Stock-Based Compensation

12 Months Ended

Dec. 31, 2011

Stock-Based Compensation

Note M — Stock-Based Compensation

The Companies may compensate employees and directors with, among other things, stock options, restricted stock units and contributions to a discount stock purchase plan. The Stock Option Plan provided for awards of stock options to officers and employees for up to 10 million shares of Con Edison common stock. The Long Term Incentive Plan (LTIP), among other things, provides for awards of restricted stock units, stock options and, to Con Edison's non-officer directors, deferred stock units for up to 10 million shares of common stock (of which not more than four million shares may be restricted stock or stock units).

Shares of Con Edison common stock used to satisfy the Companies' obligations with respect to stock-based compensation may be new (authorized, but unissued) shares, treasury shares or shares purchased in the open market. The shares used during the period ended December 31, 2011 were treasury shares and new shares. The shares used during the period ended December 31, 2010 were new shares.

Under the accounting rules for stock compensation, the Companies have recognized the cost of stock-based compensation as an expense using a fair value measurement method. The following table summarizes stock-based compensation expense recognized by the Companies in the period ended December 31, 2011, 2010, and 2009:

	Con Edison						CECONY
(millions of dollars)	2011		2010		2009		2011		2010		2009
Restricted stock units	$	3	$	1	$	1	$	3	$	1	$	1
Performance-based restricted stock		48		27		20		44		25		19
Non-officer director deferred stock compensation		1		1		1		1		1		1
Total	$	52	$	29	$	22	$	48	$	27	$	21
Income Tax Benefit	$	21	$	12	$	9	$	20	$	11	$	9

Stock Options

The Companies last issued stock options in 2006. The stock options generally vested over a three-year period and have a term of ten years. Options were granted at an exercise price equal to the fair market value of a common share when the option was granted. The Companies generally recognized compensation expense (based on the fair value of stock option awards) over the continuous service period in which the options vested. Awards to employees eligible for retirement were expensed in the month awarded.

The outstanding options are "equity awards" because shares of Con Edison common stock are delivered upon exercise of the options. As equity awards, the fair value of the options is measured at the grant date. There were no options granted in 2011 and 2010.

A summary of changes in the status of stock options awarded as of December 31, 2011 is as follows:

	Con Edison					CECONY
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding at 12/31/10		2,935,250		$	43.588		2,406,700		$	43.652
Exercised		(1,999,975	)		43.844		(1,656,575	)		43.924
Forfeited		(8,250	)		42.253		(9,250	)		41.766
Outstanding at 12/31/11		927,025		$	43.046		740,875		$	43.066

The changes in the fair value of all outstanding options from their grant dates to December 31, 2011 and 2010 (aggregate intrinsic value) for Con Edison were $18 million. The changes in the fair value of all outstanding options from their grant dates to December 31, 2011 and 2010 (aggregate intrinsic value) for CECONY were $14 million. The aggregate intrinsic value of options exercised in 2011 and 2010 were $21 million and $15 million, respectively, and the cash received by Con Edison for payment of the exercise price was $88 million and $100 million, respectively. The weighted average remaining contractual life of options outstanding is three years as of December 31, 2011.

The following table summarizes stock options outstanding at December 31, 2011 for each plan year for the Companies:

	Con Edison						CECONY
Plan Year	Remaining Contractual Life		Options Outstanding/ Exercisable		Weighted Average Exercise Price		Options Outstanding/ Exercisable		Weighted Average Exercise Price
2006		4		323,950	$	44.178		266,250	$	44.211
2005		3		239,975		42.328		195,975		42.361
2004		2		216,600		44.018		161,650		44.029
2003		1		82,450		38.555		65,450		38.577
2002		1		64,050		42.510		51,550		42.510
Total				927,025	$	43.046		740,875	$	43.066

The income tax benefit Con Edison realized from stock options exercised in the period ended December 31, 2011 and 2010 was $2 million and $6 million, respectively. The income tax benefit Con Edison realized from stock options exercised in the period end December 31, 2009 was immaterial.

Restricted Stock Units

Restricted stock unit awards under the LTIP have been made as follows: (i) to officers and certain employees, including awards that provide for adjustment of the number of units (performance-restricted stock units or Performance RSUs); and (ii) in connection with the directors' deferred compensation plan. Each restricted stock unit awarded represents the right to receive, upon vesting, one share of Con Edison common stock, or, except for units awarded under the directors' plan, the cash value of a share or a combination thereof.

