Regulatory Matters

9 Months Ended

Sep. 30, 2016

Public Utilities, General Disclosures [Line Items]

Rate Plans

CECONY - Electric

In September 2016, CECONY, the staff of the New York State Public Service Commission (NYSPSC) and other parties entered into a Joint Proposal for a CECONY electric rate plan for the three-year period January 2017 through December 2019. The Joint Proposal is subject to NYSPSC approval. The following table contains a summary of the electric rate plan.



Effective period		January 2017 - December 2019
Base rate changes (a)		Yr. 1 - $195 million Yr. 2 - $155 million Yr. 3 - $155 million
Amortizations to income of net regulatory (assets) liabilities		Yr. 1 - $84 million Yr. 2 - $83 million Yr. 3 - $69 million
Other revenue sources		Retention of $75 million of annual transmission congestion revenues. Potential earnings adjustment mechanism incentives for energy efficiency and other potential incentives of up to: Yr. 1 - $28 million; Yr. 2 - $47 million; and Yr. 3 - $64 million.
Revenue decoupling mechanism		Continuation of reconciliation of actual to authorized electric delivery revenues.
Recoverable energy costs		Continuation of current rate recovery of purchased power and fuel costs.
Negative revenue adjustments		Potential penalties if certain performance targets relating to service, reliability, safety and other matters are not met: Yr. 1 - $376 million; Yr. 2 - $383 million; and Yr. 3 - $395 million.
Cost reconciliations		Continuation of reconciliation of expenses for pension and other postretirement benefits, variable-rate tax-exempt debt, major storms, property taxes(b), municipal infrastructure support costs(c), the impact of new laws and environmental site investigation and remediation to amounts reflected in rates.(d)
Net utility plant reconciliations		Target levels reflected in rates: Electric average net plant target excluding advanced metering infrastructure (AMI): Yr. 1 - $21,689 million; Yr. 2 - $22,338 million; Yr. 3 - $23,002 million AMI: Yr. 1 - $126 million; Yr. 2 - $257 million; Yr. 3 - $415 million
Average rate base		Yr. 1 - $18,902 million Yr. 2 - $19,530 million Yr. 3 - $20,277 million
Weighted average cost of capital (after-tax)		Yr. 1 - 6.82 percent Yr. 2 - 6.80 percent Yr. 3 - 6.73 percent
Authorized return on common equity		9.00 percent
Earnings sharing		Most earnings above an annual earnings threshold of 9.5 percent are to be applied to reduce regulatory assets for environmental remediation and other costs accumulated in the rate year.
Cost of long-term debt		Yr. 1 - 4.93 percent Yr. 2 - 4.88 percent Yr. 3 - 4.74 percent
Common equity ratio		48 percent


(a)	The electric base rate increases shown above are in addition to a $48 million increase resulting from the December 2016 expiration of a temporary credit under the current rate plan. At the NYSPSC’s option, these increases may be implemented with increases of $199 million in each rate year.


(b)	Deferrals for property taxes are limited to 90 percent of the difference from amounts reflected in rates, subject to an annual maximum for the remaining difference of not more than a maximum number of basis points impact on return on common equity: Yr. 1 - 10.0 basis points; Yr. 2 - 7.5 basis points; and Yr. 3 - 5.0 basis points.

(c)

In general, if actual expenses for municipal infrastructure support (other than company labor) are below the amounts reflected in rates the company will defer the difference for credit to customers, and if the actual expenses are above the amount reflected in rates the company will defer for recovery from customers 80 percent of the difference subject to a maximum deferral of 30 percent of the amount reflected in rates.

(d)

In addition, amounts reflected in rates relating to the regulatory asset for future income tax and the excess deferred federal income tax liability are subject to reconciliation. The NYSPSC staff is to audit the regulatory asset and the tax liability. Differences resulting from the NYSPSC staff review will be deferred for NYSPSC determination of any amounts to be refunded or collected from customers.

In April 2016, the Federal Energy Regulatory Commission (FERC) rejected CECONY’s challenge to FERC’s approval of substantially increased charges allocated to CECONY for transmission service provided pursuant to the open access tariff of PJM Interconnection LLC (PJM). CECONY will continue to challenge FERC’s approval of the increased charges that will be incurred over the remaining contract term, and in May 2016 filed an appeal of FERC's decision with the U.S. Court of Appeals. In April 2016, CECONY notified PJM that it will not be exercising its option to continue the service beyond April 2017.

