Income Tax

The components of income tax are as follows:



	Con Edison			CECONY
(Millions of Dollars)	2016	2015	2014	2016	2015	2014
State
Current	$(42)	$38	$59	$(1)	$48	$66
Deferred	188	93	61	114	82	65
Federal
Current	(43)	(86)	(9)	59	77	158
Deferred	604	569	463	435	372	271
Amortization of investment tax credits	(9)	(9)	(6)	(4)	(5)	(5)
Total income tax expense	$698	$605	$568	$603	$574	$555

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



	Con Edison		CECONY
(Millions of Dollars)	2016	2015	2016	2015
Deferred tax liabilities:
Property basis differences	$9,446	$8,614	$8,620	$7,922
Regulatory assets:
Unrecognized pension and other postretirement costs	1,162	1,562	1,104	1,490
Future income tax	986	947	940	899
Environmental remediation costs	333	365	287	322
Deferred storm costs	23	75	1	45
Other regulatory assets	371	367	321	308
Equity investments	363	295	—	—
Total deferred tax liabilities	$12,684	$12,225	$11,273	$10,986
Deferred tax assets:
Accrued pension and other postretirement costs	$581	$982	$467	$857
Regulatory liabilities	822	836	728	752
Superfund and other environmental costs	304	308	265	268
Asset retirement obligations	99	97	92	94
Loss carryforwards	59	29	—	—
Tax credits carryforward	498	258	—	1
Valuation allowance	(16)	(15)	—	—
Other	303	362	312	292
Total deferred tax assets	2,650	2,857	1,864	2,264
Net deferred tax liabilities	$10,034	$9,368	$9,409	$8,722
Unamortized investment tax credits	171	169	41	33
Net deferred tax liabilities and unamortized investment tax credits	$10,205	$9,537	$9,450	$8,755

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)	2016		2015		2014		2016		2015		2014
STATUTORY TAX RATE
Federal	35	%	35	%	35	%	35	%	35	%	35	%
Changes in computed taxes resulting from:
State income tax	4		5		5		4		5		5
Cost of removal	(1	)	(5	)	(5	)	(1	)	(5	)	(5	)
Renewable energy credits	(1	)	(1	)	—		—		—		—
Research and development credits	(1	)	—		—		(1	)	—		—
Other	—		—		(1	)	(1	)	—		(1	)
Effective tax rate	36	%	34	%	34	%	36	%	35	%	34	%

In 2016, Con Edison had a federal net operating loss of approximately $204 million, primarily due to bonus depreciation. Con Edison expects to carryback approximately $178 million of its 2016 net operating loss to 2007 and 2014, which will result in recovery of $32 million of income tax and reestablishment of $31 million of general business tax credits. The remaining 2016 federal net operating loss of $26 million will be carried forward to future years and will not expire until 2036. General business tax credits that were generated in 2016 ($207 million) and became available as a result of the net operating loss carryback ($31 million) will be carried forward to future years. Con Edison has $498 million in general business tax credit (primarily renewable energy tax credits), which if unused will begin to expire in 2032. A deferred tax asset for these tax attribute carryforwards was recorded, and no valuation allowance has been provided, as it is more likely than not that the deferred tax asset will be realized.

Con Edison recorded a full valuation allowance of $3 million in 2015 against its charitable contribution carryforward from 2011. Due to the expiration of this charitable contribution carryforward in 2016, Con Edison wrote off the deferred tax asset and corresponding valuation allowance. Charitable contributions carryforward of $5 million and $6 million for 2015 and 2016, respectively, that will expire in 2020 and 2021, respectively, were recorded as a deferred tax asset and no valuation allowance has been provided, as it is more likely than not that the deferred tax asset will be realized. In addition, a $12 million valuation allowance for New York City net operating loss carryforward and a $4 million valuation allowance for state net operating losses carryforward has been provided; as it is not more likely than not that the deferred tax asset will be realized.

In 2014, tax legislation was enacted in the State of New York that reduced the corporate franchise tax rate from 7.1 percent to 6.5 percent, beginning January 1, 2016. The application of this legislation decreased Con Edison’s accumulated deferred tax liabilities by $74 million ($69 million for CECONY), decreased Con Edison’s regulatory asset for future income tax by $11 million ($10 million for CECONY) and increased Con Edison’s regulatory liability by $62 million ($59 million for CECONY). The impact of this tax legislation on Con Edison’s effective tax rate was not material, and there was no impact on CECONY’s effective tax rate for the year ended December 31, 2014.

Under the Taxpayer Relief Act of 2012, 50 percent bonus depreciation expired on December 31, 2013. The Tax Increase Prevention Act of 2014 extended bonus depreciation for another year through December 31, 2014. As a result of the extension of bonus depreciation to 2014, Con Edison filed a refund request with the IRS in January 2015 to recover $224 million ($128 million for CECONY) in estimated federal tax payments and received the refund in March 2015.

The Protecting Americans from Tax Hikes Act of 2015 extended bonus depreciation for property acquired and placed in service during 2015 through 2019. The bonus depreciation percentage is 50 percent for property placed in service during 2015, 2016 and 2017 and phases down to 40 percent in 2018, and 30 percent in 2019. As a result of the extension of bonus depreciation to 2015, Con Edison filed a refund request with the IRS in January 2016 to recover $160 million in estimated federal tax payments. In February 2016, Con Edison received a refund of estimated taxes paid in the amount of $160 million ($143 million for CECONY).

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)	2016	2015	2014	2016	2015		2014
Balance at January 1,	$34	$34	$9	$2		$2		$—
Additions based on tax positions related to the current year	2	—	—	2	—		—
Additions based on tax positions of prior years	19	1	27	19	—		2
Reductions for tax positions of prior years	(13)	—	(2)	(2)	—		—
Reductions from expiration of statute of limitations	—	(1)	—	—	—		—
Settlements	—	—	—	—	—		—
Balance at December 31,	$42	$34	$34	$21	$2		$2

In 2016, Con Edison reached a settlement with New York State on two claims it had filed in previous years and reversed $11 million in uncertain tax positions. Of this amount, $8 million ($5 million, net of federal taxes) reduced Con Edison’s effective tax rate. The amount related to CECONY was $2 million ($1 million, net of federal taxes), all of which reduced CECONY’s effective tax rate. Current year additions of $21 million are for tax credits and prior years' claims filed in 2016.

As of December 31, 2016, Con Edison reasonably expects to resolve within the next twelve months approximately $35 million ($24 million, net of federal taxes) of various federal and state uncertainties due to the expected completion of ongoing tax examinations, including $21 million ($14 million, net of federal taxes), which, if recognized, would reduce Con Edison’s effective tax rate. The amount related to CECONY is approximately $17 million ($12 million, net of federal taxes), including $2 million, which, if recognized, would reduce CECONY’s effective tax rate.

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 2016, 2015 and 2014, the Companies recognized an immaterial amount of interest and no penalties for uncertain tax positions in their consolidated income statements. At December 31, 2016 and 2015, the Companies recognized an immaterial amount of interest and no penalties in their consolidated balance sheets.

At December 31, 2016, the total amount of unrecognized tax benefits that, if recognized, would reduce the Companies’ effective tax rate is $24 million ($17 million, net of federal taxes) with $3 million attributable to CECONY.

The federal tax returns for 2012 through 2015 remain open for examination. State income tax returns remain open for examination in New York for tax years 2006 through 2015 and in New Jersey for tax years 2008 through 2015.