Fair Value Measurements

12 Months Ended

Dec. 31, 2011

Fair Value Measurements

Note P — Fair Value Measurements

The accounting rules for fair value measurements and disclosures define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in a principal or most advantageous market. Fair value is a market-based measurement that is determined based on inputs, which refer broadly to assumptions that market participants use in pricing assets or liabilities. These inputs can be readily observable, market corroborated, or generally unobservable firm inputs. The Companies often make certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, and the risks inherent in the inputs to valuation techniques. The Companies use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

The accounting rules for fair value measurements and disclosures established a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value in three broad levels. The rules require that assets and liabilities be classified in their entirety based on the level of input that is significant to the fair value measurement. Assessing the significance of a particular input may require judgment considering factors specific to the asset or liability, and may affect the valuation of the asset or liability and their placement within the fair value hierarchy. The Companies classify fair value balances based on the fair value hierarchy defined by the accounting rules for fair value measurements and disclosures as follows:

• Level 1 – Consists of assets or liabilities whose value is based on unadjusted quoted prices in active markets at the measurement date. An active market is one in which transactions for assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis. This category includes contracts traded on active exchange markets valued using unadjusted prices quoted directly from the exchange.

• Level 2 – Consists of assets or liabilities valued using industry standard models and based on prices, other than quoted prices within Level 1, that are either directly or indirectly observable as of the measurement date. The industry standard models consider observable assumptions including time value, volatility factors, and current market and contractual prices for the underlying commodities, in addition to other economic measures. This category includes contracts traded on active exchanges or in over-the-counter markets priced with industry standard models.

• Level 3 – Consists of assets or liabilities whose fair value is estimated based on internally developed models or methodologies using inputs that are generally less readily observable and supported by little, if any, market activity at the measurement date. Unobservable inputs are developed based on the best available information and subject to cost benefit constraints. This category includes contracts priced using models that are internally developed and contracts placed in illiquid markets. It also includes contracts that expire after the period of time for which quoted prices are available and internal models are used to determine a significant portion of the value.

The valuation technique used by the Companies with regard to commodity derivatives and other assets that fall into either Level 2 or Level 3 is the market approach, which uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The valuation technique used by the Companies with regard to the interest rate contract that falls into Level 3 is the income approach which uses valuation techniques to convert future income stream amounts to a single amount in present value terms.

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2011 are summarized below.

	Level 1				Level 2						Level 3						Netting Adjustments(4)						Total
(millions of dollars)	Con Edison		CECONY		Con Edison			CECONY			Con Edison			CECONY			Con Edison			CECONY			Con Edison			CECONY
Derivative assets:
Commodity(1)	$	3	$	—	$	64		$	8		$	87		$	11		$	(84	)	$	5		$	70		$	24
Other assets(3)		76		76		—			—			99			90			—			—			175			166
Total	$	79	$	76	$	64		$	8		$	186		$	101		$	(84	)	$	5		$	245		$	190
Derivative liabilities:
Commodity	$	12	$	4	$	222		$	122		$	169		$	37		$	(194	)	$	(41	)	$	209		$	122
Transfer in(5)(6)(7)		—		—		26			25			6			6			—			—			32			31
Transfer out(5)(6)(7)		—		—		(6	)		(6	)		(26	)		(25	)		—			—			(32	)		(31	)
Commodity(1)	$	12	$	4	$	242		$	141		$	149		$	18		$	(194	)	$	(41	)	$	209		$	122
Interest rate contract(2)		—		—		—			—			8			—			—			—			8			—
Total	$	12	$	4	$	242		$	141		$	157		$	18		$	(194	)	$	(41	)	$	217		$	122

(1) A significant portion of the commodity derivative contracts categorized in Level 3 is valued using either an industry acceptable model or an internally developed model with observable inputs. The models also include some less readily observable inputs resulting in the classification of the entire contract as Level 3. See Note O.

(2) See Note O.

(3) Other assets are comprised of assets such as life insurance contracts within the Deferred Income Plan and Supplemental Retirement Income Plans, held in rabbi trusts.

(4) Amounts represent the impact of legally-enforceable master netting agreements that allow the Companies to net gain and loss positions and cash collateral held or placed with the same counterparties.

(5) The Companies' policy is to recognize transfers into and transfers out of the levels at the end of the reporting period.

(6) Transferred from Level 2 to Level 3 because of reassessment of the levels in the fair value hierarchy within which certain inputs fall.