In accordance with the accounting rules for stock compensation, for outstanding restricted stock awards other than Performance RSUs or awards under the directors' deferred compensation plan, the Companies have accrued a liability based on the market value of a common share on the grant date and are recognizing compensation expense over the vesting period. The vesting period for awards is three years and is based on the employee's continuous service to Con Edison. Prior to vesting, the awards are subject to forfeiture in whole or in part under certain circumstances. The awards are "liability awards" because each restricted stock unit represents the right to receive, upon vesting, one share of Con Edison common stock, the cash value of a share or a combination thereof. As such, prior to vesting, changes in the fair value of the units are reflected in net income. A summary of changes in the status of restricted stock (other than Performance RSUs or awards under the directors' deferred compensation plan) during the period ended December 31, 2011 is as follows:

	Con Edison					CECONY
	Units			Weighted Average Grant Date Fair Value		Units			Weighted Average Grant Date Fair Value
Non-vested at 12/31/10		66,359		$	41.334		62,959		$	41.332
Granted		22,620			50.720		21,420			50.720
Vested		(21,403	)		39.705		(20,353	)		39.706
Forfeited		(2,156	)		43.276		(2,106	)		43.246
Non-vested at 12/31/11		65,420		$	45.049		61,920		$	45.049

The total expense to be recognized by the Companies in future periods for unvested awards outstanding as of December 31, 2011 for Con Edison and CECONY was $2 million and is expected to be recognized over a weighted average period of one year.

The number of units in each annual Performance RSU award is subject to adjustment as follows: (i) 50 percent of the units awarded will be multiplied by a factor that may range from 0 to 150 percent based on Con Edison's total shareholder return relative to a specified peer group during a specified performance period (the TSR portion); and (ii) 50 percent of the units awarded will be multiplied by a factor that may range from 0 to 200 percent based on determinations made in connection with CECONY's Executive Incentive Plan, or, for certain officers, the O&R Annual Team Incentive Plan or goals relating to Con Edison's competitive energy businesses (the EIP portion). Units generally vest when the performance period ends.

For the TSR portion of Performance RSU, the Companies use a Monte Carlo simulation model to estimate the fair value of the awards. The fair value is recomputed each reporting period as of the earlier of the reporting date and the vesting date. For the EIP portion of Performance RSU, the fair value of the awards is determined using the market price as of the earlier of the reporting date or the vesting date multiplied by the average EIP determination over the vesting period. Performance RSU awards are "liability awards" because each Performance RSU represents the right to receive, upon vesting, one share of Con Edison common stock, the cash value of a share or a combination thereof. As such, changes in the fair value of the Performance RSUs are reflected in net income. The following table illustrates the assumptions used to calculate the fair value of the awards:

	2011
Risk-free interest rate		0.12% – 3.73	%
Expected term		3 years
Expected volatility		16.37%

The risk-free rate is based on the U.S. Treasury zero-coupon yield curve on the date of grant. The expected term of the Performance RSUs is three years, which equals the vesting period. The Companies do not expect significant forfeitures to occur. The expected volatility is calculated using daily closing stock prices over a period of three years, which approximates the expected term of the awards.

A summary of changes in the status of the Performance RSUs TSR portion during the period ended December 31, 2011 is as follows:

	Con Edison					CECONY
	Units			Weighted Average Grant Date Fair Value*		Units			Weighted Average Grant Date Fair Value*
Non-vested at 12/31/10		494,188		$	37.844		407,861		$	37.755
Granted		217,735			43.847		177,077			43.923
Vested		(210,763	)		33.256		(174,712	)		33.070
Forfeited		(26,643	)		40.083		(22,847	)		40.205
Non-vested at 12/31/11		474,517		$	42.511		387,379		$	42.542

* Fair value is determined using the Monte Carlo simulation described above. Weighted average grant date fair value does not reflect any accrual or payment of dividends prior to vesting.

