Income Tax

6 Months Ended

Jun. 30, 2019

Con Edison’s income tax expense decreased to $19 million for the three months ended June 30, 2019 from $38 million for the three months ended June 30, 2018. The decrease in income tax expense is primarily due to lower income before income tax expense (excluding income attributable to noncontrolling interest (see Note N)), lower state income taxes, an increase in the amortization of excess deferred federal income taxes due to the TCJA and higher renewable energy credits, offset in part by an increase in uncertain tax positions.

CECONY’s income tax expense decreased to $27 million for the three months ended June 30, 2019 from $31 million for the three months ended June 30, 2018. The decrease in income tax expense is primarily due to lower state income taxes, higher tax benefits in 2019 for plant-related flow through items, and an increase in the amortization of excess deferred federal income taxes due to 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, 2019 and 2018 is as follows:



	Con Edison				CECONY
(% of Pre-tax income)	2019		2018		2019		2018
STATUTORY TAX RATE
Federal	21	%	21	%	21	%	21	%
Changes in computed taxes resulting from:
State income tax	3		5		3		4
Cost of removal	2		2		2		2
Other plant-related items	(2	)	(1	)	(1	)	(1	)
Renewable energy credits	(5	)	(3	)	—		—
Reserve for uncertain tax positions	2		—		—		—
Amortization of excess deferred federal income taxes	(10	)	(7	)	(9	)	(8	)
Other	—		—		(1	)	(1	)
Effective tax rate	11	%	17	%	15	%	17	%

Con Edison’s income tax expense decreased to $127 million for the six months ended June 30, 2019 from $156 million for the six months ended June 30, 2018. The decrease in income tax expense is primarily due to lower income before income tax expense (excluding income attributable to noncontrolling interest (see Note N)), lower state income taxes, an increase in the amortization of excess deferred federal income taxes due to the TCJA and higher renewable energy credits.

CECONY’s income tax expense increased to $151 million for the six months ended June 30, 2019 from $150 million for the six months ended June 30, 2018. The increase in income tax expense is primarily due to higher income before income tax expense, offset in part by higher tax benefits in 2019 for plant-related flow through items, an increase in the amortization of excess deferred federal income taxes due to the TCJA, a decrease in non-deductible business expenses and an increase in research and development credits.

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, 2019 and 2018 is as follows:



	Con Edison				CECONY
(% of Pre-tax income)	2019		2018		2019		2018
STATUTORY TAX RATE
Federal	21	%	21	%	21	%	21	%
Changes in computed taxes resulting from:
State income tax	4		5		4		5
Cost of removal	1		1		1		1
Other plant-related items	(1	)	(1	)	(1	)	(1	)
Renewable energy credits	(2	)	(2	)	—		—
Amortization of excess deferred federal income taxes	(5	)	(4	)	(4	)	(4	)
Effective tax rate	18	%	20	%	21	%	22	%

CECONY and O&R deferred as regulatory liabilities their estimated net benefits under the TCJA for the six months ended June 30, 2018. CECONY's net benefits prior to January 1, 2019 for its electric service and amortization of excess deferred federal income taxes for its electric service for the six months ended June 30, 2019 continue to be deferred. 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.

Uncertain Tax Positions

At June 30, 2019, the estimated liability for uncertain tax positions for Con Edison was $8 million ($5 million for CECONY). Con Edison reasonably expects to resolve within the next twelve months approximately $3 million of various federal and state 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 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 $8 million ($7 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, 2019, the Companies recognized an immaterial amount of interest expense or penalties for uncertain tax positions in their consolidated income statements. At June 30, 2019 and December 31, 2018, the Companies recognized an immaterial amount of accrued interest on their consolidated balance sheets.