(7) Transferred from Level 3 to Level 2 because of availability of observable market data due to decrease in the terms of certain contracts from beyond one year as of December 31, 2010 to less than one year as of December 31, 2011.

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2010 are summarized below.

	Level 1				Level 2						Level 3						Netting Adjustments(4)						Total
(millions of dollars)	Con Edison		CECONY		Con Edison			CECONY			Con Edison			CECONY			Con Edison			CECONY			Con Edison			CECONY
Derivative assets:
Commodity(1)	$	2	$	1	$	72		$	21		$	144		$	13		$	(112	)	$	13		$	106		$	48
Other assets(3)		65		64		—			—			101			92			—			—			166			156
Total	$	67	$	65	$	72		$	21		$	245		$	105		$	(112	)	$	13		$	272		$	204
Derivative liabilities:
Commodity	$	4	$	2	$	270		$	177		$	205		$	12		$	(288	)	$	(91	)	$	191		$	100
Transfer in(5)(6)(7)		—		—		(36	)		(36	)		(9	)		(9	)		—			—			(45	)		(45	)
Transfer out(5)(6)(7)		—		—		9			9			36			36			—			—			45			45
Commodity(1)	$	4	$	2	$	243		$	150			232			39		$	(288	)	$	(91	)	$	191		$	100
Interest rate contract(2)		—		—		—			—			10			—			—			—			10			—
Total	$	4	$	2	$	243		$	150		$	242		$	39		$	(288	)	$	(91	)	$	201		$	100

(1) A significant portion of the commodity derivative contracts categorized in Level 3 is valued using either an industry acceptable model or an internally developed model with observable inputs. The models also include some less readily observable inputs resulting in the classification of the entire contract as Level 3. See Note O.

(2) See Note O.

(3) Other assets are comprised of assets such as life insurance contracts within the Deferred Income Plan and Supplemental Retirement Income Plans, held in rabbi trusts.

(4) Amounts represent the impact of legally-enforceable master netting agreements that allow the Companies to net gain and loss positions and cash collateral held or placed with the same counterparties.

(5) The Companies' policy is to recognize transfers into and transfers out of the levels at the end of the reporting period.

(6) Transferred from Level 2 to Level 3 because of reassessment of the levels in the fair value hierarchy within which certain inputs fall.

(7) Transferred from Level 3 to Level 2 because of availability of observable market data due to decrease in the terms of certain contracts from beyond one year as of December 31, 2009 to less than one year as of December 31, 2010.

The table listed below provides a reconciliation of the beginning and ending net balances for assets and liabilities measured at fair value for the years ended December 31, 2011 and 2010 and classified as Level 3 in the fair value hierarchy:

	For the Year Ended December 31, 2011
				Total Gains/(Losses) – Realized and Unrealized
(millions of dollars)	Beginning Balance as of January 1, 2011			Included in Earnings			Included in Regulatory Assets and Liabilities			Purchases		Issuances		Sales		Settlements		Transfer In/Out of Level 3		Ending Balance as of December 31, 2011
Con Edison
Derivatives:
Commodity	$	(88	)	$	(113	)	$	20		$	32	$	—	$	—	$	67	$	20	$	(62	)
Interest rate contract		(10	)		(3	)		2			—		—		—		3		—		(8	)
Other assets(1)		101			—			(2	)		—		—		—		—		—		99
Total	$	3		$	(116	)	$	20		$	32	$	—	$	—	$	70	$	20	$	29
CECONY
Derivatives:
Commodity	$	(26	)	$	(21	)	$	—		$	19	$	—	$	—	$	2	$	19	$	(7	)
Other assets(1)		92			—			(2	)		—		—		—		—		—		90
Total	$	66		$	(21	)	$	(2	)	$	19	$	—	$	—	$	2	$	19	$	83

(1) Amounts included in earnings are reported in investment and other income on the consolidated income statement.

