UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x | Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2014
OR
¨ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number |
Exact name of registrant as specified in its charter and principal office address and telephone number |
State of |
I.R.S. Employer | |||
1-14514 | Consolidated Edison, Inc. | New York | 13-3965100 | |||
4 Irving Place, New York, New York 10003 | ||||||
(212) 460-4600 | ||||||
1-1217 | Consolidated Edison Company of New York, Inc. | New York | 13-5009340 | |||
4 Irving Place, New York, New York 10003 | ||||||
(212) 460-4600 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Consolidated Edison, Inc. (Con Edison) | Yes x | No ¨ | ||||||
Consolidated Edison of New York, Inc. (CECONY) | Yes x | No ¨ |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Con Edison | Yes x | No ¨ | ||||||
CECONY | Yes x | No ¨ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Con Edison | ||||||
Large accelerated filer x | Accelerated filer ¨ | Non-accelerated filer ¨ | Smaller reporting company ¨ | |||
CECONY | ||||||
Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer x | Smaller reporting company ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Con Edison | Yes ¨ | No x | ||||||
CECONY | Yes ¨ | No x |
As of October 31, 2014, Con Edison had outstanding 292,887,896 Common Shares ($.10 par value). All of the outstanding common equity of CECONY is held by Con Edison.
Filing Format
This Quarterly Report on Form 10-Q is a combined report being filed separately by two different registrants: Consolidated Edison, Inc. (Con Edison) and Consolidated Edison Company of New York, Inc. (CECONY). CECONY is a subsidiary of Con Edison and, as such, the information in this report about CECONY also applies to Con Edison. As used in this report, the term the Companies refers to Con Edison and CECONY. However, CECONY makes no representation as to the information contained in this report relating to Con Edison or the subsidiaries of Con Edison other than itself.
Glossary of Terms
The following is a glossary of frequently used abbreviations or acronyms that are used in the Companies SEC reports:
Con Edison Companies | ||
Con Edison | Consolidated Edison, Inc. | |
CECONY | Consolidated Edison Company of New York, Inc. | |
Con Edison Development | Consolidated Edison Development, Inc. | |
Con Edison Energy | Consolidated Edison Energy, Inc. | |
Con Edison Solutions | Consolidated Edison Solutions, Inc. | |
O&R | Orange and Rockland Utilities, Inc. | |
Pike | Pike County Light & Power Company | |
RECO | Rockland Electric Company | |
The Companies | Con Edison and CECONY | |
The Utilities | CECONY and O&R | |
Regulatory Agencies, Government Agencies, and Quasi-governmental Not-for-Profits | ||
EPA | U. S. Environmental Protection Agency | |
FERC | Federal Energy Regulatory Commission | |
IRS | Internal Revenue Service | |
ISO-NE | ISO New England Inc. | |
NJBPU | New Jersey Board of Public Utilities | |
NJDEP | New Jersey Department of Environmental Protection | |
NYISO | New York Independent System Operator | |
NYPA | New York Power Authority | |
NYSAG | New York State Attorney General | |
NYSDEC | New York State Department of Environmental Conservation | |
NYSERDA | New York State Energy Research and Development Authority | |
NYSPSC | New York State Public Service Commission | |
NYSRC | New York State Reliability Council, LLC | |
PAPUC | Pennsylvania Public Utility Commission | |
PJM | PJM Interconnection LLC | |
SEC | U.S. Securities and Exchange Commission | |
Accounting | ||
ABO | Accumulated Benefit Obligation | |
ASU | Accounting Standards Update | |
FASB | Financial Accounting Standards Board | |
LILO | Lease In/Lease Out | |
OCI | Other Comprehensive Income | |
SFAS | Statement of Financial Accounting Standards | |
VIE | Variable Interest Entity | |
Environmental | ||
CO2 | Carbon dioxide | |
GHG | Greenhouse gases | |
MGP Sites | Manufactured gas plant sites | |
PCBs | Polychlorinated biphenyls | |
PRP | Potentially responsible party | |
SO2 | Sulfur dioxide | |
Superfund | Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 and similar state statutes |
2 |
Units of Measure | ||
AC | Alternating current | |
dths | Dekatherms | |
kV | Kilovolt | |
kWh | Kilowatt-hour | |
mdths | Thousand dekatherms | |
MMlbs | Million pounds | |
MVA | Megavolt ampere | |
MW | Megawatt or thousand kilowatts | |
MWH | Megawatt hour | |
Other | ||
AFDC | Allowance for funds used during construction | |
COSO | Committee of Sponsoring Organizations of the Treadway Commission | |
DER | Distributed energy resources | |
DSPP | Distributed system platform provider | |
EMF | Electric and magnetic fields | |
ERRP | East River Repowering Project | |
Fitch | Fitch Ratings | |
First Quarter Form 10-Q | The Companies combined Quarterly Report on Form 10-Q for the quarterly period ended March 31 of the current year | |
Form 10-K | The Companies combined Annual Report on Form 10-K for the year ended December 31, 2013 | |
LTIP | Long Term Incentive Plan | |
Moodys | Moodys Investors Service | |
REV proceeding | NYSPSC proceeding in regard to reforming the energy vision | |
S&P | Standard & Poors Financial Services LLC | |
Second Quarter Form 10-Q | The Companies combined Quarterly Report on Form 10-Q for the quarterly period ended June 30 of the current year | |
Third Quarter Form 10-Q | The Companies combined Quarterly Report on Form 10-Q for the quarterly period ended September 30 of the current year | |
