Regulatory Matters

Rate Plans

O&R New York – Electric

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

O&R New York – Gas

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

Other Regulatory Matters

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

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

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

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

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

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

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

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

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

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

Regulatory Assets and Liabilities

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



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

* See "Other Regulatory Matters," above.