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 MARCH 31, 2012

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 April 27, 2012, Con Edison had outstanding 292,904,261 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

 

2     


Table of Contents
Units of Measure
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, 2012
Form 10-K    The Companies’ combined Annual Report on Form 10-K for the year ended December 31, 2011
LTIP    Long Term Incentive Plan
Moody’s    Moody’s Investors Service
S&P    Standard & Poor’s Financial Services LLC
VaR    Value-at-Risk

 

      3   


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

    35   
ITEM  3  

Quantitative and Qualitative Disclosures About Market Risk

    50   
ITEM  4  

Controls and Procedures

    50   
PART II—Other Information  
ITEM  1  

Legal Proceedings

    51   
ITEM 1A  

Risk Factors

    51   
ITEM  2  

Unregistered Sales of Equity Securities and Use of Proceeds

    51   
ITEM  6  

Exhibits

    52   
  Signatures     52   

 

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;

 

   

the Internal Revenue Service has disallowed substantial tax deductions taken by the company;

 

   

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 March 31,
 
     2012     2011  
    (Millions of Dollars/
Except Share Data)
 

OPERATING REVENUES

   

Electric

  $ 1,862      $ 1,869   

Gas

    645        755   

Steam

    263        325   

Non-utility

    308        400   

TOTAL OPERATING REVENUES

    3,078        3,349   

OPERATING EXPENSES

   

Purchased power

    781        865   

Fuel

    108        176   

Gas purchased for resale

    196        308   

Operations and maintenance

    749        698   

Depreciation and amortization

    233        218   

Taxes, other than income taxes

    450        458   

TOTAL OPERATING EXPENSES

    2,517        2,723   

OPERATING INCOME

    561        626   

OTHER INCOME (DEDUCTIONS)

   

Investment and other income

    7        9   

Allowance for equity funds used during construction

           4   

Other deductions

    (4     (4

TOTAL OTHER INCOME (DEDUCTIONS)

    3        9   

INCOME BEFORE INTEREST AND INCOME TAX EXPENSE

    564        635   

INTEREST EXPENSE

   

Interest on long-term debt

    145        147   

Other interest

    5        7   

Allowance for borrowed funds used during construction

           (2

NET INTEREST EXPENSE

    150        152   

INCOME BEFORE INCOME TAX EXPENSE

    414        483   

INCOME TAX EXPENSE

    134        169   

NET INCOME

    280        314   

Preferred stock dividend requirements of subsidiary

    (3     (3

NET INCOME FOR COMMON STOCK

  $    277      $    311   

Net income for common stock per common share – basic

  $   0.95      $   1.07   

Net income for common stock per common share – diluted

  $   0.94      $   1.06   

DIVIDENDS DECLARED PER SHARE OF COMMON STOCK

  $ 0.605      $ 0.600   

AVERAGE NUMBER OF SHARES OUTSTANDING – BASIC (IN MILLIONS)

    292.9        292.0   

AVERAGE NUMBER OF SHARES OUTSTANDING – DILUTED (IN MILLIONS)

    294.5        293.6   

 

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 March 31,
 
  2012     2011  
  (Millions of Dollars)  

NET INCOME

  $ 280      $ 314   

OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES

   

Pension plan liability adjustments, net of $5 and $2 taxes in 2012 and 2011, respectively

    7        3   

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

    7        3   

COMPREHENSIVE INCOME

  $ 287      $ 317   

Preferred stock dividend requirements of subsidiary

    (3     (3

COMPREHENSIVE INCOME FOR COMMON STOCK

  $ 284      $ 314   

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 Three Months
Ended March 31,
 
       2012         2011    
    (Millions of Dollars)  

OPERATING ACTIVITIES

   

Net Income

  $ 280      $ 314   

PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME

   

Depreciation and amortization

    233        218   

Deferred income taxes

    68        232   

Rate case amortization and accruals

    31        19   

Common equity component of allowance for funds used during construction

           (4

Net derivative losses/(gains)

    31        (37

Other non-cash items (net)

    64        (17

CHANGES IN ASSETS AND LIABILITIES

   

Accounts receivable – customers, less allowance for uncollectibles

    54        (5

Materials and supplies, including fuel oil and gas in storage

    31        103   

Other receivables and other current assets

    (2     66   

Prepayments

    (286     (217

Accounts payable

    (78     (154

Pensions and retiree benefits obligations

    253        259   

Pensions and retiree benefits contribution

    (184     (491

Accrued taxes

    41        (20

Accrued interest

    52        51   

Deferred charges, noncurrent assets and other regulatory assets

    (255     (19

Deferred credits and other regulatory liabilities

    117        67   

Other assets

           (1

Other liabilities

    (48     (2

NET CASH FLOWS FROM OPERATING ACTIVITIES

    402        362   

INVESTING ACTIVITIES

   

Utility construction expenditures

    (471     (394

Cost of removal less salvage

    (43     (39

Non-utility construction expenditures

    (9     (23

Proceeds from investment tax credits and grants related to renewable energy investments

    6          

Net investment in Pilesgrove solar project and other

    27          

Loan to affiliate

           (40

NET CASH FLOWS USED IN INVESTING ACTIVITIES

    (490     (496

FINANCING ACTIVITIES

   

Net proceeds from short-term debt

           464   

Retirement of long-term debt

    (1     (1

Issuance of long-term debt

    400          

Issuance of common shares for stock plans, net of repurchases

    (8     25   

Debt issuance costs

    (4       

Common stock dividends

    (175     (173

Preferred stock dividends

    (3     (3

NET CASH FLOWS FROM FINANCING ACTIVITIES

    209        312   

CASH AND TEMPORARY CASH INVESTMENTS:

   

NET CHANGE FOR THE PERIOD

    121        178   

BALANCE AT BEGINNING OF PERIOD

    648        338   

BALANCE AT END OF PERIOD

  $ 769      $ 516   

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

   

Cash paid/(refunded) during the period for:

   

Interest

  $ 89      $ 90   

Income taxes

  $      $ (172

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

 

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Consolidated Edison, Inc.   

CONSOLIDATED BALANCE SHEET (UNAUDITED)

 

     March 31,
2012
    December 31,
2011
 
    (Millions of Dollars)  

ASSETS

   

CURRENT ASSETS

   

Cash and temporary cash investments

  $ 769      $ 648   

Accounts receivable – customers, less allowance for uncollectible accounts of $87 in 2012 and 2011

    1,069        1,123   

Accrued unbilled revenue

    379        474   

Other receivables, less allowance for uncollectible accounts of $10 in 2012 and 2011

    249        303   

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

    325        356   

Prepayments

    431        145   

Deferred tax assets – current

    285        266   

Regulatory assets

    192        164   

Other current assets

    205        159   

TOTAL CURRENT ASSETS

    3,904        3,638   

INVESTMENTS

    440        455   

UTILITY PLANT, AT ORIGINAL COST

   

Electric

    21,520        21,105   

Gas

    4,821        4,727   

Steam

    2,015        1,983   

General

    2,093        1,960   

TOTAL

    30,449        29,775   

Less: Accumulated depreciation

    6,153        6,051   

Net

    24,296        23,724   

Construction work in progress

    920        1,241   

NET UTILITY PLANT

    25,216        24,965   

NON-UTILITY PLANT

   

Non-utility property, less accumulated depreciation of $61 and $59 in 2012 and 2011, respectively

    98        89   

Construction work in progress

    39        39   

NET PLANT

    25,353        25,093   

OTHER NONCURRENT ASSETS

   

Goodwill

    429        429   

Intangible assets, less accumulated amortization of $3 in 2012 and 2011

    3        3   

Regulatory assets

    9,276        9,337   

Other deferred charges and noncurrent assets

    296        259   

TOTAL OTHER NONCURRENT ASSETS

    10,004        10,028   

TOTAL ASSETS

  $ 39,701      $ 39,214   

 

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

 

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Consolidated Edison, Inc.   

CONSOLIDATED BALANCE SHEET (UNAUDITED)

 

     March 31,
2012
    December 31,
2011
 
    (Millions of Dollars)  

LIABILITIES AND SHAREHOLDERS’ EQUITY

   

CURRENT LIABILITIES

   

Long-term debt due within one year

  $ 1,030      $ 530   

Accounts payable

    844        955   

Customer deposits

    306        303   

Accrued taxes

    229        188   

Accrued interest

    212        160   

Accrued wages

    91        91   

Fair value of derivative liabilities

    198        169   

Regulatory liabilities

    286        118   

Preferred stock redemption

    239          

Other current liabilities

    405        473   

TOTAL CURRENT LIABILITIES

    3,840        2,987   

NONCURRENT LIABILITIES

   

Obligations under capital leases

    2        2   

Provision for injuries and damages

    158        181   

Pensions and retiree benefits

    4,605        4,835   

Superfund and other environmental costs

    537        489   

Asset retirement obligations

    147        145   

Fair value of derivative liabilities

    54        48   

Other noncurrent liabilities

    131        131   

TOTAL NONCURRENT LIABILITIES

    5,634        5,831   

DEFERRED CREDITS AND REGULATORY LIABILITIES

   

Deferred income taxes and investment tax credits

    7,712        7,563   

Regulatory liabilities

    846        977   

Other deferred credits

    83        64   

TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES

    8,641        8,604   

LONG-TERM DEBT

    10,041        10,143   

SHAREHOLDERS’ EQUITY

   

Common shareholders’ equity (See Statement of Common Shareholders’ Equity)

    11,545        11,436   

Preferred stock of subsidiary

           213   

TOTAL SHAREHOLDERS’ EQUITY

    11,545        11,649   

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

  $ 39,701      $ 39,214   

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)

   

Total

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

BALANCE AS OF DECEMBER 31, 2010

    291,616,334      $ 31      $ 4,915      $ 7,220        23,210,700      $ (1,001   $ (64   $ (40   $ 11,061   

Net income for common stock

          311                311   

Common stock dividends

          (175             (175

Issuance of common shares – dividend reinvestment and employee stock plans

    656,049        1        30                  31   

Other comprehensive income

                                                            3        3   

BALANCE AS OF MARCH 31, 2011

    292,272,383      $ 32      $ 4,945      $ 7,356        23,210,700      $ (1,001   $ (64   $ (37   $ 11,231   

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   

 

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 Month
Ended March 31,
 
     2012     2011  
    (Millions of Dollars)  

OPERATING REVENUES

   

Electric

  $ 1,735      $ 1,721   

Gas

    563        663   

Steam

    263        325   

TOTAL OPERATING REVENUES

    2,561        2,709   

OPERATING EXPENSES

   

Purchased power

    447        483   

Fuel

    108        176   

Gas purchased for resale

    169        263   

Operations and maintenance

    645        597   

Depreciation and amortization

    218        204   

Taxes, other than income taxes

    430        440   

TOTAL OPERATING EXPENSES

    2,017        2,163   

OPERATING INCOME

    544        546   

OTHER INCOME (DEDUCTIONS)

   

Investment and other income

    5        5   

Allowance for equity funds used during construction

           3   

Other deductions

    (3     (3

TOTAL OTHER INCOME (DEDUCTIONS)

    2        5   

INCOME BEFORE INTEREST AND INCOME TAX EXPENSE

    546        551   

INTEREST EXPENSE

   

Interest on long-term debt

    131        132   

Other interest

    5        5   

Allowance for borrowed funds used during construction

           (2

NET INTEREST EXPENSE

    136        135   

INCOME BEFORE INCOME TAX EXPENSE

    410        416   

INCOME TAX EXPENSE

    134        145   

NET INCOME

    276        271   

Preferred stock dividend requirements

    (3     (3

NET INCOME FOR COMMON STOCK

  $ 273      $ 268   

 

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 March 31,
 
     2012     2011  
    (Millions of Dollars)  

NET INCOME

  $ 276      $ 271   

OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES

   

Pension plan liability adjustments, net of $— taxes in 2012 and 2011

             

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

             

COMPREHENSIVE INCOME

  $ 276      $ 271   

 

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 Three Months
Ended March 31,
 
     2012     2011  
    (Millions of Dollars)  

OPERATING ACTIVITIES

   

Net income

  $ 276      $ 271   

PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME

   

Depreciation and amortization

    218        204   

Deferred income taxes

    66        207   

Rate case amortization and accruals

    31        19   

Common equity component of allowance for funds used during construction

           (3

Other non-cash items (net)

    15        10   

CHANGES IN ASSETS AND LIABILITIES

   

Accounts receivable – customers, less allowance for uncollectibles

    43        22   

Materials and supplies, including fuel oil and gas in storage

    22        84   

Other receivables and other current assets

    16        (77

Prepayments

    (287     (291

Accounts payable

    (48     (119

Pensions and retiree benefits obligations

    209        236   

Pensions and retiree benefits contribution

    (184     (491

Accrued taxes

    57        (37

Accrued interest

    42        44   

Superfund and environmental remediation costs (net)

