Derivative Instruments and Hedging Activities

6 Months Ended

Jun. 30, 2012

Derivative Instruments and Hedging Activities

Note J — Derivative Instruments and Hedging Activities

Under the accounting rules for derivatives and hedging, derivatives are recognized on the balance sheet at fair value, unless an exception is available under the accounting rules. Certain qualifying derivative contracts have been designated as normal purchases or normal sales contracts. These contracts are not reported at fair value under the accounting rules.

Energy Price Hedging

Con Edison’s subsidiaries hedge market price fluctuations associated with physical purchases and sales of electricity, natural gas, and steam by using derivative instruments, including futures, forwards, basis swaps, options, transmission congestion contracts and financial transmission rights contracts. The fair values of the Companies’ commodity derivatives at June 30, 2012 and December 31, 2011 were as follows:

	Con Edison						CECONY
(Millions of Dollars)	2012			2011			2012			2011
Fair value of net derivative assets/(liabilities) – gross		$(195	)		$(249	)		$(111	)		$(144	)
Impact of netting of cash collateral		102			110			51			46
Fair value of net derivative assets/(liabilities) – net		$  (93	)		$(139	)		$  (60	)		$  (98	)

Credit Exposure

The Companies are exposed to credit risk related to transactions entered into primarily for the various energy supply and hedging activities by the Utilities and the competitive energy businesses. The Companies use credit policies to manage this risk, including an established credit approval process, monitoring of counterparty limits, netting provisions within agreements, collateral or prepayment arrangements, credit insurance and credit default swaps.

At June 30, 2012, Con Edison and CECONY had $112 million and $12 million of credit exposure in connection with energy supply and hedging activities, net of collateral, respectively. Con Edison’s net credit exposure consisted of $37 million with investment-grade counterparties, $34 million with commodity exchange brokers, $39 million with independent system operators and $2 million with non-rated counterparties. CECONY’s net credit exposure consisted of $1 million with investment-grade counterparties and $11 million with commodity exchange brokers.

Economic Hedges

The Companies enter into certain derivative instruments that do not qualify or are not designated as hedges under the accounting rules for derivatives and hedging. However, management believes these instruments represent economic hedges that mitigate exposure to fluctuations in commodity prices.

The fair values of the Companies’ commodity derivatives at June 30, 2012 were:

(Millions of Dollars)	Fair Value of Commodity Derivatives (a) Balance Sheet Location	Con Edison			CECONY
Derivative Assets
Current	Other current assets		$ 118			$  22
Long-term	Other deferred charges and non-current assets		22			9
Total derivative assets			$ 140			$  31
Impact of netting			(79	)		(6	)
Net derivative assets			$   61			$  25
Derivative Liabilities
Current	Fair value of derivative liabilities		$ 253			$  96
Long-term	Fair value of derivative liabilities		82			46
Total derivative liabilities			$ 335			$142
Impact of netting			(181	)		(57	)
Net derivative liabilities			$ 154			$  85

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.

The fair values of the Companies’ commodity derivatives at December 31, 2011 were:

(Millions of Dollars)	Fair Value of Commodity Derivatives (a) Balance Sheet Location	Con Edison			CECONY
Derivative Assets
Current	Other current assets		$139			$  16
Long-term	Other deferred charges and non-current assets		26			14
Total derivative assets			$165			$  30
Impact of netting			(95	)		(6	)
Net derivative assets			$  70			$  24
Derivative Liabilities
Current	Fair value of derivative liabilities		$331			$127
Long-term	Fair value of derivative liabilities		83			48
Total derivative liabilities			$414			$175
Impact of netting			(205	)		(53	)
Net derivative liabilities			$209			$122

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.

The Utilities generally recover all of their prudently incurred fuel, purchased power and gas cost, including hedging gains and losses, in accordance with rate provisions approved by the applicable state utility commissions. In accordance with the accounting rules for regulated operations, the Utilities record a regulatory asset or liability to defer recognition of unrealized gains and losses on their electric and gas derivatives. As gains and losses are realized in future periods, they will be recognized as purchased power, gas and fuel costs in the Companies’ consolidated income statements. Con Edison’s competitive energy businesses record realized and unrealized gains and losses on their derivative contracts in earnings in the reporting period in which they occur.

