Stock-Based Compensation

12 Months Ended

Dec. 31, 2013

Note M – Stock-Based Compensation

The Companies may compensate employees and directors with, among other things, stock options, stock units, restricted stock units and contributions to the stock purchase plan. The 1996 Stock Option Plan, under which no new awards may be issued, provided for awards of stock options to officers and employees. The last awards under the 1996 Stock Option Plan expired in 2013. The Long Term Incentive Plan, approved by Con Edison’s shareholders in 2003 (the 2003 LTIP), and the Long Term Incentive Plan, approved by Con Edison’s shareholders in 2013 (2013 LTIP), are collectively referred to herein as the LTIP. The LTIP provides for, among other things, awards to employees of restricted stock units and stock options and, to Con Edison’s non-employee directors, stock units. Existing awards under the 2003 LTIP continue in effect, however no new awards may be issued under the 2003 LTIP. The 2013 LTIP provides for awards for up to five million shares of common stock.

Shares of Con Edison common stock used to satisfy the Companies’ obligations with respect to stock-based compensation may be new (authorized, but unissued) shares, treasury shares or shares purchased in the open market. The Companies intend to use treasury shares to fulfill their stock-based compensation obligations for 2014.

Under the accounting rules for stock compensation, the Companies have recognized the cost of stock-based compensation as an expense using a fair value measurement method. The following table summarizes stock-based compensation expense recognized by the Companies in the years ended December 31, 2013, 2012, and 2011:


	Con Edison						CECONY
(Millions of Dollars)	2013		2012		2011		2013		2012		2011
Performance-based restricted stock	$	20	$	14	$	48	$	18	$	13	$	44
Time-based restricted stock		2		1		3		2		1		3
Non-employee director deferred stock compensation		2		1		1		2		1		1
Total	$	24	$	16	$	52	$	22	$	15	$	48
Income Tax Benefit	$	10	$	6	$	21	$	9	$	6	$	20

Stock Options

The Companies last issued stock options in 2006. The stock options generally vested over a three-year period and have a term of ten years. Options were granted at an exercise price equal to the fair market value of a common share when the option was granted. The Companies generally recognized compensation expense (based on the fair value of stock option awards) over the continuous service period in which the options vested. Awards to employees eligible for retirement were expensed in the month awarded.

The outstanding options are “equity awards” because shares of Con Edison common stock are delivered upon exercise of the options. As equity awards, the fair value of the options is measured at the grant date. There were no options granted in 2013 and 2012.

A summary of changes in the status of stock options awarded as of December 31, 2013 is as follows:


	Con Edison					CECONY
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding at 12/31/12		606,475		$	43.008		481,175		$	42.973
Exercised		(123,165	)		41.539		(98,165	)		41.553
Forfeited		(2,000	)		43.170		(2,000	)		43.170
Outstanding at 12/31/13		481,310		$	43.383		381,010		$	43.338

The changes in the fair value of all outstanding options from their grant dates to December 31, 2013 and 2012 (aggregate intrinsic value) for Con Edison were $6 million and $8 million, respectively. The changes in the fair value of all outstanding options from their grant dates to December 31, 2013 and 2012 (aggregate intrinsic value) for CECONY were $5 million and $6 million, respectively. The aggregate intrinsic value of options exercised in 2013 and 2012 were $2 million and $5 million, respectively, and the cash received by Con Edison for payment of the exercise price was $5 million and $14 million, respectively. The weighted average remaining contractual life of options outstanding is one year as of December 31, 2013.

The following table summarizes stock options outstanding at December 31, 2013 for each plan year for the Companies:


			Con Edison				CECONY
Plan Year	Remaining Contractual Life		Options Outstanding/ Exercisable		Weighted Average Exercise Price		Options Outstanding/ Exercisable		Weighted Average Exercise Price
2006		2		201,700	$	43.768		165,100	$	43.705
2005		1		150,410		42.252		122,810		42.268
2004		<1		129,200		44.100		93,100		44.100
Total				481,310	$	43.383		381,010	$	43.338

The income tax benefit Con Edison realized from stock options exercised in the years ended December 31, 2013, 2012 and 2011 was $10 million, an immaterial amount and $2 million, respectively.

Restricted Stock and Stock Units

Restricted stock and stock unit awards under the LTIP have been made as follows: (i) time-based awards to certain employees; (ii) awards that provide for adjustment of the number of units (performance-restricted stock units or Performance RSUs) to certain officers and employees; and (iii) awards to non-employee directors. Restricted stock and stock units awarded represent the right to receive, upon vesting, shares of Con Edison common stock, or, except for units awarded under the directors’ plan, the cash value of shares or a combination thereof.

In accordance with the accounting rules for stock compensation, for time-based awards, the Companies have accrued a liability based on the market value of a common share on the grant date and are recognizing compensation expense over the vesting period. The vesting period for awards is three years and is based on the employee’s continuous service to Con Edison. Prior to vesting, the awards are subject to forfeiture in whole or in part under certain circumstances. The awards are “liability awards” because each restricted stock unit represents the right to receive, upon vesting, one share of Con Edison common stock, the cash value of a share or a combination thereof. As such, prior to vesting, changes in the fair value of the units are reflected in net income. A summary of changes in the status of time-based awards during the year ended December 31, 2013 is as follows:


	Con Edison					CECONY
	Units			Weighted Average Grant Date Fair Value		Units			Weighted Average Grant Date Fair Value
Non-vested at 12/31/12		65,140		$	51.339		61,690		$	51.334
Granted		25,490			60.990		24,290			60.988
Vested		(22,538	)		45.432		(21,438	)		45.478
Forfeited		(1,512	)		56.255		(1,512	)		56.255
Non-vested at 12/31/13		66,580		$	56.921		63,030		$	56.928

The total expense to be recognized by the Companies in future periods for unvested time-based awards outstanding as of December 31, 2013 for Con Edison was $2 million, including $1 million for CECONY, and is expected to be recognized over a weighted average period of one year.

