Note E — Pension Benefits

Con Edison maintains a tax-qualified, non-contributory pension plan that covers substantially all employees of CECONY and O&R and certain employees of Con Edison's competitive energy businesses. The plan is designed to comply with the Internal Revenue Code and the Employee Retirement Income Security Act of 1974. In addition, Con Edison maintains additional non-qualified supplemental pension plans.

Net Periodic Benefit Cost

The components of the Companies' net periodic benefit costs for 2011, 2010, and 2009 were as follows:


	Con Edison									CECONY
*(millions of dollars)*	2011			2010			2009			2011			2010			2009
Service cost – including administrative expenses	$	190		$	168		$	159		$	177		$	157		$	149
Interest cost on projected benefit obligation		560			556			525			524			521			492
Expected return on plan assets		(734	)		(704	)		(691	)		(698	)		(670	)		(659	)
Amortization of net actuarial loss		530			425			299			501			401			271
Amortization of prior service costs		8			8			8			6			6			7
NET PERIODIC BENEFIT COST	$	554		$	453		$	300		$	510		$	415		$	260
Amortization of regulatory asset*		2			2			3			2			2			3
TOTAL PERIODIC BENEFIT COST	$	556		$	455		$	303		$	512		$	417		$	263
Cost capitalized		(185	)		(157	)		(109	)		(172	)		(146	)		(98	)
Cost deferred		(65	)		(115	)		(38	)		(68	)		(113	)		(32	)
Cost charged to operating expenses	$	306		$	183		$	156		$	272		$	158		$	133

*	Relates to an increase in CECONY's pension obligation of $45 million from a 1999 special retirement program.

Funded Status

The funded status at December 31, 2011, 2010, and 2009 was as follows:


	Con Edison									CECONY
*(millions of dollars)*	2011			2010			2009			2011			2010			2009
CHANGE IN PROJECTED BENEFIT OBLIGATION
Projected benefit obligation at beginning of year	$	10,307		$	9,408		$	9,383		$	9,653		$	8,803		$	8,793
Service cost – excluding administrative expenses		186			160			158			174			149			147
Interest cost on projected benefit obligation		560			556			525			524			521			492
Plan amendments		—			6			5			—			—			—
Net actuarial (gain)/loss		1,251			636			(215	)		1,166			607			(216	)
Benefits paid		(479	)		(459	)		(448	)		(445	)		(427	)		(413	)
PROJECTED BENEFIT OBLIGATION AT END OF YEAR	$	11,825		$	10,307		$	9,408		$	11,072		$	9,653		$	8,803
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year	$	7,721		$	6,877		$	5,836		$	7,340		$	6,544		$	5,562
Actual return on plan assets		37			888			1,220			33			846			1,166
Employer contributions		542			443			291			498			404			249
Benefits paid		(479	)		(459	)		(448	)		(445	)		(427	)		(413	)
Administrative expenses		(21	)		(28	)		(22	)		(20	)		(27	)		(20	)
FAIR VALUE OF PLAN ASSETS AT END OF YEAR	$	7,800		$	7,721		$	6,877		$	7,406		$	7,340		$	6,544
FUNDED STATUS	$	(4,025	)	$	(2,586	)	$	(2,531	)	$	(3,666	)	$	(2,313	)	$	(2,259	)
Unrecognized net loss		5,351			3,915			3,868			5,063			3,716			3,666
Unrecognized prior service costs		30			38			40			16			22			28
Accumulated benefit obligation		10,595			9,319			8,598			9,876			8,694			8,015

The increase in the pension plan's projected benefit obligation was a primary driver in the increased pension liability at Con Edison and CECONY of $1,439 million and $1,353 million, respectively, compared with December 31, 2010. For Con Edison, this increase in pension liability resulted in an increase to regulatory assets of $1,402 million for unrecognized net losses and unrecognized prior service costs associated with the Utilities consistent with the accounting rules for regulated operations and a debit to OCI of $15 million (net of taxes) for the unrecognized net losses and unrecognized prior service costs associated with the competitive energy businesses and O&R's New Jersey and Pennsylvania utility subsidiaries.