VaR | Value-at-Risk |
3 |
PAGE | ||||||
PART IFinancial Information | ||||||
ITEM 1 | Financial Statements (Unaudited) |
|||||
Con Edison |
||||||
6 | ||||||
7 | ||||||
8 | ||||||
9 | ||||||
11 | ||||||
CECONY |
||||||
12 | ||||||
13 | ||||||
14 | ||||||
15 | ||||||
17 | ||||||
18 | ||||||
ITEM 2 | Managements Discussion and Analysis of Financial Condition and Results of Operations |
43 | ||||
ITEM 3 | 68 | |||||
ITEM 4 | 68 | |||||
PART IIOther Information | ||||||
ITEM 1 | 69 | |||||
ITEM 1A | 69 | |||||
ITEM 2 | 70 | |||||
ITEM 6 | 71 | |||||
Signatures | 73 |
4 |
FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements intended to qualify for the safe-harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements of future expectation and not facts. Words such as expects, estimates, anticipates, intends, believes, plans, will and similar expressions identify forward-looking statements. Forward-looking statements are based on information available at the time the statements are made, and accordingly speak only as of that time. Actual results or developments might differ materially from those included in the forward-looking statements because of various risks, including:
| the failure to operate energy facilities safely and reliably could adversely affect the Companies; |
| the failure to properly complete construction projects could adversely affect the Companies; |
| the failure of processes and systems and the performance of employees and contractors could adversely affect the Companies; |
| the Companies are extensively regulated and are subject to penalties; |
| the Utilities rate plans may not provide a reasonable return; |
| the Companies may be adversely affected by changes to the Utilities rate plans; |
| the Companies are exposed to risks from the environmental consequences of their operations; |
| a disruption in the wholesale energy markets or failure by an energy supplier could adversely affect the Companies; |
| the Companies have substantial unfunded pension and other postretirement benefit liabilities; |
| Con Edisons ability to pay dividends or interest depends on dividends from its subsidiaries; |
| the Companies require access to capital markets to satisfy funding requirements; |
| a cyber attack could adversely affect the Companies; and |
| the Companies also face other risks that are beyond their control. |
5 |
Consolidated Edison, Inc. |
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
(Millions of Dollars/Except Share Data) | ||||||||||||||||
OPERATING REVENUES |
||||||||||||||||
Electric |
$2,786 | $2,822 | $7,158 | $6,799 | ||||||||||||
Gas |
237 | 225 | 1,514 | 1,333 | ||||||||||||
Steam |
46 | 72 | 485 | 522 | ||||||||||||
Non-utility |
321 | 365 | 934 | 833 | ||||||||||||
TOTAL OPERATING REVENUES |
3,390 | 3,484 | 10,091 | 9,487 | ||||||||||||
OPERATING EXPENSES |
||||||||||||||||
Purchased power |
875 | 946 | 2,621 | 2,421 | ||||||||||||
Fuel |
41 | 56 | 231 | 261 | ||||||||||||
Gas purchased for resale |
76 | 74 | 627 | 443 | ||||||||||||
Other operations and maintenance |
857 | 795 | 2,483 | 2,400 | ||||||||||||
Depreciation and amortization |
270 | 258 | 796 | 764 | ||||||||||||
Taxes, other than income taxes |
452 | 500 | 1,419 | 1,431 | ||||||||||||
TOTAL OPERATING EXPENSES |
2,571 | 2,629 | 8,177 | 7,720 | ||||||||||||
Gain on sale of solar energy projects |
| | 45 | | ||||||||||||
OPERATING INCOME |
819 | 855 | 1,959 | 1,767 | ||||||||||||
OTHER INCOME (DEDUCTIONS) |
||||||||||||||||
Investment and other income |
28 | 8 | 53 | 19 | ||||||||||||
Allowance for equity funds used during construction |
1 | 1 | 4 | 2 | ||||||||||||
Other deductions |
(3 | ) | (4 | ) | (12 | ) | (12 | ) | ||||||||
TOTAL OTHER INCOME |
26 | 5 | 45 | 9 | ||||||||||||
INCOME BEFORE INTEREST AND INCOME TAX EXPENSE |
845 | 860 | 2,004 | 1,776 | ||||||||||||
INTEREST EXPENSE |
||||||||||||||||
Interest on long-term debt |
145 | 145 | 438 | 433 | ||||||||||||
Other interest |
5 | 2 | (1 | ) | 143 | |||||||||||
Allowance for borrowed funds used during construction |
| (1 | ) | (2 | ) | (1 | ) | |||||||||
NET INTEREST EXPENSE |
150 | 146 | 435 | 575 | ||||||||||||
INCOME BEFORE INCOME TAX EXPENSE |
695 | 714 | 1,569 | 1,201 | ||||||||||||
INCOME TAX EXPENSE |
259 | 250 | 559 | 373 | ||||||||||||
NET INCOME FOR COMMON STOCK |
$ 436 | $ 464 | $1,010 | $ 828 | ||||||||||||
Net income for common stock per common sharebasic |
$ 1.49 | $ 1.58 | $ 3.45 | $ 2.83 | ||||||||||||
Net income for common stock per common sharediluted |
$ 1.48 | $ 1.58 | $ 3.44 | $ 2.81 | ||||||||||||
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK |
$0.630 | $0.615 | $1.890 | $1.845 | ||||||||||||
AVERAGE NUMBER OF SHARES OUTSTANDINGBASIC (IN MILLIONS) |
292.9 | 292.9 | 292.9 | 292.9 | ||||||||||||
AVERAGE NUMBER OF SHARES OUTSTANDINGDILUTED (IN MILLIONS) |
294.0 | 294.3 | 294.0 | 294.3 |
The accompanying notes are an integral part of these financial statements.
6 |
Consolidated Edison, Inc. |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
(Millions of Dollars) | ||||||||||||||||
NET INCOME |
$436 | $464 | $1,010 | $828 | ||||||||||||
OTHER COMPREHENSIVE INCOME, NET OF TAXES |
||||||||||||||||
Pension and other postretirement benefit plan liability adjustments, net of taxes |
1 | 2 | 6 | 7 | ||||||||||||
TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAXES |
1 | 2 | 6 | 7 | ||||||||||||
COMPREHENSIVE INCOME FOR COMMON STOCK |
$437 | $466 | $1,016 | $835 |
The accompanying notes are an integral part of these financial statements.