The number of units in each annual Performance RSU award is subject to adjustment as follows: (i) 50 percent of the units awarded will be multiplied by a factor that may range from 0 to 150 percent for management employees and from 0 to 200 percent for officers, based on Con Edison’s total shareholder return relative to a specified peer group during a specified performance period (the TSR portion); and (ii) 50 percent of the units awarded will be multiplied by a factor that may range from 0 to 120 percent for management employees and from 0 to 200 percent for officers based on determinations made in connection with CECONY’s Executive Incentive Plan, CECONY’s Management Variable Pay Plan for non-officers, or, for certain officers, the O&R Annual Team Incentive Plan or goals relating to Con Edison’s competitive energy businesses (the EIP portion). Performance RSU awards generally vest when the performance period ends.

For the TSR portion of Performance RSUs, the Companies use a Monte Carlo simulation model to estimate the fair value of the awards. The fair value is recomputed each reporting period as of the earlier of the reporting date and the vesting date. For the EIP portion of Performance RSUs, the fair value of the awards is determined using the market price as of the earlier of the reporting date or the vesting date multiplied by the average EIP determination over the vesting period. Performance RSUs are “liability awards” because each Performance RSU represents the right to receive, upon vesting, one share of Con Edison common stock, the cash value of a share or a combination thereof. As such, changes in the fair value of the Performance RSUs are reflected in net income. The following table illustrates the assumptions used to calculate the fair value of the awards:


	2013
Risk-free interest rate		0.13% - 5.17%
Expected term		3 years
Expected volatility		13.52%

The risk-free rate is based on the U.S. Treasury zero-coupon yield curve on the date of grant. The expected term of the Performance RSUs is three years, which equals the vesting period. The Companies do not expect significant forfeitures to occur. The expected volatility is calculated using daily closing stock prices over a period of three years, which approximates the expected term of the awards.

A summary of changes in the status of the Performance RSUs’ TSR portion during the year ended December 31, 2013 is as follows:


	Con Edison					CECONY
	Units			Weighted Average Grant Date Fair Value*		Units			Weighted Average Grant Date Fair Value*
Non-vested at 12/31/12		618,910		$	44.659		502,701		$	44.681
Granted		231,435			55.121		174,019			55.620
Vested		(221,695	)		41.340		(178,549	)		41.340
Forfeited		(67,851	)		52.669		(49,645	)		52.592
Non-vested at 12/31/13		560,799		$	49.319		448,526		$	49.377

*	Fair value is determined using the Monte Carlo simulation described above. Weighted average grant date fair value does not reflect any accrual or payment of dividends prior to vesting.

A summary of changes in the status of the Performance RSUs’ EIP portion during the year ended December 31, 2013 is as follows:


	Con Edison					CECONY
	Units			Weighted Average Grant Date Fair Value*		Units			Weighted Average Grant Date Fair Value*
Non-vested at 12/31/12		618,910		$	50.738		502,701		$	50.783
Granted		231,435			57.829		174,019			58.188
Vested		(221,695	)		44.540		(178,549	)		44.540
Forfeited		(67,851	)		57.359		(49,645	)		57.322
Non-vested at 12/31/13		560,799		$	55.314		448,526		$	55.416

*	Fair value is determined using the market price of one share of Con Edison common stock on the grant date. The market price has not been discounted to reflect that dividends do not accrue and are not payable on Performance RSUs until vesting.

The total expense to be recognized by Con Edison in future periods for unvested Performance RSUs outstanding as of December 31, 2013 is $18 million, including $15 million for CECONY and is expected to be recognized over a weighted average period of one year for both Con Edison and CECONY.

Under the LTIP, each non-employee director receives stock units, which are deferred until the director’s separation from service or another date specified by the director. Each director may also elect to defer all or a portion of their retainers and meeting fees into additional stock units, which are deferred until the director’s termination of service or another date specified by the director. Directors may elect to receive dividend equivalents earned on stock units either in deferred stock units or cash payments. Non-employee directors’ stock units issued under the LTIP are considered “equity awards,” because they may only be settled in shares. Directors immediately vest in units issued to them. The fair value of the units is determined using the closing price of Con Edison’s common stock on the business day immediately preceding the date of issue. In the year ended December 31, 2013, approximately 32,114 units were issued at a weighted average grant date price of $59.16.

Stock Purchase Plan

The Stock Purchase Plan provides for the Companies to contribute up to $1 for each $9 invested by their directors, officers or employees to purchase Con Edison common stock under the plan. Eligible participants may invest up to $25,000 during any calendar year (subject to an additional limitation for officers and employees of not more than 20 percent of their pay). Dividends paid on shares held under the plan are reinvested in additional shares unless otherwise directed by the participant.

Participants in the plan immediately vest in shares purchased by them under the plan. The fair value of the shares of Con Edison common stock purchased under the plan was calculated using the average of the high and low composite sale prices at which shares were traded at the New York Stock Exchange on the trading day immediately preceding such purchase dates. During 2013, 2012, and 2011, 864,281, 665,718 and 721,520 shares were purchased under the Stock Purchase Plan at a weighted average price of $57.24, $59.72 and $52.50 per share, respectively.

CECONY [Member]

Stock-Based Compensation