The following tables present the changes in the fair values of commodity derivatives that have been deferred or recognized in earnings for the three and six months ended June 30, 2012:

Realized and Unrealized Gains/(Losses) on Commodity Derivatives (a) Deferred or Recognized in Income for the Three Months Ended June 30, 2012
(Millions of Dollars)	Balance Sheet Location	Con Edison			CECONY
Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:
Current	Deferred derivative gains		$ (1)			$ (1)
Total deferred gains			$ (1)			$ (1)
Current	Deferred derivative losses		$ 66			$ 55
Current	Recoverable energy costs		(63	)		(56	)
Long-term	Deferred derivative losses		8			16
Total deferred losses			$ 11			$ 15
Net deferred gains/(losses)			$ 10			$ 14
	Income Statement Location
Pre-tax gain/(loss) recognized in income
	Purchased power expense		$ 27	(b)		$ —
	Gas purchased for resale		(1	)		—
	Non-utility revenue		(8	)(b)		—
Total pre-tax gain/(loss) recognized in income			$ 18			$ —

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.

(b) For the three months ended June 30, 2012, Con Edison recorded in non-utility revenues and purchased power expense an unrealized pre-tax (loss)/gain of $(9) million and $72 million, respectively.

Realized and Unrealized Gains/(Losses) on Commodity Derivatives (a) Deferred or Recognized in Income for the Six Months Ended June 30, 2012
(Millions of Dollars)	Balance Sheet Location	Con Edison			CECONY
Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:
Current	Deferred derivative gains		$    —			$    —
Total deferred gains			$    —			$    —
Current	Deferred derivative losses		$   38			$   36
Current	Recoverable energy costs		(127	)		(112	)
Long-term	Deferred derivative losses		(11	)		(1	)
Total deferred losses			$(100	)		$  (77	)
Net deferred gains/(losses)			$(100	)		$  (77	)
	Income Statement Location
Pre-tax gain/(loss) recognized in income
	Purchased power expense		$  (59	)(b)		$    —
	Gas purchased for resale		(2	)		—
	Non-utility revenue		(11	)(b)		—
Total pre-tax gain/(loss) recognized in income			$  (72	)		$    —

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.

(b) For the six months ended June 30, 2012, Con Edison recorded in non-utility revenues and purchased power expense an unrealized pre-tax (loss)/gain of $(13) million and $45 million, respectively.

The following tables present the changes in the fair values of commodity derivatives that have been deferred or recognized in earnings for the three and six months ended June 30, 2011:

Realized and Unrealized Gains/(Losses) on Commodity Derivatives (a) Deferred or Recognized in Income for the Three Months Ended June 30, 2011
(Millions of Dollars)	Balance Sheet Location	Con Edison			CECONY
Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:
Current	Deferred derivative gains		$   (4)			$   (4)
Long-term	Regulatory liabilities		(1	)		—
Total deferred gains			$   (5)			$   (4)
Current	Deferred derivative losses		$  25			$   18
Current	Recoverable energy costs		(53	)		(39	)
Long-term	Regulatory assets		12			9
Total deferred losses			$ (16)			$ (12)
Net deferred gains/(losses)			$ (21)			$ (16)
	Income Statement Location
Pre-tax gain/(loss) recognized in income
	Purchased power expense		$  73	(b)		$    —
	Gas purchased for resale		17			—
	Non-utility revenue		7	(b)		—
Total pre-tax gain/(loss) recognized in income			$  97			$    —

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.

(b) For the three months ended June 30, 2011, Con Edison recorded in non-utility revenues and purchased power expense an unrealized pre-tax (loss)/gain of $(12) million and $10 million, respectively.

Realized and Unrealized Gains/(Losses) on Commodity Derivatives (a) Deferred or Recognized in Income for the Six Months Ended June 30, 2011
(Millions of Dollars)	Balance Sheet Location	Con Edison			CECONY
Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:
Current	Deferred derivative gains		$      2			$   1
Long-term	Regulatory liabilities		2			2
Total deferred gains			$      4			$   3
Current	Deferred derivative losses		$    69			$ 53
Current	Recoverable energy costs		(102	)		(81	)
Long-term	Regulatory assets		28			20
Total deferred losses			$     (5	)		$  (8	)
Net deferred losses			$     (1	)		$  (5	)
	Income Statement Location
Pre-tax gain/(loss) recognized in income
	Purchased power expense		$ 52	(b)		$  —
	Gas purchased for resale		11			—
	Non-utility revenue		17	(b)		—
Total pre-tax gain/(loss) recognized in income			$    80			$  —

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.

