Income Tax

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Tax

Income Tax

The components of income tax are as follows:

	Con Edison			CECONY
(Millions of Dollars)	2022	2021	2020	2022	2021	2020
State
Current	$5	$14	$7	$0	$1	$6
Deferred	324	79	50	110	106	97
Federal
Current	58	43	(2)	170	121	41
Deferred	117	61	42	(23)	21	73
Amortization of investment tax credits	(6)	(7)	(7)	(2)	(3)	(2)
Total income tax expense	$498	$190	$90	$255	$246	$215

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 is as follows:

	Con Edison						CECONY
(% of Pre-tax income)	2022		2021		2020		2022		2021		2020
STATUTORY TAX RATE
Federal	21	%	21	%	21	%	21	%	21	%	21	%
Changes in computed taxes resulting from:
State income taxes, net of federal income tax benefit	6		4		4		5		5		5
Taxes attributable to noncontrolling interests	1		3		(1)		—		—		—
Cost of removal	1		2		2		1		1		1
Other plant-related items	—		(1)		(1)		(1)		(1)		(1)
Amortization of excess deferred federal income taxes	(9)		(12)		(14)		(10)		(11)		(12)
Renewable energy credits	(2)		(2)		(3)		—		—		—
Research and development credits	—		(1)		—		—		—		—
Remeasurement of accumulated deferred state income taxes, net of federal income tax benefit	6		—		—		—		—		—
Other	—		—		(1)		—		—		1
Effective tax rate	24	%	14	%	7	%	16	%	15	%	15	%

Con Edison’s effective tax rate increased 10% in 2022 primarily due to higher income before income tax expense and the remeasurement of deferred state income tax assets and liabilities as a result of the anticipated sale of the Clean Energy Businesses (see Note X). Con Edison estimated the impact of the anticipated sale on its state apportionment factors and recorded an increase to its net accumulated deferred state income tax liabilities of $111 million and an increase to its valuation allowance on state and local net operating loss (NOL) carryforwards of $10 million, and recorded a corresponding deferred income tax expense of $121 million (net of federal income taxes) in the fourth quarter of 2022. During 2022, Con Edison wrote off $11 million of deferred tax assets (net of federal income taxes) and related valuation allowance on other state NOLs, with no impact on deferred income tax expense, and recognized a deferred income tax benefit of $3 million (net of federal income taxes) from net operating losses that were utilized during the year.

The tax effects of temporary differences, which gave rise to deferred tax assets and liabilities, are as follows:

	Con Edison		CECONY
(Millions of Dollars)	2022	2021	2022	2021
Deferred tax liabilities:
Property basis differences	$8,770	$8,298	$7,475	$7,213
Regulatory Assets:
Deferred storm costs	27	33	—	—
Environmental remediation costs	278	264	254	241
Other regulatory assets	754	640	720	609
Unrecognized pension and other postretirement costs	22	36	22	31
Pensions and retiree benefits – asset	917	478	894	471
Operating lease right-of-use asset	230	204	163	155
Equity investments	26	—	—	—
Other	—	30	—	—
Total deferred tax liabilities	$11,024	$9,983	$9,528	$8,720
Deferred tax assets:
Regulatory liabilities:
Unrecognized pension and other postretirement costs	447	—	431	—
Future income tax	489	554	454	517
Other regulatory liabilities	860	727	739	620
Tax credits carryforward	767	946	—	—
Loss carryforwards	117	144	24	38
Valuation allowance	(18)	(22)	—	—
Superfund and other environmental costs	280	264	254	238
Operating lease liabilities	233	195	162	155
Pensions and retiree benefits – liability	162	218	148	188
Asset retirement obligations	153	177	140	141
Equity investments	—	34	—	—
Other	14	—	45	42
Total deferred tax assets	3,504	3,237	2,397	1,939
Net deferred tax liabilities	$7,520	$6,746	$7,131	$6,781
Unamortized investment tax credits	121	127	13	15
Net deferred tax liabilities and unamortized investment tax credits	$7,641	$6,873	$7,144	$6,796

At December 31, 2022, Con Edison has $767 million in general business tax credit carryovers (primarily renewable energy tax credits). If unused, these general business tax credit carryovers will begin to expire in 2034. A deferred tax asset for these tax attribute carryforwards was recorded, and no valuation allowance was provided, as it is more likely than not that the deferred tax asset will be realized.

