9,190        9,705        8,497        8,972   

Deferred derivative losses – current

    45        69        42        60   

Recoverable energy costs – current

    1        5                 

Regulatory assets – current

    46        74        42        60   

Total Regulatory Assets

    $9,236        $9,779        $8,539        $9,032   

Regulatory liabilities

       

Allowance for cost of removal less salvage

    $   522        $   503        $   436        $   420   

Property tax reconciliation

    290        187        290        187   

Property tax refunds

    130        7        129        6   

Net unbilled revenue deferrals

    104        136        104        136   

Long-term interest rate reconciliation

    94        62        94        62   

World Trade Center settlement proceeds

    62        62        62        62   

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

    30        31        20        13   

Expenditure prudence proceeding

    16        14        16        14   

Other

    309        200        280        177   

Regulatory liabilities – long-term

    1,557        1,202        1,431        1,077   

Refundable energy costs – current

    64        82        36        48   

Revenue decoupling mechanism

    51        72        49        68   

Deferred derivative gains – current

    2               1          

Electric surcharge offset

           29               29   

Regulatory liabilities – current

    117        183        86        145   

Total Regulatory Liabilities

    $1,674        $1,385        $1,517        $1,222   

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

 

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Note C — Capitalization

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

 

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

 

(Millions of Dollars)   September 30, 2013     December 31, 2012  
Long-Term Debt (including current portion)  

Carrying

Amount

    Fair
Value
   

Carrying

Amount

    Fair
Value
 

Con Edison

    $10,976        $12,213        $10,768        $12,935   

CECONY

    $  9,841        $10,925        $  9,845        $11,751   

 

Fair values of long-term debt have been estimated primarily using available market information. For Con Edison, $11,577 million and $636 million of the fair value of long-term debt at September 30, 2013 are classified as Level 2 and Level 3, respectively. For CECONY, $10,289 million and $636 million of the fair value of long-term debt at September 30, 2013 are classified as Level 2 and Level 3, respectively (see Note L). The $636 million of long-term debt classified as Level 3 is CECONY’s tax-exempt, auction-rate securities for which the market is highly illiquid and there is a lack of observable inputs.

Note D — Short-Term Borrowing

At September 30, 2013, Con Edison had $1,220 million of commercial paper outstanding of which $1,042 million was outstanding under CECONY’s program. The weighted average interest rate was 0.3 percent for both Con Edison and CECONY. At December 31, 2012, Con Edison had $539 million of commercial paper outstanding of which $421 million was outstanding under CECONY’s program. The weighted average interest rate was 0.3 percent for both Con Edison and CECONY. At September 30, 2013 and December 31, 2012, no loans were outstanding under the Companies’ credit agreement and $29 million (including $11 million for CECONY) and $131 million (including $121 million for CECONY) of letters of credit were outstanding, respectively, under the credit agreement. In 2013, the termination date under the credit agreement was extended from October 2016 to October 2017 with respect to lenders with aggregate commitments under the credit agreement of approximately $2.1 billion.

 

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Note E — Pension Benefits

Net Periodic Benefit Cost

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

 

     For the Three Months Ended September 30,  
     Con Edison     CECONY  
(Millions of Dollars)   2013     2012     2013     2012  

Service cost – including administrative expenses

    $    67        $    59        $    62        $    55   

Interest cost on projected benefit obligation

    134        137        126        128   

Expected return on plan assets

    (187     (176     (178     (168

Recognition of net actuarial loss

    208        177        197        168   

Recognition of prior service costs

    1        2        1        2   

NET PERIODIC BENEFIT COST

    $ 223        $ 199        $ 208        $ 185   

Amortization of regulatory asset

    1               1          

TOTAL PERIODIC BENEFIT COST

    $ 224        $ 199        $ 209        $ 185   

Cost capitalized

    (86     (64     (78     (60

Reconciliation to rate level

    (31            (34     (1

Cost charged to operating expenses

    $ 107        $ 135        $   97        $ 124   

 

     For the Nine Months Ended September 30,  
     Con Edison     CECONY  
(Millions of Dollars)   2013     2012     2013     2012  

Service cost – including administrative expenses

    $ 200        $ 177        $ 186        $ 165   

Interest cost on projected benefit obligation

    403        410        377        385   

Expected return on plan assets

    (563     (528     (534     (503

Recognition of net actuarial loss

    624        531        591        503   

Recognition of prior service costs

    4        6        3        4   

NET PERIODIC BENEFIT COST

    $ 668        $ 596        $ 623        $ 554   

Amortization of regulatory asset

    2        1        2        1   

TOTAL PERIODIC BENEFIT COST

    $ 670        $ 597        $ 625        $ 555   

Cost capitalized

    (256     (200     (241     (186

Reconciliation to rate level

    (55     (37     (56     (36

Cost charged to operating expenses

    $ 359        $ 360        $ 328        $ 333   

Contributions

 

The Companies made contributions to the pension plan during 2013 of $867 million (of which $810 million was contributed by CECONY). The Companies’ policy is to fund their accounting cost to the extent tax deductible. During the first nine months of 2013, CECONY also funded $11 million for the non-qualified supplemental plans.