(b) For the six months ended June 30, 2011, Con Edison recorded in non-utility revenues and purchased power expense an unrealized pre-tax loss/(gain) of $(25) million and $60 million, respectively.

As of June 30, 2012, Con Edison had 1,483 contracts, including 706 CECONY contracts, which were considered to be derivatives under the accounting rules for derivatives and hedging (excluding qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts). The following table presents the number of contracts by commodity type:

	Electric Derivatives								Gas Derivatives
	Number of Energy Contracts (a)		MWhs (b)		Number of Capacity Contracts (a)		MWs (b)		Number of Contracts (a)		Dths (b)		Total Number of Contracts (a)
Con Edison		681		16,351,706		77		12,273		725		96,403,140		1,483
CECONY		137		3,879,800		—		—		569		89,220,000		706

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.

(b) Volumes are reported net of long and short positions.

The Companies also enter into electric congestion and gas basis swap contracts to hedge the congestion and transportation charges which are associated with electric and gas contracts and hedged volumes.

The collateral requirements associated with the clearing and settlement of derivative transactions are included in net cash flows from operating activities in the Companies’ consolidated statement of cash flows. Most derivative instrument contracts contain provisions that may require the Companies to provide collateral on derivative instruments in net liability positions. The amount of collateral to be provided will depend on the fair value of the derivative instruments and the Companies’ credit ratings.

The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a net liability position and collateral posted at June 30, 2012, and the additional collateral that would have been required to be posted had the lowest applicable credit rating been reduced one level and to below investment grade were:

(Millions of Dollars)	Con Edison (a)			CECONY (a)
Aggregate fair value – net liabilities		$124			$84
Collateral posted		$  62			$56
Additional collateral (b) (downgrade one level from current ratings (c))		$    9			$  3
Additional collateral (b) (downgrade to below investment grade from current ratings (c))		$101	(d)		$46	(d)

(a) Non-derivative transactions for the purchase and sale of electricity and gas and qualifying derivative instruments, which have been designated as normal purchases or normal sales, are excluded from the table. These transactions primarily include purchases of electricity from independent system operators. In the event the Utilities and Con Edison’s competitive energy businesses were no longer extended unsecured credit for such purchases, the Companies would be required to post collateral, which at June 30, 2012, would have amounted to an estimated $28 million for Con Edison, including $0 million for CECONY. For certain other such non-derivative transactions, the Companies could be required to post collateral under certain circumstances, including in the event counterparties had reasonable grounds for insecurity.

(b) The Companies measure the collateral requirements by taking into consideration the fair value amounts of derivative instruments that contain credit-risk-related contingent features that are in a net liabilities position plus amounts owed to counterparties for settled transactions and amounts required by counterparties for minimum financial security. The fair value amounts represent unrealized losses, net of any unrealized gains where the Companies have a legally enforceable right of setoff.

(c) The current ratings are Moody’s, S&P and Fitch long-term credit rating of, as applicable, Con Edison (Baa1/BBB+/BBB+), CECONY (A3/A-/A-) or O&R (Baa1/A-/A-). Credit ratings assigned by rating agencies are expressions of opinions that are subject to revision or withdrawal at any time by the assigning rating agency.

(d) Derivative instruments that are net assets have been excluded from the table. At June 30, 2012, if Con Edison had been downgraded to below investment grade, it would have been required to post additional collateral for such derivative instruments of $24 million.

Interest Rate Swaps

O&R has an interest rate swap pursuant to which it pays a fixed-rate of 6.09 percent and receives a LIBOR-based variable rate. The fair value of this interest rate swap at June 30, 2012 was an unrealized loss of $7 million, which has been included in Con Edison’s consolidated balance sheet as a noncurrent liability/fair value of derivative liabilities and a regulatory asset. The increase in the fair value of the swap for the three and six months ended June 30, 2012 was $1 million. In the event O&R’s credit rating was downgraded to BBB- or lower by S&P or Baa3 or lower by Moody’s, the swap counterparty could elect to terminate the agreement and, if it did so, the parties would then be required to settle the transaction.