For CECONY, the increase in pension liability resulted in an increase to regulatory assets of $1,338 million for unrecognized net losses and unrecognized prior service costs consistent with the accounting rules for regulated operations associated with the Utilities and a debit to OCI of $2 million for unrecognized net losses and unrecognized prior service costs associated with the competitive energy businesses.

A portion of the estimated net loss and prior service cost for the pension plan, equal to $703 million and $8 million, respectively, will be amortized from accumulated OCI and the regulatory asset into net periodic benefit cost over the next year for Con Edison. Included in these amounts are $665 million and $6 million, respectively, for CECONY.

At December 31, 2011 and 2010, Con Edison's investments include $129 million and $119 million, respectively, held in external trust accounts for benefit payments pursuant to the supplemental retirement plans. Included in these amounts for CECONY were $120 million and $109 million, respectively. See Note P. The accumulated benefit obligations for the supplemental retirement plans for Con Edison and CECONY were $208 million and $171 million as of December 31, 2011 and $192 million and $158 million as of December 31, 2010, respectively.

Assumptions

The actuarial assumptions were as follows:


	2011			2010			2009
Weighted-average assumptions used to determine benefit obligations at December 31:
Discount rate		4.70	%		5.60	%		6.05	%
Rate of compensation increase
– CECONY		4.35	%		4.35	%		4.00	%
– O&R		4.25	%		4.25	%		4.00	%
Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31:
Discount rate		5.60	%		6.05	%		5.75	%
Expected return on plan assets		8.50	%		8.50	%		8.50	%
Rate of compensation increase
– CECONY		4.35	%		4.00	%		4.00	%
– O&R		4.25	%		4.00	%		4.00	%

The expected return assumption reflects anticipated returns on the plan's current and future assets. The Companies' expected return was based on an evaluation of the current environment, market and economic outlook, relationships between the economy and asset class performance patterns, and recent and long-term trends in asset class performance. The projections were based on the plan's target asset allocation.

Discount Rate Assumption

To determine the assumed discount rate, the Companies use a model that produces a yield curve based on yields on selected highly rated (Aaa or Aa, by Moody's Investors Service) corporate bonds. Bonds with insufficient liquidity, bonds with questionable pricing information and bonds that are not representative of the overall market are excluded from consideration. For example, the bonds used in the model cannot be callable, they must have a price between 50 and 200, the yield must lie between 1 percent and 20 percent, and the amount of the issue must be in excess of $100 million. The spot rates defined by the yield curve and the plan's projected benefit payments are used to develop a weighted average discount rate.

Expected Benefit Payments

Based on current assumptions, the Companies expect to make the following benefit payments over the next ten years:


*(millions of dollars)*	2012		2013		2014		2015		2016		2017-2021
Con Edison	$	525	$	552	$	579	$	604	$	629	$	3,487
CECONY		489		515		539		563		586		3,253

Expected Contributions

Based on estimates as of December 31, 2011, the Companies expect to make contributions to the pension plan during 2012 of $759 million (of which $707 million is to be contributed by CECONY). The Companies' policy is to fund their accounting cost to the extent tax deductible.

Plan Assets

The asset allocations for the pension plan at the end of 2011, 2010, and 2009, and the target allocation for 2012 are as follows:


	Target Allocation Range		Plan Assets at December 31
Asset Category	2012		2011		2010		2009
Equity Securities		55% - 65%		61%		67%		67%
Debt Securities		27% - 33%		32%		28%		28%
Real Estate		8% - 12%		7%		5%		5%
Total		100%		100%		100%		100%

Con Edison has established a pension trust for the investment of assets to be used for the exclusive purpose of providing retirement benefits to participants and beneficiaries and payment of plan expenses.

Pursuant to resolutions adopted by Con Edison's Board of Directors, the Management Development and Compensation Committee of the Board of Directors (the Committee) has general oversight responsibility for Con Edison's pension and other employee benefit plans. The pension plan's named fiduciaries have been granted the authority to control and manage the operation and administration of the plans, including overall responsibility for the investment of assets in the trust and the power to appoint and terminate investment managers.