7 |
Consolidated Edison, Inc. |
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended September 30, |
||||||||
2014 | 2013 | |||||||
(Millions of Dollars) | ||||||||
OPERATING ACTIVITIES |
||||||||
Net Income |
$ | 1,010 | $ | 828 | ||||
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME |
||||||||
Depreciation and amortization |
796 | 764 | ||||||
Deferred income taxes |
424 | 116 | ||||||
Rate case amortization and accruals |
77 | 1 | ||||||
Common equity component of allowance for funds used during construction |
(4 | ) | (2 | ) | ||||
Net derivative gains |
(14 | ) | (6 | ) | ||||
Pre-tax gains on termination of LILO transactions |
| (95 | ) | |||||
Pre-tax gain on sale of solar energy projects |
(45 | ) | | |||||
Other non-cash items (net) |
10 | 46 | ||||||
CHANGES IN ASSETS AND LIABILITIES |
||||||||
Accounts receivable customers, less allowance for uncollectibles |
(35 | ) | (51 | ) | ||||
Special deposits |
312 | (305 | ) | |||||
Materials and supplies, including fuel oil and gas in storage |
19 | (38 | ) | |||||
Other receivables and other current assets |
(7 | ) | (8 | ) | ||||
Prepayments |
(508 | ) | (362 | ) | ||||
Accounts payable |
54 | (193 | ) | |||||
Pensions and retiree benefits obligations (net) |
612 | 665 | ||||||
Pensions and retiree benefits contributions |
(584 | ) | (887 | ) | ||||
Accrued taxes |
(428 | ) | 217 | |||||
Accrued interest |
(81 | ) | 171 | |||||
Superfund and environmental remediation costs (net) |
24 | (6 | ) | |||||
Deferred charges, noncurrent assets and other regulatory assets |
(97 | ) | (6 | ) | ||||
Deferred credits and other regulatory liabilities |
234 | 291 | ||||||
Other assets |
(3 | ) | 51 | |||||
Other liabilities |
(15 | ) | 47 | |||||
NET CASH FLOWS FROM OPERATING ACTIVITIES |
1,751 | 1,238 | ||||||
INVESTING ACTIVITIES |
||||||||
Utility construction expenditures |
(1,663 | ) | (1,701 | ) | ||||
Cost of removal less salvage |
(168 | ) | (144 | ) | ||||
Non-utility construction expenditures |
(152 | ) | (149 | ) | ||||
Investments in solar energy projects |
(172 | ) | (174 | ) | ||||
Proceeds from grants related to solar energy projects |
36 | 88 | ||||||
Proceeds from sale of solar energy projects |
108 | | ||||||
Restricted cash |
15 | (15 | ) | |||||
Proceeds from the termination of LILO transactions |
| 200 | ||||||
NET CASH FLOWS USED IN INVESTING ACTIVITIES |
(1,996 | ) | (1,895 | ) | ||||
FINANCING ACTIVITIES |
||||||||
Net issuance of short-term debt |
(26 | ) | 681 | |||||
Issuance of long-term debt |
850 | 919 | ||||||
Retirement of long-term debt |
(478 | ) | (707 | ) | ||||
Debt issuance costs |
(9 | ) | (12 | ) | ||||
Common stock dividends |
(553 | ) | (540 | ) | ||||
Issuance of common shares for stock plans, net of repurchases |
(8 | ) | (4 | ) | ||||
NET CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES |
(224 | ) | 337 | |||||
CASH AND TEMPORARY CASH INVESTMENTS: |
||||||||
NET CHANGE FOR THE PERIOD |
(469 | ) | (320 | ) | ||||
BALANCE AT BEGINNING OF PERIOD |
674 | 394 | ||||||
BALANCE AT END OF PERIOD |
$ | 205 | $ | 74 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
||||||||
Cash paid during the period for: |
||||||||
Interest |
$ | 382 | $ | 372 | ||||
Income taxes |
$ | 635 | $ | 27 |
The accompanying notes are an integral part of these financial statements.
8 |
Consolidated Edison, Inc. |
CONSOLIDATED BALANCE SHEET (UNAUDITED)
September 30, 2014 |
December 31, 2013 |
|||||||
(Millions of Dollars) | ||||||||
ASSETS |
||||||||
CURRENT ASSETS |
||||||||
Cash and temporary cash investments |
$ | 205 | $ | 674 | ||||
Special deposits |
8 | 327 | ||||||
Accounts receivable customers, less allowance for uncollectible accounts of $97 and $93 in 2014 and 2013, respectively |
1,280 | 1,251 | ||||||
Other receivables, less allowance for uncollectible accounts of $13 and $10 in 2014 and 2013, respectively |
198 | 240 | ||||||
Accrued unbilled revenue |
456 | 514 | ||||||
Fuel oil, gas in storage, materials and supplies, at average cost |
343 | 363 | ||||||
Prepayments |
644 | 136 | ||||||
Regulatory assets |
14 | 29 | ||||||
Deferred tax assets current |
33 | 122 | ||||||
Other current assets |
338 | 235 | ||||||
TOTAL CURRENT ASSETS |
3,519 | 3,891 | ||||||
INVESTMENTS |
740 | 461 | ||||||
UTILITY PLANT, AT ORIGINAL COST |
||||||||
Electric |
24,776 | 23,450 | ||||||
Gas |
5,945 | 5,494 | ||||||
Steam |
2,233 | 2,194 | ||||||
General |
2,437 | 2,336 | ||||||
TOTAL |
35,391 | 33,474 | ||||||
Less: Accumulated depreciation |
7,482 | 7,072 | ||||||
Net |
27,909 | 26,402 | ||||||
Construction work in progress |
899 | 1,393 | ||||||
NET UTILITY PLANT |
28,808 | 27,795 | ||||||
NON-UTILITY PLANT |
||||||||
Non-utility property, less accumulated depreciation of $87 and $90 in 2014 and 2013, respectively |
349 | 605 | ||||||
Construction work in progress |
82 | 36 | ||||||
NET PLANT |
29,239 | 28,436 | ||||||
OTHER NONCURRENT ASSETS |
||||||||
Goodwill |
429 | 429 | ||||||
Intangible assets, less accumulated amortization of $5 and $4 in 2014 and 2013, respectively |
3 | 4 | ||||||
Regulatory assets |
6,552 | 7,201 | ||||||
Other deferred charges and noncurrent assets |
185 | 225 | ||||||
TOTAL OTHER NONCURRENT ASSETS |
7,169 | 7,859 | ||||||
TOTAL ASSETS |
$ | 40,667 | $ | 40,647 |
The accompanying notes are an integral part of these financial statements.
