Income Tax

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

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



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

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

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



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

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

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

Uncertain Tax Positions

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

At June 30, 2018, the estimated liability for uncertain tax positions for Con Edison was $10 million ($4 million for CECONY). Con Edison reasonably expects to resolve within the next twelve months approximately $5 million ($4 million, net of federal taxes) of various federal and state uncertainties due to the expected completion of ongoing tax examinations and expiration of statute of limitations, of which the entire amount, if recognized, would reduce Con Edison's effective tax rate. The amount related to CECONY is approximately $2 million, which, if recognized, would reduce CECONY’s effective tax rate. The total amount of unrecognized tax benefits, if recognized, that would reduce Con Edison’s effective tax rate is $10 million ($9 million, net of federal taxes).

The Companies recognize interest on liabilities for uncertain tax positions in interest expense and would recognize penalties, if any, in operating expenses in the Companies’ consolidated income statements. In the three and six months ended June 30, 2018, the Companies recognized an immaterial amount of interest expense and no penalties for uncertain tax positions in their consolidated income statements. At June 30, 2018 and December 31, 2017, the Companies recognized an immaterial amount of accrued interest on their consolidated balance sheets.