The investment objectives of the Con Edison pension plan are to maintain a level and form of assets adequate to meet benefit obligations to participants, to achieve the expected long-term total return on the trust assets within a prudent level of risk and maintain a level of volatility that is not expected to have a material impact on the Company's expected contribution and expense or the Company's ability to meet plan obligations. The assets of the plan have no significant concentration of risk in one country (other than the United States), industry or entity.

The strategic asset allocation is intended to meet the objectives of the pension plan by diversifying its funds across asset classes, investment styles and fund managers. An asset/liability study typically is conducted every few years to determine whether the current strategic asset allocation continues to represent the appropriate balance of expected risk and reward for the plan to meet expected liabilities. Each study considers the investment risk of the asset allocation and determines the optimal asset allocation for the plan. The target asset allocation for 2012 reflects the results of such a study conducted in 2011.

Individual fund managers operate under written guidelines provided by Con Edison, which cover such areas as investment objectives, performance measurement, permissible investments, investment restrictions, trading and execution, and communication and reporting requirements. Con Edison management regularly monitors, and the named fiduciaries review and report to the Committee regarding, asset class performance, total fund performance, and compliance with asset allocation guidelines. Management changes fund managers and rebalances the portfolio as appropriate. At the direction of the named fiduciaries, such changes are reported to the Committee.

Assets measured at fair value on a recurring basis are summarized below under a three-level hierarchy established by the accounting rules which define the levels within the hierarchy as follows:

•

Level 1 – Consists of fair value measurements whose value is based on quoted prices in active markets for identical assets or liabilities.

•

Level 2 – Consists of fair value measurements whose value is based on significant other observable inputs.

•

Level 3 – Consists of fair value measurements whose value is based on significant unobservable inputs.

The fair values of the pension plan assets at December 31, 2011 by asset category are as follows:


*(millions of dollars)*	Level 1			Level 2			Level 3			Total
U.S. Equity(a)	$	2,506		$	—		$	—		$	2,506
International Equity (b)		1,904			637			—			2,541
U.S. Government Issues(c)		—			1,618			—			1,618
Corporate Bonds(d)		—			668			94			762
Structured Assets(e)		—			—			13			13
Other Fixed Income(f)		—			67			29			96
Real Estate(g)		—			—			572			572
Cash and Cash Equivalents(h)		13			395			—			408
Total investments	$	4,423		$	3,385		$	708		$	8,516
Funds for retiree health benefits(i)		(174	)		(134	)		(28	)		(336	)
Investments (excluding funds for retiree health benefits)	$	4,249		$	3,251		$	680		$	8,180
Pending activities(j)											(380	)
Total fair value of plan net assets										$	7,800

(a)	U.S. Equity includes both actively- and passively-managed assets with investments in domestic equity index funds and actively-managed small-capitalization equities.

(b)	International Equity includes international equity index funds and actively-managed international equities.

(c)	U.S. Government Issues include agency and treasury securities.

(d)	Corporate Bonds classified as Level 3 include 144A illiquid securities.

(e)	Structured Assets are measured using broker quotes and investment manager proprietary models and include commercial-mortgage-backed securities and collateralized mortgage obligations.

(f)	Other Fixed Income includes municipal bonds, sovereign debt and regional governments.

(g)	Real Estate investments include real estate funds based on appraised values that are broadly diversified by geography and property type.

(h)	Cash and Cash Equivalents include short term investments, money markets, foreign currency and cash collateral.

(i)

The Companies set aside funds for retiree health benefits through a separate account within the pension trust, as permitted under Section 401(h) of the Internal Revenue Code of 1986, as amended. In accordance with the Code, the plan's investments in the 401(h) account may not be used for, or diverted to, any purpose other than providing health benefits for retirees. The net assets held in the 401(h) account are calculated based on a pro-rata percentage allocation of the net assets in the pension plan. The related obligations for health benefits are not included in the pension plan's obligations and are included in the Companies' other postretirement benefit obligation. See Note F.

(j)	Pending activities include security purchases and sales that have not settled, interest and dividends that have not been received and reflects adjustments for available estimates at year end.