CECONY - Gas

In September 2016, CECONY, the staff of the NYSPSC and other parties entered into a Joint Proposal for a CECONY gas rate plan for the three-year period January 2017 through December 2019. The Joint Proposal is subject to NYSPSC approval. The following table contains a summary of the gas rate plan.



Effective period		January 2017 - December 2019
Base rate changes		Yr. 1 - $(5) million(a) Yr. 2 - $92 million Yr. 3 - $90 million
Amortizations to income of net regulatory (assets) liabilities		Yr. 1 - $39 million Yr. 2 - $37 million Yr. 3 - $36 million
Other revenue sources		Retention of annual revenues from non-firm customers of up to $65 million and 15 percent of any such revenues above $65 million. Potential incentives if performance targets related to gas leak backlog, leak prone pipe and service terminations are met: Yr. 1 - $7 million; Yr. 2 - $8 million; and Yr. 3 - $8 million.
Revenue decoupling mechanism		Continuation of reconciliation of actual to authorized gas delivery revenues.
Recoverable energy costs		Continuation of current rate recovery of purchased gas costs.
Negative revenue adjustments		Potential penalties if performance targets relating to service, safety and other matters are not met: Yr. 1 - $68 million; Yr. 2 - $75 million; and Yr. 3 - $83 million.
Cost reconciliations		Continuation of reconciliation of expenses for pension and other postretirement benefits, variable-rate tax-exempt debt, major storms, property taxes, municipal infrastructure support costs, the impact of new laws and environmental site investigation and remediation to amounts reflected in rates.(b)
Net utility plant reconciliations		Target levels reflected in rates: Gas average net plant target excluding AMI: Yr. 1 - $5,844 million; Yr. 2 - $6,512 million; Yr. 3 - $7,177 million AMI: Yr. 1 - $27 million; Yr. 2 - $57 million; Yr. 3 - $100 million
Average rate base		Yr. 1 - $4,841 million Yr. 2 - $5,395 million Yr. 3 - $6,005 million
Weighted average cost of capital (after-tax)		Yr. 1 - 6.82 percent Yr. 2 - 6.80 percent Yr. 3 - 6.73 percent
Authorized return on common equity		9.00 percent
Earnings sharing		Most earnings above an annual earnings threshold of 9.5 percent are to be applied to reduce regulatory assets for environmental remediation and other costs accumulated in the rate year.
Cost of long-term debt		Yr. 1 - 4.93 percent Yr. 2 - 4.88 percent Yr. 3 - 4.74 percent
Common equity ratio		48 percent


(a)	The base rate decrease is offset by a $41 million increase resulting from the December 2016 expiration of a temporary credit under the current rate plan.


(b)	See footnotes (b), (c) and (d) to the table under “CECONY-Electric,” above.

Rockland Electric Company (RECO)

In April 2016, RECO filed a request with the New Jersey Board of Public Utilities for an electric rate increase of $10 million, effective March 2017. The filing reflected a return on common equity of 10.20 percent and a common equity ratio of 49.81 percent. In October 2016, RECO filed an update to its April 2016 request. The company decreased its requested March 2017 rate increase by $4 million to $6 million. The updated filing reflects a return on common equity of 10.20 percent and a common equity ratio of 50.15 percent. The filing reflects continuation of provisions pursuant to which the company recovers its purchased power and fuel costs from customers.

Other Regulatory Matters

In April 2016, the NYSPSC approved the September 2015 Joint Proposal among CECONY, the NYSPSC staff and others with respect to the prudence proceeding the NYSPSC commenced in February 2009 and related matters. Pursuant to the Joint Proposal, the company is required to credit $116 million to customers and, for the period 2017 through 2044, to not seek to recover from customers an aggregate $55 million relating to return on its capital expenditures. In addition, the company’s revenues that were made subject to potential refund in this proceeding are no longer subject to refund. At September 30, 2016, the company had a $96 million regulatory liability for the remaining amount to be credited to customers related to this matter.

