Regulatory Matters

6 Months Ended

Jun. 30, 2011

Regulatory Matters

Note B — Regulatory Matters

Reference is made to "Accounting Policies" in Note A and "Rate Agreements" in Note B to the financial statements included in Item 8 of the Form 10-K and Note B to the financial statements in Part I, Item 1 of the First Quarter Form 10-Q.

Rate Agreements

O&R — Electric

In June 2011, the NYSPSC adopted an order granting O&R an electric rate increase, effective July 1, 2011, of $26.6 million. The NYSPSC ruling reflects the following major items:

• a weighted average cost of capital of 7.22 percent, reflecting:

• a return on common equity of 9.2 percent, assuming achievement by the company of $825,000 of austerity measures;

• cost of long-term debt of 5.50 percent; and

• common equity ratio of 48 percent.

• continuation of a revenue decoupling mechanism;

• a provision for reconciliation of certain differences in actual average net utility plant to the amount reflected in rates ($718 million) and continuation of rate provisions under which pension and other post-retirement benefit expenses, environmental remediation expenses, tax-exempt debt costs and certain other expenses are reconciled to amounts for those expenses reflected in rates;

• continuation of the rate provisions pursuant to which the company recovers its purchased power costs from customers;

• discontinuation of the provisions under which property taxes were reconciled to amounts reflected in rates;

• discontinuation of the inclusion in rates of funding for the company's annual incentive plan for non-officer management employees;

• continuation of provisions for potential operations penalties of up to $3 million annually if certain customer service and system reliability performance targets are not met; and

• O&R is directed to produce a report detailing its implementation plans for the recommendations made in connection with the NYSPSC's management audit of CECONY, with a forecast of costs to achieve and expected savings. (See "Rate Agreements – Other Regulatory Matters" in Note B to the financial statements in Item 8 of the Form 10-K.)

On July 29, 2011, O&R filed a request with the NYSPSC for an increase in the rates it charges for electric service rendered in New York, effective July 1, 2012, of $17.7 million. The filing reflects a return on common equity of 10.75 percent and a common equity ratio of 49.4 percent. Among other things, the filing proposes continuation of the current provisions with respect to recovery from customers of the cost of purchased power and with respect to the deferral of differences between actual expenses allocable to the electric business for pensions and other postretirement benefits, environmental, and research and developmental costs to the amounts for such costs reflected in electric rates. The filing also includes an alternative proposal for a three-year electric rate plan with annual rate increases of $17.6 million effective July 2012, 2013 and 2014. The multi-year filing reflects a return on common equity of 11.25 percent.

Other Regulatory Matters

In February 2009, the NYSPSC commenced a proceeding to examine the prudence of certain CECONY expenditures (see "Investigations of Vendor Payments" in Note G). Pursuant to NYSPSC orders, a portion of the company's revenues (currently, $249 million, $32 million and $6 million on an annual basis for electric, gas and steam service, respectively) is being collected subject to potential refund to customers. At June 30, 2011, the company had collected an estimated $681 million from customers subject to potential refund in connection with this proceeding. In October 2010, a NYSPSC consultant reported its $21 million provisional assessment, which the company has disputed, of potential overcharges for construction work. The potential overcharges related to transactions that involved certain employees who were arrested and a contractor that performed work for the company. The NYSPSC's consultant is expected to continue to review the company's expenditures. At June 30, 2011, the company had a $10.5 million regulatory liability relating to this matter. The company is unable to estimate the amount, if any, by which any refund required by the NYSPSC may exceed this regulatory liability.

In February 2011, the NYSPSC initiated a proceeding to examine the existing mechanisms pursuant to which utilities recover site investigation and remediation costs and possible alternatives. See Note G to the financial statements in Item 8 of the Form 10-K and Note F to the Second Quarter Financial Statements.