    (1       

Deferred charges, noncurrent assets and other regulatory assets

    (179     (63

Deferred credits and other regulatory liabilities

    108        52   

Other liabilities

    (36     4   

NET CASH FLOWS FROM OPERATING ACTIVITIES

    368        72   

INVESTING ACTIVITIES

   

Utility construction expenditures

    (446     (376

Cost of removal less salvage

    (41     (37

NET CASH FLOWS USED IN INVESTING ACTIVITIES

    (487     (413

FINANCING ACTIVITIES

   

Net proceeds from short-term debt

           464   

Issuance of long-term debt

    400          

Debt issuance costs

    (4       

Dividend to parent

    (171     (170

Preferred stock dividends

    (3     (3

NET CASH FLOWS USED IN FINANCING ACTIVITIES

    222        291   

CASH AND TEMPORARY CASH INVESTMENTS:

   

NET CHANGE FOR THE PERIOD

    103        (50

BALANCE AT BEGINNING OF PERIOD

    372        78   

BALANCE AT END OF PERIOD

  $ 475      $ 28   

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

   

Cash paid/(refunded) during the period for:

   

Interest

  $ 83      $ 82   

Income taxes

  $ (20   $ 35   

 

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)

 

     March 31,
2012
    December 31,
2011
 
    (Millions of Dollars)  

ASSETS

   

CURRENT ASSETS

   

Cash and temporary cash investments

  $ 475      $ 372   

Accounts receivable – customers, less allowance for uncollectible accounts of $79 in 2012 and 2011

    934        977   

Other receivables, less allowance for uncollectible accounts of $9 in 2012 and 2011

    110        102   

Accrued unbilled revenue

    285        366   

Accounts receivable from affiliated companies

    36        54   

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

    286        308   

Prepayments

    372        85   

Regulatory assets

    159        140   

Deferred tax assets – current

    170        157   

Other current assets

    97        100   

TOTAL CURRENT ASSETS

    2,924        2,661   

INVESTMENTS

    188        177   

UTILITY PLANT AT ORIGINAL COST

   

Electric

    20,284        19,886   

Gas

    4,285        4,200   

Steam

    2,015        1,983   

General

    1,917        1,785   

TOTAL

    28,501        27,854   

Less: Accumulated depreciation

    5,616        5,523   

Net

    22,885        22,331   

Construction work in progress

    853        1,165   

NET UTILITY PLANT

    23,738        23,496   

NON-UTILITY PROPERTY

   

Non-utility property, less accumulated depreciation of $24 in 2012 and 2011

    6        6   

NET PLANT

    23,744        23,502   

OTHER NONCURRENT ASSETS

   

Regulatory assets

    8,645        8,661   

Other deferred charges and noncurrent assets

    254        217   

TOTAL OTHER NONCURRENT ASSETS

    8,899        8,878   

TOTAL ASSETS

  $ 35,755      $ 35,218   

 

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)

 

     March 31,
2012
    December 31,
2011
 
    (Millions of Dollars)  

LIABILITIES AND SHAREHOLDER’S EQUITY

   

CURRENT LIABILITIES

   

Long-term debt due within one year

  $ 1,024      $ 525   

Accounts payable

    690        774   

Accounts payable to affiliated companies

    17        16   

Customer deposits

    293        290   

Accrued taxes

    17        32   

Accrued taxes to affiliated companies

    198        126   

Accrued interest

    175        133   

Accrued wages

    82        81   

Fair value of derivative liabilities

    112        98   

Regulatory liabilities

    242        79   

Preferred stock redemption

    239          

Other current liabilities

    338        396   

TOTAL CURRENT LIABILITIES

    3,427        2,550   

NONCURRENT LIABILITIES

   

Obligations under capital leases

    2        2   

Provision for injuries and damages

    151        173   

Pensions and retiree benefits

    4,142        4,337   

Superfund and other environmental costs

    421        373   

Asset retirement obligations

    147        145   

Fair value of derivative liabilities

    31        24   

Other noncurrent liabilities

    121        120   

TOTAL NONCURRENT LIABILITIES

    5,015        5,174   

DEFERRED CREDITS AND REGULATORY LIABILITIES

   

Deferred income taxes and investment tax credits

    7,059        6,921   

Regulatory liabilities

    730        861   

Other deferred credits

    81        61   

TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES

    7,870        7,843   

LONG-TERM DEBT

    9,119        9,220   

SHAREHOLDER’S EQUITY

   

Common shareholder’s equity (See Statement of Common Shareholder’s Equity)

    10,324        10,218   

Preferred stock

           213   

TOTAL SHAREHOLDER’S EQUITY

    10,324        10,431   

TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY

  $ 35,755      $ 35,218   

 

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, 2010

    235,488,094      $ 589      $ 4,234      $ 6,132      $ (962   $ (64   $ (6   $ 9,923   

Net income

          271              271   

Common stock dividend to parent

          (170           (170

Cumulative preferred dividends

          (3           (3

Other comprehensive income

                                                             

BALANCE AS OF MARCH 31, 2011

    235,488,094      $ 589      $ 4,234      $ 6,230      $ (962   $ (64   $ (6   $ 10,021   

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   

 

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, 2011. Certain prior period amounts have been reclassified to conform to the current period presentation.

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

Earnings Per Common Share

For the three months ended March 31, 2012 and 2011, basic and diluted EPS for Con Edison are calculated as follows:

 

(Millions of Dollars, except per share amounts/Shares in Millions)   2012     2011  

Net income for common stock

  $ 277      $ 311   

Weighted average common shares outstanding – Basic

    292.9        292.0   

Add: Incremental shares attributable to effect of potentially dilutive securities

    1.6        1.6   

Adjusted weighted average common shares outstanding – Diluted

    294.5        293.6   

Net income for common stock per common share – basic

  $ 0.95      $ 1.07   

Net income for common stock per common share – diluted

  $ 0.94      $ 1.06   

 

Note B — Regulatory Matters

Rate Agreements

CECONY — Electric

In March 2012, the NYSPSC issued an order requiring that the $134 million surcharge that was to have been collected from customers during the rate year ending March 2013 instead be offset using certain CECONY regulatory liabilities that would have otherwise been refundable to or applied for the benefit of customers after the rate year.

O&R — Electric

On February 24, 2012, O&R, the staff of the NYSPSC and the Utility Intervention Unit of New York State’s Division of Consumer Protection entered into a Joint Proposal with respect to the Company’s rates for electric delivery service rendered in New York. The Joint Proposal, which is subject to NYSPSC approval, covers the three-year period from July 2012 through June 2015. The Joint Proposal provides for electric base rate increases of $19.4 million, $8.8 million and $15.2 million, effective July 2012, 2013 and 2014, respectively, which can be implemented, at the NYSPSC’s option, with increases of $15.2 million effective July 2012 and 2013 and an increase of $13.1 million, together with a surcharge of $2.1 million, effective July 2014. The Joint Proposal reflects the following major items:

 

   

a weighted average cost of capital of 7.61 percent, 7.65 percent and 7.48 percent for the rate years ending June 30, 2013, 2014 and 2015, respectively, reflecting:

 

   

a return on common equity of 9.4 percent, 9.5 percent and 9.6 percent for the rate years ending June 30, 2013, 2014 and 2015, respectively;

 

   

cost of long-term debt of 6.07 percent for each of the rate years ending June 30, 2013 and 2014 and 5.64 percent for the rate year ending June 30 2015;

 

   

common equity ratio of 48 percent for each of the rate years ending June 30, 2013, 2014 and 2015; and

 

   

average rate base of $671 million, $708 million and $759 million for the rate years ending June 30, 2013, 2014 and 2015, respectively;

 

   

sharing with electric customers of any actual earnings, excluding the effects of any penalties and certain other items, above specified percentage returns on common equity (based on the actual average common equity ratio, subject to a 50 percent maximum):

 

   

the company will allocate to customers the revenue requirement equivalent of 50 percent, 75 percent and 90 percent of any such earnings for each rate year in excess of 80 basis points, 180 basis points and 280 basis points, respectively, above the return on common equity for that rate year indicated above; and

 

   

the earnings sharing allocation between the company and customers will be done on a cumulative basis at the end of rate year three;

 

   

continuation of a revenue decoupling mechanism;

 

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continuation of a provision which defers as a regulatory liability for the benefit of customers or, subject to certain limitations, a regulatory asset for recovery from customers, as the case may be, the revenue requirement impact of the amount by which actual average net utility plant for each rate year is different than the average net utility plant reflected in rates ($678 million, $704 million and $753 million for the rate years ending June 30, 2013, 2014 and 2015, respectively);

 

   

continuation of the rate provisions pursuant to which the company recovers its purchased power costs from customers;

 

   

continuation of rate provisions under which pension and other post-retirement benefit expenses, environmental remediation expenses, tax-exempt debt costs and certain other expenses are reconciled to amounts for those expenses reflected in rates;

 

   

provisions under which property taxes are reconciled to amounts reflected in rates; and

 

   

continuation of provisions for potential operations penalties of up to $3 million annually if certain customer service and system reliability performance targets are not met.

Other Regulatory Matters

In February 2009, the NYSPSC commenced a proceeding to examine the prudence of certain CECONY expenditures (see “Investigations of Vendor Payments” in Note H). 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. At March 31, 2012, the company had collected an estimated $887 million from customers subject to potential refund in connection with this proceeding. In October 2010, a NYSPSC consultant reported its $21 million provisional assessment, which the company has disputed, of potential overcharges for construction work. The potential overcharges related to transactions that involved certain employees who were arrested and a contractor that performed work for the company. The NYSPSC’s consultant is expected to continue to review the company’s expenditures. At March 31, 2012, the company had an $8 million regulatory liability 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.

In February 2011, the NYSPSC initiated a proceeding to examine the existing mechanisms pursuant to which utilities recover site investigation and remediation costs and possible alternatives. See Note G.

 

 

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Regulatory Assets and Liabilities

Regulatory assets and liabilities at March 31, 2012 and December 31, 2011 were comprised of the following items:

 

     Con Edison     CECONY  
(Millions of Dollars)   2012     2011     2012     2011  

Regulatory assets

       

Unrecognized pension and other postretirement costs

  $ 5,594      $ 5,852      $ 5,337      $ 5,554   

Future income tax

    1,840        1,798        1,764        1,724   

Environmental remediation costs

    729        681        613        564   

Pension and other post retirement benefits deferrals

    219        198        185        157   

Revenue taxes

    167        163        161        158   

Surcharge for New York State assessment

    143        90        133        82   

Deferred storm costs

    125        128        79        80   

Net electric deferrals

    116        121        116        121   

Deferred derivative losses – long-term

    78        60        61        44   

O&R transition bond charges

    43        44                 

Preferred stock redemption

    30               30          

Workers’ compensation

    22        23        21        23   

Property tax reconciliation

    13        13                 

Recoverable energy costs – long-term

           14               14   

Other

    157        152        145        140   

Regulatory assets – long-term

    9,276        9,337        8,645        8,661   

Deferred derivative losses – current

    192        164        159        140   

Regulatory assets – current

    192        164        159        140   

Total Regulatory Assets

  $ 9,468      $ 9,501      $ 8,804      $ 8,801   

Regulatory liabilities

       

Allowance for cost of removal less salvage

  $ 457      $ 448      $ 379      $ 372   

Property tax reconciliation

    68        35        68        35   

World Trade Center settlement proceeds

    62        62        62        62   

Net unbilled revenue deferrals

    51        104        51        104   

Long-term interest rate reconciliation

    42        30        42        30   

Carrying charges on transmission and distribution net plant

    41        38        18        14   

Gas line losses

    17        21        17        21   

Expenditure prudence proceeding

    8        11        8        11   

Energy efficiency programs

    6        22        6        20   

Other

    94        206        79        192   

Regulatory liabilities – long-term

    846        977        730        861   

Electric surcharge offset

    134               134          

Refundable energy costs – current

    99        51        55        12   

Revenue decoupling mechanism

    51        66        51        66   

Deferred derivative gains – current

    2        1        2        1   

Regulatory liabilities – current

    286        118        242        79   

Total Regulatory Liabilities

  $ 1,132      $ 1,095      $ 972      $ 940   

 

Note C — Capitalization

In March 2012, CECONY issued $400 million of 4.20 percent 30-year debentures, $239 million of the net proceeds from the sale of which were used to redeem on May 1, 2012 all outstanding shares of its $5 Cumulative Preferred Stock and Cumulative Preferred Stock ($100 par value).

 

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

 

(millions of dollars)   March 31, 2012     December 31, 2011  
Long-Term Debt (including current portion)   Carrying
Amount
    Fair
Value
    Carrying
Amount
   

Fair

Value

 

Con Edison

  $ 11,071      $ 12,892      $ 10,673      $ 12,744   

CECONY

  $ 10,143      $ 11,757      $ 9,745      $ 11,593   

 

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Fair values of long-term debt have been estimated primarily using available market information. For Con Edison, $12,256 million and $636 million of the fair value of long-term debt at March 31, 2012 are classified as Level 2 and Level 3, respectively. For CECONY, $11,121 million and $636 million of the fair value of long-term debt at March 31, 2012 are classified as Level 2 and Level 3, respectively (see Note K).

