Regulatory Matters

6 Months Ended

Jun. 30, 2013

Note B — Regulatory Matters

Rate Agreements

CECONY – Electric, Gas and Steam

In January 2013, CECONY filed requests for electric, gas and steam rate changes, effective January 1, 2014. The company requested electric and gas rate increases of $375 million and $25 million, respectively, and a steam rate decrease of $5 million, reflecting, among other things, a return on common equity of 10.35 percent and a common equity ratio of approximately 50 percent. In May 2013, the New York State Public Service Commission (NYSPSC) staff submitted testimony which, as revised in July 2013, supports decreases in the company’s electric, gas and steam rates of $187 million, $122 million and $28 million, respectively, reflecting, among other things, a return on common equity of 8.7 percent and a common equity ratio of 48 percent. In June 2013, to update its rate change requests, the company submitted testimony supporting increases in its electric, gas and steam rates of $425 million, $26 million and $11 million, respectively, reflecting, among other things, a return on common equity of 10.1 percent and a common equity ratio of approximately 50 percent.

Other Regulatory Matters

In February 2009, the NYSPSC commenced a proceeding to examine the prudence of certain CECONY expenditures following the arrests of employees for accepting illegal payments from a construction contractor. Subsequently, additional employees were arrested for accepting illegal payments from materials suppliers and an engineering firm. The arrested employees were terminated by the company and have pled guilty or been convicted. Pursuant to NYSPSC orders, a portion of the company’s revenues (currently, $249 million, $32 million and $6 million on an annual basis for electric, gas and steam service, respectively) is being collected subject to potential refund to customers. The amount of electric revenues collected subject to refund, which was established in a different proceeding, and the amount of gas and steam revenues collected subject to refund were not established as indicative of the company’s potential liability in this proceeding. At June 30, 2013, the company had collected an estimated $1,246 million from customers subject to potential refund in connection with this proceeding. In January 2013, a NYSPSC consultant reported its estimate, with which the company does not agree, of $208 million of overcharges with respect to a substantial portion of the company’s construction expenditures from January 2000 to January 2009. The company is disputing the consultant’s estimate, including its determinations as to overcharges regarding specific construction expenditures it selected to review and its methodology of extrapolating such determinations over a substantial portion of the construction expenditures during this period. The NYSPSC’s consultant has not reviewed the company’s other expenditures. The company and NYSPSC staff are exploring a settlement in this proceeding. There is no assurance that there will be a settlement, and any settlement would be subject to NYSPSC approval. At June 30, 2013, the company had a $16 million regulatory liability for refund to customers of amounts recovered from vendors, arrested employees and insurers relating to this matter. The company is unable to estimate the amount, if any, by which any refund required by the NYSPSC may exceed this regulatory liability. The company currently estimates that any refund required by the NYSPSC could range in amount from the $16 million regulatory liability up to an amount based on the NYSPSC consultant’s $208 million estimate of overcharges.

In late October 2012, Superstorm Sandy caused extensive damage to the Utilities’ electric distribution system and interrupted service to approximately 1.4 million customers. Superstorm Sandy also damaged CECONY’s steam system and interrupted service to many of its steam customers. As of June 30, 2013, CECONY and O&R incurred response and restoration costs for Superstorm Sandy of $457 million and $93 million, respectively (including capital expenditures of $141 million and $15 million, respectively). Most of the costs that were not capitalized were deferred for recovery as a regulatory asset under the Utilities’ electric rate plans. See “Regulatory Assets and Liabilities” below. The Utilities’ New York electric rate plans include provisions for revenue decoupling, as a result of which delivery revenues generally are not affected by changes in delivery volumes from levels assumed when rates were approved. The provisions of the Utilities’ New York electric plans that impose penalties for operating performance provide for exceptions for major storms and catastrophic events beyond the control of the companies, including natural disasters such as hurricanes and floods. The NYSPSC and the New York State Attorney General are investigating the preparation and performance of the Utilities in connection with Superstorm Sandy and other major storms.

In June 2013, a commission appointed by the Governor of New York issued its final report on utility storm preparation and response. The commission identified deficiencies in the performance of the Utilities and other New York utilities and made recommendations regarding, among other things, preparation and response to flooding; estimation of customer restoration times; reliability of website outage maps; coordination with local governments and providers of other utility services; availability and allocation of staffing and other resources (including the utility industry’s mutual aid process); and communications with affected communities and local officials. The commission’s report also addressed the Long Island Power Authority, energy efficiency programs, utility infrastructure investment and regulatory deficiencies.

In March 2013, the New Jersey Board of Public Utilities established a proceeding to review the prudency of costs incurred by New Jersey utilities, including Rockland Electric Company (RECO, an O&R subsidiary), in response to major storm events in 2011 and 2012. At June 30, 2013, RECO had $29 million of storm costs deferred for recovery as a regulatory asset and had incurred $6 million of capital expenditures related to the storms.

Regulatory Assets and Liabilities

Regulatory assets and liabilities at June 30, 2013 and December 31, 2012 were comprised of the following items:


	Con Edison				CECONY
*(Millions of Dollars)*	2013		2012		2013		2012
Regulatory assets
Unrecognized pension and other postretirement costs		$5,227		$5,677		$4,985		$5,407
Future income tax		1,996		1,922		1,889		1,831
Environmental remediation costs		713		730		599		615
Deferred storm costs		454		432		336		309
Pension and other postretirement benefits deferrals		201		183		170		154
Revenue taxes		183		176		176		170
Net electric deferrals		92		102		92		102
Unamortized loss on reacquired debt		69		74		66		70
Surcharge for New York State assessment		55		73		53		68
Deferred derivative losses – long-term		41		40		20		20
O&R transition bond charges		36		39		—		—
Preferred stock redemption		29		29		29		29
Workers’ compensation		18		19		18		19
Property tax reconciliation		18		16		—		—
Other		172		193		162		178
Regulatory assets – long-term		9,304		9,705		8,595		8,972
Deferred derivative losses – current		55		69		51		60
Recoverable energy costs – current		1		5		—		—
Regulatory assets – current		56		74		51		60
Total Regulatory Assets		$9,360		$9,779		$8,646		$9,032
Regulatory liabilities
Allowance for cost of removal less salvage		$ 518		$ 503		$ 433		$ 420
Property tax reconciliation		273		187		273		187
Net unbilled revenue deferrals		137		136		137		136
Long-term interest rate reconciliation		83		62		83		62
World Trade Center settlement proceeds		62		62		62		62
Carrying charges on T&D net plant – electric and steam		26		31		14		13
Expenditure prudence proceeding		16		14		16		14
Other		278		207		251		183
Regulatory liabilities – long-term		1,393		1,202		1,269		1,077
Refundable energy costs – current		63		82		32		48
Revenue decoupling mechanism		23		72		21		68
Deferred derivative gains – current		2		—		1		—
Electric surcharge offset		—		29		—		29
Regulatory liabilities – current		88		183		54		145
Total Regulatory Liabilities		$1,481		$1,385		$1,323		$1,222

“Deferred storm costs” represent response and restoration costs, other than capital expenditures, in connection with Superstorm Sandy and other major storms that were deferred by the Utilities. See “Other Regulatory Matters,” above.

CECONY [Member]