Regulatory Assets and Liabilities

Regulatory assets and liabilities at June 30, 2011 and December 31, 2010 were comprised of the following items:

	Con Edison				CECONY
(Millions of Dollars)	2011		2010		2011		2010
Regulatory assets
Unrecognized pension and other postretirement costs	$	3,921	$	4,371	$	3,728	$	4,152
Future federal income tax		1,730		1,593		1,659		1,515
Environmental remediation costs		684		695		566		574
Pension and other post retirement benefits deferrals		183		138		140		90
Revenue taxes		155		145		150		140
Net electric deferrals		130		156		129		156
Surcharge for New York State Assessment		98		121		91		112
Deferred storm costs		53		57		41		43
O&R transition bond charges		47		48		—		—
Deferred derivative losses – long-term		44		74		28		48
Property tax reconciliation		31		34		19		27
Workers' compensation		28		31		28		31
World Trade Center restoration costs		13		45		13		45
Recoverable energy		—		42		—		42
Other		144		133		135		122
Regulatory assets – long-term		7,261		7,683		6,727		7,097
Deferred derivative losses – current		121		190		98		151
Recoverable energy costs – current		9		13		—		—
Regulatory assets – current		130		203		98		151
Total Regulatory Assets	$	7,391	$	7,886	$	6,825	$	7,248
Regulatory liabilities
Allowance for cost of removal less salvage	$	430	$	422	$	356	$	350
Revenue decoupling mechanism		81		38		81		38
World Trade Center settlement proceeds		62		—		62		—
Carrying charges on T&D net plant		40		28		11		5
Energy efficiency programs		28		19		27		18
New York State tax refund		20		30		20		30
Gain on sale of properties		15		31		15		31
Bonus depreciation		13		1		12		1
Expenditure prudence proceeding		11		—		11		—
Other		166		121		156		112
Regulatory liabilities		866		690		751		585
Net unbilled revenue deferrals – current		117		136		117		136
Refundable energy cost – current		75		117		50		90
Deferred derivative gains – current		6		4		4		3
Regulatory liabilities – current		198		257		171		229
Total Regulatory Liabilities	$	1,064	$	947	$	922	$	814

CECONY [Member]

Regulatory Matters

Note B — Regulatory Matters

Reference is made to "Accounting Policies" in Note A and "Rate Agreements" in Note B to the financial statements included in Item 8 of the Form 10-K and Note B to the financial statements in Part I, Item 1 of the First Quarter Form 10-Q.

Rate Agreements

O&R — Electric

In June 2011, the NYSPSC adopted an order granting O&R an electric rate increase, effective July 1, 2011, of $26.6 million. The NYSPSC ruling reflects the following major items:

• a weighted average cost of capital of 7.22 percent, reflecting:

• a return on common equity of 9.2 percent, assuming achievement by the company of $825,000 of austerity measures;

• cost of long-term debt of 5.50 percent; and

• common equity ratio of 48 percent.

• continuation of a revenue decoupling mechanism;

• a provision for reconciliation of certain differences in actual average net utility plant to the amount reflected in rates ($718 million) and continuation of rate provisions under which pension and other post-retirement benefit expenses, environmental remediation expenses, tax-exempt debt costs and certain other expenses are reconciled to amounts for those expenses reflected in rates;

• continuation of the rate provisions pursuant to which the company recovers its purchased power costs from customers;

• discontinuation of the provisions under which property taxes were reconciled to amounts reflected in rates;

• discontinuation of the inclusion in rates of funding for the company's annual incentive plan for non-officer management employees;

• continuation of provisions for potential operations penalties of up to $3 million annually if certain customer service and system reliability performance targets are not met; and

• O&R is directed to produce a report detailing its implementation plans for the recommendations made in connection with the NYSPSC's management audit of CECONY, with a forecast of costs to achieve and expected savings. (See "Rate Agreements – Other Regulatory Matters" in Note B to the financial statements in Item 8 of the Form 10-K.)

