Regulatory Matters

3 Months Ended

Mar. 31, 2024

Rate Plans

O&R New York – Electric

In April 2024, O&R filed an update to its January 2024 request to the NYSPSC for an electric rate increase effective January 1, 2025. The company decreased its requested January 2024 rate increase by $7.5 million to $10.7 million.

For purposes of illustration, the filing calculated rate increases of $34.8 million and $55 million effective January 2026 and 2027, respectively, based upon the proposed return on common equity of 10.25 percent and a common equity ratio of 50 percent.

O&R New York –Gas

In April 2024, O&R filed an update to its January 2024 request to the NYSPSC for a gas rate increase effective January 1, 2025. The company increased its requested January 2024 rate increase by $3.1 million to $17.5 million. For purposes of illustration, the filing calculated rate increases of $22.8 million and $19.2 million effective January 2026 and 2027, respectively, based upon the proposed return on common equity of 10.25 percent and a common equity ratio of 50 percent.

Bill Relief Program

In March 2024, CECONY and O&R received $91 million and $9 million, respectively, pursuant to a New York State bill relief program funded by the state that provided a one-time bill credit for electric and gas customers. The program was established to partially offset the costs all customers pay to fund utility energy affordability programs.

Other Regulatory Matters

In January 2023, CECONY initiated a review of welds on certain gas and steam mains following the company’s discovery of a leak from a gas main weld in Queens, New York. During the course of its review thus far, CECONY discovered a limited number of other non-conforming gas and steam main welds. New York regulations require utilities to perform and record weld films for certain gas and steam main welds. Upon reviewing these films, CECONY determined that in some instances third-party contractors engaged in misconduct by substituting duplicate weld films for different welds, while another third-party contractor had created poor quality weld films. CECONY voluntarily disclosed its initial review and findings to the NYSDPS which, in turn, initiated its own investigation. CECONY also reported the contractors’ misconduct to law enforcement. Given the nature of the non-conforming welds identified, CECONY does not anticipate significant impact to the operation of its gas and steam mains. CECONY continues to investigate this matter, is remediating and monitoring the known non-conforming welds and is cooperating with the NYSDPS on its investigation of this matter. CECONY is unable to estimate the amount or range of its possible loss, if any, related to this matter.

In October 2023, CECONY and O&R replaced their separate existing customer billing and information systems with a single new customer billing and information system. In April 2023, CECONY filed a petition with the NYSPSC for permission to capitalize incremental costs for the new system above a $421 million limit on capital investments included in CECONY’s 2020 – 2022 electric and gas rate plans. At March 31, 2024, CECONY's incurred costs for the new system were $509 million ($88 million above the $421 million limit in the rate plans). CECONY cannot predict the NYSPSC’s response to its April 2023 petition and the NYSPSC may prohibit CECONY from capitalizing some or all of the costs above the $421 million limit. O&R's electric and gas rate plans do not include a limit on capitalization of new system costs.

In January 2018, the NYSPSC issued an order initiating a focused operations audit of the Utilities’ financial accounting for income taxes. The audit is investigating the Utilities’ inadvertent understatement of a portion, the amount of which may be material, of their calculation of total federal income tax expense for ratemaking purposes. The understatement was related to the calculation of plant retirement-related cost of removal. As a result of such understatement, the Utilities accumulated significant income tax regulatory assets that were not reflected in O&R’s rate plans prior to 2014, CECONY’s electric and gas rate plans prior to 2015 and 2016, respectively, and CECONY's steam plans prior to November 2023. This understatement of historical income tax expense materially reduced the amount of revenue collected from the Utilities' customers in the past. As part of the audit, the Utilities plan to pursue a private letter ruling from the Internal Revenue Service (IRS) that is expected to confirm, among other things, that in order to comply with IRS normalization rules, such understatement may not be corrected through a write-down of a portion of the regulatory asset and must be corrected through an increase in future years’ revenue requirements. The regulatory asset ($1,094 million and $17 million for CECONY and O&R, respectively, as of March 31, 2024 and $1,113 million and $18 million for CECONY and O&R, respectively, as of December 31, 2023 and which is not earning a return) is netted against the future income tax regulatory liability on the Companies’ consolidated balance sheet. The Utilities are unable to estimate the amount or range of their possible loss, if any, related to this matter. At March 31, 2024, the Utilities had not accrued a liability related to this matter.