9 |
Consolidated Edison, Inc. |
CONSOLIDATED BALANCE SHEET (UNAUDITED)
September 30, 2014 |
December 31, 2013 |
|||||||
(Millions of Dollars) | ||||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
CURRENT LIABILITIES |
||||||||
Long-term debt due within one year |
$ | 210 | $ | 485 | ||||
Notes payable |
1,425 | 1,451 | ||||||
Accounts payable |
972 | 1,017 | ||||||
Customer deposits |
338 | 321 | ||||||
Accrued taxes |
48 | 476 | ||||||
Accrued interest |
164 | 249 | ||||||
Accrued wages |
97 | 92 | ||||||
Fair value of derivative liabilities |
7 | 13 | ||||||
Regulatory liabilities |
194 | 148 | ||||||
Other current liabilities |
418 | 478 | ||||||
TOTAL CURRENT LIABILITIES |
3,873 | 4,730 | ||||||
NONCURRENT LIABILITIES |
||||||||
Obligations under capital leases |
1 | 1 | ||||||
Provision for injuries and damages |
188 | 195 | ||||||
Pensions and retiree benefits |
1,106 | 1,727 | ||||||
Superfund and other environmental costs |
734 | 749 | ||||||
Asset retirement obligations |
150 | 143 | ||||||
Fair value of derivative liabilities |
3 | 5 | ||||||
Deferred income taxes and investment tax credits |
8,817 | 8,466 | ||||||
Regulatory liabilities |
1,901 | 1,728 | ||||||
Other deferred credits and noncurrent liabilities |
193 | 169 | ||||||
TOTAL NONCURRENT LIABILITIES |
13,093 | 13,183 | ||||||
LONG-TERM DEBT |
10,985 | 10,489 | ||||||
EQUITY |
||||||||
Common shareholders equity |
12,707 | 12,245 | ||||||
Noncontrolling interest |
9 | | ||||||
TOTAL EQUITY (See Statement of Equity) |
12,716 | 12,245 | ||||||
TOTAL LIABILITIES AND EQUITY |
$ | 40,667 | $ | 40,647 |
The accompanying notes are an integral part of these financial statements.
10 |
Consolidated Edison, Inc. |
CONSOLIDATED STATEMENT OF EQUITY (UNAUDITED)
Common Stock | Additional Paid-In Capital |
Retained Earnings |
Treasury Stock | Capital Expense |
Accumulated Comprehensive Income/(Loss) |
Noncontrolling Interest |
||||||||||||||||||||||||||||||||||
(Millions of Dollars/Except Share Data) | Shares | Amount | Shares | Amount | Total | |||||||||||||||||||||||||||||||||||
BALANCE AS OF DECEMBER 31, 2012 |
292,871,896 | $32 | $4,991 | $7,997 | 23,210,700 | $(1,037) | $(61 | ) | $(53 | ) | $11,869 | |||||||||||||||||||||||||||||
Net income for common stock |
192 | 192 | ||||||||||||||||||||||||||||||||||||||
Common stock dividends |
(180 | ) | (180 | ) | ||||||||||||||||||||||||||||||||||||
Issuance of common shares for stock plans, net of repurchases |
95,468 | (2 | ) | (95,468 | ) | 7 | 5 | |||||||||||||||||||||||||||||||||
Other comprehensive income |
3 | 3 | ||||||||||||||||||||||||||||||||||||||
BALANCE AS OF MARCH 31, 2013 |
292,967,364 | $32 | $4,989 | $8,009 | 23,115,232 | $(1,030) | $(61 | ) | $(50 | ) | $ | $11,889 | ||||||||||||||||||||||||||||
Net income for common stock |
172 | 172 | ||||||||||||||||||||||||||||||||||||||
Common stock dividends |
(180 | ) | (180 | ) | ||||||||||||||||||||||||||||||||||||
Issuance of common shares for stock plans, net of repurchases |
(4,078 | ) | 1 | 4,078 | (1 | ) | | |||||||||||||||||||||||||||||||||
Other comprehensive income |
2 | 2 | ||||||||||||||||||||||||||||||||||||||
BALANCE AS OF JUNE 30, 2013 |
292,963,286 | $32 | $4,990 | $8,001 | 23,119,310 | $(1,031) | $(61 | ) | $(48 | ) | $ | $11,883 | ||||||||||||||||||||||||||||
Net income for common stock |
464 | 464 | ||||||||||||||||||||||||||||||||||||||
Common stock dividends |
(180 | ) | (180 | ) | ||||||||||||||||||||||||||||||||||||
Issuance of common shares for stock plans, net of repurchases |
(34,931 | ) | | 34,931 | (3 | ) | (3 | ) | ||||||||||||||||||||||||||||||||
Other comprehensive income |
2 | 2 | ||||||||||||||||||||||||||||||||||||||
BALANCE AS OF SEPTEMBER 30, 2013 |
292,928,355 | $32 | $4,990 | $8,285 | 23,154,241 | $(1,034) | $(61 | ) | $(46 | ) | $ | $12,166 | ||||||||||||||||||||||||||||
BALANCE AS OF DECEMBER 31, 2013 |
292,872,396 | $32 | $4,995 | $8,338 | 23,210,200 | $(1,034) | $(61 | ) | $(25 | ) | $12,245 | |||||||||||||||||||||||||||||
Net income for common stock |
361 | 361 | ||||||||||||||||||||||||||||||||||||||
Common stock dividends |
(184 | ) | (184 | ) | ||||||||||||||||||||||||||||||||||||
Issuance of common shares for stock plans, net of repurchases |
51,656 | (2 | ) | (51,656 | ) | 2 | | |||||||||||||||||||||||||||||||||
Other comprehensive income |
4 | 4 | ||||||||||||||||||||||||||||||||||||||
BALANCE AS OF MARCH 31, 2014 |
292,924,052 | $32 | $4,993 | $8,515 | 23,158,544 | $(1,032) | $(61 | ) | $(21 | ) | $ | $12,426 | ||||||||||||||||||||||||||||
Net income for common stock |
212 | 212 | ||||||||||||||||||||||||||||||||||||||
Common stock dividends |
(184 | ) | (184 | ) | ||||||||||||||||||||||||||||||||||||
Issuance of common shares for stock plans, net of repurchases |
(45,658 | ) | | 45,658 | | | ||||||||||||||||||||||||||||||||||
Other comprehensive income |
1 | 1 | ||||||||||||||||||||||||||||||||||||||
BALANCE AS OF JUNE 30, 2014 |
292,878,394 | $32 | $4,993 | $8,543 | 23,204,202 | $(1,032) | $(61 | ) | $(20 | ) | $ | $12,455 | ||||||||||||||||||||||||||||
Net income for common stock |
436 | 436 | ||||||||||||||||||||||||||||||||||||||
Common stock dividends |
(185 | ) | (185 | ) | ||||||||||||||||||||||||||||||||||||
Issuance of common shares for stock plans, net of repurchases |
(6,426 | ) | | 6,426 | | | ||||||||||||||||||||||||||||||||||
Other comprehensive income |
1 | 1 | ||||||||||||||||||||||||||||||||||||||
Noncontrolling interest |
9 | 9 | ||||||||||||||||||||||||||||||||||||||
BALANCE AS OF SEPTEMBER 30, 2014 |
292,871,968 | $32 | $4,993 | $8,794 | 23,210,628 | $(1,032) | $(61 | ) | $(19 | ) | $9 | $12,716 |
The accompanying notes are an integral part of these financial statements.