 

Note F — Other Postretirement Benefits

Net Periodic Benefit Cost

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

 

     For the Three Months Ended September 30,  
     Con Edison     CECONY  
(Millions of Dollars)   2013     2012     2013     2012  

Service cost

    $   6        $   6        $   5        $   5   

Interest cost on accumulated other postretirement benefit obligation

    13        18        12        16   

Expected return on plan assets

    (19     (21     (17     (19

Recognition of net actuarial loss

    16        24        14        22   

Recognition of prior service cost

    (7     (5     (6     (4

NET PERIODIC POSTRETIREMENT BENEFIT COST

    $   9        $ 22        $   8        $ 20   

Cost capitalized

    (3     (8     (3     (7

Reconciliation to rate level

    14        3        12        3   

Cost charged to operating expenses

    $ 20        $ 17        $ 17        $ 16   

 

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     For the Nine Months Ended September 30,  
     Con Edison     CECONY  
(Millions of Dollars)   2013     2012     2013     2012  

Service cost

    $ 18        $  20        $ 14        $ 15   

Interest cost on accumulated other postretirement benefit obligation

    40        55        34        48   

Expected return on plan assets

    (58     (64     (51     (56

Recognition of net actuarial loss

    48        73        43        65   

Recognition of prior service cost

    (20     (16     (17     (13

Recognition of transition obligation

           1               1   

NET PERIODIC POSTRETIREMENT BENEFIT COST

    $ 28        $  69        $ 23        $ 60   

Cost capitalized

    (10     (24     (9     (20

Reconciliation to rate level

    43        15        37        12   

Cost charged to operating expenses

    $ 61        $  60        $ 51        $ 52   

 

Contributions

Con Edison made a contribution of $9 million, nearly all of which is for CECONY, to the other postretirement benefit plans in 2013.

Note G — Environmental Matters

Superfund Sites

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

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

For Superfund Sites where there are other potentially responsible parties and the Utilities are not managing the site investigation and remediation, the accrued liability represents an estimate of the amount the Utilities will need to pay to investigate and, where

 

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determinable, discharge their related obligations. For Superfund Sites (including the manufactured gas plant sites) for which one of the Utilities is managing the investigation and remediation, the accrued liability represents an estimate of the company’s share of undiscounted cost to investigate the sites and, for sites that have been investigated in whole or in part, the cost to remediate the sites, if remediation is necessary and if a reasonable estimate of such cost can be made. Remediation costs are estimated in light of the information available, applicable remediation standards, and experience with similar sites.

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

 

     Con Edison     CECONY  
(Millions of Dollars)   2013     2012     2013     2012  

Accrued Liabilities:

         

Manufactured gas plant sites

    $439        $462        $332        $351   

Other Superfund Sites

    73        83        71        82   

Total

    $512        $545        $403        $433   

Regulatory assets

    $704        $730        $591        $615   

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

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

 

     For the Three Months Ended September 30,  
     Con Edison     CECONY  
(Millions of Dollars)   2013     2012     2013     2012  

Remediation costs incurred

    $10        $3        $10        $1   

Insurance recoveries received

                           

 

     For the Nine Months Ended September 30,  
     Con Edison     CECONY  
(Millions of Dollars)   2013     2012     2013     2012  

Remediation costs incurred

    $35        $18        $30        $15   

Insurance recoveries received

                           

In 2010, CECONY estimated that for its manufactured gas plant sites, its aggregate undiscounted potential liability for the investigation and remediation of coal tar and/or other manufactured gas plant-related

 

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

Asbestos Proceedings

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

 

