Income Tax

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Tax

Income Tax

In response to the economic impacts of the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law on March 27, 2020. The CARES Act provides relief to corporate taxpayers by permitting a five-year carryback of net operating losses (NOLs) for tax years 2018, 2019 and 2020, temporarily removing the 80 percent limitation when applying the NOLs to carryback years, increasing the 30 percent limitation on interest deductibility to 50 percent of adjusted taxable income for tax years 2019 and 2020, and provides for certain employee retention tax credits and refunds for eligible employers.

Under the CARES Act, Con Edison carried back its $29 million NOL from tax year 2018 to tax year 2013 generating a $2.5 million net tax refund for which a tax receivable was established in 2020. In addition, Con Edison recognized a discrete income tax benefit of $4 million in 2020, due to the higher federal statutory tax rate in 2013. The 2018 federal NOL was recorded at 21 percent and was carried back to tax year 2013, which had a 35 percent federal statutory tax rate. This income tax benefit was primarily recognized at the Clean Energy Businesses.

The components of income tax are as follows:

	Con Edison			CECONY
(Millions of Dollars)	2020	2019	2018	2020	2019	2018
State
Current	$7	$(12)	$(10)	$6	$22	$6
Deferred	50	96	107	97	68	82
Federal
Current	(2)	—	3	41	185	(34)
Deferred	42	219	310	73	63	275
Amortization of investment tax credits	(7)	(7)	(9)	(2)	(3)	(3)
Total income tax expense	$90	$296	$401	$215	$335	$326

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

	Con Edison		CECONY
(Millions of Dollars)	2020	2019	2020	2019
Deferred tax liabilities:
Property basis differences	$7,985	$7,699	$6,901	$6,640
Regulatory assets:
Unrecognized pension and other postretirement costs	910	712	861	674
Environmental remediation costs	243	205	222	181
Deferred storm costs	31	22	—	—
Other regulatory assets	536	376	508	355
Operating lease right-of-use asset	220	231	165	169
Equity investments	46	104	—	—
Total deferred tax liabilities	$9,971	$9,349	$8,657	$8,019
Deferred tax assets:
Accrued pension and other postretirement costs	$504	$291	$427	$222
Regulatory liabilities:
Future income tax	617	678	579	638
Other regulatory liabilities	656	702	570	622
Superfund and other environmental costs	241	206	219	183
Asset retirement obligations	178	135	143	102
Operating lease liabilities	211	231	165	170
Loss carryforwards	164	108	34	—
Tax credits carryforward	1,022	896	—	—
Valuation allowance	(22)	(31)	—	—
Other	59	47	127	103
Total deferred tax assets	3,630	3,263	2,264	2,040
Net deferred tax liabilities	$6,341	$6,086	$6,393	$5,979
Unamortized investment tax credits	134	141	18	21
Net deferred tax liabilities and unamortized investment tax credits	$6,475	$6,227	$6,411	$6,000

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)	2020		2019		2018		2020		2019		2018
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	4		4		4		5		5		5
Taxes attributable to noncontrolling interests	(1)		(1)		—		—		—		—
Cost of removal	2		1		1		1		1		1
Other plant-related items	(1)		(1)		(1)		(1)		(1)		(1)
TCJA deferred tax re-measurement	—		—		2		—		—		—
Amortization of excess deferred federal income taxes	(14)		(4)		(3)		(12)		(4)		(3)
Renewable energy credits	(3)		(2)		(1)		—		—		—
Research and development credits	—		(1)		—		—		(1)		(1)
Other	(1)		—		—		1		—		(1)
Effective tax rate	7	%	17	%	23	%	15	%	21	%	21	%

CECONY and O&R deferred as regulatory liabilities their estimated net benefits under the TCJA for the year ended December 31, 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 continued 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 be paid to the IRS under the TCJA. See “Other Regulatory Matters” in Note B.

At December 31, 2020, Con Edison has a federal NOL of approximately $21 million that can be carried forward indefinitely. Con Edison also has $1,022 million in general business tax credit carryovers (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 was provided, as it is more likely than not that the deferred tax asset will be realized.