A summary of changes in the status of the Performance RSUs' EIP portion during the period ended December 31, 2011 is as follows:

	Con Edison					CECONY
	Units			Weighted Average Grant Date Fair Value*		Units			Weighted Average Grant Date Fair Value*
Non-vested at 12/31/10		494,188		$	42.591		407,861		$	42.525
Granted		217,735			50.053		177,077			50.073
Vested		(210,763	)		40.926		(174,712	)		40.894
Forfeited		(26,643	)		44.288		(22,847	)		44.415
Non-vested at 12/31/11		474,517		$	46.660		387,379		$	46.599

* Fair value is determined using the market price of one share of Con Edison common stock on the grant date. The market price has not been discounted to reflect that dividends do not accrue and are not payable on Performance RSUs until vesting.

The total expense to be recognized by Con Edison in future periods for unvested Performance RSUs outstanding as of December 31, 2011 is $37 million, including $30 million for CECONY and is expected to be recognized over a weighted average period of two years for both Con Edison and CECONY.

Con Edison has a deferred stock compensation plan for non-officer directors. Awards under the deferred compensation stock plan are covered by the LTIP. Each director received 1,687 stock units in 2011 for service as a director. These stock units are deferred until the director's termination of service. Directors may elect to receive dividend equivalents earned on stock units in cash payments. Restricted stock units issued under the directors' deferred compensation plan are considered "equity awards," because they may only be settled in shares. Directors immediately vest in units issued to them. The fair value of the units is determined using the closing price of Con Edison's common stock on the business day immediately preceding the date of issue. In the period ended December 31, 2011, approximately 28,497 units were issued at a weighted average grant date price of $54.06.

Stock Purchase Plan

The Stock Purchase Plan provides for the Companies to contribute up to $1 for each $9 invested by their directors, officers or employees to purchase Con Edison common stock under the plan. Eligible participants may invest up to $25,000 during any calendar year (subject to an additional limitation for officers and employees of not more than 20% of their pay). Dividends paid on shares held under the plan are reinvested in additional shares unless otherwise directed by the participant.

Participants in the plan immediately vest in shares purchased by them under the plan. The fair value of the shares of Con Edison common stock purchased under the plan was calculated using the average of the high and low composite sale prices at which shares were traded at the New York Stock Exchange on the trading day immediately preceding such purchase dates. During 2011, 2010, and 2009, 721,520, 738,951, and 868,622 shares were purchased under the Stock Purchase Plan at a weighted average price of $52.50, $45.52, and $38.15 per share, respectively.

CECONY [Member]

Stock-Based Compensation

Note M — Stock-Based Compensation

The Companies may compensate employees and directors with, among other things, stock options, restricted stock units and contributions to a discount stock purchase plan. The Stock Option Plan provided for awards of stock options to officers and employees for up to 10 million shares of Con Edison common stock. The Long Term Incentive Plan (LTIP), among other things, provides for awards of restricted stock units, stock options and, to Con Edison's non-officer directors, deferred stock units for up to 10 million shares of common stock (of which not more than four million shares may be restricted stock or stock units).

Shares of Con Edison common stock used to satisfy the Companies' obligations with respect to stock-based compensation may be new (authorized, but unissued) shares, treasury shares or shares purchased in the open market. The shares used during the period ended December 31, 2011 were treasury shares and new shares. The shares used during the period ended December 31, 2010 were new shares.

Under the accounting rules for stock compensation, the Companies have recognized the cost of stock-based compensation as an expense using a fair value measurement method. The following table summarizes stock-based compensation expense recognized by the Companies in the period ended December 31, 2011, 2010, and 2009:

	Con Edison						CECONY
(millions of dollars)	2011		2010		2009		2011		2010		2009
Restricted stock units	$	3	$	1	$	1	$	3	$	1	$	1
Performance-based restricted stock		48		27		20		44		25		19
Non-officer director deferred stock compensation		1		1		1		1		1		1
Total	$	52	$	29	$	22	$	48	$	27	$	21
Income Tax Benefit	$	21	$	12	$	9	$	20	$	11	$	9

Stock Options

The Companies last issued stock options in 2006. The stock options generally vested over a three-year period and have a term of ten years. Options were granted at an exercise price equal to the fair market value of a common share when the option was granted. The Companies generally recognized compensation expense (based on the fair value of stock option awards) over the continuous service period in which the options vested. Awards to employees eligible for retirement were expensed in the month awarded.

The outstanding options are "equity awards" because shares of Con Edison common stock are delivered upon exercise of the options. As equity awards, the fair value of the options is measured at the grant date. There were no options granted in 2011 and 2010.

