Pension Benefits

12 Months Ended

Dec. 31, 2013

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 2013, 2012, and 2011 were as follows:


	Con Edison									CECONY
(Millions of Dollars)	2013			2012			2011			2013			2012			2011
Service cost – including administrative expenses	$	267		$	237		$	190		$	249		$	220		$	177
Interest cost on projected benefit obligation		537			547			560			503			513			524
Expected return on plan assets		(750	)		(705	)		(734	)		(713	)		(670	)		(698	)
Recognition of net actuarial loss		832			709			530			788			670			501
Recognition of prior service costs		5			8			8			4			6			6
NET PERIODIC BENEFIT COST	$	891		$	796		$	554		$	831		$	739		$	510
Amortization of regulatory asset*		2			2			2			2			2			2
TOTAL PERIODIC BENEFIT COST	$	893		$	798		$	556		$	833		$	741		$	512
Cost capitalized		(348	)		(277	)		(185	)		(327	)		(260	)		(172	)
Reconciliation to rate level		(84	)		(8	)		(65	)		(87	)		(12	)		(68	)
Cost charged to operating expenses	$	461		$	513		$	306		$	419		$	469		$	272

*	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, 2013, 2012, and 2011 was as follows:


	Con Edison									CECONY
(Millions of Dollars)	2013			2012			2011			2013			2012			2011
CHANGE IN PROJECTED BENEFIT OBLIGATION
Projected benefit obligation at beginning of year	$	13,406		$	11,825		$	10,307		$	12,572		$	11,072		$	9,653
Service cost – excluding administrative expenses		259			224			186			241			209			174
Interest cost on projected benefit obligation		537			547			560			503			513			524
Net actuarial (gain)/loss		(1,469	)		1,323			1,251			(1,388	)		1,255			1,166
Benefits paid		(536	)		(513	)		(479	)		(499	)		(477	)		(445	)
PROJECTED BENEFIT OBLIGATION AT END OF YEAR	$	12,197		$	13,406		$	11,825		$	11,429		$	12,572		$	11,072
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year	$	9,135		$	7,800		$	7,721		$	8,668		$	7,406		$	7,340
Actual return on plan assets		1,310			1,094			37			1,241			1,040			33
Employer contributions		879			785			542			819			729			498
Benefits paid		(536	)		(513	)		(479	)		(499	)		(477	)		(445	)
Administrative expenses		(33	)		(31	)		(21	)		(32	)		(30	)		(20	)
FAIR VALUE OF PLAN ASSETS AT END OF YEAR	$	10,755		$	9,135		$	7,800		$	10,197		$	8,668		$	7,406
FUNDED STATUS	$	(1,442	)	$	(4,271	)	$	(4,025	)	$	(1,232	)	$	(3,904	)	$	(3,666	)
Unrecognized net loss	$	2,759		$	5,594		$	5,351		$	2,617		$	5,297		$	5,063
Unrecognized prior service costs		17			23			30			6			10			16
Accumulated benefit obligation		11,004			11,911			10,595			10,268			11,116			9,876

The decrease in the pension plan’s projected benefit obligation (due primarily to increased discount rates) and an increase in actual return on plan assets, were the primary drivers in the decreased pension liability at Con Edison and CECONY of $2,829 million and $2,672 million, respectively, compared with December 31, 2012. For Con Edison, this decrease in pension liability resulted in a decrease to regulatory assets of $2,799 million for unrecognized net losses and unrecognized prior service costs associated with the Utilities consistent with the accounting rules for regulated operations and a credit to OCI of $24 million (net of taxes) for the unrecognized net losses and an immaterial change to OCI (net of taxes) for the unrecognized prior service costs associated with the competitive energy businesses and O&R’s New Jersey and Pennsylvania utility subsidiaries.