	For the Year Ended December 31, 2010
				Total Gains/(Losses) – Realized and Unrealized
(millions of dollars)	Beginning Balance as of January 1, 2010			Included in Earnings			Included in Regulatory Assets and Liabilities		Purchases		Issuances		Sales		Settlements		Transfer In/Out of Level 3			Ending Balance as of December 31, 2010
Con Edison
Derivatives:
Commodity	$	(59	)	$	(131	)	$	17	$	5	$	—	$	—	$	107	$	(27	)	$	(88	)
Interest rate contract		(11	)		(3	)		1		—		—		—		3		—			(10	)
Other assets(1)		92			3			6		—		—		—		—		—			101
Total	$	22		$	(131	)	$	24	$	5	$	—	$	—	$	110	$	(27	)	$	3
CECONY
Derivatives:
Commodity	$	(5	)	$	(14	)	$	10	$	—	$	—	$	—	$	10	$	(27	)	$	(26	)
Other assets(1)		83			3			6		—		—		—		—		—			92
Total	$	78		$	(11	)	$	16	$	—	$	—	$	—	$	10	$	(27	)	$	66

(1) Amounts included in earnings are reported in investment and other income on the consolidated income statement.

For the Utilities, realized gains and losses on Level 3 commodity derivative assets and liabilities are reported as part of purchased power, gas and fuel costs. The Utilities generally recover these costs in accordance with rate provisions approved by the applicable state public utilities commissions. See Note A. Unrealized gains and losses for commodity derivatives are generally deferred on the consolidated balance sheet in accordance with the accounting rules for regulated operations.

For the competitive energy businesses, realized and unrealized gains and losses on Level 3 commodity derivative assets and liabilities are reported in non-utility revenues ($33 million loss and $37 million loss) and purchased power costs ($29 million loss and $43 million loss) on the consolidated income statement for the years ended December 31, 2011 and 2010, respectively. The change in fair value relating to Level 3 commodity derivative assets held at December 31, 2011 and 2010 is included in non-utility revenues ($33 million loss and $37 million loss), and purchased power costs ($15 million gain and $24 million gain) on the consolidated income statement for the years ended December 31, 2011 and 2010, respectively.

The accounting rules for fair value measurements and disclosures require consideration of the impact of nonperformance risk (including credit risk) from a market participant perspective in the measurement of the fair value of assets and liabilities. At December 31, 2011, the Companies determined that nonperformance risk would have no material impact on their financial position or results of operations. To assess nonperformance risk, the Companies considered information such as collateral requirements, master netting arrangements, letters of credit and parent company guarantees, and applied a market-based method by using the counterparty (for an asset) or the Companies' (for a liability) credit default swaps rates.

CECONY [Member]

Fair Value Measurements

Note P — Fair Value Measurements

The accounting rules for fair value measurements and disclosures define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in a principal or most advantageous market. Fair value is a market-based measurement that is determined based on inputs, which refer broadly to assumptions that market participants use in pricing assets or liabilities. These inputs can be readily observable, market corroborated, or generally unobservable firm inputs. The Companies often make certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, and the risks inherent in the inputs to valuation techniques. The Companies use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

The accounting rules for fair value measurements and disclosures established a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value in three broad levels. The rules require that assets and liabilities be classified in their entirety based on the level of input that is significant to the fair value measurement. Assessing the significance of a particular input may require judgment considering factors specific to the asset or liability, and may affect the valuation of the asset or liability and their placement within the fair value hierarchy. The Companies classify fair value balances based on the fair value hierarchy defined by the accounting rules for fair value measurements and disclosures as follows:

• Level 1 – Consists of assets or liabilities whose value is based on unadjusted quoted prices in active markets at the measurement date. An active market is one in which transactions for assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis. This category includes contracts traded on active exchange markets valued using unadjusted prices quoted directly from the exchange.

• Level 2 – Consists of assets or liabilities valued using industry standard models and based on prices, other than quoted prices within Level 1, that are either directly or indirectly observable as of the measurement date. The industry standard models consider observable assumptions including time value, volatility factors, and current market and contractual prices for the underlying commodities, in addition to other economic measures. This category includes contracts traded on active exchanges or in over-the-counter markets priced with industry standard models.

• Level 3 – Consists of assets or liabilities whose fair value is estimated based on internally developed models or methodologies using inputs that are generally less readily observable and supported by little, if any, market activity at the measurement date. Unobservable inputs are developed based on the best available information and subject to cost benefit constraints. This category includes contracts priced using models that are internally developed and contracts placed in illiquid markets. It also includes contracts that expire after the period of time for which quoted prices are available and internal models are used to determine a significant portion of the value.

The valuation technique used by the Companies with regard to commodity derivatives and other assets that fall into either Level 2 or Level 3 is the market approach, which uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The valuation technique used by the Companies with regard to the interest rate contract that falls into Level 3 is the income approach which uses valuation techniques to convert future income stream amounts to a single amount in present value terms.