Note D — Short-Term Borrowing

At March 31, 2012, Con Edison and CECONY had no commercial paper outstanding. The Companies have not borrowed under their October 2011 credit agreement. Con Edison had $183 million of letters of credit outstanding under the credit agreement (including $168 million for CECONY).

 

Note E — Pension Benefits

Net Periodic Benefit Cost

The components of the Companies’ net periodic benefit costs for the three months ended March 31, 2012 and 2011 were as follows:

 

     Con Edison     CECONY  
(Millions of Dollars)   2012     2011     2012     2011  

Service cost – including administrative expenses

  $ 59      $ 47      $ 55      $ 44   

Interest cost on projected benefit obligation

    137        140        128        131   

Expected return on plan assets

    (176     (183     (168     (175

Amortization of net actuarial loss

    177        132        168        125   

Amortization of prior service costs

    2        2        2        2   

NET PERIODIC BENEFIT COST

  $ 199      $ 138      $ 185      $ 127   

Cost capitalized

    (64     (48     (63     (45

Cost deferred

    (37     (51     (38     (52

Cost charged to operating expenses

  $ 98      $ 39      $ 84      $ 30   

 

Expected Contributions

Based on estimates as of March 31, 2012, the Companies expect to make contributions to the pension plan during 2012 of $775 million (of which $721 million is to be contributed by CECONY). During the first quarter of 2012, CECONY contributed $184 million to the pension plan. The Companies expect to fund $12 million for the non-qualified supplemental plans in 2012. The Companies’ policy is to fund their accounting cost to the extent tax deductible.

 

Note F — Other Postretirement Benefits

Net Periodic Benefit Cost

The components of the Companies’ net periodic postretirement benefit costs for the three months ended March 31, 2012 and 2011 were as follows:

 

     Con Edison     CECONY  
(Millions of Dollars)   2012     2011     2012     2011  

Service cost

  $ 7      $ 6      $ 5      $ 5   

Interest cost on accumulated other postretirement benefit obligation

    18        21        16        18   

Expected return on plan assets

    (21     (22     (18     (19

Amortization of net actuarial loss

    25        22        22        20   

Amortization of prior service cost

    (5     (2     (4     (3

Amortization of transition obligation

           1               1   

NET PERIODIC POSTRETIREMENT BENEFIT COST

  $ 24      $ 26      $ 21      $ 22   

Cost capitalized

    (8     (9     (7     (8

Cost charged

    7        4        4        3   

Cost charged to operating expenses

  $ 23      $ 21      $ 18      $ 17   

 

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Expected Contributions

Based on estimates as of March 31, 2012, Con Edison expects to make a contribution of $87 million, including $74 million for CECONY, to the other postretirement benefit plans in 2012.

Note G — Environmental Matters

Superfund Sites

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

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

For Superfund Sites where there are other potentially responsible parties and the Utilities are not managing the site investigation and remediation, the accrued liability represents an estimate of the amount the Utilities will need to pay to investigate and, where determinable, discharge their related obligations. For Superfund Sites (including the manufactured gas plant sites) for which one of the Utilities is managing the investigation and remediation, the accrued liability represents an estimate of the company’s share of undiscounted cost to investigate the sites and, for sites that have been investigated in whole or in part, the cost to remediate the sites, if remediation is necessary and if a reasonable estimate of such cost can be made. Remediation costs are estimated in light of the information available, applicable remediation standards, and experience with similar sites.

The accrued liabilities and regulatory assets related to Superfund Sites at March 31, 2012 and December 31, 2011 were as follows:

 

     Con Edison     CECONY  
(Millions of Dollars)   2012     2011     2012     2011  

Accrued Liabilities:

       

Manufactured gas plant sites

  $ 466      $ 422      $ 351      $ 307   

Other Superfund Sites

    71        67        70        66   

Total

  $ 537      $ 489      $ 421      $ 373   

Regulatory assets

  $ 729      $ 681      $ 613      $ 564   

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. In February 2011, the NYSPSC initiated a proceeding to examine the existing mechanisms pursuant to which utilities recover such costs and possible alternatives.

Environmental remediation costs incurred and insurance recoveries received related to Superfund Sites for the three months ended March 31, 2012 and 2011, were as follows:

 

     Con Edison     CECONY  
(Millions of Dollars)   2012     2011     2012     2011  

Remediation costs incurred

  $ 7      $ 6      $ 7      $ 5   

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 environmental contaminants could range up to

 

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$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 March 31, 2012 and December 31, 2011 were as follows:

 

     Con Edison     CECONY  
(Millions of Dollars)   2012     2011     2012     2011  

Accrued liability – asbestos suits

  $ 10      $ 10      $ 10      $ 10   

Regulatory assets – asbestos suits

  $ 10      $ 10      $ 10      $ 10   

Accrued liability – workers’ compensation

  $ 96      $ 98      $ 92      $ 93   

Regulatory assets – workers’ compensation

  $ 22      $ 23      $ 21      $ 23   

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 93 suits are pending against the company seeking generally unspecified compensatory and, in some cases, punitive damages, for personal injury, property damage and business interruption. The company has not accrued a liability for the suits. The company has notified its insurers of the incident and believes that the policies in force at the time of the incident will cover most of the company’s costs, which the company is unable to estimate, but which could be substantial, to satisfy its liability to others in connection with the incident.

Investigations of Vendor Payments

In January 2009, CECONY commenced an internal investigation relating to the arrests of certain employees and retired employees (all of whom have since been convicted) for accepting kickbacks from contractors that performed construction work for the company. The company has retained a law firm, which has retained an accounting firm, to assist in the company’s

 

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investigation. The company has provided information to governmental authorities, which consider the company to be a victim of unlawful conduct, in connection with their investigation of the arrested employees and contractors. The company has terminated its employment of the arrested employees and its contracts with the contractors. In February 2009, the NYSPSC commenced a proceeding that, among other things, will examine the prudence of certain of the company’s expenditures relating to the arrests and consider whether additional expenditures should also be examined (see “Other Regulatory Matters” in Note B).

CECONY is also investigating the September 2010 arrest of a retired employee (who has since been convicted of participating in a bribery scheme in which the employee received payments from two companies that supplied materials to the company) and the January 2011 arrest of an employee (for accepting kickbacks from an engineering firm that performed work for the company). CECONY has provided information to governmental authorities in connection with their ongoing investigations of these matters.

The company, based upon its evaluation of its internal controls for 2011 and previous years, believes that the controls were effective to provide reasonable assurance that its financial statements have been fairly presented, in all material respects, in conformity with generally accepted accounting principles. Because the company’s investigations are ongoing, the company is unable to predict the impact of any of the employees’ unlawful conduct on the company’s internal controls, business, results of operations or financial position.

Lease In/Lease Out Transactions

In each of 1997 and 1999, Con Edison Development entered into a transaction in which it leased property and then immediately subleased it back to the lessor (termed “Lease In/Lease Out,” or LILO transactions). The transactions respectively involve 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 is accounting for the two LILO transactions as leveraged leases. Accordingly, the company’s investment in these leases, net of non-recourse debt, is carried as a single amount in Con Edison’s consolidated balance sheet and income is recognized pursuant to a method that incorporates a level rate of return for those years when net investment in the lease is positive, based upon the after-tax cash flows projected at the inception of the leveraged leases. The company’s investment in these leveraged leases was $(65) million at March 31, 2012 and $(55) million at December 31, 2011 and is comprised of a $228 million gross investment less $293 million of deferred tax liabilities at March 31, 2012 and $234 million gross investment less $289 million of deferred tax liabilities at December 31, 2011.

On audit of Con Edison’s tax return for 1997, the IRS disallowed the tax losses in connection with the 1997 LILO transaction. In December 2005, Con Edison paid a $0.3 million income tax 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 this tax payment 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. The IRS appealed the decision in December 2011.

In connection with its audit of Con Edison’s federal income tax returns for 1998 through 2007, the IRS disallowed $416 million of net tax deductions taken with respect to both of the LILO transactions for the tax years. Con Edison is pursuing administrative appeals of these audit level disallowances. In connection with its audit of Con Edison’s federal income tax returns for 2010, 2009 and 2008, the IRS has disallowed $40 million, $41 million and $42 million, respectively, of

 

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net tax deductions taken with respect to both of the LILO transactions. When these audit level disallowances become appealable, Con Edison intends to file an appeal of the disallowances.

Con Edison believes that its LILO transactions have been correctly reported, and has not recorded any reserve with respect to the disallowance of tax losses, or related interest, in connection with its LILO transactions. Con Edison’s estimated tax savings, reflected in its financial statements, from the two LILO transactions through March 31, 2012, in the aggregate, was $240 million. If Con Edison were required to repay all or a portion of these amounts, it would also be required to pay interest of up to $114 million net of tax at March 31, 2012.

Pursuant to the accounting rules for leveraged lease transactions, the expected timing of income tax cash flows generated by Con Edison’s LILO transactions are required to be reviewed at least annually. If the expected timing of the cash flows is revised, the rate of return and the allocation of income would be recalculated from the inception of the LILO transactions, and the company would be required to recalculate the accounting effect of the LILO transactions, which would result in a charge to earnings that could have a material adverse effect on the company’s results of operations.

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 $760 million at March 31, 2012 and December 31, 2011, respectively.

A summary, by type and term, of Con Edison’s total guarantees at March 31, 2012 is as follows:

 

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

Energy transactions

  $ 637      $ 4      $ 66      $ 707   

Intra-company guarantees

    15               1        16   

Other guarantees

    33        4               37   

TOTAL

  $ 685      $ 8      $ 67      $ 760   

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 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.

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:

 

   

$7 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;

 

   

$5 million for guarantees provided by Con Edison Development to Travelers Insurance Company for indemnity agreements for surety bonds in connection with the construction and operation of solar facilities performed by its subsidiaries; 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 March 31, 2012.

 

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Note I — Financial Information by Business Segment

The financial data for the business segments are as follows:

 

    
     For the Three Months Ended March 31,  
     Operating
revenues
    Inter-segment
revenues
    Depreciation and
amortization
    Operating
income
 
(Millions of Dollars)   2012     2011     2012     2011     2012     2011     2012     2011  

CECONY

               

Electric

  $ 1,735      $ 1,721      $ 3      $ 3      $ 173      $ 161      $ 224      $ 217   

Gas

    563        663        1        1        29        27        221        204   

Steam

    263        325        19        20        16        16        99        125   

Consolidation adjustments

                  (23     (24                            

Total CECONY

  $ 2,561      $ 2,709      $      $      $ 218      $ 204      $ 544      $ 546   

O&R

               

Electric

  $ 128      $ 149      $      $      $ 9      $ 9      $ 8      $ 10   

Gas

    82        92                      4        3        30        28   

Total O&R

  $ 210      $ 241      $      $      $ 13      $ 12      $ 38      $ 38   

Competitive energy businesses

  $ 310      $ 408      $ 2      $ 3      $ 2      $ 2      $ (20   $ 44   

Other*

    (3     (9     (2     (3                   (1     (2

Total Con Edison

  $ 3,078      $ 3,349      $      $      $ 233      $ 218      $ 561      $ 626   

 

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

 

Note J — Derivative Instruments and Hedging Activities

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

Energy Price Hedging

Con Edison’s subsidiaries hedge market price fluctuations associated with physical purchases and sales of electricity, natural gas, and steam by using derivative instruments including futures, forwards, basis swaps, options, transmission congestion contracts and financial transmission rights contracts. The fair values of the Companies’ commodity derivatives at March 31, 2012 and December 31, 2011 were as follows:

 

     Con Edison     CECONY  
(Millions of Dollars)   2012     2011     2012     2011  

Fair value of net derivative assets/(liabilities) – gross

  $ (331   $ (249   $ (181   $ (144

Impact of netting of cash collateral

    156        110        64        46   

Fair value of net derivative assets/(liabilities) – net

  $ (175   $ (139   $ (117   $ (98

Credit Exposure

The Companies are exposed to credit risk related to transactions entered into primarily for the various energy supply and hedging activities by the Utilities and the competitive energy businesses. The Companies use credit policies to manage this risk, including an established credit approval process, monitoring of counterparty limits, netting provisions within agreements, collateral or prepayment arrangements, credit insurance and credit default swaps.

At March 31, 2012, Con Edison and CECONY had $121 million and $12 million of credit exposure in connection with energy supply and hedging activities, net of collateral, respectively. Con Edison’s net credit exposure consisted of $46 million with investment-grade counterparties, $37 million with commodity exchange brokers, $36 million with independent system operators and $2 million with non-rated counterparties. CECONY’s net credit exposure was with commodity exchange brokers.