A summary of changes in the status of stock options awarded as of December 31, 2011 is as follows:

	Con Edison					CECONY
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding at 12/31/10		2,935,250		$	43.588		2,406,700		$	43.652
Exercised		(1,999,975	)		43.844		(1,656,575	)		43.924
Forfeited		(8,250	)		42.253		(9,250	)		41.766
Outstanding at 12/31/11		927,025		$	43.046		740,875		$	43.066

The changes in the fair value of all outstanding options from their grant dates to December 31, 2011 and 2010 (aggregate intrinsic value) for Con Edison were $18 million. The changes in the fair value of all outstanding options from their grant dates to December 31, 2011 and 2010 (aggregate intrinsic value) for CECONY were $14 million. The aggregate intrinsic value of options exercised in 2011 and 2010 were $21 million and $15 million, respectively, and the cash received by Con Edison for payment of the exercise price was $88 million and $100 million, respectively. The weighted average remaining contractual life of options outstanding is three years as of December 31, 2011.

The following table summarizes stock options outstanding at December 31, 2011 for each plan year for the Companies:

	Con Edison						CECONY
Plan Year	Remaining Contractual Life		Options Outstanding/ Exercisable		Weighted Average Exercise Price		Options Outstanding/ Exercisable		Weighted Average Exercise Price
2006		4		323,950	$	44.178		266,250	$	44.211
2005		3		239,975		42.328		195,975		42.361
2004		2		216,600		44.018		161,650		44.029
2003		1		82,450		38.555		65,450		38.577
2002		1		64,050		42.510		51,550		42.510
Total				927,025	$	43.046		740,875	$	43.066

The income tax benefit Con Edison realized from stock options exercised in the period ended December 31, 2011 and 2010 was $2 million and $6 million, respectively. The income tax benefit Con Edison realized from stock options exercised in the period end December 31, 2009 was immaterial.

Restricted Stock Units

Restricted stock unit awards under the LTIP have been made as follows: (i) to officers and certain employees, including awards that provide for adjustment of the number of units (performance-restricted stock units or Performance RSUs); and (ii) in connection with the directors' deferred compensation plan. Each restricted stock unit awarded represents the right to receive, upon vesting, one share of Con Edison common stock, or, except for units awarded under the directors' plan, the cash value of a share or a combination thereof.

In accordance with the accounting rules for stock compensation, for outstanding restricted stock awards other than Performance RSUs or awards under the directors' deferred compensation plan, the Companies have accrued a liability based on the market value of a common share on the grant date and are recognizing compensation expense over the vesting period. The vesting period for awards is three years and is based on the employee's continuous service to Con Edison. Prior to vesting, the awards are subject to forfeiture in whole or in part under certain circumstances. The awards are "liability awards" because each restricted stock unit represents the right to receive, upon vesting, one share of Con Edison common stock, the cash value of a share or a combination thereof. As such, prior to vesting, changes in the fair value of the units are reflected in net income. A summary of changes in the status of restricted stock (other than Performance RSUs or awards under the directors' deferred compensation plan) during the period ended December 31, 2011 is as follows:

	Con Edison					CECONY
	Units			Weighted Average Grant Date Fair Value		Units			Weighted Average Grant Date Fair Value
Non-vested at 12/31/10		66,359		$	41.334		62,959		$	41.332
Granted		22,620			50.720		21,420			50.720
Vested		(21,403	)		39.705		(20,353	)		39.706
Forfeited		(2,156	)		43.276		(2,106	)		43.246
Non-vested at 12/31/11		65,420		$	45.049		61,920		$	45.049

The total expense to be recognized by the Companies in future periods for unvested awards outstanding as of December 31, 2011 for Con Edison and CECONY was $2 million and is expected to be recognized over a weighted average period of one year.

The number of units in each annual Performance RSU award is subject to adjustment as follows: (i) 50 percent of the units awarded will be multiplied by a factor that may range from 0 to 150 percent based on Con Edison's total shareholder return relative to a specified peer group during a specified performance period (the TSR portion); and (ii) 50 percent of the units awarded will be multiplied by a factor that may range from 0 to 200 percent based on determinations made in connection with CECONY's Executive Incentive Plan, or, for certain officers, the O&R Annual Team Incentive Plan or goals relating to Con Edison's competitive energy businesses (the EIP portion). Units generally vest when the performance period ends.

