Variable Interest Entities

3 Months Ended

Mar. 31, 2021

Equity Method Investments and Joint Ventures [Abstract]

The accounting rules for consolidation address the consolidation of a variable interest entity (VIE) by a business enterprise that is the primary beneficiary. A VIE is an entity that does not have a sufficient equity investment at risk to permit it to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest. The primary beneficiary is the business enterprise that has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and either absorbs a significant amount of the VIE’s losses or has the right to receive benefits that could be significant to the VIE.

The Companies enter into arrangements including leases, partnerships and electricity purchase agreements, with various entities. As a result of these arrangements, the Companies retain or may retain a variable interest in these entities.

CECONY

CECONY has an ongoing long-term electricity purchase agreement with Brooklyn Navy Yard Cogeneration Partners, LP, a potential VIE. In 2020, a request was made of this counterparty for information necessary to determine whether the entity was a VIE and whether CECONY is the primary beneficiary; however, the information was not made available. The payments for this contract constitute CECONY’s maximum exposure to loss with respect to the potential VIE.

Clean Energy Businesses

In February 2021, a subsidiary of the Clean Energy Businesses entered into an agreement with a noncontrolling tax equity investor to which a percentage of earnings, tax attributes and cash flows will be allocated. The transaction relates to certain projects which are still under construction (Tax Equity Construction Projects). The Tax Equity Construction Projects are consolidated entities in which Con Edison has less than a 100 percent membership interest. Con Edison is the primary beneficiary since the power to direct the activities that most significantly impact the economics of the Tax Equity Construction Projects during construction, and upon commercial operation, is held by the Clean Energy Businesses. There were no earnings for the Tax Equity Construction Projects for the three months ended March 31, 2021. See Note C.

In December 2018, the Clean Energy Businesses completed its acquisition of Sempra Solar Holdings, LLC. Included in the acquisition were certain operating projects (Tax Equity Projects) with a noncontrolling tax equity investor to which a percentage of earnings, tax attributes and cash flows are allocated. The Tax Equity Projects are consolidated entities in which Con Edison has less than a 100 percent membership interest. Con Edison is the primary beneficiary since the power to direct the activities that most significantly impact the economics of the Tax Equity Projects is held by the Clean Energy Businesses. Electricity generated by the Tax Equity Projects is sold to utilities and municipalities pursuant to long-term power purchase agreements.

For the three months ended March 31, 2021, the hypothetical liquidation at book value (HLBV) method of accounting for the Tax Equity Projects resulted in $2 million of income ($1 million, after-tax) for the tax equity investor and $3 million of income ($2 million, after-tax) for Con Edison. For the three months ended March 31, 2020, the HLBV method of accounting for the Tax Equity Projects resulted in $17 million of income ($13 million, after-tax) for the tax equity investor and a $14 million loss ($10 million, after-tax) for Con Edison.

Con Edison has determined that the use of HLBV accounting is reasonable and appropriate to attribute income and loss to the tax equity investors. Using the HLBV method, the company's earnings from the projects are adjusted to reflect the income or loss allocable to the tax equity investors calculated based on how the project would allocate and distribute its cash if it were to sell all of its assets for their carrying amounts and liquidate at a particular point in time. Under the HLBV method, the company calculates the liquidation value allocable to the tax equity investors at the beginning and end of each period based on the contractual liquidation waterfall and adjusts its income for the period to reflect the change in the liquidation value allocable to the tax equity investors.

At March 31, 2021 and December 31, 2020, Con Edison’s consolidated balance sheet included the following amounts associated with its VIEs:


	Tax Equity Projects				Tax Equity Construction Projects
	Great Valley Solar (c)(d)		Copper Mountain - Mesquite Solar (c)(e)		CED Nevada Virginia (c)(h)
(Millions of Dollars)	2021	2020	2021	2020	2021
Non-utility property, less accumulated depreciation (f)(g)	$282	$284	$442	$446	$583
Other assets	40	39	174	176	45
Total assets (a)	$322	$323	$616	$622	$628
Term Loan	—	—	—	—	466
Other liabilities	13	13	73	71	81
Total liabilities (b)	$13	$13	$73	$71	$547

(a)The assets of the Tax Equity Projects and Tax Equity Construction Projects represent assets of a consolidated VIE that can be used only to settle obligations of the consolidated VIE.

(b)The liabilities of the Tax Equity Projects and Tax Equity Construction Projects represent liabilities of a consolidated VIE for which creditors do not have recourse to the general credit of the primary beneficiary.

(c)Con Edison did not provide any financial or other support during the year that was not previously contractually required.

(d)Great Valley Solar consists of the Great Valley Solar 1, Great Valley Solar 2, Great Valley Solar 3 and Great Valley Solar 4 projects, for which the noncontrolling interest of the tax equity investor was $85 million and $82 million at March 31, 2021 and December 31, 2020, respectively.

(e)Copper Mountain - Mesquite Solar consists of the Copper Mountain Solar 4, Mesquite Solar 2 and Mesquite Solar 3 projects for which the noncontrolling interest of the tax equity investor was $130 million and $134 million at March 31, 2021 and December 31, 2020, respectively.

(f)Non-utility property is reduced by accumulated depreciation of $20 million for Great Valley Solar and $33 million for Copper Mountain - Mesquite Solar at March 31, 2021.

(g)Non-utility property is reduced by accumulated depreciation of $18 million for Great Valley Solar and $30 million for Copper Mountain - Mesquite Solar at December 31, 2020.

(h)CED Nevada Virginia consists of the Copper Mountain Solar 5, Battle Mountain Solar and Water Strider projects for which the noncontrolling interest of the tax equity investor was $33 million at March 31, 2021.