On July 29, 2011, O&R filed a request with the NYSPSC for an increase in the rates it charges for electric service rendered in New York, effective July 1, 2012, of $17.7 million. The filing reflects a return on common equity of 10.75 percent and a common equity ratio of 49.4 percent. Among other things, the filing proposes continuation of the current provisions with respect to recovery from customers of the cost of purchased power and with respect to the deferral of differences between actual expenses allocable to the electric business for pensions and other postretirement benefits, environmental, and research and developmental costs to the amounts for such costs reflected in electric rates. The filing also includes an alternative proposal for a three-year electric rate plan with annual rate increases of $17.6 million effective July 2012, 2013 and 2014. The multi-year filing reflects a return on common equity of 11.25 percent.

Other Regulatory Matters

In February 2009, the NYSPSC commenced a proceeding to examine the prudence of certain CECONY expenditures (see "Investigations of Vendor Payments" in Note G). Pursuant to NYSPSC orders, a portion of the company's revenues (currently, $249 million, $32 million and $6 million on an annual basis for electric, gas and steam service, respectively) is being collected subject to potential refund to customers. At June 30, 2011, the company had collected an estimated $681 million from customers subject to potential refund in connection with this proceeding. In October 2010, a NYSPSC consultant reported its $21 million provisional assessment, which the company has disputed, of potential overcharges for construction work. The potential overcharges related to transactions that involved certain employees who were arrested and a contractor that performed work for the company. The NYSPSC's consultant is expected to continue to review the company's expenditures. At June 30, 2011, the company had a $10.5 million regulatory liability relating to this matter. The company is unable to estimate the amount, if any, by which any refund required by the NYSPSC may exceed this regulatory liability.

In February 2011, the NYSPSC initiated a proceeding to examine the existing mechanisms pursuant to which utilities recover site investigation and remediation costs and possible alternatives. See Note G to the financial statements in Item 8 of the Form 10-K and Note F to the Second Quarter Financial Statements.

Regulatory Assets and Liabilities

Regulatory assets and liabilities at June 30, 2011 and December 31, 2010 were comprised of the following items:

	Con Edison				CECONY
(Millions of Dollars)	2011		2010		2011		2010
Regulatory assets
Unrecognized pension and other postretirement costs	$	3,921	$	4,371	$	3,728	$	4,152
Future federal income tax		1,730		1,593		1,659		1,515
Environmental remediation costs		684		695		566		574
Pension and other post retirement benefits deferrals		183		138		140		90
Revenue taxes		155		145		150		140
Net electric deferrals		130		156		129		156
Surcharge for New York State Assessment		98		121		91		112
Deferred storm costs		53		57		41		43
O&R transition bond charges		47		48		—		—
Deferred derivative losses – long-term		44		74		28		48
Property tax reconciliation		31		34		19		27
Workers' compensation		28		31		28		31
World Trade Center restoration costs		13		45		13		45
Recoverable energy		—		42		—		42
Other		144		133		135		122
Regulatory assets – long-term		7,261		7,683		6,727		7,097
Deferred derivative losses – current		121		190		98		151
Recoverable energy costs – current		9		13		—		—
Regulatory assets – current		130		203		98		151
Total Regulatory Assets	$	7,391	$	7,886	$	6,825	$	7,248
Regulatory liabilities
Allowance for cost of removal less salvage	$	430	$	422	$	356	$	350
Revenue decoupling mechanism		81		38		81		38
World Trade Center settlement proceeds		62		—		62		—
Carrying charges on T&D net plant		40		28		11		5
Energy efficiency programs		28		19		27		18
New York State tax refund		20		30		20		30
Gain on sale of properties		15		31		15		31
Bonus depreciation		13		1		12		1
Expenditure prudence proceeding		11		—		11		—
Other		166		121		156		112
Regulatory liabilities		866		690		751		585
Net unbilled revenue deferrals – current		117		136		117		136
Refundable energy cost – current		75		117		50		90
Deferred derivative gains – current		6		4		4		3
Regulatory liabilities – current		198		257		171		229
Total Regulatory Liabilities	$	1,064	$	947	$	922	$	814