Other Postretirement Benefits

The Utilities and Con Edison Transmission currently have contributory comprehensive hospital, medical and prescription drug programs for eligible retirees, their dependents and surviving spouses.

CECONY also has a contributory life insurance program for bargaining unit employees and provides basic life insurance benefits up to a specified maximum at no cost to certain retired management employees. O&R has a non-contributory life insurance program for retirees. Certain employees of the Clean Energy Businesses and Con Edison Transmission are eligible to receive benefits under these programs.

Total Periodic Benefit Cost

The components of the Companies’ total periodic postretirement benefit costs for 2017, 2016 and 2015 were as follows:



	Con Edison			CECONY
(Millions of Dollars)	2017	2016	2015	2017	2016	2015
Service cost	$20	$18	$20	$13	$13	$15
Interest cost on accumulated other postretirement benefit obligation	46	48	51	38	40	43
Expected return on plan assets	(69)	(77)	(78)	(61)	(67)	(68)
Recognition of net actuarial loss	2	5	31	(3)	3	28
Recognition of prior service cost	(17)	(20)	(20)	(11)	(14)	(14)
TOTAL PERIODIC POSTRETIREMENT BENEFIT COST	$(18)	$(26)	$4	$(24)	$(25)	$4
Cost capitalized	8	11	(2)	10	10	(2)
Reconciliation to rate level	(4)	22	14	(2)	22	6
Cost charged to operating expenses	$(14)	$7	$16	$(16)	$7	$8

Funded Status

The funded status of the programs at December 31, 2017, 2016 and 2015 were as follows:



	Con Edison			CECONY
(Millions of Dollars)	2017	2016	2015	2017	2016	2015
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year	$1,198	$1,287	$1,411	$1,007	$1,093	$1,203
Service cost	20	18	20	13	13	15
Interest cost on accumulated postretirement benefit obligation	46	48	51	38	40	43
Amendments	—	—	—	—	—	—
Net actuarial loss/(gain)	53	(57)	(103)	16	(52)	(85)
Benefits paid and administrative expenses	(134)	(134)	(127)	(124)	(122)	(117)
Participant contributions	36	36	35	35	35	34
BENEFIT OBLIGATION AT END OF YEAR	$1,219	$1,198	$1,287	$985	$1,007	$1,093
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year	$975	$994	$1,084	$851	$870	$950
Actual return on plan assets	150	60	(6)	130	52	(4)
Employer contributions	17	7	6	8	7	6
EGWP payments	34	35	28	30	33	26
Participant contributions	35	36	35	35	35	34
Benefits paid	(172)	(157)	(153)	(161)	(146)	(142)
FAIR VALUE OF PLAN ASSETS AT END OF YEAR	$1,039	$975	$994	$893	$851	$870
FUNDED STATUS	$(180)	$(223)	$(293)	$(92)	$(156)	$(223)
Unrecognized net loss/(gain)	$(47)	$(24)	$28	$(85)	$(42)	$4
Unrecognized prior service costs	(14)	(31)	(51)	(7)	(18)	(32)

The increase in the fair value of plan assets was the primary cause of the decreased liability for other postretirement benefits at Con Edison and CECONY of $43 million and $64 million, respectively, compared with December 31, 2016. For Con Edison, this decreased liability corresponds with an increase to regulatory liabilities of $11 million for unrecognized net losses and unrecognized prior service costs associated with the Utilities consistent with the accounting rules for regulated operations, a debit to OCI of $3 million (net of taxes) for the unrecognized net losses and an immaterial change to OCI (net of taxes) for the unrecognized prior service costs associated with the Clean Energy Businesses, Con Edison Transmission, and RECO.

For CECONY, the decrease in liability corresponds with an increase to regulatory liabilities of $32 million for unrecognized net losses and unrecognized prior service costs associated with the company consistent with the accounting rules for regulated operations, and an immaterial change to OCI (net of taxes) for the unrecognized net losses and unrecognized prior service costs associated with the Clean Energy Businesses and Con Edison Transmission.

A portion of the unrecognized net losses and prior service costs for the other postretirement benefits, equal to $8 million and $(6) million, respectively, will be recognized from accumulated OCI and the regulatory asset into net periodic benefit cost over the next year for Con Edison. Included in these amounts are $1 million and $(2) million, respectively, for CECONY.

Assumptions

The actuarial assumptions were as follows:



	2017		2016		2015
Weighted-average assumptions used to determine benefit obligations at December 31:
Discount Rate
CECONY	3.55	%	4.00	%	4.05	%
O&R	3.70	%	4.20	%	4.20	%
Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31:
Discount Rate
CECONY	4.00	%	4.05	%	3.75	%
O&R	4.20	%	4.20	%	3.85	%
Expected Return on Plan Assets	7.50	%	7.00	%	7.75	%

Refer to Note E for descriptions of the basis for determining the expected return on assets, investment policies and strategies and the assumed discount rate.