The table below provides a reconciliation of the beginning and ending net balances for assets at December 31, 2011 classified as Level 3 in the fair value hierarchy.


*(millions of dollars)*	Beginning Balance as of January 1, 2011			Assets Still Held at Reporting Date – Unrealized Gains/(Losses)			Assets Sold During the Period – Realized Gains		Purchases Sales and Settlements			Ending Balance as of December 31, 2011
Corporate Bonds	$	129		$	(9	)	$	11	$	(37	)	$	94
Structured Assets		87			(1	)		2		(75	)		13
Other Fixed Income		66			(1	)		3		(39	)		29
Real Estate		398			65			—		109			572
Total investments	$	680		$	54		$	16	$	(42	)	$	708
Funds for retiree health benefits		(30	)		3			1		(2	)		(28	)
Investments (excluding funds for retiree health benefits)	$	650		$	57		$	17	$	(44	)	$	680

The fair values of the pension plan assets at December 31, 2010 by asset category are as follows:


*(millions of dollars)*	Level 1			Level 2			Level 3			Total
U.S. Equity(a)	$	3,935		$	—		$	—		$	3,935
International Equity(b)		1,249			234			—			1,483
U.S. Government Issues(c)		—			1,300			—			1,300
Corporate Bonds(d)		—			571			129			700
Structured Assets(e)		—			—			87			87
Other Fixed Income(f)		—			31			66			97
Real Estate(g)		—			—			398			398
Cash and Cash Equivalents(h)		3			232			—			235
Total investments	$	5,187		$	2,368		$	680		$	8,235
Funds for retiree health benefits(i)		(226	)		(103	)		(30	)		(359	)
Investments (excluding funds for retiree health benefits)	$	4,961		$	2,265		$	650		$	7,876
Pending activities(j)											(155	)
Total fair value of plan net assets										$	7,721

(a)	U.S. Equity includes both actively- and passively-managed assets with investments in domestic equity index funds, actively-managed small-capitalization equities, rights and warrants.

(b)	International Equity includes international equity index funds, actively-managed international equities, rights and warrants.

(c)	U.S. Government Issues include agency and treasury securities.

(d)	Corporate Bonds held in institutional mutual funds which are measured at Net Asset Value (NAV) are classified as Level 3.

(e)	Structured Assets are measured using broker quotes and investment manager proprietary models and include commercial-mortgage-backed securities, collateralized mortgage obligations and asset-backed securities.

(f)	Other Fixed Income includes emerging market debt valued using broker quotes, municipal bonds, sovereign debt, regional governments and government agencies.

(g)	Real Estate investments include real estate funds based on appraised values that are broadly diversified by geography and property type.

(h)	Cash and Cash Equivalents include short term investments, money markets and foreign currency.

(i)

(j)	Pending activities include security purchases and sales that have not settled, interest and dividends that have not been received and reflects adjustments for available estimates at year end.

The table below provides a reconciliation of the beginning and ending net balances for assets at December 31, 2010 classified as Level 3 in the fair value hierarchy.


*(millions of dollars)*	Beginning Balance as of January 1, 2010			Assets Still Held at Reporting Date – Unrealized Gains/(Losses)			Assets Sold During the Period – Realized Gains/(Losses)			Purchases Sales and Settlements			Ending Balance as of December 31, 2010
U.S. Equity	$	—		$	—		$	—		$	—		$	—
International Equity		1			1			(1	)		(1	)		—
Corporate Bonds		143			(3	)		9			(20	)		129
Structured Assets		91			15			(6	)		(13	)		87
Other Fixed Income		46			—			2			18			66
Swaps		(3	)		2			(1	)		2			—
Real Estate		344			47			—			7			398
Total investments	$	622			62			3			(7	)	$	680
Funds for retiree health benefits		(28	)		(3	)		(2	)		3			(30	)
Investments (excluding funds for retiree health benefits)	$	594		$	59		$	1		$	(4	)	$	650

The Companies also offer a defined contribution savings plan that covers substantially all employees and made contributions to the plan as follows:


	For the Years Ended December 31
*(millions of dollars)*	2011		2010		2009
Con Edison	$	23	$	19	$	19
CECONY		21		17		17