Economic Hedges

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

 

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The fair values of the Companies’ commodity derivatives at March 31, 2012 were:

 

(Millions of Dollars)  

Fair Value of Commodity Derivatives (a)

Balance Sheet Location

  Con
Edison
    CECONY  
Derivatives Asset  

Current

  Other current assets   $ 179      $ 20   

Long-term

  Other deferred charges and non-current assets     25        6   

Total derivatives asset

    $ 204      $ 26   

Impact of netting

        (134       

Net derivatives asset

      $ 70      $ 26   
Derivatives Liability  

Current

  Fair value of derivative liabilities   $ 433      $ 149   

Long-term

  Fair value of derivative liabilities     102        58   

Total derivatives liability

    $ 535      $ 207   

Impact of netting

        (290     (64

Net derivatives liability

      $ 245      $ 143   

 

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

The fair values of the Companies’ commodity derivatives at December 31, 2011 were:

 

(Millions of Dollars)  

Fair Value of Commodity Derivatives (a)

Balance Sheet Location

  Con
Edison
    CECONY  
Derivatives Asset  

Current

  Other current assets   $ 139      $ 16   

Long-term

  Other deferred charges and non-current assets     26        14   

Total derivatives asset

    $ 165      $ 30   

Impact of netting

        (95     (6

Net derivatives asset

      $ 70      $ 24   
Derivatives Liability  

Current

  Fair value of derivative liabilities   $ 331      $ 127   

Long-term

  Fair value of derivative liabilities     83        48   

Total derivatives liability

    $ 414      $ 175   

Impact of netting

        (205     (53

Net derivatives liability

      $ 209      $ 122   

 

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

 

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

 

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The following table presents the changes in the fair values of commodity derivatives that have been deferred or recognized in earnings for the three months ended March 31, 2012:

 

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

Deferred or Recognized in Income for the Three Months Ended March 31, 2012

 
(Millions of Dollars)   Balance Sheet Location   Con
Edison
    CECONY  

Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:

  

Current

  Deferred derivative gains   $ 1      $ 1   

Total deferred gains

      $ 1      $ 1   

Current

  Deferred derivative losses   $ (28   $ (19

Current

  Recoverable energy costs     (74     (56

Long-term

  Regulatory assets     (18     (17

Total deferred losses

    $ (120   $ (92

Net deferred losses

      $ (119   $ (91
    Income Statement Location                

Pre-tax loss recognized in income

  

  Purchased power expense   $ (86 )(b)    $   
  Gas purchased for resale     (1       
    Non-utility revenue     (3 )(b)        

Total pre-tax loss recognized in income

      $ (90   $   

 

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.
(b) For the three months ended March 31, 2012, Con Edison recorded in non-utility revenues and purchased power expense an unrealized pre-tax loss of $(4) million and $(27) million, respectively.

The following table presents the changes in the fair values of commodity derivatives that have been deferred or recognized in earnings for the three months ended March 31, 2011:

 

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

Deferred or Recognized in Income for the Three Months Ended March 31, 2011

 
(Millions of Dollars)   Balance Sheet Location   Con
Edison
    CECONY  

Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:

  

Current

  Deferred derivative gains   $ 6      $ 5   

Long-term

  Regulatory liabilities     3        3   

Total deferred gains

      $ 9      $ 8   

Current

  Deferred derivative losses   $ 44      $ 35   

Current

  Recoverable energy costs     (49     (42

Long-term

  Regulatory assets     17        11   

Total deferred losses

    $ 12      $ 4   

Net deferred losses

      $ 21      $ 12   
    Income Statement Location                

Pre-tax gain/(loss) recognized in income

  

  Purchased power expense   $ (21 )(b)    $   
  Gas purchased for resale     (6       
    Non-utility revenue     10 (b)        

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

      $ (17   $   

 

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.
(b) For the three months ended March 31, 2011, Con Edison recorded in non-utility revenues and purchased power expense an unrealized pre-tax gain/(loss) of $(13) million and $50 million, respectively.

 

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As of March 31, 2012, Con Edison had 1,392 contracts, including 582 CECONY contracts, which were considered to be derivatives under the accounting rules for derivatives and hedging (excluding qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts). The following table presents the number of contracts by commodity type:

 

     Electric Derivatives            Gas Derivatives  
     Number of
Energy
Contracts (a)
    MWhs (b)     Number of
Capacity
Contracts (a)
    MWs (b)     Number
of
Contracts (a)
    Dths (b)     Total Number
of
Contracts (a)
 

Con Edison

    754        16,197,114        59        7,639        579        91,840,940        1,392   

CECONY

    141        3,771,625                      441        84,940,000        582   

 

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

 

The Companies also enter into electric congestion and gas basis swap contracts to hedge the congestion and transportation charges which are associated with electric and gas contracts and hedged volumes.

The collateral requirements associated with, and settlement of, derivative transactions are included in net cash flows from operating activities in the Companies’ consolidated statement of cash flows. Most derivative instrument contracts contain provisions that may require the Companies to provide collateral on derivative instruments in net liability positions. The amount of collateral to be provided will depend on the fair value of the derivative instruments and the Companies’ credit ratings.

 

The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a net liability position and collateral posted at March 31, 2012, and the additional collateral that would have been required to be posted had the lowest applicable credit rating been reduced one level and to below investment grade were:

 

(Millions of Dollars)   Con Edison (a)     CECONY (a)  

Aggregate fair value – net liabilities

  $ 245      $ 143   

Collateral posted

  $ 64      $ 51   

Additional collateral (b) (downgrade one level from current ratings (c))

  $ 35      $ 18   

Additional collateral (b) (downgrade to below investment grade from current ratings (c))

  $ 225 (d)    $ 106 (d) 

 

(a) Non-derivative transactions for the purchase and sale of electricity and gas and qualifying derivative instruments, which have been designated as normal purchases or normal sales, are excluded from the table. These transactions primarily include purchases of electricity from independent system operators. In the event the Utilities and Con Edison’s competitive energy businesses were no longer extended unsecured credit for such purchases, the Companies would be required to post collateral, which at March 31, 2012, would have amounted to an estimated $39 million for Con Edison, including $9 million for CECONY. For certain other such non-derivative transactions, the Companies could be required to post collateral under certain circumstances, including in the event counterparties had reasonable grounds for insecurity.
(b) The Companies measure the collateral requirements by taking into consideration the fair value amounts of derivative instruments that contain credit-risk-related contingent features that are in a net liabilities position plus amounts owed to counterparties for settled transactions and amounts required by counterparties for minimum financial security. The fair value amounts represent unrealized losses, net of any unrealized gains where the Companies have a legally enforceable right of setoff.
(c) The current ratings are Moody’s, S&P and Fitch long-term credit rating of, as applicable, Con Edison (Baa1/BBB+/BBB+), CECONY (A3/A-/A-) or O&R (Baa1/A-/A-). Credit ratings assigned by rating agencies are expressions of opinions that are subject to revision or withdrawal at any time by the assigning rating agency.
(d) Derivative instruments that are net assets have been excluded from the table. At March 31, 2012, if Con Edison had been downgraded to below investment grade, it would have been required to post additional collateral for such derivative instruments of not more than $23 million.

 

Interest Rate Swaps

O&R has an interest rate swap pursuant to which it pays a fixed-rate of 6.09 percent and receives a LIBOR-based variable rate. The fair value of this interest rate swap at March 31, 2012 was an unrealized loss of $8 million, which has been included in Con Edison’s consolidated balance sheet as a noncurrent liability/fair value of derivative liabilities and a regulatory asset. The increase in the fair value of the swap for the three months ended March 31, 2012 was immaterial. In the event O&R’s credit rating was downgraded to BBB- or lower by S&P or Baa3 or lower by Moody’s, the swap counterparty could elect to terminate the agreement and, if it did so, the parties would then be required to settle the transaction.

 

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Note K — Fair Value Measurements

The accounting rules for fair value measurements and disclosures define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in a principal or most advantageous market. Fair value is a market-based measurement that is determined based on inputs, which refer broadly to assumptions that market participants use in pricing assets or liabilities. These inputs can be readily observable, market corroborated, or generally unobservable firm inputs. The Companies often make certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, and the risks inherent in the inputs to valuation techniques. The Companies use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

The accounting rules for fair value measurements and disclosures established a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value in three broad levels. The rules require that assets and liabilities be classified in their entirety based on the level of input that is significant to the fair value measurement. Assessing the significance of a particular input may require judgment considering factors specific to the asset or liability, and may affect the valuation of the asset or liability and their placement within the fair value hierarchy. The Companies classify fair value balances based on the fair value hierarchy defined by the accounting rules for fair value measurements and disclosures as follows:

 

   

Level 1 – Consists of assets or liabilities whose value is based on unadjusted quoted prices in active markets at the measurement date. An active market is one in which transactions for assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis. This category includes contracts traded on active exchange markets valued using unadjusted prices quoted directly from the exchange.

 

   

Level 2 – Consists of assets or liabilities valued using industry standard models and based on prices, other than quoted prices within Level 1, that are either directly or indirectly observable as of the measurement date. The industry standard models consider observable assumptions including time value, volatility factors, and current market and contractual prices for the underlying commodities, in addition to other economic measures. This category includes contracts traded on active exchanges or in over-the-counter markets priced with industry standard models.

 

   

Level 3 – Consists of assets or liabilities whose fair value is estimated based on internally developed models or methodologies using inputs that are generally less readily observable and supported by little, if any, market activity at the measurement date. Unobservable inputs are developed based on the best available information and subject to cost benefit constraints. This category includes contracts priced using models that are internally developed and contracts placed in illiquid markets. It also includes contracts that expire after the period of time for which quoted prices are available and internal models are used to determine a significant portion of the value.

Effective January 1, 2012, the Companies adopted Accounting Standards Update (ASU) No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”. The amendments expand existing disclosure requirements for fair value measurements and make other amendments. For fair value measurements in Level 3, this update requires the Companies to provide a description of the valuation process in place, a quantitative disclosure of unobservable inputs and assumptions used in the measurement as well as a narrative description of the sensitivity of the fair value to changes in unobservable inputs and interrelationships between those inputs. The update also requires the Companies to disclose any transfers between Levels 1 and 2 of fair value hierarchy measurements and the reasons for the transfers.

 

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Assets and liabilities measured at fair value on a recurring basis as of March 31, 2012 are summarized below.

 

     Level 1     Level 2     Level 3     Netting
Adjustments (4)
    Total  
(Millions of Dollars)   Con
Edison
    CECONY     Con
Edison
    CECONY     Con
Edison
    CECONY     Con
Edison
    CECONY     Con
Edison
    CECONY  

Derivative assets:

                   

Commodity (1)

  $ 2      $      $ 86      $ 4      $ 103      $ 13      $ (122   $ 9      $ 69      $ 26   

Other assets (3)

    83        83                      105        95                      188        178   

Transfer in (5) (6)

                  105        95                                    105        95   

Transfer out (5) (6)

                                (105     (95                   (105     (95

Other assets (3)

  $ 83      $ 83      $ 105      $ 95      $      $      $      $      $ 188      $ 178   

Total

  $ 85      $ 83      $ 191      $ 99      $ 103      $ 13      $ (122   $ 9      $ 257      $ 204   

Derivative liabilities:

                   

Commodity (1)

  $ 10      $ 2      $ 316      $ 170      $ 196      $ 26      $ (278   $ (55   $ 244      $ 143   

Interest rate contract (2)

                                8                             8          

Transfer in (5) (6)

                  8                                           8          

Transfer out (5) (6)

                                (8                          (8       

Interest rate contract (2)

  $      $      $ 8      $      $      $      $      $      $ 8      $   

Total

  $ 10      $ 2      $ 324      $ 170      $ 196      $ 26      $ (278   $ (55   $ 252      $ 143   

 

(1) A portion of the commodity derivatives categorized in Level 3 is valued using an internally developed model with observable inputs. The models also include some less readily observable inputs resulting in the classification of the entire contract as Level 3. See Note J.
(2) See Note J.
(3) Other assets are comprised of assets such as life insurance contracts within the deferred compensation plan and non-qualified retirement plans.
(4) Amounts represent the impact of legally-enforceable master netting agreements that allow the Companies to net gain and loss positions and cash collateral held or placed with the same counterparties.
(5) The Companies’ policy is to recognize transfers into and transfers out of the levels at the end of the reporting period.
(6) Transferred from Level 3 to Level 2 because of reassessment of the levels in the fair value hierarchy within which certain inputs fall.

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2011 are summarized below.