11 |
Consolidated Edison Company of New York, Inc. |
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
(Millions of Dollars) | ||||||||||||||||
OPERATING REVENUES |
||||||||||||||||
Electric |
$ | 2,582 | $ | 2,622 | $ | 6,635 | $ | 6,309 | ||||||||
Gas |
210 | 199 | 1,359 | 1,190 | ||||||||||||
Steam |
46 | 72 | 485 | 522 | ||||||||||||
TOTAL OPERATING REVENUES |
2,838 | 2,893 | 8,479 | 8,021 | ||||||||||||
OPERATING EXPENSES |
||||||||||||||||
Purchased power |
573 | 624 | 1,707 | 1,548 | ||||||||||||
Fuel |
42 | 56 | 231 | 261 | ||||||||||||
Gas purchased for resale |
36 | 58 | 487 | 376 | ||||||||||||
Other operations and maintenance |
748 | 686 | 2,172 | 2,102 | ||||||||||||
Depreciation and amortization |
250 | 237 | 737 | 705 | ||||||||||||
Taxes, other than income taxes |
433 | 480 | 1,359 | 1,370 | ||||||||||||
TOTAL OPERATING EXPENSES |
2,082 | 2,141 | 6,693 | 6,362 | ||||||||||||
OPERATING INCOME |
756 | 752 | 1,786 | 1,659 | ||||||||||||
OTHER INCOME (DEDUCTIONS) |
||||||||||||||||
Investment and other income |
12 | 1 | 20 | 7 | ||||||||||||
Allowance for equity funds used during construction |
1 | 1 | 3 | 1 | ||||||||||||
Other deductions |
(3 | ) | (3 | ) | (10 | ) | (10 | ) | ||||||||
TOTAL OTHER INCOME (DEDUCTIONS) |
10 | (1 | ) | 13 | (2 | ) | ||||||||||
INCOME BEFORE INTEREST AND INCOME TAX EXPENSE |
766 | 751 | 1,799 | 1,657 | ||||||||||||
INTEREST EXPENSE |
||||||||||||||||
Interest on long-term debt |
130 | 127 | 388 | 384 | ||||||||||||
Other interest |
4 | 1 | 11 | 12 | ||||||||||||
Allowance for borrowed funds used during construction |
| | (1 | ) | (1 | ) | ||||||||||
NET INTEREST EXPENSE |
134 | 128 | 398 | 395 | ||||||||||||
INCOME BEFORE INCOME TAX EXPENSE |
632 | 623 | 1,401 | 1,262 | ||||||||||||
INCOME TAX EXPENSE |
233 | 222 | 496 | 431 | ||||||||||||
NET INCOME FOR COMMON STOCK |
$ | 399 | $ | 401 | $ | 905 | $ | 831 |
The accompanying notes are an integral part of these financial statements.
12 |
Consolidated Edison Company of New York, Inc. |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
(Millions of Dollars) | ||||||||||||||||
NET INCOME |
$399 | $401 | $905 | $831 | ||||||||||||
OTHER COMPREHENSIVE INCOME, NET OF TAXES |
||||||||||||||||
Pension and other postretirement benefit plan liability adjustments, net of taxes |
| | 1 | | ||||||||||||
TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAXES |
| | 1 | | ||||||||||||
COMPREHENSIVE INCOME |
$399 | $401 | $906 | $831 |
The accompanying notes are an integral part of these financial statements.
13 |
Consolidated Edison Company of New York, Inc. |
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended September 30, |
||||||||
2014 | 2013 | |||||||
(Millions of Dollars) | ||||||||
OPERATING ACTIVITIES |
||||||||
Net income |
$ | 905 | $ | 831 | ||||
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME |
||||||||
Depreciation and amortization |
737 | 705 | ||||||
Deferred income taxes |
267 | 364 | ||||||
Rate case amortization and accruals |
77 | 1 | ||||||
Common equity component of allowance for funds used during construction |
(3 | ) | (1 | ) | ||||
Other non-cash items (net) |
(11 | ) | (72 | ) | ||||
CHANGES IN ASSETS AND LIABILITIES |
||||||||
Accounts receivable customers, less allowance for uncollectibles |
(11 | ) | (39 | ) | ||||
Materials and supplies, including fuel oil and gas in storage |
26 | (26 | ) | |||||
Other receivables and other current assets |
(264 | ) | (27 | ) | ||||
Prepayments |
(353 | ) | (347 | ) | ||||
Accounts payable |
(47 | ) | (180 | ) | ||||
Pensions and retiree benefits obligations (net) |
580 | 616 | ||||||
Pensions and retiree benefits contributions |
(544 | ) | (830 | ) | ||||
Superfund and environmental remediation costs (net) |
27 | (6 | ) | |||||
Accrued taxes |
(188 | ) | (92 | ) | ||||
Accrued interest |
1 | 43 | ||||||
Deferred charges, noncurrent assets and other regulatory assets |
(100 | ) | 63 | |||||
Deferred credits and other regulatory liabilities |
218 | 302 | ||||||
Other liabilities |
(11 | ) | 64 | |||||
NET CASH FLOWS FROM OPERATING ACTIVITIES |
1,306 | 1,369 | ||||||
INVESTING ACTIVITIES |
||||||||
Utility construction expenditures |
(1,554 | ) | (1,614 | ) | ||||
Cost of removal less salvage |
(163 | ) | (139 | ) | ||||
NET CASH FLOWS USED IN INVESTING ACTIVITIES |
(1,717 | ) | (1,753 | ) | ||||
FINANCING ACTIVITIES |
||||||||
Net Issuance of short-term debt |
(9 | ) | 621 | |||||
Issuance of long-term debt |
850 | 700 | ||||||
Retirement of long-term debt |
(475 | ) | (700 | ) | ||||
Debt issuance costs |
(9 | ) | (7 | ) | ||||
Dividend to parent |
(534 | ) | (545 | ) | ||||
NET CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES |
(177 | ) | 69 | |||||
CASH AND TEMPORARY CASH INVESTMENTS: |
||||||||
NET CHANGE FOR THE PERIOD |
(588 | ) | (315 | ) | ||||
BALANCE AT BEGINNING OF PERIOD |
633 | 353 | ||||||
BALANCE AT END OF PERIOD |
$ | 45 | $ | 38 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
||||||||
Cash paid during the period for: |
||||||||
Interest |
$ | 349 | $ | 336 | ||||
Income taxes |
$ | 749 | $ | 117 |
The accompanying notes are an integral part of these financial statements.