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2011 are summarized below.

	Level 1				Level 2						Level 3						Netting Adjustments(4)						Total
(millions of dollars)	Con Edison		CECONY		Con Edison			CECONY			Con Edison			CECONY			Con Edison			CECONY			Con Edison			CECONY
Derivative assets:
Commodity(1)	$	3	$	—	$	64		$	8		$	87		$	11		$	(84	)	$	5		$	70		$	24
Other assets(3)		76		76		—			—			99			90			—			—			175			166
Total	$	79	$	76	$	64		$	8		$	186		$	101		$	(84	)	$	5		$	245		$	190
Derivative liabilities:
Commodity	$	12	$	4	$	222		$	122		$	169		$	37		$	(194	)	$	(41	)	$	209		$	122
Transfer in(5)(6)(7)		—		—		26			25			6			6			—			—			32			31
Transfer out(5)(6)(7)		—		—		(6	)		(6	)		(26	)		(25	)		—			—			(32	)		(31	)
Commodity(1)	$	12	$	4	$	242		$	141		$	149		$	18		$	(194	)	$	(41	)	$	209		$	122
Interest rate contract(2)		—		—		—			—			8			—			—			—			8			—
Total	$	12	$	4	$	242		$	141		$	157		$	18		$	(194	)	$	(41	)	$	217		$	122

(1) A significant portion of the commodity derivative contracts categorized in Level 3 is valued using either an industry acceptable model or an internally developed model with observable inputs. The models also include some less readily observable inputs resulting in the classification of the entire contract as Level 3. See Note O.

(2) See Note O.

(3) Other assets are comprised of assets such as life insurance contracts within the Deferred Income Plan and Supplemental Retirement Income Plans, held in rabbi trusts.

(4) Amounts represent the impact of legally-enforceable master netting agreements that allow the Companies to net gain and loss positions and cash collateral held or placed with the same counterparties.

(5) The Companies' policy is to recognize transfers into and transfers out of the levels at the end of the reporting period.

(6) Transferred from Level 2 to Level 3 because of reassessment of the levels in the fair value hierarchy within which certain inputs fall.

(7) Transferred from Level 3 to Level 2 because of availability of observable market data due to decrease in the terms of certain contracts from beyond one year as of December 31, 2010 to less than one year as of December 31, 2011.

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2010 are summarized below.

	Level 1				Level 2						Level 3						Netting Adjustments(4)						Total
(millions of dollars)	Con Edison		CECONY		Con Edison			CECONY			Con Edison			CECONY			Con Edison			CECONY			Con Edison			CECONY
Derivative assets:
Commodity(1)	$	2	$	1	$	72		$	21		$	144		$	13		$	(112	)	$	13		$	106		$	48
Other assets(3)		65		64		—			—			101			92			—			—			166			156
Total	$	67	$	65	$	72		$	21		$	245		$	105		$	(112	)	$	13		$	272		$	204
Derivative liabilities:
Commodity	$	4	$	2	$	270		$	177		$	205		$	12		$	(288	)	$	(91	)	$	191		$	100
Transfer in(5)(6)(7)		—		—		(36	)		(36	)		(9	)		(9	)		—			—			(45	)		(45	)
Transfer out(5)(6)(7)		—		—		9			9			36			36			—			—			45			45
Commodity(1)	$	4	$	2	$	243		$	150			232			39		$	(288	)	$	(91	)	$	191		$	100
Interest rate contract(2)		—		—		—			—			10			—			—			—			10			—
Total	$	4	$	2	$	243		$	150		$	242		$	39		$	(288	)	$	(91	)	$	201		$	100

(1) A significant portion of the commodity derivative contracts categorized in Level 3 is valued using either an industry acceptable model or an internally developed model with observable inputs. The models also include some less readily observable inputs resulting in the classification of the entire contract as Level 3. See Note O.

(2) See Note O.

(3) Other assets are comprised of assets such as life insurance contracts within the Deferred Income Plan and Supplemental Retirement Income Plans, held in rabbi trusts.

(4) Amounts represent the impact of legally-enforceable master netting agreements that allow the Companies to net gain and loss positions and cash collateral held or placed with the same counterparties.

(5) The Companies' policy is to recognize transfers into and transfers out of the levels at the end of the reporting period.