CECONY

Derivative Instruments and Hedging Activities

Note J — Derivative Instruments and Hedging Activities

Under the accounting rules for derivatives and hedging, derivatives are recognized on the balance sheet at fair value, unless an exception is available under the accounting rules. Certain qualifying derivative contracts have been designated as normal purchases or normal sales contracts. These contracts are not reported at fair value under the accounting rules.

Energy Price Hedging

Con Edison’s subsidiaries hedge market price fluctuations associated with physical purchases and sales of electricity, natural gas, and steam by using derivative instruments, including futures, forwards, basis swaps, options, transmission congestion contracts and financial transmission rights contracts. The fair values of the Companies’ commodity derivatives at June 30, 2012 and December 31, 2011 were as follows:

	Con Edison						CECONY
(Millions of Dollars)	2012			2011			2012			2011
Fair value of net derivative assets/(liabilities) – gross		$(195	)		$(249	)		$(111	)		$(144	)
Impact of netting of cash collateral		102			110			51			46
Fair value of net derivative assets/(liabilities) – net		$  (93	)		$(139	)		$  (60	)		$  (98	)

Credit Exposure

The Companies are exposed to credit risk related to transactions entered into primarily for the various energy supply and hedging activities by the Utilities and the competitive energy businesses. The Companies use credit policies to manage this risk, including an established credit approval process, monitoring of counterparty limits, netting provisions within agreements, collateral or prepayment arrangements, credit insurance and credit default swaps.

At June 30, 2012, Con Edison and CECONY had $112 million and $12 million of credit exposure in connection with energy supply and hedging activities, net of collateral, respectively. Con Edison’s net credit exposure consisted of $37 million with investment-grade counterparties, $34 million with commodity exchange brokers, $39 million with independent system operators and $2 million with non-rated counterparties. CECONY’s net credit exposure consisted of $1 million with investment-grade counterparties and $11 million with commodity exchange brokers.

Economic Hedges

The Companies enter into certain derivative instruments that do not qualify or are not designated as hedges under the accounting rules for derivatives and hedging. However, management believes these instruments represent economic hedges that mitigate exposure to fluctuations in commodity prices.

The fair values of the Companies’ commodity derivatives at June 30, 2012 were:

(Millions of Dollars)	Fair Value of Commodity Derivatives (a) Balance Sheet Location	Con Edison			CECONY
Derivative Assets
Current	Other current assets		$ 118			$  22
Long-term	Other deferred charges and non-current assets		22			9
Total derivative assets			$ 140			$  31
Impact of netting			(79	)		(6	)
Net derivative assets			$   61			$  25
Derivative Liabilities
Current	Fair value of derivative liabilities		$ 253			$  96
Long-term	Fair value of derivative liabilities		82			46
Total derivative liabilities			$ 335			$142
Impact of netting			(181	)		(57	)
Net derivative liabilities			$ 154			$  85

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.

The fair values of the Companies’ commodity derivatives at December 31, 2011 were:

(Millions of Dollars)	Fair Value of Commodity Derivatives (a) Balance Sheet Location	Con Edison			CECONY
Derivative Assets
Current	Other current assets		$139			$  16
Long-term	Other deferred charges and non-current assets		26			14
Total derivative assets			$165			$  30
Impact of netting			(95	)		(6	)
Net derivative assets			$  70			$  24
Derivative Liabilities
Current	Fair value of derivative liabilities		$331			$127
Long-term	Fair value of derivative liabilities		83			48
Total derivative liabilities			$414			$175
Impact of netting			(205	)		(53	)
Net derivative liabilities			$209			$122

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.

The Utilities generally recover all of their prudently incurred fuel, purchased power and gas cost, including hedging gains and losses, in accordance with rate provisions approved by the applicable state utility commissions. In accordance with the accounting rules for regulated operations, the Utilities record a regulatory asset or liability to defer recognition of unrealized gains and losses on their electric and gas derivatives. As gains and losses are realized in future periods, they will be recognized as purchased power, gas and fuel costs in the Companies’ consolidated income statements. Con Edison’s competitive energy businesses record realized and unrealized gains and losses on their derivative contracts in earnings in the reporting period in which they occur.