For CECONY, the decrease in pension liability resulted in a decrease to regulatory assets of $2,677 million for unrecognized net losses and unrecognized prior service costs consistent with the accounting rules for regulated operations, a credit to OCI of $3 million (net of taxes) for unrecognized net losses, and an immaterial change to OCI (net of taxes) for the unrecognized prior service costs associated with the competitive energy businesses.

A portion of the unrecognized net loss and prior service cost for the pension plan, equal to $619 million and $4 million, respectively, will be recognized from accumulated OCI and the regulatory asset into net periodic benefit cost over the next year for Con Edison. Included in these amounts are $586 million and $2 million, respectively, for CECONY.

At December 31, 2013 and 2012, Con Edison’s investments include $201 million and $164 million, respectively, held in external trust accounts for benefit payments pursuant to the supplemental retirement plans. Included in these amounts for CECONY were $183 million and $148 million, respectively. See Note P. The accumulated benefit obligations for the supplemental retirement plans for Con Edison and CECONY were $234 million and $199 million as of December 31, 2013 and $231 million and $193 million as of December 31, 2012, respectively.

Assumptions

The actuarial assumptions were as follows:


	2013			2012			2011
Weighted-average assumptions used to determine benefit obligations at December 31:
Discount rate		4.80	%		4.10	%		4.70	%
Rate of compensation increase
– CECONY		4.35	%		4.35	%		4.35	%
– O&R		4.25	%		4.25	%		4.25	%
Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31:
Discount rate		4.10	%		4.70	%		5.60	%
Expected return on plan assets		8.00	%		8.00	%		8.50	%
Rate of compensation increase
– CECONY		4.35	%		4.35	%		4.35	%
– O&R		4.25	%		4.25	%		4.25	%

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 (Aa or higher by either Moody’s Investors Service (Moody’s) or Standard & Poor’s) 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 percent and 200 percent of the original price, the yield must lie between 1 percent and 20 percent, and the amount of the bond issue outstanding must be in excess of $50 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)	2014		2015		2016		2017		2018		2019-2023
Con Edison	$	578	$	600	$	621	$	640	$	659	$	3,527
CECONY		539		559		578		596		614		3,280

Expected Contributions

Based on estimates as of December 31, 2013, the Companies expect to make contributions to the pension plan during 2014 of $575 million (of which $536 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 2013, 2012, and 2011, and the target allocation for 2014 are as follows:


	Target Allocation Range		Plan Assets at December 31
Asset Category	2014		2013			2012			2011
Equity Securities		55% - 65%		60	%		60	%		61	%
Debt Securities		27% - 33%		30	%		31	%		32	%
Real Estate		8% - 12%		10	%		9	%		7	%
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 2014 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, 2013 by asset category are as follows:


(Millions of Dollars)	Level 1			Level 2			Level 3			Total
U.S. Equity(a)	$	3,057		$	-		$	-		$	3,057
International Equity(b)		2,303			871			-			3,174
Private Equity(c)		-			-			67			67
U.S. Government Issued Debt(d)		-			1,855			-			1,855
Corporate Bonds Debt(e)		-			1,151			-			1,151
Structured Assets Debt(f)		-			4			-			4
Other Fixed Income Debt(g)		-			150			-			150
Real Estate(h)		-			-			1,062			1,062
Cash and Cash Equivalents(i)		127			558			-			685
Futures(j)		348			-			-			348
Hedge Funds(k)		-			-			206			206
Total investments	$	5,835		$	4,589		$	1,335		$	11,759
Funds for retiree health benefits(l)		(185	)		(145	)		(42	)		(372	)
Investments (excluding funds for retiree health benefits)	$	5,650		$	4,444		$	1,293		$	11,387
Pending activities(m)											(632	)
Total fair value of plan net assets										$	10,755

(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)	Private Equity consists of global equity funds that are not exchange-traded.

(d)	U.S. Government Issued Debt includes agency and treasury securities.

(e)	Corporate Bonds Debt consists of debt issued by various corporations.