14 |
Consolidated Edison Company of New York, Inc. |
CONSOLIDATED BALANCE SHEET (UNAUDITED)
September 30, 2014 |
December 31, 2013 |
|||||||
(Millions of Dollars) | ||||||||
ASSETS |
||||||||
CURRENT ASSETS |
||||||||
Cash and temporary cash investments |
$ | 45 | $ | 633 | ||||
Special deposits |
2 | 86 | ||||||
Accounts receivable customers, less allowance for uncollectible accounts of $90 and $87 in 2014 and 2013, respectively |
1,134 | 1,123 | ||||||
Other receivables, less allowance for uncollectible accounts of $10 and $8 in 2014 and 2013, respectively |
120 | 127 | ||||||
Accrued unbilled revenue |
364 | 405 | ||||||
Accounts receivable from affiliated companies |
352 | 119 | ||||||
Fuel oil, gas in storage, materials and supplies, at average cost |
274 | 300 | ||||||
Prepayments |
455 | 102 | ||||||
Regulatory assets |
12 | 26 | ||||||
Deferred tax assets current |
14 | 100 | ||||||
Other current assets |
198 | 55 | ||||||
TOTAL CURRENT ASSETS |
2,970 | 3,076 | ||||||
INVESTMENTS |
272 | 247 | ||||||
UTILITY PLANT AT ORIGINAL COST |
||||||||
Electric |
23,309 | 22,073 | ||||||
Gas |
5,323 | 4,891 | ||||||
Steam |
2,233 | 2,194 | ||||||
General |
2,247 | 2,154 | ||||||
TOTAL |
33,112 | 31,312 | ||||||
Less: Accumulated depreciation |
6,846 | 6,469 | ||||||
Net |
26,266 | 24,843 | ||||||
Construction work in progress |
832 | 1,303 | ||||||
NET UTILITY PLANT |
27,098 | 26,146 | ||||||
NON-UTILITY PROPERTY |
||||||||
Non-utility property, less accumulated depreciation of $25 in 2014 and 2013 |
5 | 4 | ||||||
NET PLANT |
27,103 | 26,150 | ||||||
OTHER NONCURRENT ASSETS |
||||||||
Regulatory assets |
6,011 | 6,639 | ||||||
Other deferred charges and noncurrent assets |
132 | 146 | ||||||
TOTAL OTHER NONCURRENT ASSETS |
6,143 | 6,785 | ||||||
TOTAL ASSETS |
$ | 36,488 | $ | 36,258 |
The accompanying notes are an integral part of these financial statements.
15 |
Consolidated Edison Company of New York, Inc. |
CONSOLIDATED BALANCE SHEET (UNAUDITED)
September 30, 2014 |
December 31, 2013 |
|||||||
(Millions of Dollars) | ||||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
CURRENT LIABILITIES |
||||||||
Long-term debt due within one year |
$ | | $ | 475 | ||||
Notes payable |
1,201 | 1,210 | ||||||
Accounts payable |
737 | 824 | ||||||
Accounts payable to affiliated companies |
26 | 45 | ||||||
Customer deposits |
324 | 308 | ||||||
Accrued taxes |
39 | 46 | ||||||
Accrued taxes to affiliated companies |
232 | 413 | ||||||
Accrued interest |
140 | 139 | ||||||
Accrued wages |
92 | 82 | ||||||
Fair value of derivative liabilities |
2 | 12 | ||||||
Regulatory liabilities |
149 | 107 | ||||||
Other current liabilities |
346 | 385 | ||||||
TOTAL CURRENT LIABILITIES |
3,288 | 4,046 | ||||||
NONCURRENT LIABILITIES |
||||||||
Obligations under capital leases |
1 | 1 | ||||||
Provision for injuries and damages |
178 | 180 | ||||||
Pensions and retiree benefits |
877 | 1,453 | ||||||
Superfund and other environmental costs |
636 | 644 | ||||||
Asset retirement obligations |
147 | 143 | ||||||
Fair value of derivative liabilities |
2 | 3 | ||||||
Deferred income taxes and investment tax credits |
8,041 | 7,832 | ||||||
Regulatory liabilities |
1,738 | 1,598 | ||||||
Other deferred credits and noncurrent liabilities |
145 | 145 | ||||||
TOTAL NONCURRENT LIABILITIES |
11,765 | 11,999 | ||||||
LONG-TERM DEBT |
10,216 | 9,366 | ||||||
COMMON SHAREHOLDERS EQUITY (See Statement of Equity) |
11,219 | 10,847 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
$ | 36,488 | $ | 36,258 |
The accompanying notes are an integral part of these financial statements.