For the TSR portion of Performance RSU, the Companies use a Monte Carlo simulation model to estimate the fair value of the awards. The fair value is recomputed each reporting period as of the earlier of the reporting date and the vesting date. For the EIP portion of Performance RSU, the fair value of the awards is determined using the market price as of the earlier of the reporting date or the vesting date multiplied by the average EIP determination over the vesting period. Performance RSU awards are "liability awards" because each Performance RSU represents the right to receive, upon vesting, one share of Con Edison common stock, the cash value of a share or a combination thereof. As such, changes in the fair value of the Performance RSUs are reflected in net income. The following table illustrates the assumptions used to calculate the fair value of the awards:

	2011
Risk-free interest rate		0.12% – 3.73	%
Expected term		3 years
Expected volatility		16.37%

The risk-free rate is based on the U.S. Treasury zero-coupon yield curve on the date of grant. The expected term of the Performance RSUs is three years, which equals the vesting period. The Companies do not expect significant forfeitures to occur. The expected volatility is calculated using daily closing stock prices over a period of three years, which approximates the expected term of the awards.

A summary of changes in the status of the Performance RSUs TSR portion during the period ended December 31, 2011 is as follows:

	Con Edison					CECONY
	Units			Weighted Average Grant Date Fair Value*		Units			Weighted Average Grant Date Fair Value*
Non-vested at 12/31/10		494,188		$	37.844		407,861		$	37.755
Granted		217,735			43.847		177,077			43.923
Vested		(210,763	)		33.256		(174,712	)		33.070
Forfeited		(26,643	)		40.083		(22,847	)		40.205
Non-vested at 12/31/11		474,517		$	42.511		387,379		$	42.542

* Fair value is determined using the Monte Carlo simulation described above. Weighted average grant date fair value does not reflect any accrual or payment of dividends prior to vesting.

A summary of changes in the status of the Performance RSUs' EIP portion during the period ended December 31, 2011 is as follows:

	Con Edison					CECONY
	Units			Weighted Average Grant Date Fair Value*		Units			Weighted Average Grant Date Fair Value*
Non-vested at 12/31/10		494,188		$	42.591		407,861		$	42.525
Granted		217,735			50.053		177,077			50.073
Vested		(210,763	)		40.926		(174,712	)		40.894
Forfeited		(26,643	)		44.288		(22,847	)		44.415
Non-vested at 12/31/11		474,517		$	46.660		387,379		$	46.599

* Fair value is determined using the market price of one share of Con Edison common stock on the grant date. The market price has not been discounted to reflect that dividends do not accrue and are not payable on Performance RSUs until vesting.

The total expense to be recognized by Con Edison in future periods for unvested Performance RSUs outstanding as of December 31, 2011 is $37 million, including $30 million for CECONY and is expected to be recognized over a weighted average period of two years for both Con Edison and CECONY.

Con Edison has a deferred stock compensation plan for non-officer directors. Awards under the deferred compensation stock plan are covered by the LTIP. Each director received 1,687 stock units in 2011 for service as a director. These stock units are deferred until the director's termination of service. Directors may elect to receive dividend equivalents earned on stock units in cash payments. Restricted stock units issued under the directors' deferred compensation plan are considered "equity awards," because they may only be settled in shares. Directors immediately vest in units issued to them. The fair value of the units is determined using the closing price of Con Edison's common stock on the business day immediately preceding the date of issue. In the period ended December 31, 2011, approximately 28,497 units were issued at a weighted average grant date price of $54.06.

Stock Purchase Plan

The Stock Purchase Plan provides for the Companies to contribute up to $1 for each $9 invested by their directors, officers or employees to purchase Con Edison common stock under the plan. Eligible participants may invest up to $25,000 during any calendar year (subject to an additional limitation for officers and employees of not more than 20% of their pay). Dividends paid on shares held under the plan are reinvested in additional shares unless otherwise directed by the participant.

Participants in the plan immediately vest in shares purchased by them under the plan. The fair value of the shares of Con Edison common stock purchased under the plan was calculated using the average of the high and low composite sale prices at which shares were traded at the New York Stock Exchange on the trading day immediately preceding such purchase dates. During 2011, 2010, and 2009, 721,520, 738,951, and 868,622 shares were purchased under the Stock Purchase Plan at a weighted average price of $52.50, $45.52, and $38.15 per share, respectively.