     Con Edison     CECONY  
(Millions of Dollars)   2013     2012     2013     2012  

Accrued liability – asbestos suits

    $10        $10        $10        $10   

Regulatory assets – asbestos suits

    $10        $10        $10        $10   

Accrued liability – workers’ compensation

    $91        $94        $86        $89   

Regulatory assets – workers’ compensation

    $16        $19        $16        $19   

Note H — Other Material Contingencies

Manhattan Steam Main Rupture

In July 2007, a CECONY steam main located in midtown Manhattan ruptured. It has been reported that one person died and others were injured as a result of the incident. Several buildings in the area were damaged. Debris from the incident included dirt and mud containing asbestos. The response to the incident required the closing of several buildings and streets for various periods. Approximately 90 suits are pending against the company seeking generally unspecified compensatory and, in some cases, punitive damages, for personal injury, property damage and business

 

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interruption. The company has notified its insurers of the incident and believes that the policies in force at the time of the incident will cover the company’s costs to satisfy its liability to others in connection with the suits. At September 30, 2013, the company has accrued its estimated liability for the suits of $50 million and an insurance receivable in the same amount.

Lease In/Lease Out Transactions

In each of 1997 and 1999, Con Edison Development entered into transactions in which it leased property and then immediately subleased the properties back to the lessor (termed “Lease In/Lease Out,” or LILO transactions). The transactions respectively involved electric generating and gas distribution facilities in the Netherlands, with a total investment of $259 million. The transactions were financed with $93 million of equity and $166 million of non-recourse, long-term debt secured by the underlying assets. In accordance with the accounting rules for leases, Con Edison accounted for the two LILO transactions as leveraged leases. Accordingly, the company’s investment in these leases, net of non-recourse debt, was carried as a single amount in Con Edison’s consolidated balance sheet and income was recognized pursuant to a method that incorporated a level rate of return for those years when net investment in the lease was positive.

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

As a result of the January 2013 Court of Appeals decision, in the three months ended March 31, 2013, Con Edison recorded an after-tax charge of $150 million to reflect, as required by the accounting rules for leveraged lease transactions, the recalculation of the

 

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accounting effect of the LILO transactions based on the revised after-tax cash flows projected from the inception of the leveraged leases as well as the interest on the potential tax liability resulting from the disallowance of federal and state income tax losses with respect to the LILO transactions (see “Uncertain Tax Positions” in Note I). In June 2013, the 1999 LILO transaction was terminated, as a result of which the company realized a $29 million gain (after-tax) and received net cash proceeds of $108 million. In August 2013, the 1997 LILO transaction was terminated, resulting in a $26 million gain (after-tax) and net cash proceeds of $92 million. The effect on Con Edison’s consolidated income statement is as follows:

 

(Millions of Dollars)   For the Three
Months Ended
September 30, 2013
   

For the Nine

Months Ended
September 30, 2013

 

Increase/(decrease) to non-utility operating revenues

  $ 44      $ (27

(Increase)/decrease to other interest expense

           (131

Income tax benefit/(expense)

    (18     63   

Total increase/(decrease) in net income

  $ 26      $ (95

The transactions did not impact earnings in 2012.

At September 30, 2013, the company had terminated its LILO transactions and no longer had an investment recorded for these leases in its consolidated balance sheet. At December 31, 2012, the company’s net investment in the LILO transactions was $(76) million, comprised of a $228 million gross investment less $304 million of deferred tax liabilities.

In January 2013, to defray interest charges, the company deposited $447 million with federal and state tax agencies relating primarily to the potential tax liability from these LILO transactions in past tax years and interest thereon. In June 2013, at the company’s request, the IRS returned $95 million of the deposit. In August 2013, an additional $30 million of the deposit was returned from the IRS at the company’s request. In the third quarter of 2013, the IRS completed its audits for the tax years 1998 through 2011 and the company expects to apply a portion of the remaining deposited amounts against its federal tax liability during the fourth quarter of 2013. The company is currently amending its state tax returns for all years covered by the LILOs, and expects that the balance of the deposit will be applied to satisfy its related state tax liability.

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 $1,272 million and $859 million at September 30, 2013 and December 31, 2012, respectively.

 

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

 

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

Energy transactions

  $ 705      $ 52      $ 25      $ 782   

Solar energy projects

    443               4        447   

Intra-company guarantees

    16                      16   

Other guarantees

    27                      27   

Total

  $ 1,191      $ 52      $ 29      $ 1,272   

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

Solar Energy Projects — Con Edison and Con Edison Development guarantee payments associated with the investment in solar energy generation facilities on behalf of their wholly-owned subsidiaries. In addition, Con Edison Development has entered into a guarantee ($80 million maximum) on behalf of an entity in which it has a 50 percent interest (see Note M) in connection with the construction of solar energy generation facilities. Con Edison Development also provided $4 million in guarantees to Travelers Insurance Company for indemnity agreements for surety bonds in connection with the construction and operation of solar energy facilities performed by its subsidiaries.