16 |
Consolidated Edison Company of New York, Inc. |
CONSOLIDATED STATEMENT OF EQUITY (UNAUDITED)
Common Stock | Additional Paid-In Capital |
Retained Earnings |
Repurchased Con Edison Stock |
Capital Expense |
Accumulated Comprehensive Income/(Loss) |
Total |
||||||||||||||||||||||||||
(Millions of Dollars/Except Share Data) | Shares | Amount | ||||||||||||||||||||||||||||||
BALANCE AS OF DECEMBER 31, 2012 |
235,488,094 | $589 | $4,234 | $6,761 | $(962 | ) | $(61 | ) | $(9 | ) | $10,552 | |||||||||||||||||||||
Net income |
277 | 277 | ||||||||||||||||||||||||||||||
Common stock dividend to parent |
(182 | ) | (182 | ) | ||||||||||||||||||||||||||||
Other comprehensive income |
| | ||||||||||||||||||||||||||||||
BALANCE AS OF MARCH 31, 2013 |
235,488,094 | $589 | $4,234 | $6,856 | $(962 | ) | $(61 | ) | $(9 | ) | $10,647 | |||||||||||||||||||||
Net income |
153 | 153 | ||||||||||||||||||||||||||||||
Common stock dividend to parent |
(182 | ) | (182 | ) | ||||||||||||||||||||||||||||
Other comprehensive income |
| | ||||||||||||||||||||||||||||||
BALANCE AS OF JUNE 30, 2013 |
235,488,094 | $589 | $4,234 | $6,827 | $(962 | ) | $(61 | ) | $(9 | ) | $10,618 | |||||||||||||||||||||
Net income |
401 | 401 | ||||||||||||||||||||||||||||||
Common stock dividend to parent |
(181 | ) | (181 | ) | ||||||||||||||||||||||||||||
Other comprehensive income |
| | ||||||||||||||||||||||||||||||
BALANCE AS OF SEPTEMBER 30, 2013 |
235,488,094 | $589 | $4,234 | $7,047 | $(962 | ) | $(61 | ) | $(9 | ) | $10,838 | |||||||||||||||||||||
BALANCE AS OF DECEMBER 31, 2013 |
235,488,094 | $589 | $4,234 | $7,053 | $(962 | ) | $(61 | ) | $(6 | ) | $10,847 | |||||||||||||||||||||
Net income |
334 | 334 | ||||||||||||||||||||||||||||||
Common stock dividend to parent |
(178 | ) | (178 | ) | ||||||||||||||||||||||||||||
Other comprehensive income |
1 | 1 | ||||||||||||||||||||||||||||||
BALANCE AS OF MARCH 31, 2014 |
235,488,094 | $589 | $4,234 | $7,209 | $(962 | ) | $(61 | ) | $(5 | ) | $11,004 | |||||||||||||||||||||
Net income |
172 | 172 | ||||||||||||||||||||||||||||||
Common stock dividend to parent |
(178 | ) | (178 | ) | ||||||||||||||||||||||||||||
Other comprehensive income |
| | ||||||||||||||||||||||||||||||
BALANCE AS OF JUNE 30, 2014 |
235,488,094 | $589 | $4,234 | $7,203 | $(962 | ) | $(61 | ) | $(5 | ) | $10,998 | |||||||||||||||||||||
Net income |
399 | 399 | ||||||||||||||||||||||||||||||
Common stock dividend to parent |
(178 | ) | (178 | ) | ||||||||||||||||||||||||||||
Other comprehensive income |
| | ||||||||||||||||||||||||||||||
BALANCE AS OF SEPTEMBER 30, 2014 |
235,488,094 | $589 | $4,234 | $7,424 | $(962 | ) | $(61 | ) | $(5 | ) | $11,219 |
The accompanying notes are an integral part of these financial statements.
17 |
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
General
These combined notes accompany and form an integral part of the separate consolidated financial statements of each of the two separate registrants: Consolidated Edison, Inc. and its subsidiaries (Con Edison) and Consolidated Edison Company of New York, Inc. and its subsidiaries (CECONY). CECONY is a subsidiary of Con Edison and as such its financial condition and results of operations and cash flows, which are presented separately in the CECONY consolidated financial statements, are also consolidated, along with those of Con Edisons other utility subsidiary, Orange and Rockland Utilities, Inc. (O&R), and Con Edisons competitive energy businesses (discussed below) in Con Edisons consolidated financial statements. The term Utilities is used in these notes to refer to CECONY and O&R.
As used in these notes, the term Companies refers to Con Edison and CECONY and, except as otherwise noted, the information in these combined notes relates to each of the Companies. However, CECONY makes no representation as to information relating to Con Edison or the subsidiaries of Con Edison other than itself.
The separate interim consolidated financial statements of each of the Companies are unaudited but, in the opinion of their respective managements, reflect all adjustments (which include only normally recurring adjustments) necessary for a fair presentation of the results for the interim periods presented. The Companies separate interim consolidated financial statements should be read together with their separate audited financial statements (including the combined notes thereto) included in Item 8 of their combined Annual Report on Form 10-K for the year ended December 31, 2013 and their separate unaudited financial statements (including the combined notes thereto) included in Part I, Item 1 of their combined Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2014 and June 30, 2014. Certain prior period amounts have been reclassified to conform to the current period presentation.
Con Edison has two regulated utility subsidiaries: CECONY and O&R. CECONY provides electric service and gas service in New York City and Westchester County. The company also provides steam service in parts of Manhattan. O&R, along with its regulated utility subsidiaries, provides electric service in southeastern New York and adjacent areas of northern New Jersey and eastern Pennsylvania and gas service in southeastern New York and adjacent areas of eastern Pennsylvania. Con Edison has the following competitive energy businesses: Consolidated Edison Solutions, Inc. (Con Edison Solutions), a company which sells to retail customers electricity purchased in wholesale markets and enters into related hedging transactions and also provides energy-related products and services to retail customers; Consolidated Edison Energy, Inc. (Con Edison Energy), a company that provides energy-related products and services to wholesale customers; and Consolidated Edison Development, Inc. (Con Edison Development), a company that participates in energy infrastructure projects.
18 |
Note A Summary of Significant Accounting Policies
Earnings Per Common Share
For the three and nine months ended September 30, 2014 and 2013, basic and diluted earnings per share (EPS) for Con Edison are calculated as follows:
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
(Millions of Dollars, except per share amounts/Shares in Millions) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Net income for common stock |
$ | 436 | $ | 464 | $ | 1,010 | $ | 828 | ||||||||
Weighted average common shares outstanding basic |
292.9 | 292.9 | 292.9 | 292.9 | ||||||||||||
Add: Incremental shares attributable to effect of potentially dilutive securities |
1.1 | 1.4 | 1.1 | 1.4 | ||||||||||||
Adjusted weighted average common shares outstanding diluted |
294.0 | 294.3 | 294.0 | 294.3 | ||||||||||||
Net Income for common stock per common share basic |
$ | 1.49 | $ | 1.58 | $ | 3.45 | $ | 2.83 | ||||||||
Net Income for common stock per common share diluted |
$ | 1.48 | $ | 1.58 | $ | 3.44 | $ | 2.81 |
The computation of diluted EPS for the three and nine months ended September 30, 2014 and 2013 excludes immaterial amounts of performance share awards which were not included because of their anti-dilutive effect.