 

     Level 1     Level 2     Level 3     Netting
Adjustments (4)
    Total  
(Millions of Dollars)   Con
Edison
    CECONY     Con
Edison
    CECONY     Con
Edison
    CECONY     Con
Edison
    CECONY     Con
Edison
    CECONY  

Derivative assets:

                   

Commodity (1)

  $ 3      $      $ 64      $ 8      $ 87      $ 11      $ (84   $ 5      $ 70      $ 24   

Other assets (3)

    76        76                      99        90                      175        166   

Total

  $ 79      $ 76      $ 64      $ 8      $ 186      $ 101      $ (84   $ 5      $ 245      $ 190   

Derivative liabilities:

                   

Commodity

  $ 12      $ 4      $ 222      $ 122      $ 169      $ 37      $ (194   $ (41   $ 209      $ 122   

Transfer in (5) (6) (7)

                  26        25        6        6                      32        31   

Transfer out (5) (6) (7)

                  (6     (6     (26     (25                   (32     (31

Commodity (1)

  $ 12      $ 4      $ 242      $ 141      $ 149      $ 18      $ (194   $ (41   $ 209      $ 122   

Interest rate contract (2)

                                8                             8          

Total

  $ 12      $ 4      $ 242      $ 141      $ 157      $ 18      $ (194   $ (41   $ 217      $ 122   

 

(1) A portion of the commodity derivatives categorized in Level 3 is valued using an internally developed model with observable inputs. The models also include some less readily observable inputs resulting in the classification of the entire contract as Level 3. See Note J.
(2) See Note J.
(3) Other assets are comprised of assets such as life insurance contracts within the deferred compensation plan and non-qualified retirement plans.
(4) Amounts represent the impact of legally-enforceable master netting agreements that allow the Companies to net gain and loss positions and cash collateral held or placed with the same counterparties.
(5) The Companies’ policy is to recognize transfers into and transfers out of the levels at the end of the reporting period.
(6) Transferred from Level 2 to Level 3 because of reassessment of the levels in the fair value hierarchy within which certain inputs fall.
(7) Transferred from Level 3 to Level 2 because of availability of observable market data due to decrease in the terms of certain contracts from beyond one year as of December 31, 2010 to less than one year as of December 31, 2011.

 

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

 

(Millions of Dollars)   Fair Value of
Level 3 at
3/31/2012
    Valuation Techniques   Unobservable Inputs

Con Edison

     

Commodity

  $ (93   Market approach (1)   Discount for inactive markets and/or illiquid locations (2)

CECONY

     

Commodity

  $ (13   Market approach (1)   Discount for inactive markets and/or illiquid locations (2)

 

(1) The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The commodity derivatives are valued using quoted prices or internally developed models with observable inputs, adjusted for certain contracts that are traded in inactive markets and/or at illiquid locations. The unobservable inputs used in the Companies’ models do not have a significant impact on the valuation.
(2) Significant increases or decreases in any of these inputs in isolation would have a limited impact on fair value measurement. Generally, a change in the fair value measurement is linearly based on changes in these inputs.

The table listed below provides a reconciliation of the beginning and ending net balances for assets and liabilities measured at fair value as of March 31, 2012 and 2011 and classified as Level 3 in the fair value hierarchy:

 

     For the Three Months Ended March 31, 2012  
            Total Gains/(Losses)—
Realized and Unrealized
                                           
(Millions of Dollars)   Beginning
Balance as of
January 1, 2012
    Included in
Earnings
    Included in
Regulatory Assets
and Liabilities
    Purchases     Issuances     Sales     Settlements     Transfer
In/Out of
Level 3
   

Ending

Balance as of
March 31, 2012

 

Con Edison

                 

Derivatives:

                 

Commodity

  $ (62   $ (58   $ (17   $ 6      $      $      $ 38      $      $ (93

Interest rate contract

    (8     (1                                 1        8          

Other assets (1)

    99        3        3                                    (105       

Total

  $ 29      $ (56   $ (14   $ 6      $      $      $ 39      $ (97   $ (93

CECONY

                 

Derivatives:

                 

Commodity

  $ (7   $ (5   $ (7   $ 6      $      $      $      $      $ (13

Other assets (1)

    90        3        2                                    (95       

Total

  $ 83      $ (2   $ (5   $ 6      $      $      $      $ (95   $ (13

 

(1) Amounts included in earnings are reported in investment and other income on the consolidated income statement.

 

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     For the Three Months Ended March 31, 2011  
            Total Gains/(Losses)—
Realized and Unrealized
                                           
(Millions of Dollars)   Beginning
Balance as of
January 1, 2011
    Included in
Earnings
    Included in
Regulatory Assets
and Liabilities
    Purchases     Issuances     Sales     Settlements     Transfer
In/Out of
Level 3
   

Ending

Balance as of
March 31, 2011

 

Con Edison

                 

Derivatives:

                 

Commodity

  $ (88   $ 9      $ 40      $ 10      $      $      $ 3      $ (5   $ (31

Interest rate contract

    (10     (1                                 1               (10

Other assets (1)

    101        2        2                                           105   

Total

  $ 3      $ 10      $ 42      $ 10      $      $      $ 4      $ (5   $ 64   

CECONY

                 

Derivatives:

                 

Commodity

  $ (26   $ (1   $ 27      $ 10      $      $      $ (3   $ (5   $ 2   

Other assets (1)

    92        2        1                                           95   

Total

  $ 66      $ 1      $ 28      $ 10      $      $      $ (3   $ (5   $ 97   

 

(1) Amounts included in earnings are reported in investment and other income on the consolidated income statement.

 

For the Utilities, realized gains and losses on Level 3 commodity derivative assets and liabilities are reported as part of purchased power, gas and fuel costs. The Utilities generally recover these costs in accordance with rate provisions approved by the applicable state public utilities commissions. See Note A to the financial statements in Item 8 of the Form 10-K. Unrealized gains and losses for commodity derivatives are generally deferred on the consolidated balance sheet in accordance with the accounting rules for regulated operations.

For the competitive energy businesses, realized and unrealized gains and losses on Level 3 commodity derivative assets and liabilities are reported in non-utility revenues ($3 million loss and $12 million loss) and purchased power costs ($43 million loss and $27 million gain) on the consolidated income statement for the three months ended March 31, 2012 and 2011, respectively. The change in fair value relating to Level 3 commodity derivative assets held at March 31, 2012 and 2011 is included in non-utility revenues ($3 million loss and $12 million loss), and purchased power costs ($7 million loss and $29 million gain) on the consolidated income statement for the three months ended March 31, 2012 and 2011, respectively.

The accounting rules for fair value measurements and disclosures require consideration of the impact of nonperformance risk (including credit risk) from a market participant perspective in the measurement of the fair value of assets and liabilities. At March 31, 2012, the Companies determined that nonperformance risk would have no material impact on their financial position or results of operations. To assess nonperformance risk, the Companies considered information such as collateral requirements, master netting arrangements, letters of credit and parent company guarantees, and applied a market-based method by using the counterparty (for an asset) or the Companies’ (for a liability) credit default swaps rates.

 

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Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

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

This MD&A should be read in conjunction with the First Quarter Financial Statements and the notes thereto and the MD&A in Item 7 of the Companies’ combined Annual Report on Form 10-K for the year ended December 31, 2011 (File Nos. 1-14514 and 1-1217, the Form 10-K).

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

Con Edison, incorporated in New York State in 1997, is a holding company which owns all of the outstanding common stock of CECONY, Orange and Rockland Utilities, Inc. (O&R) and the competitive energy businesses. As used in this report, the term the “Utilities” refers to CECONY and O&R.

 

LOGO

 

CECONY’s principal business operations are its regulated electric, gas and steam delivery businesses. O&R’s principal business operations are its regulated electric and gas delivery businesses. The competitive energy businesses sell electricity to retail and wholesale customers, provide certain energy-related services, and participate in energy infrastructure projects. Con Edison is evaluating additional opportunities to invest in electric and gas-related businesses.

Con Edison’s strategy is to provide reliable energy services, maintain public and employee safety, promote energy efficiency, and develop cost-effective ways of performing its business. Con Edison seeks to be a responsible steward of the environment and enhance its relationships with customers, regulators and members of the communities it serves.

 

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CECONY

Electric

CECONY provides electric service to approximately 3.3 million customers in all of New York City (except part of Queens) and most of Westchester County, an approximately 660 square mile service area with a population of more than nine million.

Gas

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

Steam

CECONY operates the largest steam distribution system in the United States by producing and delivering more than 22,000 MMlbs of steam annually to approximately 1,735 customers in parts of Manhattan.

O&R

Electric

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

Gas

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

Competitive Energy Businesses

Con Edison pursues competitive energy opportunities through three wholly-owned subsidiaries: Con Edison Solutions, Con Edison Energy and Con Edison Development. These businesses include the sales and related hedging of electricity to retail and wholesale customers, sales of certain energy-related products and services, and participation in energy infrastructure projects. At March 31, 2012, Con Edison’s equity investment in its competitive energy businesses was $343 million and their assets amounted to $837 million.

 

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

 

     Three months ended March 31, 2012     At March 31, 2012  
(millions of dollars, except percentages)  

Operating

Revenues

   

Net Income for

Common Stock

    Assets  

CECONY

  $ 2,561        83   $ 273        99   $ 35,755        90

O&R

    210        7     20        7     2,455        6

Total Utilities

    2,771        90     293        106     38,210        96

Con Edison Solutions (a)

    277        9     (13     (5 )%      328        1

Con Edison Energy (a)

    30        1                109       

Con Edison Development

    5            1            520        1

Other (b)

    (5         (4     (1 )%      534        2

Total Con Edison

  $ 3,078        100   $ 277        100   $ 39,701        100

 

(a) Net income from the competitive energy businesses for the three months ended March 31, 2012 includes $18 million of net after-tax mark-to-market losses (Con Edison Solutions, $17 million and Con Edison Energy, $1 million).
(b) Represents inter-company and parent company accounting. See “Results of Operations,” below.

 

Con Edison’s net income for common stock for the three months ended March 31, 2012 was $277 million or $0.95 a share ($0.94 on a diluted basis) compared with $311 million or $1.07 a share ($1.06 on a diluted basis) for the three months ended March 31, 2011. See “Results of Operations – Summary,” below. For segment financial information, see Note I to the First Quarter Financial Statements and “Results of Operations,” below.

 

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Results of Operations — Summary

Net income for common stock for the three months ended March 31, 2012 and 2011 was as follows:

 

(millions of dollars)   2012     2011  

CECONY

  $ 273      $ 268   

O&R

    20        19   

Competitive energy businesses (a)

    (12     27   

Other (b)

    (4     (3

Con Edison

  $ 277      $ 311   

 

(a) Includes $(18) million and $22 million of net after-tax mark-to-market (losses)/gains in the three months ended 2012 and 2011, respectively.
(b) Consists of inter-company and parent company accounting.

The Companies’ results of operations for the three months ended March 31, 2012, as compared with 2011, reflect changes in the Utilities’ rate plans and the effects of the milder winter weather on steam revenues. These rate plans provide for additional revenues to cover expected increases in certain operations and maintenance expenses, and depreciation and property taxes. The results of operations include the operating results of the competitive energy businesses, including net mark-to-market effects.

Operations and maintenance expenses were higher due to pensions, other postretirement benefits and healthcare costs, offset in part by lower operating costs attributable to the milder winter in the 2012 period. Depreciation was higher in the 2012 period reflecting primarily the impact from higher utility plant balances.

The following table presents the estimated effect on earnings per share and net income for common stock for the three months ended 2012 as compared with the 2011 period, resulting from these and other major factors:

 

     Earnings
per Share
    Net Income for
Common Stock
(millions of dollars)
 

CECONY

   

Rate plans, primarily to recover increases in certain costs

  $ 0.12      $ 37   

Operations and maintenance expenses

    (0.10     (29

Depreciation

    (0.03     (8

Other

    0.02        5   

Total CECONY

    0.01        5   

O&R

           1   

Competitive energy businesses (a)

    (0.13     (39

Other, including parent company expenses

           (1

Total variations

  $ (0.12   $ (34

 

(a) These variations reflect after-tax net mark-to-market losses of $18 million or $0.06 a share in the first quarter of 2012 and after-tax net mark-to-market gains of $22 million or $0.08 a share in the first quarter of 2011.

See “Results of Operations” below for further discussion and analysis of results of operations.