The health care cost trend rate used to determine net periodic benefit cost for the year ended December 31, 2017 was 5.80 percent, which is assumed to decrease gradually to 4.50 percent by 2024 and remain at that level thereafter. The health care cost trend rate used to determine benefit obligations as of December 31, 2017 was 5.60 percent, which is assumed to decrease gradually to 4.50 percent by 2024 and remain at that level thereafter.

A one-percentage point change in the assumed health care cost trend rate would have the following effects at December 31, 2017:



	Con Edison		CECONY
	1-Percentage-Point
(Millions of Dollars)	Increase	Decrease	Increase	Decrease
Effect on accumulated other postretirement benefit obligation	$13	$11	$(20)	$35
Effect on service cost and interest cost components for 2017	2	—	(1)	1

Expected Benefit Payments

Based on current assumptions, the Companies expect to make the following benefit payments over the next ten years, net of receipt of governmental subsidies:



(Millions of Dollars)	2018	2019	2020	2021	2022	2023-2027
Con Edison	$83	$81	$78	$76	$75	$363
CECONY	73	70	67	65	64	303

Expected Contributions

Based on estimates as of December 31, 2017, Con Edison and CECONY expect to make a contribution of $7 million (substantially all of which is to be contributed by CECONY) to the other postretirement benefit plans in 2018. The Companies’ policy is to fund the total periodic benefit cost of the plans to the extent tax deductible.

Plan Assets

The asset allocations for CECONY’s other postretirement benefit plans at the end of 2017, 2016 and 2015, and the target allocation for 2018 are as follows:



	Target Allocation Range	Plan Assets at December 31,
Asset Category	2018	2017		2016		2015
Equity Securities	50%-80%	60	%	60	%	59	%
Debt Securities	20%-50%	40	%	40	%	41	%
Total	100%	100	%	100	%	100	%

Con Edison has established postretirement health and life insurance benefit plan trusts for the investment of assets to be used for the exclusive purpose of providing other postretirement benefits to participants and beneficiaries.

Refer to Note E for a discussion of Con Edison’s investment policy for its benefit plans.

The fair values of the plan assets at December 31, 2017 by asset category as defined by the accounting rules for fair value measurements (see Note P) are as follows:



(Millions of Dollars)	Level 1		Level 2	Total
Equity (a)		$—	$420	$420
Other Fixed Income Debt (b)	—		286	286
Cash and Cash Equivalents (c)	—		16	16
Total investments		$—	$722	$722
Funds for retiree health benefits (d)	168		94	262
Investments (including funds for retiree health benefits)		$168	$816	$984
Funds for retiree health benefits measured at net asset value (d)(e)				36
Pending activities (f)				19
Total fair value of plan net assets				$1,039


(a)	Equity includes a passively managed commingled index fund benchmarked to the MSCI All Country World Index.


(b)	Other Fixed Income Debt includes a passively managed commingled index fund benchmarked to the Barclays Capital Aggregate Index.


(c)	Cash and Cash Equivalents include short term investments and money markets.

(d)

The Companies set aside funds for retiree health benefits through a separate account within the pension trust, as permitted under Section 401(h) of the Internal Revenue Code of 1986, as amended. In accordance with the Code, the plan’s investments in the 401(h) account may not be used for, or diverted to, any purpose other than providing health benefits for retirees. The net assets held in the 401(h) account are calculated based on a pro-rata percentage allocation of the net assets in the pension plan. The related obligations for health benefits are not included in the pension plan’s obligations and are included in the Companies’ other postretirement benefit obligation. See Note E.


(e)	In accordance with ASU 2015-07, Fair Value Measurements (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or its equivalent), certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.


(f)	Pending activities include security purchases and sales that have not settled, interest and dividends that have not been received, and reflects adjustments for available estimates at year end.

The fair values of the plan assets at December 31, 2016 by asset category (see Note P) are as follows:



(Millions of Dollars)	Level 1		Level 2	Total
Equity (a)		$—	$391	$391
Other Fixed Income Debt (b)	—		250	250
Cash and Cash Equivalents (c)	—		13	13
Total investments		$—	$654	$654
Funds for retiree health benefits (d)	165		105	270
Investments (including funds for retiree health benefits)		$165	$759	$924
Funds for retiree health benefits measured at net asset value (d)(e)				37
Pending activities (f)				14
Total fair value of plan net assets				$975

(a) - (f) Reference is made to footnotes (a) through (f) in the above table of other postretirement benefit plan assets at December 31, 2017 by asset category.