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

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

 

   

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

 

   

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

 

   

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

 

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Note I — Income Tax

Con Edison’s income tax expense decreased to $250 million for the three months ended September 30, 2013, from $261 million for the three months ended September 30, 2012. The effective tax rates for the three months ended September 30, 2013 and 2012 were 35 percent and 37 percent, respectively. The decrease in the effective tax rate in 2013 is due primarily to reductions in liabilities for uncertain tax positions related to the completion of the IRS audits in the third quarter of 2013 (see “Uncertain Tax Positions,” below) and favorable tax adjustments recorded in conjunction with filing Con Edison’s 2012 consolidated federal tax return in September. The favorable tax adjustments are primarily due to higher flow-through federal income tax benefits related to plant and higher renewable energy tax credits.

Con Edison’s income tax expense decreased to $373 million for the nine months ended September 30, 2013, from $501 million for the nine months ended September 30, 2012. The effective tax rates for the nine months ended September 30, 2013 and 2012 were 31 percent and 35 percent, respectively. The decrease in the effective tax rate in 2013 is due primarily to the favorable tax adjustments discussed above and the impact of comparable favorable reconciling items on reduced income before income tax expense in the 2013 period compared with the 2012 period. Additionally, in the first quarter of 2013, the IRS accepted on audit the company’s claim for manufacturing tax deductions. This deduction, plus higher state income taxes in 2012, also resulted in a reduction in the 2013 effective tax rate.

CECONY’s income tax expense decreased to $222 million for the three months ended September 30, 2013, from $227 million for the three months ended September 30, 2012. The effective tax rates for the three months ended September 30, 2013 and 2012 were 36 percent and 37 percent, respectively. CECONY’s income tax expense decreased to $431 million for the nine months ended September 30, 2013, from $436 million for the nine months ended September 30, 2012. The effective tax rates for the nine months ended September 30, 2013 and 2012 were 34 percent and 35 percent, respectively. The decreases in the effective tax rates for the three and nine months ended September 30, 2013, are due primarily to higher flow-through federal income tax benefits ($7 million) reflected in CECONY’s federal tax return filed in September.

In September 2013, the IRS issued final regulations that provide guidance on the appropriate tax treatment of costs incurred to acquire, produce or improve tangible property. The new regulations, effective beginning in 2014, permit an acceleration of tax deductions for certain materials and supplies recorded as inventory for financial accounting purposes. The application of these regulations is not expected to have a material impact on the Companies’ financial position, results of operations or liquidity.

 

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Uncertain Tax Positions

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

In the third quarter of 2013, the IRS completed its audits for the tax years 1998 through 2011 and the Companies recognized approximately $13 million of income tax benefits ($7 million for CECONY), including $6 million that favorably affected Con Edison’s effective tax rate for the three and nine months ended September 30, 2013. There were no material changes to the Companies’ estimated liabilities for uncertain tax positions during the nine months ended September 30, 2012. At September 30, 2013, the estimated liabilities for uncertain tax positions for Con Edison were $8 million and an immaterial amount for CECONY.

The Companies recognize interest on liabilities for uncertain tax positions in interest expense and would recognize penalties, if any, in operating expenses in the Companies’ consolidated income statements. In the first quarter of 2013, Con Edison recognized $126 million of interest expense ($131 million related to the LILO transactions, less a reduction of $5 million in accrued interest expense primarily associated with repair allowance deductions). In the third quarter of 2013, the Companies’ reversed $5 million ($3 million for CECONY) in accrued interest expense associated with reducing the Companies’ estimated liabilities for uncertain tax positions. The Companies’ accrued interest on uncertain tax positions at September 30, 2013 and December 31, 2012 was immaterial.

The Companies reasonably expect to resolve an immaterial amount of their uncertain tax positions with the IRS within the next twelve months, and accordingly, Con Edison has reflected its estimated liability for uncertain tax positions as noncurrent liabilities on its consolidated balance sheet. At September 30, 2013, the total amount of unrecognized tax benefits that, if recognized, would affect the Companies’ effective tax rate is $5 million for Con Edison and an immaterial amount for CECONY.