Liquidity and Capital Resources

The Companies’ liquidity reflects cash flows from operating, investing and financing activities, as shown on their respective consolidated statement of cash flows and as discussed below. Changes in the Companies’ cash and temporary cash investments resulting from operating, investing and financing activities for the three months ended March 31, 2012 and 2011 are summarized as follows:

Con Edison

 

(millions of dollars)   2012     2011     Variance  

Operating activities

  $ 402      $ 362      $ 40   

Investing activities

    (490     (496     6   

Financing activities

    209        312        (103

Net change

    121        178        (57

Balance at beginning of period

    648        338        310   

Balance at end of period

  $ 769      $ 516      $ 253   

 

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CECONY

 

(millions of dollars)   2012     2011     Variance  

Operating activities

  $ 368      $ 72      $ 296   

Investing activities

    (487     (413     (74

Financing activities

    222        291        (69

Net change

    103        (50     153   

Balance at beginning of period

    372        78        294   

Balance at end of period

  $ 475      $ 28      $ 447   

 

Cash Flows from Operating Activities

The Utilities’ cash flows from operating activities reflect principally their energy sales and deliveries and cost of operations. The volume of energy sales and deliveries is dependent primarily on factors external to the Utilities, such as growth of customer demand, weather, market prices for energy, economic conditions and measures that promote energy efficiency. Under the revenue decoupling mechanisms in CECONY’s electric and gas rate plans and O&R’s New York electric and gas rate plans, changes in delivery volumes from levels assumed when rates were approved may affect the timing of cash flows but not net income. The prices at which the Utilities provide energy to their customers are determined in accordance with their rate agreements. In general, changes in the Utilities’ cost of purchased power, fuel and gas may affect the timing of cash flows but not net income because the costs are recovered in accordance with rate agreements.

Net income is the result of cash and non-cash (or accrual) transactions. Only cash transactions affect the Companies’ cash flows from operating activities. Principal non-cash charges include depreciation, deferred income tax expense and net derivative losses. Principal non-cash credits include amortizations of certain net regulatory liabilities. Non-cash charges or credits may also be accrued under the revenue decoupling and cost reconciliation mechanisms in the Utilities’ electric and gas rate plans in New York.

Net cash flows from operating activities for the three months ended March 31, 2012 for Con Edison and CECONY were $40 million and $296 million higher, respectively, than in the 2011 period. The increases in net cash flows reflect primarily the timing of CECONY pension contributions ($184 million in the 2012 period as compared with $491 million in the 2011 period). See Note E to the First Quarter Financial Statements. The increases were offset in part by higher cash collateral paid to brokers and counterparties in the 2012 period ($85 million for Con Edison and $37 million for CECONY).

The change in net cash flows also reflects the timing of payments for and recovery of energy costs. This timing is reflected within changes to accounts receivable – customers, recoverable energy costs and accounts payable balances.

The changes in regulatory assets principally reflect changes in deferred pension costs in accordance with the accounting rules for retirement benefits. See Note B to the First Quarter Financial Statements.

Cash Flows Used in Investing Activities

Net cash flows used in investing activities for Con Edison and CECONY were $6 million lower and $74 million higher, respectively, for the three months ended March 31, 2012 compared with the 2011 period. The changes for Con Edison and CECONY reflect increased utility construction expenditures in 2012. In addition, for Con Edison, the change reflects the return of investment resulting from the receipt of government grant proceeds at the Pilesgrove solar project and lower non-utility construction expenditures.

Cash Flows from Financing Activities

Net cash flows from financing activities for Con Edison and CECONY were $103 million and $69 million lower, respectively, in the three months ended March 31, 2012 compared with the 2011 period.

In March 2012, CECONY issued $400 million of 4.20 percent 30-year debentures, $239 million of the net proceeds from the sale of which were used to redeem on May 1, 2012 all outstanding shares of its $5

 

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Cumulative Preferred Stock and Cumulative Preferred Stock ($100 par value). The Companies had no issuances of long-term debt in 2011.

Cash flows from financing activities of the Companies also reflect commercial paper issuance. The commercial paper amounts outstanding at March 31, 2012 and 2011 and the average daily balances for the three months ended March 31, 2012 and 2011 for Con Edison and CECONY were as follows:

 

     2012     2011  
(millions of dollars, except
Weighted Average Yield)
  Outstanding at
March 31
    Daily
average
    Outstanding at
March 31
    Daily
average
 

Con Edison

  $      $ 14      $ 464      $ 140   

CECONY

  $      $ 14      $ 464      $ 140   

Weighted average yield

        0.3     0.3     0.3

Other Changes in Assets and Liabilities

The following table shows changes in certain assets and liabilities at March 31, 2012, compared with December 31, 2011.

 

     Con Edison     CECONY  
(millions of dollars)  

2012 vs. 2011

Variance

   

2012 vs. 2011

Variance

 

Assets

   

Prepayments

  $ 286      $ 287   

Regulatory asset – Unrecognized pension and other postretirement costs

    (258     (217

Liabilities

   

Pension and retiree benefits

  $ (230   $ (195

 

Prepayments

The increase in prepayments for Con Edison and CECONY reflects primarily CECONY’s January 2012 payment of its New York City semi-annual property taxes, offset by three months of amortization, while the December 2011 balance reflects the amortization of the previous semi-annual prepayment. See “Cash Flows from Operating Activities,” above.

Regulatory Asset for Unrecognized Pension and Other Postretirement Costs and Noncurrent Liability for Pension and Retiree Benefits

The decrease in the regulatory asset for unrecognized pension and other postretirement costs and the noncurrent liability for pension and retiree benefits reflects the final actuarial valuation of the pension and other retiree benefit plans as measured at December 31, 2011 in accordance with the accounting rules for retirement benefits. The change in the regulatory asset also reflects the year’s amortization of accounting costs. The decrease in the noncurrent liability for pension and retiree benefits reflects in part contributions to the plans made by the Utilities in 2012. See Notes B, E and F to the First Quarter Financial Statements.

Capital Requirements and Resources

As of March 31, 2012, there was no material change in the Companies’ capital requirements, contractual obligations and capital resources compared to those disclosed under “Capital Requirements and Resources” in Item 1 of the Form 10-K other than as described in Note C to the First Quarter Financial Statements.

 

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For each of the Companies, the ratio of earnings to fixed charges (Securities and Exchange Commission basis) for the three months ended March 31, 2012 and 2011 and the twelve months ended December 31, 2011 was:

 

     Ratio of Earnings to Fixed Charges  
     For the Three Months
Ended March 31, 2012
    For the Three Months
Ended March 31, 2011
    For the Twelve Months
Ended December 31, 2011
 

Con Edison

    3.5        3.9        3.6   

CECONY

    3.9        3.9        3.8   

 

For each of the Companies, the common equity ratio at March 31, 2012 and December 31, 2011 was:

 

    

Common Equity Ratio

(Percent of total capitalization)

 
     March 31, 2012     December 31, 2011  

Con Edison

    53.5        52.5   

CECONY

    53.1        52.0   

Regulatory Matters

CECONY’s current electric rate plan covers the three-year period ending March 31, 2013. Either the company or the New York State Public Service Commission (NYSPSC) can initiate a proceeding for a new rate plan. A new rate plan filed by the company would take effect automatically in approximately 11 months unless prior to such time the NYSPSC adopts a rate plan. CECONY understands that the base rates determined pursuant to the current rate plan and the other provisions of the current rate plan would continue in effect after March 31, 2013 until a new rate plan is effective. CECONY is evaluating when it will request a new rate plan in light of, among other things, the return on common equity that the company estimates it could earn after March 31, 2013 under the current rate plan as compared to under a new rate plan. In either case, CECONY expects that the earned return on common equity of its electric business for the rate year ending March 31, 2014 would be less than for the rate year ending March 31, 2013.

For information about a March 2012 NYSPSC order relating to a surcharge that CECONY was to have collected from customers and O&R’s February 2012 Joint Proposal with respect to its rates for electric service rendered in New York, see Note B to the First Quarter Financial Statements.

Financial and Commodity Market Risks

The Companies are subject to various risks and uncertainties associated with financial and commodity markets. The most significant market risks include interest rate risk, commodity price risk, credit risk and investment risk.

Interest Rate Risk

The interest rate risk relates primarily to variable rate debt and to new debt financing needed to fund capital requirements, including the construction expenditures of the Utilities and maturing debt securities. Con Edison and its businesses manage interest rate risk through the issuance of mostly fixed-rate debt with varying maturities and through opportunistic refinancing of debt. Con Edison and CECONY estimate that at March 31, 2012, a 10 percent variation in interest rates applicable to its variable rate debt would not result in a material change in annual interest expense. Under CECONY’s current gas, steam and electric rate plans, variations in actual long-term debt interest rates are reconciled to levels reflected in rates. Under O&R’s current New York rate plans, variations in actual interest expense are reconciled to the level set in rates.

In addition, from time to time, Con Edison and its businesses enter into derivative financial instruments to hedge interest rate risk on certain debt securities. See “Interest Rate Swaps” in Note J to the First Quarter Financial Statements.

Commodity Price Risk

Con Edison’s commodity price risk relates primarily to the purchase and sale of electricity, gas and related derivative instruments. The Utilities and Con Edison’s competitive energy businesses apply risk management strategies to mitigate their related exposures. See Note J to the First Quarter Financial Statements.

 

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Con Edison estimates that, as of March 31, 2012, a 10 percent decline in market prices would result in a decline in fair value of $47 million for the derivative instruments used by the Utilities to hedge purchases of electricity and gas, of which $39 million is for CECONY and $8 million is for O&R. Con Edison expects that any such change in fair value would be largely offset by directionally opposite changes in the cost of the electricity and gas purchased. In accordance with provisions approved by state regulators, the Utilities generally recover from customers the costs they incur for energy purchased for their customers, including gains and losses on certain derivative instruments used to hedge energy purchased and related costs.

Con Edison’s competitive energy businesses use a value-at-risk (VaR) model to assess the market risk of their electricity and gas commodity fixed-price purchase and sales commitments, physical forward contracts and commodity derivative instruments. VaR represents the potential change in fair value of instruments or the portfolio due to changes in market factors, for a specified time period and confidence level. These businesses estimate VaR across their electricity and natural gas commodity businesses using a delta-normal variance/covariance model with a 95 percent confidence level. Since the VaR calculation involves complex methodologies and estimates and assumptions that are based on past experience, it is not necessarily indicative of future results. VaR for transactions associated with hedges on generating assets and commodity contracts, assuming a one-day holding period, for the three months ended March 31, 2012 and the year ended December 31, 2011, respectively, was as follows:

 

95% Confidence
Level, One-Day
Holding Period
  March 31, 2012     December 31, 2011  
    (millions of dollars)  

Average for the period

  $ 1      $ 1   

High

    1        1   

Low

    1          

Credit Risk

The Companies are exposed to credit risk related to transactions entered into primarily for the various energy supply and hedging activities by the Utilities and the competitive energy businesses. Credit risk relates to the loss that may result from a counterparty’s nonperformance. The Companies use credit policies to manage this risk, including an established credit approval process, monitoring of counterparty limits, netting provisions within agreements and collateral or prepayment arrangements, credit insurance and credit default swaps. The Companies measure credit risk exposure as the replacement cost for open energy commodity and derivative positions plus amounts owed from counterparties for settled transactions. The replacement cost of open positions represents unrealized gains, net of any unrealized losses where the Companies have a legally enforceable right of setoff. See “Credit Exposure” in Note J to the First Quarter Financial Statements.

Investment Risk

The Companies’ investment risk relates to the investment of plan assets for their pension and other postretirement benefit plans. The Companies’ current investment policy for pension plan assets includes investment targets of 60 percent equities and 40 percent fixed income and other securities. At March 31, 2012, the pension plan investments consisted of 63 percent equity and 37 percent fixed income and other securities.

Material Contingencies

For information concerning potential liabilities arising from the Companies’ material contingencies, see Notes B, G, and H to the First Quarter Financial Statements.

Results of Operations

See “Results of Operations – Summary,” above.

Results of operations reflect, among other things, the Companies’ accounting policies and rate plans that limit the rates the Utilities can charge their customers. Under the revenue decoupling mechanisms currently applicable to CECONY’s electric and gas businesses and O&R’s electric and gas businesses in New York, the Utilities’ delivery revenues generally will not be affected by changes in delivery volumes from levels assumed when rates were approved. Delivery revenues for CECONY’s steam business and O&R’s businesses

 

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in New Jersey and Pennsylvania are affected by changes in delivery volumes resulting from weather, economic conditions and other factors. See Note B to the First Quarter Financial Statements.

In general, the Utilities recover on a current basis the fuel, gas purchased for resale and purchased power costs they incur in supplying energy to their full-service customers. Accordingly, such costs do not generally affect the Companies’ results of operations. Management uses the term “net revenues” (operating revenues less such costs) to identify changes in operating revenues that may affect the Companies’ results of operations. Management believes that, although “net revenues” may not be a measure determined in accordance with accounting principles generally accepted in the United States of America, the measure facilitates the analysis by management and investors of the Companies’ results of operations.

Con Edison’s principal business segments are CECONY’s regulated utility activities, O&R’s regulated utility activities and Con Edison’s competitive energy businesses. CECONY’s principal business segments are its regulated electric, gas and steam utility activities. A discussion of the results of operations by principal business segment for the three months ended March 31, 2012 and 2011 follows. For additional business segment financial information, see Note I to the First Quarter Financial Statements.