(f)	Structured Assets Debt includes commercial-mortgage-backed securities and collateralized mortgage obligations.

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

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

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

(j)	Futures consist of exchange-traded financial contracts encompassing U.S. Equity, International Equity and U.S. Government indices.

(k)	Hedge Funds are within a commingled structure which invests in various hedge fund managers who can invest in all financial instruments.

(l)

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.

(m)	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, 2013 classified as Level 3 in the fair value hierarchy.


(Millions of Dollars)	Beginning Balance as of January 1, 2013			Assets Still Held at Reporting Date – Unrealized Gains/ (Losses)			Assets Sold During the Year – Realized Gains/(Losses)		Purchases Sales and Settlements			Transfer In/(Out) of Level 3		Ending Balance as of December 31, 2013
Real Estate	$	833		$	114		$	1	$	114		$	-	$	1,062
Private Equity		20			5			-		42			-		67
Hedge Funds		-			6			-		200			-		206
Total investments	$	853		$	125		$	1	$	356		$	-	$	1,335
Funds for retiree health benefits		(31	)		(3	)		-		(8	)		-		(42	)
Investments (excluding funds for retiree health benefits)	$	822		$	122		$	1	$	348		$	-	$	1,293

The fair values of the pension plan assets at December 31, 2012 by asset category are as follows:


(Millions of Dollars)	Level 1			Level 2			Level 3			Total
U.S. Equity(a)	$	2,637		$	-		$	-		$	2,637
International Equity(b)		2,242			753			-			2,995
Private Equity(c)		-			-			20			20
U.S. Government Issued Debt(d)		-			1,626			-			1,626
Corporate Bonds Debt(e)		-			993			-			993
Structured Assets Debt(f)		-			30			-			30
Other Fixed Income Debt(g)		-			123			-			123
Real Estate(h)		-			-			833			833
Cash and Cash Equivalents(i)		83			328			-			411
Futures(j)		210			-			-			210
Total investments	$	5,172		$	3,853		$	853		$	9,878
Funds for retiree health benefits(k)		(185	)		(137	)		(31	)		(353	)
Investments (excluding funds for retiree health benefits)	$	4,987		$	3,716		$	822		$	9,525
Pending activities(l)											(390	)
Total fair value of plan net assets										$	9,135

(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)	Private Equity consists of global equity funds that are not exchange-traded.

(d)	U.S. Government Issued Debt includes agency and treasury securities.

(e)	Corporate Bonds Debt consists of debt issued by various corporations.

(f)	Structured Assets Debt includes commercial-mortgage-backed securities and collateralized mortgage obligations.

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

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

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

(j)	Futures consist of exchange-traded financial contracts encompassing U.S. Equity, International Equity and U.S. Government indices.

(k)

(l)	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, 2012 classified as Level 3 in the fair value hierarchy.


(Millions of Dollars)	Beginning Balance as of January 1, 2012			Assets Still Held at Reporting Date – Unrealized Gains/(Losses)			Assets Sold During the Year – Realized Gains/(Losses)			Purchases Sales and Settlements			Transfer In/(Out) of Level 3			Ending Balance as of December 31, 2012
Real Estate	$	572		$	48		$	1		$	212		$	-		$	833
Private Equity		-			1			-			19			-			20
Corporate Bonds		94			-			-			(33	)		(61	)		-
Structured Assets		13			-			(6	)		-			(7	)		-
Other Fixed Income		29			-			-			(6	)		(23	)		-
Total investments	$	708		$	49		$	(5	)	$	192		$	(91	)	$	853
Funds for retiree health benefits		(28	)		(2	)		-			(4	)		3			(31	)
Investments (excluding funds for retiree health benefits)	$	680		$	47		$	(5	)	$	188		$	(88	)	$	822

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)	2013		2012		2011
Con Edison	$	30	$	23	$	23
CECONY		26		21		21

CECONY [Member]

Pension Benefits