Summary of Significant Accounting Policies and Other Matters

3 Months Ended

Mar. 31, 2021

Summary of Significant Accounting Policies and Other Matters

Accounting Policies

The accounting policies of Con Edison and its subsidiaries conform to generally accepted accounting principles in the United States of America (GAAP). For the Utilities, these accounting principles include the accounting rules for regulated operations and the accounting requirements of the Federal Energy Regulatory Commission (FERC) and the state regulators having jurisdiction.

General Utility Plant

General utility plant of Con Edison and CECONY included $84 million and $80 million, respectively, at March 31, 2021 and $86 million and $81 million, respectively, at December 31, 2020, related to a May 2018 acquisition of software licenses. The estimated aggregate annual amortization expense related to the software licenses for Con Edison and CECONY is $7 million. The accumulated amortization for Con Edison and CECONY was $19 million and $18 million at March 31, 2021, respectively, and $17 million at December 31, 2020.

Other Deferred Charges and Noncurrent Assets and Prepayments

Other deferred charges and noncurrent assets and prepayments of Con Edison, net of accumulated depreciation, included $57 million ($54 million for CECONY) and $14 million ($13 million for CECONY), respectively, at March 31, 2021 and $54 million ($51 million for CECONY) and $12 million ($11 million for CECONY), respectively, at December 31, 2020, related to implementation costs incurred in cloud computing arrangements. Depreciation on these assets is computed using the straight-line method for financial statement purposes over their estimated useful lives. Depreciation expense related to these assets incurred during the three months ended March 31, 2021 for Con Edison and CECONY was $3 million, and was not material during the three months ended March 31, 2020. Accumulated depreciation related to these assets for Con Edison and CECONY was $12 million and $11 million, respectively, at March 31, 2021 and $10 million and $8 million, respectively, at December 31, 2020.

Investments

Partial Impairment of Investment in Stagecoach Gas Services, LLC (Stagecoach)

Con Edison's investments consist primarily of the investments of Con Edison Transmission that are accounted for under the equity method and the fair value of the Utilities' supplemental retirement income plan and deferred income plan assets. Con Edison Transmission owns, through subsidiaries, a 50 percent interest in Stagecoach Gas Services, LLC (Stagecoach), a joint venture that owns and operates an existing gas pipeline and storage business located in northeastern Pennsylvania and the southern tier of New York. Con Edison is in the process of considering strategic alternatives regarding its 50 percent interest in Stagecoach. As a result of information made available to Stagecoach as part of that process, Stagecoach performed a goodwill impairment test that resulted in Stagecoach recording a goodwill impairment charge of $343 million at March 31, 2021. Accordingly, Con Edison recorded a pre-tax loss on its interest in Stagecoach of $172 million ($120 million after-tax) within "Investment income/(loss)" on Con Edison's consolidated income statement at March 31, 2021 that reduced the carrying value of its investment in Stagecoach from $839 million to $667 million.

Stagecoach’s goodwill impairment charge and information obtained from Con Edison's strategic evaluation process constituted a triggering event for Con Edison's investment in Stagecoach as of March 31, 2021. Con Edison evaluated the carrying value of its investment in Stagecoach of $667 million for an other-than-temporary decline in value using an income and market-based approach. Con Edison determined that the carrying value of its investment in Stagecoach of $667 million was not impaired as of March 31, 2021.

The accounting rules require Con Edison to evaluate its investments periodically to determine whether they are impaired. The standard for determining whether an impairment exists and must be recorded is whether an other than-temporary decline in carrying value has occurred. Changes in economic conditions, forecasted cash flows and the regulatory environment, among other factors, could require equity method investments to recognize a decrease in carrying value for an other-than-temporary decline. When management believes such a decline may have occurred, the fair value of the investment is estimated using market inputs, when observable, or a market valuation model such as a discounted cash flow analysis. The fair value is compared to the carrying value of the investment in order to determine the amount of impairment to record, if any.

The evaluation and measurement of impairments involve uncertainties. The judgments that Con Edison makes to estimate the fair value of its equity method investments are based on assumptions that management believes are reasonable, and variations in these estimates or the underlying assumptions, or the receipt of additional market information, could have a material impact on whether a triggering event is determined to exist or the amount of any such impairment. Additionally, if the projects in which Con Edison holds these investments recognize an impairment, Con Edison may record a share of that impairment loss and would evaluate its investment for an other-than-temporary decline in carrying value as described above.