(6) Transferred from Level 2 to Level 3 because of reassessment of the levels in the fair value hierarchy within which certain inputs fall.

(7) Transferred from Level 3 to Level 2 because of availability of observable market data due to decrease in the terms of certain contracts from beyond one year as of December 31, 2009 to less than one year as of December 31, 2010.

The table listed below provides a reconciliation of the beginning and ending net balances for assets and liabilities measured at fair value for the years ended December 31, 2011 and 2010 and classified as Level 3 in the fair value hierarchy:

	For the Year Ended December 31, 2011
				Total Gains/(Losses) – Realized and Unrealized
(millions of dollars)	Beginning Balance as of January 1, 2011			Included in Earnings			Included in Regulatory Assets and Liabilities			Purchases		Issuances		Sales		Settlements		Transfer In/Out of Level 3		Ending Balance as of December 31, 2011
Con Edison
Derivatives:
Commodity	$	(88	)	$	(113	)	$	20		$	32	$	—	$	—	$	67	$	20	$	(62	)
Interest rate contract		(10	)		(3	)		2			—		—		—		3		—		(8	)
Other assets(1)		101			—			(2	)		—		—		—		—		—		99
Total	$	3		$	(116	)	$	20		$	32	$	—	$	—	$	70	$	20	$	29
CECONY
Derivatives:
Commodity	$	(26	)	$	(21	)	$	—		$	19	$	—	$	—	$	2	$	19	$	(7	)
Other assets(1)		92			—			(2	)		—		—		—		—		—		90
Total	$	66		$	(21	)	$	(2	)	$	19	$	—	$	—	$	2	$	19	$	83

(1) Amounts included in earnings are reported in investment and other income on the consolidated income statement.

	For the Year Ended December 31, 2010
				Total Gains/(Losses) – Realized and Unrealized
(millions of dollars)	Beginning Balance as of January 1, 2010			Included in Earnings			Included in Regulatory Assets and Liabilities		Purchases		Issuances		Sales		Settlements		Transfer In/Out of Level 3			Ending Balance as of December 31, 2010
Con Edison
Derivatives:
Commodity	$	(59	)	$	(131	)	$	17	$	5	$	—	$	—	$	107	$	(27	)	$	(88	)
Interest rate contract		(11	)		(3	)		1		—		—		—		3		—			(10	)
Other assets(1)		92			3			6		—		—		—		—		—			101
Total	$	22		$	(131	)	$	24	$	5	$	—	$	—	$	110	$	(27	)	$	3
CECONY
Derivatives:
Commodity	$	(5	)	$	(14	)	$	10	$	—	$	—	$	—	$	10	$	(27	)	$	(26	)
Other assets(1)		83			3			6		—		—		—		—		—			92
Total	$	78		$	(11	)	$	16	$	—	$	—	$	—	$	10	$	(27	)	$	66

(1) Amounts included in earnings are reported in investment and other income on the consolidated income statement.

For the Utilities, realized gains and losses on Level 3 commodity derivative assets and liabilities are reported as part of purchased power, gas and fuel costs. The Utilities generally recover these costs in accordance with rate provisions approved by the applicable state public utilities commissions. See Note A. Unrealized gains and losses for commodity derivatives are generally deferred on the consolidated balance sheet in accordance with the accounting rules for regulated operations.

For the competitive energy businesses, realized and unrealized gains and losses on Level 3 commodity derivative assets and liabilities are reported in non-utility revenues ($33 million loss and $37 million loss) and purchased power costs ($29 million loss and $43 million loss) on the consolidated income statement for the years ended December 31, 2011 and 2010, respectively. The change in fair value relating to Level 3 commodity derivative assets held at December 31, 2011 and 2010 is included in non-utility revenues ($33 million loss and $37 million loss), and purchased power costs ($15 million gain and $24 million gain) on the consolidated income statement for the years ended December 31, 2011 and 2010, respectively.

The accounting rules for fair value measurements and disclosures require consideration of the impact of nonperformance risk (including credit risk) from a market participant perspective in the measurement of the fair value of assets and liabilities. At December 31, 2011, the Companies determined that nonperformance risk would have no material impact on their financial position or results of operations. To assess nonperformance risk, the Companies considered information such as collateral requirements, master netting arrangements, letters of credit and parent company guarantees, and applied a market-based method by using the counterparty (for an asset) or the Companies' (for a liability) credit default swaps rates.