 

Three Months Ended March 31, 2012 Compared with Three Months Ended March 31, 2011

The Companies’ results of operations (which were discussed above under “Results of Operations – Summary”) in 2012 compared with 2011 were:

 

     CECONY     O&R    

Competitive Energy
Businesses and Other (a)

    Con Edison (b)  
(millions of dollars)   Increases
(Decreases)
Amount
    Increases
(Decreases)
Percent
    Increases
(Decreases)
Amount
    Increases
(Decreases)
Percent
    Increases
(Decreases)
Amount
   

Increases

(Decreases)

Percent

    Increases
(Decreases)
Amount
    Increases
(Decreases)
Percent
 

Operating revenues

  $ (148     (5.5 )%    $ (31     (12.9 )%    $ (92     (23.1 )%    $ (271     (8.1 )% 

Purchased power

    (36     (7.5     (28     (41.2     (20     (6.4     (84     (9.7

Fuel

    (68     (38.6     N/A        N/A                      (68     (38.6

Gas purchased for resale

    (94     (35.7     (13     (33.3     (5     (83.3     (112     (36.4

Operating revenues less purchased power, fuel and gas purchased for resale (net revenues)

    50        2.8        10        7.5        (67     (84.8     (7     (0.4

Operations and maintenance

    48        8.0        6        8.5        (3     (10.0     51        7.3   

Depreciation and amortization

    14        6.9        1        8.3                      15        6.9   

Taxes, other than income taxes

    (10     (2.3     3        23.1        (1     (20.0     (8     (1.7

Operating income

    (2     (0.4                   (63     Large        (65     (10.4

Other income less deductions

    (3     (60.0     (1     Large        (2     (66.7     (6     (66.7

Net interest expense

    1        0.7        (2     (20.0     (1     (14.3     (2     (1.3

Income before income tax expense

    (6     (1.4     1        3.4        (64     Large        (69     (14.3

Income tax expense

    (11     (7.6                   (24     Large        (35     (20.7

Net income for common stock

  $ 5        1.8   $ 1        5.3   $ (40     Large      $ (34     (10.9 )% 

 

(a) Includes inter-company and parent company accounting.
(b) Represents the consolidated financial results of Con Edison and its businesses.

 

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CECONY

 

     Three Months Ended
March 31, 2012
           Three Months Ended
March 31, 2011
               
(millions of dollars)   Electric     Gas     Steam     2012
Total
    Electric     Gas     Steam     2011
Total
    2012-2011
Variation
 

Operating revenues

  $ 1,735      $ 563      $ 263      $ 2,561      $ 1,721      $ 663      $ 325      $ 2,709      $ (148

Purchased power

    432               15        447        464               19        483        (36

Fuel

    50               58        108        76               100        176        (68

Gas purchased for resale

           169               169               263               263        (94

Net revenues

    1,253        394        190        1,837        1,181        400        206        1,787        50   

Operations and maintenance

    517        82        46        645        459        103        35        597        48   

Depreciation and amortization

    173        29        16        218        161        27        16        204        14   

Taxes, other than income taxes

    339        62        29        430        344        66        30        440        (10

Operating income

  $ 224      $ 221      $ 99      $ 544      $ 217      $ 204      $ 125      $ 546      $ (2

Electric

CECONY’s results of electric operations for the three months ended March 31, 2012 compared with the 2011 period is as follows:

 

     Three Months Ended         
(millions of dollars)   March 31,
2012
    March 31,
2011
    Variation  

Operating revenues

  $ 1,735      $ 1,721      $ 14   

Purchased power

    432        464        (32

Fuel

    50        76        (26

Net revenues

    1,253        1,181        72   

Operations and maintenance

    517        459        58   

Depreciation and amortization

    173        161        12   

Taxes, other than income taxes

    339        344        (5

Electric operating income

  $ 224      $ 217      $ 7   

CECONY’s electric sales and deliveries, excluding off-system sales, for the three months ended March 31, 2012 compared with the 2011 period were:

 

     Millions of kWhs Delivered     Revenues in Millions  
     Three Months Ended            Three Months Ended         
Description   March 31,
2012
    March 31,
2011
    Variation     Percent
Variation
    March 31,
2012
    March 31,
2011
    Variation     Percent
Variation
 

Residential/Religious (a)

    2,411        2,664        (253     (9.5 )%    $ 588      $ 648      $ (60     (9.3 )% 

Commercial/Industrial

    2,384        2,860        (476     (16.6     440        561        (121     (21.6

Retail access customers

    5,903        5,558        345        6.2        591        474        117        24.7   

NYPA, Municipal Agency and other sales

    2,690        2,774        (84     (3.0     125        117        8        6.8   

Other operating revenues

                                (9     (79     70        88.6   

Total

    13,388        13,856        (468     (3.4 )%    $ 1,735      $ 1,721      $ 14        0.8

 

(a) “Residential/Religious” generally includes single-family dwellings, individual apartments in multi-family dwellings, religious organizations and certain other not-for-profit organizations.

 

CECONY’s electric operating revenues increased $14 million in the three months ended March 31, 2012 compared with the 2011 period due primarily to higher revenues from the electric rate plan ($73 million), offset in part by lower purchased power ($32 million) and fuel costs ($26 million). CECONY’s revenues from electric sales are subject to a revenue decoupling mechanism, as a result of which delivery revenues generally are not affected by changes in delivery volumes from levels assumed when rates were approved. Other electric operating revenues generally reflect changes in regulatory assets and liabilities in

 

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accordance with the revenue decoupling mechanism and other provisions of the company’s rate plan.

Electric delivery volumes in CECONY’s service area decreased 3.4 percent in the three months ended March 31, 2012 compared with the 2011 period. After adjusting for variations, principally weather and billing days, electric delivery volumes in CECONY’s service area decreased 0.8 percent in the three months ended March 31, 2012 compared with the 2011 period reflecting lower average use per customer.

CECONY’s electric purchased power costs decreased $32 million in the three months ended March 31, 2012 compared with the 2011 period due to a decrease in purchased volumes ($51 million), offset by an increase in unit costs ($19 million). Electric fuel costs decreased $26 million in the three months ended March 31, 2012 compared with the 2011 period due to lower unit costs ($20 million) and sendout volumes from the company’s electric generating facilities ($6 million).

CECONY’s electric operating income increased $7 million in the three months ended March 31, 2012 compared with the 2011 period. The increase reflects primarily higher net revenues ($72 million, due primarily to the electric rate plan) and lower taxes, other than income taxes ($5 million, principally property taxes). The higher net revenues were offset by higher operations and maintenance costs ($58 million, due primarily to higher pension expense ($38 million), employees’ health care costs ($6 million)), injuries and damages ($6 million) and higher depreciation and amortization ($12 million). See “Regulatory Assets and Liabilities” in Note B to the First Quarter Financial Statements.

Gas

CECONY’s results of gas operations for the three months ended March 31, 2012 compared with the 2011 period is as follows:

 

     Three Months Ended         
(millions of dollars)   March 31,
2012
    March 31,
2011
    Variation  

Operating revenues

  $ 563      $ 663      $ (100

Gas purchased for resale

    169        263        (94

Net revenues

    394        400        (6

Operations and maintenance

    82        103        (21

Depreciation and amortization

    29        27        2   

Taxes, other than income taxes

    62        66        (4

Gas operating income

  $ 221      $ 204      $ 17   

 

CECONY’s gas sales and deliveries, excluding off-system sales, for the three months ended March 31, 2012 compared with the 2011 period were:

 

     Thousands of dths Delivered     Revenues in Millions  
     Three Months Ended                   Three Months Ended                
Description   March 31,
2012
    March 31,
2011
    Variation     Percent
Variation
    March 31,
2012
    March 31,
2011
    Variation     Percent
Variation
 

Residential

    14,608        18,783        (4,175     (22.2 )%    $ 260      $ 326      $ (66     (20.2 )% 

General

    11,136        13,250        (2,114     (16.0     120        152        (32     (21.1

Firm transportation

    21,759        24,096        (2,337     (9.7     159        144        15        10.4   

Total firm sales and transportation

    47,503        56,129        (8,626     (15.4     539        622        (83     (13.3

Interruptible sales (a)

    2,142        3,562        (1,420     (39.9     18        36        (18     (50.0

NYPA

    9,549        5,820        3,729        64.1        1        1                 

Generation plants

    14,299        12,359        1,940        15.7        7        7                 

Other

    7,498        7,687        (189     (2.5     12        19        (7     (36.8

Other operating revenues

                                 (14     (22     8        36.4   

Total

    80,991        85,557        (4,566     (5.3 )%    $ 563      $ 663      $ (100     (15.1 )% 

 

(a) Includes 171 and 984 thousands of dths for the 2012 and 2011 period, respectively, which are also reflected in firm transportation and other.

 

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CECONY’s gas operating revenues decreased $100 million in the three months ended March 31, 2012 compared with the 2011 period due primarily to a decrease in gas purchased for resale costs ($94 million). CECONY’s revenues from gas sales are subject to a weather normalization clause and a revenue decoupling mechanism as a result of which delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved. Other gas operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s rate plan.

CECONY’s sales and transportation volumes for firm customers decreased 15.4 percent in the three months ended March 31, 2012 compared with the 2011 period. After adjusting for variations, principally weather and billing days, firm gas sales and transportation volumes in the company’s service area increased 0.9 percent in the three months ended March 31, 2012.

CECONY’s purchased gas cost decreased $94 million in the three months ended March 31, 2012 compared with the 2011 period due to lower sendout volumes ($69 million) and unit costs ($25 million).

 

CECONY’s gas operating income increased $17 million in the three months ended March 31, 2012 compared with the 2011 period. The increase reflects primarily lower operations and maintenance costs ($21 million, due primarily to a decrease in the surcharge for New York State regulatory assessments ($12 million) and lower taxes, other than incomes taxes ($4 million, principally property taxes and local taxes), offset by lower net revenues ($6 million) and higher depreciation ($2 million).

Steam

CECONY’s results of steam operations for the three months ended March 31, 2012 compared with the 2011 period is as follows:

 

     Three Months Ended         
(millions of dollars)   March 31,
2012
    March 31,
2011
    Variation  

Operating revenues

  $ 263      $ 325      $ (62

Purchased power

    15        19        (4

Fuel

    58        100        (42

Net revenues

    190        206        (16

Operations and maintenance

    46        35        11   

Depreciation and amortization

    16        16          

Taxes, other than income taxes

    29        30        (1

Steam operating income

  $ 99      $ 125      $ (26

 

CECONY’s steam sales and deliveries for the three months ended March 31, 2012 compared with the 2011 period were:

 

     Millions of Pounds Delivered     Revenues in Millions  
     Three Months Ended                   Three Months Ended                
Description   March 31,
2012
    March 31,
2011
    Variation     Percent
Variation
    March 31,
2012
    March 31,
2011
    Variation     Percent
Variation
 

General

    245        334        (89     (26.6 )%    $ 12      $ 15      $ (3     (20.0 )% 

Apartment house

    2,072        2,593        (521     (20.1     71        83        (12     (14.5

Annual power

    4,935        6,541        (1,606     (24.6     193        234        (41     (17.5

Other operating revenues

                                (13     (7     (6     (85.7

Total

    7,252        9,468        (2,216     (23.4 )%    $ 263      $ 325      $ (62     (19.1 )% 

 

CECONY’s steam operating revenues decreased $62 million in the three months ended March 31, 2012 compared with the 2011 period due primarily to lower fuel costs ($42 million), the net change in rates under the steam rate plan ($14 million) and lower purchased power costs ($4 million). Other steam operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s rate plan.

Steam sales and delivery volumes decreased 23.4 percent in the three months ended March 31, 2012 compared with the 2011 period reflecting milder winter weather. After adjusting for variations, principally weather and billing days, steam sales and deliveries decreased 1.2 percent in the three months ended March 31, 2012, reflecting lower average normalized use per customer.

 

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CECONY’s steam fuel costs decreased $42 million in the three months ended March 31, 2012 compared with the 2011 period due to lower unit costs ($25 million) and sendout volumes ($17 million). Steam purchased power costs decreased $4 million in the three months ended March 31, 2012 compared with the 2011 period due to a decrease in unit costs ($2 million) and purchased volumes ($2 million).

Steam operating income decreased $26 million in the three months ended March 31, 2012 compared with the 2011 period. The decrease reflects primarily lower net revenues ($16 million) and higher operations and maintenance costs ($11 million, due primarily to higher pension expense ($16 million)), offset by lower taxes, other than income taxes ($1 million, principally local taxes).

Income Taxes

Income taxes decreased $11 million in the three months ended March 31, 2012 compared with the 2011 period due primarily to higher deductions for injuries and damages payments in the 2012 period.

