Other Postretirement Benefits

12 Months Ended

Dec. 31, 2013

Note F — Other Postretirement Benefits

The Utilities currently have contributory comprehensive hospital, medical and prescription drug programs for all retirees, their dependents and surviving spouses.

CECONY also has a contributory life insurance program for bargaining unit employees and provides basic life insurance benefits up to a specified maximum at no cost to retired management employees. O&R has a non-contributory life insurance program for retirees. Certain employees of Con Edison’s competitive energy businesses are eligible to receive benefits under these programs.

Net Periodic Benefit Cost

The components of the Companies’ net periodic postretirement benefit costs for 2013, 2012, and 2011 were as follows:


	Con Edison									CECONY
(Millions of Dollars)	2013			2012			2011			2013			2012			2011
Service cost	$	23		$	26		$	26		$	18		$	21		$	20
Interest cost on accumulated other postretirement benefit obligation		54			73			83			46			63			72
Expected return on plan assets		(77	)		(85	)		(88	)		(68	)		(75	)		(78	)
Recognition of net actuarial loss		65			98			88			57			87			80
Recognition of prior service cost		(27	)		(21	)		(10	)		(23	)		(18	)		(11	)
Recognition of transition obligation		-			2			4			-			2			4
NET PERIODIC POSTRETIREMENT BENEFIT COST	$	38		$	93		$	103		$	30		$	80		$	87
Cost capitalized		(15	)		(32	)		(35	)		(12	)		(28	)		(29	)
Reconciliation to rate level		58			20			14			50			16			13
Cost charged to operating expenses	$	81		$	81		$	82		$	68		$	68		$	71

Funded Status

The funded status of the programs at December 31, 2013, 2012, and 2011 were as follows:


	Con Edison									CECONY
(Millions of Dollars)	2013			2012			2011			2013			2012			2011
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year	$	1,454		$	1,756		$	1,642		$	1,238		$	1,511		$	1,426
Service cost		23			26			25			18			21			20
Interest cost on accumulated postretirement benefit obligation		54			73			83			46			63			72
Amendments		-			(127	)		-			-			(89	)		-
Net actuarial loss/(gain)		(42	)		(175	)		109			(20	)		(178	)		86
Benefits paid and administrative expenses		(136	)		(146	)		(144	)		(126	)		(134	)		(132	)
Participant contributions		38			37			33			38			36			32
Medicare prescription subsidy		4			10			8			4			8			7
BENEFIT OBLIGATION AT END OF YEAR	$	1,395		$	1,454		$	1,756		$	1,198		$	1,238		$	1,511
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year	$	1,047		$	947		$	942		$	922		$	840		$	839
Actual return on plan assets		153			124			20			134			109			19
Employer contributions		9			83			84			9			71			74
EGWP payments		8			-			-			7			-			-
Participant contributions		38			37			33			38			36			32
Benefits paid		(142	)		(144	)		(132	)		(133	)		(134	)		(124	)
FAIR VALUE OF PLAN ASSETS AT END OF YEAR	$	1,113		$	1,047		$	947		$	977		$	922		$	840
FUNDED STATUS	$	(282	)	$	(407	)	$	(809	)	$	(221	)	$	(316	)	$	(671	)
Unrecognized net loss	$	70		$	251		$	563		$	54		$	197		$	496
Unrecognized prior service costs		(78	)		(105	)		(1	)		(61	)		(84	)		(15	)
Unrecognized net transition liability at January 1, 1993		-			-			4			-			-			4

In 2012, the Utilities amended their postretirement life and health benefit plans for management employees, resulting in a reduction to the obligation of $102 million. Also in 2012, the Utilities amended the retiree contributions for supplemental postretirement life insurance for CECONY management and weekly retirees, resulting in a reduction to the obligation of $25 million. Also in 2012, the Utilities elected to change the method of receiving the subsidy under Medicare Part D for retiree prescription drug coverage from the Retiree Drug Subsidy to the Employer Group Waiver Plan (EGWP) beginning in January 2013. Participation in the EGWP allows Con Edison to offer substantially the same postretirement benefits to eligible participants while increasing subsidy reimbursements received by the plans from the Federal Government. This change was effective January 2013 and, as a result, the Utilities recognized a reduction to its postretirement health benefit obligation of $306 million as of December 31, 2012, which was recorded as an actuarial gain.

The decrease in the value of the other postretirement benefit plan obligation (due primarily to increased discount rates) and an increase in actual return on plan assets, were the primary drivers in the decreased liability for other postretirement benefits at Con Edison and CECONY of $125 million and $95 million, respectively, compared with December 31, 2012. For Con Edison, this decreased liability resulted in a decrease to regulatory assets of $148 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 $4 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 liability resulted in a decrease to regulatory assets of $120 million for unrecognized net losses and unrecognized prior service costs associated with the company consistent with the accounting rules for regulated operations and an immaterial change to OCI for unrecognized net losses and unrecognized prior service costs associated with the competitive energy businesses.

A portion of the unrecognized net losses and prior service costs for the other postretirement benefits, equal to $59 million and $(19) 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 $52 million and $(15) million, respectively, for CECONY.