The following tables present the changes in the fair values of commodity derivatives that have been deferred or recognized in earnings for the three and six months ended June 30, 2012:

Realized and Unrealized Gains/(Losses) on Commodity Derivatives (a) Deferred or Recognized in Income for the Three Months Ended June 30, 2012
(Millions of Dollars)	Balance Sheet Location	Con Edison			CECONY
Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:
Current	Deferred derivative gains		$ (1)			$ (1)
Total deferred gains			$ (1)			$ (1)
Current	Deferred derivative losses		$ 66			$ 55
Current	Recoverable energy costs		(63	)		(56	)
Long-term	Deferred derivative losses		8			16
Total deferred losses			$ 11			$ 15
Net deferred gains/(losses)			$ 10			$ 14
	Income Statement Location
Pre-tax gain/(loss) recognized in income
	Purchased power expense		$ 27	(b)		$ —
	Gas purchased for resale		(1	)		—
	Non-utility revenue		(8	)(b)		—
Total pre-tax gain/(loss) recognized in income			$ 18			$ —

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.

(b) For the three months ended June 30, 2012, Con Edison recorded in non-utility revenues and purchased power expense an unrealized pre-tax (loss)/gain of $(9) million and $72 million, respectively.

Realized and Unrealized Gains/(Losses) on Commodity Derivatives (a) Deferred or Recognized in Income for the Six Months Ended June 30, 2012
(Millions of Dollars)	Balance Sheet Location	Con Edison			CECONY
Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:
Current	Deferred derivative gains		$    —			$    —
Total deferred gains			$    —			$    —
Current	Deferred derivative losses		$   38			$   36
Current	Recoverable energy costs		(127	)		(112	)
Long-term	Deferred derivative losses		(11	)		(1	)
Total deferred losses			$(100	)		$  (77	)
Net deferred gains/(losses)			$(100	)		$  (77	)
	Income Statement Location
Pre-tax gain/(loss) recognized in income
	Purchased power expense		$  (59	)(b)		$    —
	Gas purchased for resale		(2	)		—
	Non-utility revenue		(11	)(b)		—
Total pre-tax gain/(loss) recognized in income			$  (72	)		$    —

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.

(b) For the six months ended June 30, 2012, Con Edison recorded in non-utility revenues and purchased power expense an unrealized pre-tax (loss)/gain of $(13) million and $45 million, respectively.

The following tables present the changes in the fair values of commodity derivatives that have been deferred or recognized in earnings for the three and six months ended June 30, 2011:

Realized and Unrealized Gains/(Losses) on Commodity Derivatives (a) Deferred or Recognized in Income for the Three Months Ended June 30, 2011
(Millions of Dollars)	Balance Sheet Location	Con Edison			CECONY
Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:
Current	Deferred derivative gains		$   (4)			$   (4)
Long-term	Regulatory liabilities		(1	)		—
Total deferred gains			$   (5)			$   (4)
Current	Deferred derivative losses		$  25			$   18
Current	Recoverable energy costs		(53	)		(39	)
Long-term	Regulatory assets		12			9
Total deferred losses			$ (16)			$ (12)
Net deferred gains/(losses)			$ (21)			$ (16)
	Income Statement Location
Pre-tax gain/(loss) recognized in income
	Purchased power expense		$  73	(b)		$    —
	Gas purchased for resale		17			—
	Non-utility revenue		7	(b)		—
Total pre-tax gain/(loss) recognized in income			$  97			$    —

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.

(b) For the three months ended June 30, 2011, Con Edison recorded in non-utility revenues and purchased power expense an unrealized pre-tax (loss)/gain of $(12) million and $10 million, respectively.

Realized and Unrealized Gains/(Losses) on Commodity Derivatives (a) Deferred or Recognized in Income for the Six Months Ended June 30, 2011
(Millions of Dollars)	Balance Sheet Location	Con Edison			CECONY
Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:
Current	Deferred derivative gains		$      2			$   1
Long-term	Regulatory liabilities		2			2
Total deferred gains			$      4			$   3
Current	Deferred derivative losses		$    69			$ 53
Current	Recoverable energy costs		(102	)		(81	)
Long-term	Regulatory assets		28			20
Total deferred losses			$     (5	)		$  (8	)
Net deferred losses			$     (1	)		$  (5	)
	Income Statement Location
Pre-tax gain/(loss) recognized in income
	Purchased power expense		$ 52	(b)		$  —
	Gas purchased for resale		11			—
	Non-utility revenue		17	(b)		—
Total pre-tax gain/(loss) recognized in income			$    80			$  —

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.