There is risk that the fair value of Con Edison’s investment in Stagecoach may be further impaired as Con Edison continues its process of considering strategic alternatives regarding its 50 percent interest. As such strategic alternatives are evaluated, Con Edison may be required to determine whether an other-than-temporary decline in value has occurred for its Stagecoach investment.

Earnings Per Common Share

Con Edison presents basic and diluted earnings per share (EPS) on the face of its consolidated income statement. Basic EPS is calculated by dividing earnings available to common shareholders (“Net income for common stock” on Con Edison’s consolidated income statement) by the weighted average number of Con Edison common shares outstanding during the period. In the calculation of diluted EPS, weighted average shares outstanding is increased for additional shares that would be outstanding if potentially dilutive securities were converted to common stock.

Potentially dilutive securities for Con Edison consist of restricted stock units and deferred stock units for which the average market price of the common shares for the period was greater than the exercise price.

For the three months ended March 31, 2021 and 2020, basic and diluted EPS for Con Edison are calculated as follows:


	For the Three Months Ended March 31,
(Millions of Dollars, except per share amounts/Shares in Millions)	2021	2020
Net income for common stock	$419	$375
Weighted average common shares outstanding – basic	342.2	333.6
Add: Incremental shares attributable to effect of potentially dilutive securities	0.8	1.0
Adjusted weighted average common shares outstanding – diluted	343.0	334.6
Net Income per common share – basic	$1.23	$1.13
Net Income per common share – diluted	$1.22	$1.12

The computation of diluted EPS for the three months ended March 31, 2021 and 2020 excludes immaterial amounts of performance share awards that were not included because of their anti-dilutive effect.

Changes in Accumulated Other Comprehensive Income/(Loss) by Component

For the three months ended March 31, 2021 and 2020, changes to accumulated other comprehensive income/(loss) (OCI) for Con Edison and CECONY are as follows:


	For the Three Months Ended March 31,
	Con Edison		CECONY
(Millions of Dollars)	2021	2020	2021	2020
Beginning balance, accumulated OCI, net of taxes (a)	$(25)	$(19)	$(7)	$(6)
OCI before reclassifications, net of tax of $(1) for Con Edison in 2021 and 2020	2	4	—	—
Amounts reclassified from accumulated OCI related to pension plan liabilities, net of tax of $(1) for Con Edison in 2021 and 2020 (a)(b)	2	1	—	1
Current period OCI, net of taxes	4	5	—	1
Ending balance, accumulated OCI, net of taxes	$(21)	$(14)	$(7)	$(5)

(a) Tax reclassified from accumulated OCI is reported in the income tax expense line item of the consolidated income statement.

(b)For the portion of unrecognized pension and other postretirement benefit costs relating to the Utilities, costs are recorded into, and amortized out of, regulatory assets and liabilities instead of OCI. The net actuarial losses and prior service costs recognized during the period are included in the computation of total periodic pension and other postretirement benefit costs. See Notes E and F.

Reconciliation of Cash, Temporary Cash Investments and Restricted Cash

Cash, temporary cash investments and restricted cash are presented on a combined basis in the Companies’ consolidated statements of cash flows. At March 31, 2021 and 2020, cash, temporary cash investments and restricted cash for Con Edison and CECONY were as follows:


	At March 31,
	Con Edison		CECONY
(Millions of Dollars)	2021	2020	2021	2020
Cash and temporary cash investments	$76	$1,395	$30	$1,303
Restricted cash (a)	81	179	—	—
Total cash, temporary cash investments and restricted cash	$157	$1,574	$30	$1,303

(a)Restricted cash included cash of the Clean Energy Businesses' renewable electric production project subsidiaries ($81 million and $179 million at March 31, 2021 and 2020, respectively) that, under the related project debt agreements, either is restricted until the various maturity dates of the project debt to being used for normal operating expenses and capital expenditures, debt service, and required reserves or was restricted as a result of the PG&E bankruptcy. During the pendency of the PG&E bankruptcy, cash was not distributed from the related projects to the Clean Energy Businesses. In July 2020, PG&E’s plan of reorganization became effective. In July 2020, the Clean Energy Businesses received previously restricted distributions and have resumed receiving distributions for all projects.