Assumptions

The actuarial assumptions were as follows:


	2013			2012			2011
Weighted-average assumptions used to determine benefit obligations at December 31:
Discount Rate
CECONY		4.50	%		3.75	%		4.55	%
O&R		4.75	%		4.05	%		4.55	%
Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31:
Discount Rate
CECONY		3.75	%		4.55	%		5.40	%
O&R		4.05	%		4.55	%		5.40	%
Expected Return on Plan Assets		7.75	%		8.50	%		8.50	%

Refer to Note E for descriptions of the basis for determining the expected return on assets, investment policies and strategies, and the assumed discount rate.

The health care cost trend rate used to determine net periodic benefit cost for the year ended December 31, 2013 was 5.75 percent, which is assumed to decrease gradually to 4.50 percent by 2018 and remain at that level thereafter. The health care cost trend rate used to determine benefit obligations as of December 31, 2013 was 5.50 percent, which is assumed to decrease gradually to 4.50 percent by 2018 and remain at that level thereafter.

A one-percentage point change in the assumed health care cost trend rate would have the following effects at December 31, 2014:


	Con Edison					CECONY
	1-Percentage-Point
(Millions of Dollars)	Increase			Decrease		Increase			Decrease
Effect on accumulated other postretirement benefit obligation	$	(35	)	$	27	$	(53	)	$	41
Effect on service cost and interest cost components for 2013		(2	)		1		(4	)		3

Expected Benefit Payments

Based on current assumptions, the Companies expect to make the following benefit payments over the next ten years, net of receipt of governmental subsidies:


(Millions of Dollars)	2014		2015		2016		2017		2018		2019-2023
BENEFIT PAYMENTS
Con Edison	$	105	$	105	$	102	$	101	$	99	$	465
CECONY		94		94		91		89		88		403

Expected Contributions

Based on estimates as of December 31, 2013, Con Edison expects to make a contribution of $7 million, nearly all of which is for CECONY, to the other postretirement benefit plans in 2014.

Plan Assets

The asset allocations for CECONY’s other postretirement benefit plans 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	57% - 73%		61	%		62	%		62%
Debt Securities	26% - 44%		39	%		38	%		38%
Total	100%		100	%		100	%		100%

Con Edison has established postretirement health and life insurance benefit plan trusts for the investment of assets to be used for the exclusive purpose of providing other postretirement benefits to participants and beneficiaries.

Refer to Note E for a discussion of Con Edison’s investment policy for its benefit plans.

The fair values of the plan assets at December 31, 2013 by asset category (see description of levels in Note E) are as follows:


(Millions of Dollars)	Level 1		Level 2		Level 3		Total
Equity(a)	$	-	$	450	$	-	$	450
Other Fixed Income Debt(b)		-		286		-		286
Cash and Cash Equivalents(c)		-		7		-		7
Total investments	$	-	$	743	$	-	$	743
Funds for retiree health benefits(d)		185		145		42		372
Investments (including funds for retiree health benefits)	$	185	$	888	$	42	$	1,115
Pending activities(e)								(2	)
Total fair value of plan net assets							$	1,113

(a)	Equity includes a passively managed commingled index fund benchmarked to the MSCI All Country World Index.

(b)	Other Fixed Income Debt includes a passively managed commingled index fund benchmarked to the Barclays Capital Aggregate Index.

(c)	Cash and Cash Equivalents include short term investments and money markets.

(d)

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 E.

(e)	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		Transfers In/(Out) of Level 3		Ending Balance as of December 31, 2013
Total investments	$	-	$	-	$	-	$	-	$	-	$	-
Funds for retiree health benefits		31		3		-		8		-		42
Investments (including funds for retiree health benefits)	$	31	$	3	$	-	$	8	$	-	$	42

The fair values of the plan assets at December 31, 2012 by asset category (see description of levels in Note E) are as follows:


(Millions of Dollars)	Level 1		Level 2		Level 3		Total
U.S. Equity(a)	$	127	$	184	$	-	$	311
International Equity(b)		-		124		-		124
Other Fixed Income(c)		-		229		-		229
Cash and Cash Equivalents(d)		-		23		-		23
Total investments	$	127	$	560	$	-	$	687
Funds for retiree health benefits(e)		185		137		31		353
Investments (including funds for retiree health benefits)	$	312	$	697	$	31	$	1,040
Pending activities(f)								7
Total fair value of plan net assets							$	1,047

(a)	U.S. Equity includes both actively-and passively-managed assets with investments in domestic equity index funds and commingled funds.

(b)	International Equity includes commingled international equity funds.

(c)	Other Fixed Income includes commingled funds, which are valued at Net Asset Value.

(d)	Cash and Cash Equivalents include short term investments and money markets.

(e)

(f)	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		Transfers In/(Out) of Level 3			Ending Balance as of December 31, 2012
Total investments	$	-	$	-	$	-	$	-	$	-		$	-
Funds for retiree health benefits		28		2		-		4		(3	)		31
Investments (including funds for retiree health benefits)	$	28	$	2	$	-	$	4	$	(3	)	$	31

CECONY [Member]

Other Postretirement Benefits