 

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Note J — Financial Information by Business Segment

The financial data for the business segments are as follows:

 

     For the Three Months Ended September 30,  
    

Operating

revenues

    Inter-segment
revenues
    Depreciation and
amortization
   

Operating

income

 
(Millions of Dollars)   2013     2012     2013     2012     2013     2012     2013     2012  

CECONY

               

Electric

  $ 2,622      $ 2,611      $ 4      $ 4      $ 188      $ 179      $ 811      $ 812   

Gas

    199        189        1        1        33        31        (24     (21

Steam

    72        68        22        20        16        15        (35     (37

Consolidation adjustments

                  (27     (25                            

Total CECONY

  $ 2,893      $ 2,868      $      $      $ 237      $ 225      $ 752      $ 754   

O&R

               

Electric

  $ 200      $ 199      $      $      $ 10      $ 10      $ 46      $ 50   

Gas

    26        27                      4        3        (7     (6

Total O&R

  $ 226      $ 226      $      $      $ 14      $ 13      $ 39      $ 44   

Competitive energy businesses

  $ 365      $ 344      $      $ 2      $ 6      $ 2      $ 63      $ 53   

Other*

                         (2     1               1          

Total Con Edison

  $ 3,484      $ 3,438      $      $      $ 258      $ 240      $ 855      $ 851   

 

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

 

     For the Nine Months Ended September 30,  
    

Operating

revenues

    Inter-segment
revenues
    Depreciation and
amortization
   

Operating

income

 
(Millions of Dollars)   2013     2012     2013     2012     2013     2012     2013     2012  

CECONY

               

Electric

  $ 6,309      $ 6,307      $ 12      $ 11      $ 559      $ 527      $ 1,307      $ 1,383   

Gas

    1,190        1,017        4        4        97        89        272        255   

Steam

    522        414        60        58        49        48        80        40   

Consolidation adjustments

                  (76     (73                            

Total CECONY

  $ 8,021      $ 7,738      $      $      $ 705      $ 664      $ 1,659      $ 1,678   

O&R

               

Electric

  $ 492      $ 457      $      $      $ 31      $ 28      $ 81      $ 74   

Gas

    143        144                      11        11        20        26   

Total O&R

  $ 635      $ 601      $      $      $ 42      $ 39      $ 101      $ 100   

Competitive energy businesses

  $ 834      $ 954      $ 4      $ 6      $ 16      $ 6      $ 7      $ 111   

Other*

    (3     (6     (4     (6     1                      (3

Total Con Edison

  $ 9,487      $ 9,287      $      $      $ 764      $ 709      $ 1,767      $ 1,886   

 

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

 

Note K – Derivative Instruments and Hedging Activities

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

Energy Price Hedging

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

Effective January 1, 2013, the Companies adopted Accounting Standards Updates (ASUs) No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities” and No. 2013-01, “Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities”. The

 

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amendments require the Companies to disclose certain quantitative information concerning financial and derivative instruments that are offset in the balance sheet and a description of the rights of setoff, including the nature of such rights, associated with recognized assets and liabilities that are subject to an enforceable master netting arrangement or similar agreement.

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

 

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

 

(Millions of Dollars)  
Commodity Derivatives  

Gross

Amounts of
Recognized
Assets/(Liabilities)

    Gross
Amounts
Offset in the
Statement of
Financial
Position
   

Net Amounts of
Assets/(Liabilities)
Presented in

the Statement

of Financial
Position

   

Gross Amounts Not

Offset in the Statement

of Financial Position

    Net
Amount
 
                          Financial
instruments
    Cash
collateral
received
        

Con Edison

           

Derivative assets

  $ 80      $ (52   $ 28 (a)    $      $      $ 28 (a) 

Derivative liabilities

    (124     74        (50                   (50

Net derivative assets/(liabilities)

  $ (44   $ 22      $ (22 )(a)    $      $      $ (22 )(a) 

CECONY

           

Derivative assets

  $ 27      $ (18   $ 9 (a)    $      $      $ 9 (a) 

Derivative liabilities

    (58     33        (25                   (25

Net derivative assets/(liabilities)

  $ (31   $ 15      $ (16 )(a)    $      $      $ (16 )(a) 

 

(a) At September 30, 2013, Con Edison and CECONY had margin deposits of $34 million and $14 million, respectively, classified as derivative assets in the balance sheet, but not included in the table. As required by an exchange, a margin is collateral, typically cash, that the holder of a derivative instrument has to deposit in order to transact on an exchange and to cover its potential losses with its broker or the exchange.

 

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

 

<
(Millions of Dollars)       
Commodity Derivatives   Gross
Amounts of
Recognized
Assets/
(Liabilities)
    Gross
Amounts
Offset in the
Statement of
Financial
Position
    Net Amounts
of Assets/
(Liabilities)
Presented in
the Statement
of Financial
Position
   

Gross Amounts Not

Offset in the Statement

of Financial Position

    Net
Amount
 
                          Financial
instruments
    Cash
collateral
received