Regulatory Matters

9 Months Ended

Sep. 30, 2011

Regulatory Matters

Note B — Regulatory Matters

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.

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 September 30, 2011, the company had collected an estimated $753 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 September 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 F to the Third Quarter Financial Statements.

Regulatory Assets and Liabilities

Regulatory assets and liabilities at September 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	$	3,769	$	4,371	$	3,584	$	4,152
Future federal income tax		1,763		1,593		1,688		1,515
Environmental remediation costs		681		695		563		574
Pension and other post retirement benefits deferrals		198		138		156		90
Revenue taxes		160		145		155		140
Surcharge for New York State assessment		150		121		138		112
Net electric deferrals		126		156		126		156
Deferred storm costs		81		57		61		43
O&R transition bond charges		45		48		—		—
Deferred derivative losses – long-term		34		74		21		48
Workers' compensation		25		31		24		31
Accrued unbilled revenues		22		—		22		—
Property tax reconciliation		12		34		—		27
World Trade Center restoration costs		9		45		9		45
Recoverable energy cost		2		42		2		42
Other		129		133		119		122
Regulatory assets – long-term		7,206		7,683		6,668		7,097
Deferred derivative losses – current		110		190		90		151
Recoverable energy costs – current		—		13		—		—
Regulatory assets – current		110		203		90		151
Total Regulatory Assets	$	7,316	$	7,886	$	6,758	$	7,248
Regulatory liabilities
Allowance for cost of removal less salvage	$	440	$	422	$	365	$	350
World Trade Center settlement proceeds		62		—		62		—
Carrying charges on transmission and distribution net plant		39		28		12		5
Bonus depreciation		24		1		23		1
Energy efficiency programs		23		12		21		11
Gas line losses		21		—		21		—
New York State tax refund		20		30		20		30
Gain on sale of properties		14		28		14		28
Expenditure prudence proceeding		11		—		11		—
Other		167		131		157		122
Regulatory liabilities – long-term		821		652		706		547
Net unbilled revenue deferrals – current		116		136		115		135
Revenue decoupling mechanism		99		38		99		38
Refundable energy cost – current		38		117		13		91
Deferred derivative gains – current		4		4		3		3
Regulatory liabilities – current		257		295		230		267
Total Regulatory Liabilities	$	1,078	$	947	$	936	$	814

CECONY [Member]

Regulatory Matters

Note B — Regulatory Matters

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.

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 September 30, 2011, the company had collected an estimated $753 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 September 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 F to the Third Quarter Financial Statements.

Regulatory Assets and Liabilities

Regulatory assets and liabilities at September 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	$	3,769	$	4,371	$	3,584	$	4,152
Future federal income tax		1,763		1,593		1,688		1,515
Environmental remediation costs		681		695		563		574
Pension and other post retirement benefits deferrals		198		138		156		90
Revenue taxes		160		145		155		140
Surcharge for New York State assessment		150		121		138		112
Net electric deferrals		126		156		126		156
Deferred storm costs		81		57		61		43
O&R transition bond charges		45		48		—		—
Deferred derivative losses – long-term		34		74		21		48
Workers' compensation		25		31		24		31
Accrued unbilled revenues		22		—		22		—
Property tax reconciliation		12		34		—		27
World Trade Center restoration costs		9		45		9		45
Recoverable energy cost		2		42		2		42
Other		129		133		119		122
Regulatory assets – long-term		7,206		7,683		6,668		7,097
Deferred derivative losses – current		110		190		90		151
Recoverable energy costs – current		—		13		—		—
Regulatory assets – current		110		203		90		151
Total Regulatory Assets	$	7,316	$	7,886	$	6,758	$	7,248
Regulatory liabilities
Allowance for cost of removal less salvage	$	440	$	422	$	365	$	350
World Trade Center settlement proceeds		62		—		62		—
Carrying charges on transmission and distribution net plant		39		28		12		5
Bonus depreciation		24		1		23		1
Energy efficiency programs		23		12		21		11
Gas line losses		21		—		21		—
New York State tax refund		20		30		20		30
Gain on sale of properties		14		28		14		28
Expenditure prudence proceeding		11		—		11		—
Other		167		131		157		122
Regulatory liabilities – long-term		821		652		706		547
Net unbilled revenue deferrals – current		116		136		115		135
Revenue decoupling mechanism		99		38		99		38
Refundable energy cost – current		38		117		13		91
Deferred derivative gains – current		4		4		3		3
Regulatory liabilities – current		257		295		230		267
Total Regulatory Liabilities	$	1,078	$	947	$	936	$	814