At December 31, 2022, Con Edison has a New York State NOL of $892 million, primarily as a result of accelerated tax depreciation. A deferred tax asset of $84 million has been recognized for these New York State NOL carryforwards that will begin to expire, if unused, in 2038, and no valuation allowance is needed as it is more likely than not that the deferred tax asset will be realized. In addition, Con Edison has a deferred tax asset on its New York City NOL carryforward of $17 million that will begin to expire, if unused, in 2035, and a related valuation allowance of $14 million as it is not more likely than not that the deferred tax assets will be realized. Con Edison also has a deferred tax asset of $46 million on other state net operating loss carryforwards that will begin to expire if unused in 2038, and have a related valuation allowance of $10 million, as it is not more likely than not that the deferred tax assets will be realized.

In April 2021, NY State passed a law that temporarily increased the corporate franchise tax rate on business income from 6.50 percent to 7.25 percent for a 3 year period, retroactive to January 1, 2021, for taxpayers with taxable income greater than $5 million. The law also temporarily reinstated the business capital tax, not to exceed an annual maximum tax liability of $5 million per taxpayer, with the corporation paying the higher of its franchise or income tax liability during the same period. The provisions to increase the corporate franchise tax rate and reinstate

a business capital tax are scheduled to expire after 2023 and are not expected to have a material impact on the Company’s financial position, results of operations or liquidity. On November 19, 2021, the Acting Commissioner determined that the Metropolitan Transportation Authority (MTA) surcharge rate will remain the same at 30% for tax years beginning on or after January 1, 2022, and before January 1, 2023. As a result of the Clean Energy Businesses anticipated sale, Con Edison expects to have NY State taxable income in excess of the $5 million after utilizing its entire NY State NOL, and the group will be subject to the higher 7.25 percent (9.4 percent with MTA surcharge rate) rate on its taxable income, which was included in Con Edison's remeasurement of its deferred state income tax assets and liabilities at the end of 2022.

Uncertain Tax Positions

Under the accounting rules for income taxes, the Companies are not permitted to recognize the tax benefit attributable to a tax position unless such position is more likely than not to be sustained upon examination by taxing authorities, including resolution of any related appeals and litigation processes, based solely on the technical merits of the position.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits for Con Edison and CECONY follows:

	Con Edison			CECONY
(Millions of Dollars)	2022	2021	2020	2022	2021	2020
Balance at January 1,	$17	$14	$13	$5	$3	$2
Additions based on tax positions related to the current year	3	3	—	2	2	—
Additions based on tax positions of prior years	6	2	1	1	1	1
Reductions for tax positions of prior years	(1)	(2)	—	—	(1)	—
Settlements	(2)	—	—	—	—	—
Balance at December 31,	$23	$17	$14	$8	$5	$3

At December 31, 2022, the estimated liability for uncertain tax positions for Con Edison was $23 million ($8 million for CECONY). Con Edison reasonably expects to resolve within the next twelve months approximately $20 million of various federal uncertainties due to the expected completion of ongoing tax examinations, of which the entire amount, if recognized, would reduce Con Edison's effective tax rate. The amount related to CECONY is $6 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 $23 million with $8 million attributable to CECONY.

The Companies recognize interest on liabilities for uncertain tax positions in interest expense and would recognize penalties, if any, in operating expenses in the Companies’ consolidated income statements. In 2022, 2021 and 2020, the Companies recognized an immaterial amount of interest expense and no penalties for uncertain tax positions in their consolidated income statements. At December 31, 2022 and 2021, the Companies recognized an immaterial amount of accrued interest on their consolidated balance sheets.

During 2022, Con Edison settled its Massachusetts corporation excise tax audit for tax years 2013 through 2018, and made a payment of $2 million during the year and released $1 million of uncertain tax positions as a result of the settlement.

Con Edison's federal tax returns for tax years 2021 and 2020 remain under examination. State and local income tax returns remain open for examination in NY for tax years 2010 through 2021, in NJ for tax years 2018 through 2021 and in New York City for tax years 2018 through 2021.