In June 2014, the NYSPSC initiated a proceeding to investigate the practices of qualifying persons to perform plastic fusions on gas facilities. New York State regulations require gas utilities to qualify and, except in certain circumstances, annually requalify workers that perform fusion to join plastic pipe. The NYSPSC directed the New York gas utilities to provide information in this proceeding about their compliance with the qualification and requalification requirements and related matters; their procedures for compliance with all gas safety regulations; and their annual chief executive officer certifications regarding these and other procedures. CECONY’s qualification and requalification procedures had not included certain required testing to evaluate specimen fuses. In addition, CECONY and O&R had not timely requalified certain workers that had been qualified under their respective procedures to perform fusion to join plastic pipe. CECONY and O&R have requalified their workers who perform plastic pipe fusions. In May 2015, the NYSPSC, which indicated that it would address enforcement at a later date, ordered CECONY, O&R and other gas utilities to perform risk assessment and remediation plans, additional leakage surveying and reporting; CECONY to hire an independent statistician to develop a risk assessment and remediation plan; and the gas utilities to implement certain new plastic fusion requirements. In December 2015, the NYSPSC staff informed O&R that the company had satisfactorily completed its risk assessment and remediation plan. CECONY submitted its risk assessment and remediation plan to the NYSPSC staff in October 2016.

In November 2015, the NYSPSC ordered CECONY to show cause why the NYSPSC should not commence proceedings to penalize the company for alleged violations of gas safety regulations identified by the NYSPSC staff in its investigation of a March 2014 explosion and fire and to review the prudence of the company's conduct associated with the incident. See "Manhattan Explosion and Fire" in Note H. In December 2015, the company responded that the NYSPSC should not institute the proceedings and disputed the alleged violations.

At September 30, 2016, CECONY had a $28 million regulatory liability related to the June 2014 plastic fusion proceeding and the November 2015 order to show cause. The company is unable to estimate the amount or range of its possible loss related to these matters in excess of this regulatory liability.

CECONY has incurred costs for gas emergency response activities in 2014, 2015 and 2016 in excess of amounts reflected in the company’s gas rate plan. The company has requested NYSPSC authorization to defer as a regulatory asset $29 million and $35 million of such incremental costs incurred in 2014 and 2015, respectively. The company estimates that it will incur $37 million of such incremental costs in 2016. At September 30, 2016, the company had not deferred any such incremental costs.

Regulatory Assets and Liabilities

Regulatory assets and liabilities at September 30, 2016 and December 31, 2015 were comprised of the following items:



	Con Edison		CECONY
(Millions of Dollars)	2016	2015	2016	2015
Regulatory assets
Unrecognized pension and other postretirement costs	$3,369	$3,876	$3,220	$3,697
Future income tax	2,429	2,350	2,312	2,232
Environmental remediation costs	823	904	720	800
Revenue taxes	298	253	283	240
Deferred storm costs	89	185	30	110
Deferred derivative losses	55	50	49	46
Unamortized loss on reacquired debt	45	50	43	48
Surcharge for New York State assessment	43	44	40	40
O&R property tax reconciliation	39	46	—	—
Pension and other postretirement benefits deferrals	34	45	3	16
Net electric deferrals	29	44	29	44
Preferred stock redemption	25	26	25	26
O&R transition bond charges	16	21	—	—
Workers’ compensation	15	11	15	11
Recoverable energy costs	7	16	5	15
Other	228	175	212	157
Regulatory assets – noncurrent	7,544	8,096	6,986	7,482
Deferred derivative losses	94	113	87	103
Recoverable energy costs	25	19	24	18
Regulatory assets – current	119	132	111	121
Total Regulatory Assets	$7,663	$8,228	$7,097	$7,603
Regulatory liabilities
Allowance for cost of removal less salvage	$713	$676	$602	$570
Property tax reconciliation	205	303	205	303
Pension and other postretirement benefit deferrals	163	76	130	46
Net unbilled revenue deferrals	121	109	121	109
Prudence proceeding	96	99	96	99
Unrecognized other postretirement costs	91	28	91	28
New York State income tax rate change	66	75	64	72
Base rate change deferrals	62	128	62	128
Variable-rate tax-exempt debt – cost rate reconciliation	60	70	52	60
Carrying charges on repair allowance and bonus depreciation	57	49	56	48
Earnings sharing - electric, gas and steam	34	80	26	80
Net utility plant reconciliations	27	32	27	31
Property tax refunds	12	44	12	44
World Trade Center settlement proceeds	5	21	5	21
Other	208	187	176	150
Regulatory liabilities – noncurrent	1,920	1,977	1,725	1,789
Revenue decoupling mechanism	74	45	70	45
Refundable energy costs	37	64	18	33
Deferred derivative gains	12	6	8	6
Regulatory liabilities – current	123	115	96	84
Total Regulatory Liabilities	$2,043	$2,092	$1,821	$1,873

CECONY