 

O&R

 

     Three Months Ended
March 31, 2012
           Three Months Ended
March 31, 2011
               
(millions of dollars)   Electric     Gas     2012
Total
    Electric     Gas     2011
Total
    2012-2011
Variation
 

Operating revenues

  $ 128      $ 82      $ 210      $ 149      $ 92      $ 241      $ (31

Purchased power

    40               40        68               68        (28

Gas purchased for resale

           26        26               39        39        (13

Net revenues

    88        56        144        81        53        134        10   

Operations and maintenance

    59        18        77        53        18        71        6   

Depreciation and amortization

    9        4        13        9        3        12        1   

Taxes, other than income taxes

    12        4        16        9        4        13        3   

Operating income

  $ 8      $ 30      $ 38      $ 10      $ 28      $ 38      $   

Electric

O&R’s results of electric operations for the three months ended March 31, 2012 compared with the 2011 period is as follows:

 

     Three Months Ended         
(millions of dollars)   March 31,
2012
    March 31,
2011
    Variation  

Operating revenues

  $ 128      $ 149      $ (21

Purchased power

    40        68        (28

Net revenues

    88        81        7   

Operations and maintenance

    59        53        6   

Depreciation and amortization

    9        9          

Taxes, other than income taxes

    12        9        3   

Electric operating income

  $ 8      $ 10      $ (2

 

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O&R’s electric sales and deliveries, excluding off-system sales, for the three months ended March 31, 2012 compared with the 2011 period were:

 

     Millions of kWhs Delivered     Revenues in Millions  
     Three Months Ended            Three Months Ended         
Description   March 31,
2012
    March 31,
2011
    Variation     Percent
Variation
    March 31,
2012
    March 31,
2011
    Variation     Percent
Variation
 

Residential/Religious (a)

    375        429        (54     (12.6 )%    $ 58      $ 74      $ (16     (21.6 )% 

Commercial/Industrial

    243        316        (73     (23.1     28        41        (13     (31.7

Retail access customers

    689        625        64        10.2        37        33        4        12.1   

Public authorities

    28        25        3        12.0        2        3        (1     (33.3

Other operating revenues

                                3        (2     5        Large   

Total

    1,335        1,395        (60     (4.3 )%    $ 128      $ 149      $ (21     (14.1 )% 

 

(a) “Residential/Religious” generally includes single-family dwellings, individual apartments in multi-family dwellings, religious organizations and certain other not-for-profit organizations.

 

O&R’s electric operating revenues decreased $21 million in the three months ended March 31, 2012 compared with the 2011 period due primarily to lower purchased power costs ($28 million). O&R’s New York electric delivery revenues are subject to a revenue decoupling mechanism, as a result of which delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved. O&R’s electric sales in New Jersey and Pennsylvania are not subject to a decoupling mechanism, and as a result, changes in such volumes do impact such revenues. Other electric operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s electric rate plan. See “Rate Agreements – O&R – Electric” in Note B to the First Quarter Financial Statements.

Electric delivery volumes in O&R’s service area decreased 4.3 percent in the three months ended March 31, 2012 compared with the 2011 period. After adjusting for weather and other variations, electric delivery volumes in O&R’s service area decreased 2.0 percent in the three months ended March 31, 2012 compared with the 2011 period.

Electric operating income decreased $2 million in the three months ended March 31, 2012 compared with the 2011 period. The decrease reflects primarily higher operations and maintenance costs ($6 million, due to higher pension expense and other postretirement costs) and taxes other than income taxes ($3 million, principally property taxes), offset by higher net revenues ($7 million).

 

Gas

O&R’s results of gas operations for the three months ended March 31, 2012 compared with the 2011 period is as follows:

 

     Three Months Ended         
(millions of dollars)   March 31,
2012
    March 31,
2011
    Variation  

Operating revenues

  $ 82      $ 92      $ (10

Gas purchased for resale

    26        39        (13

Net revenues

    56        53        3   

Operations and maintenance

    18        18        —     

Depreciation and amortization

    4        3        1   

Taxes, other than income taxes

    4        4        —     

Gas operating income

  $ 30      $ 28      $ 2   

 

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O&R’s gas sales and deliveries, excluding off-system sales, for the three months ended March 31, 2012 compared with the 2011 period were:

 

     Thousands of dths Delivered     Revenues in Millions  
     Three Months Ended                   Three Months Ended                
Description   March 31,
2012
    March 31,
2011
    Variation     Percent
Variation
    March 31,
2012
    March 31,
2011
    Variation     Percent
Variation
 

Residential

    2,856        3,774        (918     (24.3 )%    $ 39      $ 53      $ (14     (26.4 )% 

General

    561        737        (176     (23.9     7        9        (2     (22.2

Firm transportation

    4,368        5,296        (928     (17.5     31        31                 

Total firm sales and transportation

    7,785        9,807        (2,022     (20.6     77        93        (16     (17.2

Interruptible sales

    1,309        1,311        (2     (0.2     1        1                 

Generation plants

           98        (98     Large                               

Other

    339        399        (60     (15.0                            

Other gas revenues

                                4        (2     6        Large   

Total

    9,433        11,615        (2,182     (18.8 )%    $ 82      $ 92      $ (10     (10.9 )% 

 

O&R’s gas operating revenues decreased $10 million in the three months ended March 31, 2012 compared with the 2011 period due primarily to the decrease in gas purchased for resale in 2012 ($13 million), offset in part by the gas rate plan.

Sales and transportation volumes for firm customers decreased 20.6 percent in the three months ended March 31, 2012 compared with the 2011 period. After adjusting for weather and other variations, total firm sales and transportation volumes increased 2.1 percent in the three months ended March 31, 2012 compared with the 2011 period. O&R’s New York revenues from gas sales are subject to a weather normalization clause that moderates, but does not eliminate, the effect of weather-related changes on net income.

Gas operating income increased $2 million in the three months ended March 31, 2012 compared with the 2011 period. The increase reflects primarily higher net revenues ($3 million), offset by higher depreciation ($1 million).

 

Competitive Energy Businesses

The competitive energy businesses’ results of operations for the three months ended March 31, 2012 compared with the 2011 period is as follows:

 

     Three Months Ended         
(millions of dollars)   March 31,
2012
    March 31,
2011
    Variation  

Operating revenues

  $ 310      $ 408      $ (98

Purchased power

    295        321        (26

Gas purchased for resale

    1        6        (5

Net revenues

    14        81        (67

Operations and maintenance

    27        30        (3

Depreciation and amortization

    2        2          

Taxes, other than income taxes

    5        5          

Operating income

  $ (20   $ 44      $ (64

 

The competitive energy businesses’ operating revenues decreased $98 million in the three months ended March 31, 2012 compared with the 2011 period, due primarily to lower electric retail and wholesale revenues. Electric wholesale revenues decreased $39 million in the three months ended March 31, 2012 as compared with the 2011 period, due to lower sales volumes ($25 million) and unit prices ($14 million). Electric retail revenues decreased $63 million, due to lower per unit prices ($33 million) and sales volume ($30 million). Gross profit on electric retail revenues decreased due primarily to lower volumes, offset in part by higher unit gross margins. Net mark-to-market values decreased $69 million in the three months ended

 

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March 31, 2012 as compared with the 2011 period, of which $77 million in losses are reflected in purchased power costs and $9 million in gains are reflected in revenues. Other revenues decreased $5 million in the three months ended March 31, 2012 as compared with the 2011 period due primarily to lower energy services revenue.

Purchased power costs decreased $26 million in the three months ended March 2012 compared with the 2011 period, due primarily to lower purchased power costs of $103 million and changes in mark-to-market values of $77 million. Purchased power costs decreased $103 million due to lower unit prices ($58 million) and volumes ($45 million). Operating income decreased $64 million in the three months ended March 31, 2012 compared with the 2011 period due primarily to net mark-to-market effects ($69 million), partially offset by higher revenue from solar generating facilities and wholesale gross profit.

Other

For Con Edison, “Other” includes inter-company eliminations relating to operating revenues and operating expenses.

 

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Item 3: Quantitative and Qualitative Disclosures About Market Risk

For information about the Companies’ primary market risks associated with activities in derivative financial instruments, other financial instruments and derivative commodity instruments, see “Financial and Commodity Market Risks,” in Part I, Item 2 of this report, which information is incorporated herein by reference.

Item 4: Controls and Procedures

The Companies maintain disclosure controls and procedures designed to provide reasonable assurance that the information required to be disclosed in the reports that they submit to the Securities and Exchange Commission (SEC) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. For each of the Companies, its management, with the participation of its principal executive officer and principal financial officer, has evaluated its disclosure controls and procedures as of the end of the period covered by this report and, based on such evaluation, has concluded that the controls and procedures are effective to provide such reasonable assurance. Reasonable assurance is not absolute assurance, however, and there can be no assurance that any design of controls or procedures would be effective under all potential future conditions, regardless of how remote.

There was no change in the Companies’ internal control over financial reporting that occurred during the Companies’ most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Companies’ internal control over financial reporting.

The Utilities are undertaking a project with the objective of improving business processes and information systems. The Utilities expect the project to reduce costs, improve support of operating activities, reduce financial reporting risks, and simplify compliance activities. The focus of the project is the implementation of new financial and supply-chain enterprise resource planning information systems. The Utilities expect the project to enhance the processes used by employees to record financial transactions and analyze data; purchase materials and services and manage inventory; develop business plans and budgets and report financial and purchasing data. The project is reasonably likely to materially affect the Companies’ internal control over financial reporting.

 

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Part II Other Information

 

Item 1: Legal Proceedings

For information about certain legal proceedings affecting the Companies, see Notes B, G and H to the financial statements in Part I, Item 1 of this report, which information is incorporated herein by reference.

Item 1A: Risk Factors

There were no material changes in the Companies’ risk factors compared to those disclosed in Item 1A of the Form 10-K.

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

ISSUER PURCHASES OF EQUITY SECURITIES

 

Period   Total
Number of
Shares (or
Units)
Purchased*
    Average
Price
Paid
per
Share
(or
Unit)
    Total
Number of
Shares (or
Units)
Purchased
as Part  of
Publicly
Announced
Plans or
Programs
   

Maximum
Number (or
Appropriate

Dollar
Value) of
Shares (or
Units) that
May Yet Be
Purchased
Under the
Plans or
Programs

 

January 1, 2012 to January 31, 2012

    132,747      $ 59.33                 

February 1, 2012 to February 29, 2012

    88,902        59.07                 

March 1, 2012 to March 31, 2012

    99,494        58.22                 

Total

    321,143      $ 58.91                 

 

* Represents Con Edison common shares purchased in open-market transactions. The number of shares purchased approximated the number of treasury shares used for the company’s employee stock plans.

 

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Item 6: Exhibits

CON EDISON

 

Exhibit 12.1    Statement of computation of Con Edison’s ratio of earnings to fixed charges for the three-month periods ended March 31, 2012 and 2011, and the 12-month period ended December 31, 2011.
Exhibit 31.1.1    Rule 13a-14(a)/15d-14(a) Certifications – Chief Executive Officer.
Exhibit 31.1.2    Rule 13a-14(a)/15d-14(a) Certifications – Chief Financial Officer.
Exhibit 32.1.1    Section 1350 Certifications – Chief Executive Officer.
Exhibit 32.1.2    Section 1350 Certifications – Chief Financial Officer.
Exhibit 101.INS    XBRL Instance Document.
Exhibit 101.SCH    XBRL Taxonomy Extension Schema.
Exhibit 101.CAL    XBRL Taxonomy Extension Calculation Linkbase.
Exhibit 101.DEF    XBRL Taxonomy Extension Definition Linkbase.
Exhibit 101.LAB    XBRL Taxonomy Extension Label Linkbase.
Exhibit 101.PRE    XBRL Taxonomy Extension Presentation Linkbase.

CECONY

 

Exhibit 10.2    Amendment Number 4, dated January 1, 2011, to the Consolidated Edison Company of New York, Inc. 2005 Executive Incentive Plan.
Exhibit 12.2    Statement of computation of CECONY’s ratio of earnings to fixed charges for the three-month periods ended March
31, 2012 and 2011, and the 12-month period ended December 31, 2011.
Exhibit 31.2.1    Rule 13a-14(a)/15d-14(a) Certifications – Chief Executive Officer.
Exhibit 31.2.2    Rule 13a-14(a)/15d-14(a) Certifications – Chief Financial Officer.
Exhibit 32.2.1    Section 1350 Certifications – Chief Executive Officer.
Exhibit 32.2.2    Section 1350 Certifications – Chief Financial Officer.
Exhibit 101.INS    XBRL Instance Document.
Exhibit 101.SCH    XBRL Taxonomy Extension Schema.
Exhibit 101.CAL    XBRL Taxonomy Extension Calculation Linkbase.
Exhibit 101.DEF    XBRL Taxonomy Extension Definition Linkbase.
Exhibit 101.LAB    XBRL Taxonomy Extension Label Linkbase.
Exhibit 101.PRE    XBRL Taxonomy Extension Presentation Linkbase.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    CONSOLIDATED EDISON, INC.
    CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.
DATE: May 3, 2012     By    /s/    Robert Hoglund
     

Robert Hoglund

Senior Vice President, Chief

Financial Officer and Duly

Authorized Officer

 

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