(b) For the six months ended June 30, 2011, Con Edison recorded in non-utility revenues and purchased power expense an unrealized pre-tax loss/(gain) of $(25) million and $60 million, respectively.

As of June 30, 2012, Con Edison had 1,483 contracts, including 706 CECONY contracts, which were considered to be derivatives under the accounting rules for derivatives and hedging (excluding qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts). The following table presents the number of contracts by commodity type:

	Electric Derivatives								Gas Derivatives
	Number of Energy Contracts (a)		MWhs (b)		Number of Capacity Contracts (a)		MWs (b)		Number of Contracts (a)		Dths (b)		Total Number of Contracts (a)
Con Edison		681		16,351,706		77		12,273		725		96,403,140		1,483
CECONY		137		3,879,800		—		—		569		89,220,000		706

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.

(b) Volumes are reported net of long and short positions.

The Companies also enter into electric congestion and gas basis swap contracts to hedge the congestion and transportation charges which are associated with electric and gas contracts and hedged volumes.

The collateral requirements associated with the clearing and settlement of derivative transactions are included in net cash flows from operating activities in the Companies’ consolidated statement of cash flows. Most derivative instrument contracts contain provisions that may require the Companies to provide collateral on derivative instruments in net liability positions. The amount of collateral to be provided will depend on the fair value of the derivative instruments and the Companies’ credit ratings.

The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a net liability position and collateral posted at June 30, 2012, and the additional collateral that would have been required to be posted had the lowest applicable credit rating been reduced one level and to below investment grade were:

(Millions of Dollars)	Con Edison (a)			CECONY (a)
Aggregate fair value – net liabilities		$124			$84
Collateral posted		$  62			$56
Additional collateral (b) (downgrade one level from current ratings (c))		$    9			$  3
Additional collateral (b) (downgrade to below investment grade from current ratings (c))		$101	(d)		$46	(d)

(a) Non-derivative transactions for the purchase and sale of electricity and gas and qualifying derivative instruments, which have been designated as normal purchases or normal sales, are excluded from the table. These transactions primarily include purchases of electricity from independent system operators. In the event the Utilities and Con Edison’s competitive energy businesses were no longer extended unsecured credit for such purchases, the Companies would be required to post collateral, which at June 30, 2012, would have amounted to an estimated $28 million for Con Edison, including $0 million for CECONY. For certain other such non-derivative transactions, the Companies could be required to post collateral under certain circumstances, including in the event counterparties had reasonable grounds for insecurity.

(b) The Companies measure the collateral requirements by taking into consideration the fair value amounts of derivative instruments that contain credit-risk-related contingent features that are in a net liabilities position plus amounts owed to counterparties for settled transactions and amounts required by counterparties for minimum financial security. The fair value amounts represent unrealized losses, net of any unrealized gains where the Companies have a legally enforceable right of setoff.

(c) The current ratings are Moody’s, S&P and Fitch long-term credit rating of, as applicable, Con Edison (Baa1/BBB+/BBB+), CECONY (A3/A-/A-) or O&R (Baa1/A-/A-). Credit ratings assigned by rating agencies are expressions of opinions that are subject to revision or withdrawal at any time by the assigning rating agency.

(d) Derivative instruments that are net assets have been excluded from the table. At June 30, 2012, if Con Edison had been downgraded to below investment grade, it would have been required to post additional collateral for such derivative instruments of $24 million.

Interest Rate Swaps

O&R has an interest rate swap pursuant to which it pays a fixed-rate of 6.09 percent and receives a LIBOR-based variable rate. The fair value of this interest rate swap at June 30, 2012 was an unrealized loss of $7 million, which has been included in Con Edison’s consolidated balance sheet as a noncurrent liability/fair value of derivative liabilities and a regulatory asset. The increase in the fair value of the swap for the three and six months ended June 30, 2012 was $1 million. In the event O&R’s credit rating was downgraded to BBB- or lower by S&P or Baa3 or lower by Moody’s, the swap counterparty could elect to terminate the agreement and, if it did so, the parties would then be required to settle the transaction.