At December 31, 2020, Con Edison has a New York State NOL of approximately $1,351 million, primarily as a result of higher accelerated state tax depreciation. A deferred tax asset has been recognized for these New York State NOL carryforwards that will begin to expire, if unused, in 2039 and no valuation allowance was provided; as it is more likely than not that the deferred tax asset will be realized. In addition, Con Edison reversed $9 million of the valuation allowance against the New York City NOL deferred tax asset that will be realized over the next 10 years. Con Edison also has a $18 million valuation allowance for other state NOL carryforwards; as it is not more likely than not that the deferred tax asset will be realized.

The Protecting Americans from Tax Hikes Act of 2015 extended bonus depreciation applying a 50 percent rate for property acquired and placed in service for years 2015 through 2017 with reduced rates of 40 percent and 30 percent for years 2018 and 2019, respectively. The TCJA does not allow bonus depreciation after December 31, 2017 (excluding certain transition rules) for Companies that qualify as a utility company for the consolidated group under the de minimis exception to Treasury regulations.

In December 2019, the Federal government issued final regulations providing guidance on provisions in the TCJA allowing for full expensing of qualified plant additions. These provisions, which Con Edison adopted under the proposed regulations of August 2018, allowed the Utilities a full expense tax deduction for plant additions in the fourth quarter of 2017, and the Utilities continue additional first year depreciation transition rules for plant additions placed in service in tax years beginning in 2018, under long-term construction contracts entered into before September 28, 2017. The impact on the Utilities of these regulations is discussed above.

In November 2018, the Federal government issued, and Con Edison adopted, proposed regulations providing guidance on the tax deductibility of interest expense under the TCJA. The TCJA generally provides for the continued deductibility of interest expense by regulated public utilities and may limit the deduction for interest expense by most non-utility businesses to 30 percent of adjusted taxable income (which resembles earnings before interest, taxes, depreciation and amortization).The regulations provide an annual safe harbor test that if at least 90 percent of consolidated plant assets consist of utility property, the entire consolidated group will be treated as a regulated public utility, and all of the consolidated group’s interest expense will be currently tax deductible. For 2018, Con Edison met the 90 percent safe harbor test and its deduction for interest expense was not limited. For 2019, Con Edison did not meet the 90 percent safe harbor test, however, its deduction for interest expense was not limited as a percentage of adjusted taxable income. In 2020, the federal government issued final regulations under the TCJA. Under the CARES Act, the limit of the deductible interest expense as a percentage of adjusted taxable income increased from 30 percent to 50 percent and accordingly, all of Con Edison’s interest expense in 2020 will be tax deductible. Qualifying consolidated groups would not be entitled to the full expensing provisions in the TCJA noted above. The safe harbor rules do not apply to partnerships in which Con Edison and its subsidiaries are a partner.

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)	2020	2019	2018	2020	2019	2018
Balance at January 1,	$13	$6	$12	$2	$4	$5
Additions based on tax positions related to the current year	—	1	2	—	1	2
Additions based on tax positions of prior years	1	10	1	1	—	1
Reductions for tax positions of prior years	—	(2)	(2)	—	(1)	(1)
Reductions from expiration of statute of limitations	—	—	(4)	—	—	—
Settlements	—	(2)	(3)	—	(2)	(3)
Balance at December 31,	$14	$13	$6	$3	$2	$4

At December 31, 2020, the estimated liability for uncertain tax positions for Con Edison was $14 million ($3 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 $1 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 $14 million ($13 million, net of federal taxes) with $3 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. For the year ended December 31, 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, 2020 and 2019, the Companies recognized an immaterial amount of accrued interest on their consolidated balance sheets.

Con Edison's federal tax return for 2019 remains under examination. State and local income tax returns remain open for examination in New York State for tax years 2010 through 2019, in New Jersey for tax years 2016 through 2019 and in New York City for tax years 2015 and 2019.