Regulatory Assets and Liabilities

Regulatory assets and liabilities at March 31, 2024 and December 31, 2023 were comprised of the following items:


	Con Edison		CECONY
(Millions of Dollars)	2024	2023	2024	2023
Regulatory assets
Environmental remediation costs	$1,098	$1,105	$1,015	$1,022
System peak reduction and energy efficiency programs	1,046	1,057	1,024	1,038
COVID - 19 pandemic deferrals	827	789	816	782
Revenue taxes	494	476	473	455
Legacy meters (a)	436	17	420	—
Deferred storm costs	190	206	100	115
Property tax reconciliation	146	169	146	169
Deferred derivative losses - long term	133	163	121	148
Electric vehicle make ready	85	73	79	68
Pension and other postretirement benefits deferrals	73	48	70	39
MTA power reliability deferral	54	61	54	61
Gas service line deferred costs	38	43	38	43
Unrecognized pension and other postretirement costs	4	—	3	—
Other	426	400	398	374
Regulatory assets – noncurrent	5,050	4,607	4,757	4,314
Deferred derivative losses - short term	202	269	191	253
Recoverable energy costs	8	12	—	1
Regulatory assets – current	210	281	191	254
Total Regulatory Assets	$5,260	$4,888	$4,948	$4,568
Regulatory liabilities
Future income tax*	1,469	1,535	1,339	1,404
Allowance for cost of removal less salvage	1,468	1,456	1,274	1,266
Unrecognized pension and other postretirement costs	798	943	750	867
Pension and other postretirement benefit deferrals	315	284	263	233
Net unbilled revenue deferrals	288	278	288	278
Late payment charge deferral	205	167	198	161
System benefit charge carrying charge	98	92	93	88
Deferred derivative gains - long term	48	49	47	49
Net proceeds from sale of property	42	48	41	47
Settlement of prudence proceeding	11	11	11	11
Other	432	465	383	414
Regulatory liabilities – noncurrent	5,174	5,328	4,687	4,818
Deferred derivative gains - short term	117	74	110	71
Refundable energy costs	140	71	100	36
Revenue decoupling mechanism	1	—	—	—
Regulatory liabilities – current	258	145	210	107
Total Regulatory Liabilities	$5,432	$5,473	$4,897	$4,925

* See "Other Regulatory Matters," above.

(a) Pursuant to their rate plans, CECONY and O&R are recovering the costs of legacy meters over a 15-year period beginning January 1, 2024 and a 12-year period beginning January 1, 2022, respectively.

In general, the Utilities receive or are being credited with a return at the Other Customer-Provided Capital rate for regulatory assets that have not been included in rate base, and receive or are being credited with a return at the pre-tax weighted average cost of capital once the asset is included in rate base. Similarly, the Utilities pay to or credit customers with a return at the Other Customer-Provided Capital rate for regulatory liabilities that have not been included in rate base, and pay to or credit customers with a return at the pre-tax weighted average cost of capital once the liability is included in rate base. The Other Customer-Provided Capital rate for the three months ended March 31, 2024 and 2023 was 5.95 percent and 5.20 percent, respectively.

In general, the Utilities are receiving or being credited with a return on their regulatory assets for which a cash outflow has been made ($2,949 million and $2,541 million for Con Edison, and $2,772 million and $2,359 million for CECONY at March 31, 2024 and December 31, 2023, respectively). Regulatory assets of RECO for which a cash outflow has been made ($22 million and $24 million at March 31, 2024 and December 31, 2023, respectively) are not receiving or being credited with a return. RECO recovers regulatory assets over a period of up to four years or

until they are addressed in its next base rate case in accordance with the rate provisions approved by the NJBPU. Regulatory liabilities are treated in a consistent manner.

Regulatory assets that represent future financial obligations and were deferred in accordance with the Utilities’ rate plans or orders issued by state regulators do not earn a return until such time as a cash outlay has been made. Regulatory liabilities are treated in a consistent manner. At March 31, 2024 and December 31, 2023, regulatory assets for Con Edison and CECONY that did not earn a return consisted of the following items:

Regulatory Assets Not Earning a Return*


	Con Edison		CECONY
(Millions of Dollars)	2024	2023	2024	2023
Environmental remediation costs	$1,098	$1,105	$1,015	$1,022
Revenue taxes	509	490	488	470
COVID-19 deferral for uncollectible accounts receivable	324	291	318	288
Deferred derivative losses - current	202	269	191	253
Deferred derivative losses - long term	133	163	121	148
Unrecognized pension and other postretirement costs	4	—	3	—
Other	41	29	40	28
Total	$2,311	$2,347	$2,176	$2,209

*This table presents regulatory assets not earning a return for which no cash outlay has been made.

The recovery periods for regulatory assets for which a cash outflow has not been made and that do not earn a return have not yet been determined, except as noted below, and are expected to be determined pursuant to the Utilities’ future rate plans to be filed or orders issued by the state regulators in connection therewith.

The Utilities recover unrecognized pension and other postretirement costs over 10 years, and the portion of investment gains or losses recognized in expense over 15 years, pursuant to NYSPSC policy.

The deferral for revenue taxes represents the New York State metropolitan transportation business tax surcharge on the cumulative temporary differences between the book and tax basis of assets and liabilities of the Utilities, as well as the difference between taxes collected and paid by the Utilities to fund mass transportation. The Utilities recover the majority of the revenue taxes over the remaining book lives of the electric and gas plant assets, as well as the steam plant assets for CECONY.

The Utilities recover deferred derivative losses – current within one year, and noncurrent generally within three years.