Changes in Accumulated Other Comprehensive Income by Component
For the three and nine months ended September 30, 2014 and 2013, changes to accumulated other comprehensive income (OCI) for Con Edison and CECONY are as follows:
For the Three Months Ended September 30, | ||||||||||||||||
Con Edison | CECONY | |||||||||||||||
(Millions of Dollars) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Beginning balance, accumulated OCI, net of taxes |
$ | (20 | ) | $ | (48 | ) | $ | (5 | ) | $ | (9 | ) | ||||
OCI before reclassifications, net of tax of $- and $- for both Con Edison and CECONY |
| | | | ||||||||||||
Amounts reclassified from accumulated OCI related to pension and other postretirement benefit plan liabilities, net of tax of $1 and $1 for Con Edison and $- and $- for CECONY, respectively (a)(b) |
1 | 2 | | | ||||||||||||
Current period total OCI, net of taxes |
$ | 1 | $ | 2 | $ | | $ | | ||||||||
Ending balance, accumulated OCI, net of taxes (b) |
$ | (19 | ) | $ | (46 | ) | $ | (5 | ) | $ | (9 | ) | ||||
For the Nine Months Ended September 30, | ||||||||||||||||
Con Edison | CECONY | |||||||||||||||
(Millions of Dollars) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Beginning balance, accumulated OCI, net of taxes |
$ | (25 | ) | $ | (53 | ) | $ | (6 | ) | $ | (9 | ) | ||||
OCI before reclassifications, net of tax of $1 and $1 for Con Edison and $- and $- for CECONY, respectively |
2 | 1 | | | ||||||||||||
Amounts reclassified from accumulated OCI related to pension and other postretirement benefit plan liabilities, net of tax of $3 and $3 for Con Edison and $- and $- for CECONY, respectively (a)(b) |
4 | 6 | 1 | | ||||||||||||
Current period total OCI, net of taxes |
$ | 6 | $ | 7 | $ | 1 | $ | | ||||||||
Ending balance, accumulated OCI, net of taxes (b) |
$ | (19 | ) | $ | (46 | ) | $ | (5 | ) | $ | (9 | ) |
(a) | For the portion of unrecognized pension and other postretirement benefit costs relating to the Utilities, costs are recorded into, and amortized out of, regulatory assets instead of OCI. The net actuarial losses and prior service costs recognized during the period are included in the computation of net periodic pension and other postretirement benefit cost. See Notes E and F. |
(b) | Tax reclassified from accumulated OCI is reported in income tax expense. |
19 |
Note B Regulatory Matters
Rate Plans
In July 2014, the New Jersey Board of Public Utilities (NJBPU) approved an electric rate increase, effective August 1, 2014, of $13 million for O&Rs New Jersey regulated utility subsidiary, Rockland Electric Company (RECO). The new rates, among other things, reflect a return on common equity of 9.75 percent, a common equity ratio of approximately 50 percent and recovery of $25.6 million of deferred storm costs over a four-year period. The NJBPU continued provisions with respect to recovery from customers of the cost of purchased power and did not provide for reconciliation of actual expenses to amounts reflected in electric rates for pension and other postretirement benefit costs.
In September 2014, the Pennsylvania Public Utility Commission (PAPUC) approved an electric rate increase, effective September 15, 2014, of $1.25 million for O&Rs Pennsylvania regulated utility subsidiary, Pike County Light & Power Company (Pike). In August 2014, the PAPUC approved a gas rate increase, effective September 1, 2014, of $100,000 for Pike.
Other Regulatory Matters
In February 2009, the New York State Public Service Commission (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 companys 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 companys potential liability in this proceeding. At September 30, 2014, the company had collected an estimated $1,603 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 companys construction expenditures from January 2000 to January 2009. The company is disputing the consultants 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 NYSPSCs consultant has not reviewed the companys other expenditures. The company and NYSPSC staff are exploring a settlement in this proceeding. In May 2014, the NYSPSCs Chief Administrative Law Judge appointed a settlement judge to assist the parties. There is no assurance that there will be a settlement, and any settlement would be subject to NYSPSC approval. At September 30, 2014, the company had a $36 million regulatory liability relating to this matter. Included in the regulatory liability was $16 million the company recovered from vendors, arrested employees and insurers relating to this matter. Pursuant to the current rate plans, the company is applying $15 million of these recovered amounts for the benefit of customers to offset a like amount of regulatory assets. The company currently estimates that any additional amount the NYSPSC requires the company to refund to customers could range in amount from $25 million up to an amount based on the NYSPSC consultants $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 CECONYs steam system and interrupted service to many of its steam customers. As of September 30, 2014, CECONY and O&R incurred response and restoration costs for Superstorm Sandy of $500 million and $91 million, respectively (including capital expenditures of $148 million and $15 million, respectively). Most of the costs that were not capitalized were deferred for recovery as a regulatory
20 |
asset under the Utilities electric rate plans. See Regulatory Assets and Liabilities below. CECONYs current electric rate plan includes collection from customers of deferred storm costs (including for Superstorm Sandy), subject to refund following NYSPSC review of the costs. O&R expects to request recovery of deferred storm costs for its New York electric operations, which are also subject to NYSPSC review, when it next files with the NYSPSC for a new electric rate plan. RECOs current electric rate plan includes collection from customers of deferred storm costs. See Rate Plans above.
In June 2014, the NYSPSC initiated a proceeding to investigate the practices of qualifying persons to perform plastic fusions on gas facilities. New York State regulations require gas utilities to qualify and, except in certain circumstances, annually requalify workers that perform fusion to join plastic pipe. The NYSPSC directed the New York gas utilities to provide information in this proceeding about their compliance with the qualification and requalification requirements and related matters; their procedures for compliance with all gas safety regulations; and their annual chief executive officer certifications regarding these and other procedures. CECONYs qualification and requalification procedures had not included certain required testing to evaluate specimen fuses. In addition, CECONY and O&R had not timely requalified certain workers that had been qualified under their respective procedures to perform fusion to join plastic pipe. CECONY and O&R have requalified their workers who perform fusion to join plastic pipe. In October 2014, CECONY and O&R submitted for NYSPSC staff review their plans for testing fusion to join plastic pipe that was performed on their gas delivery systems, additional leakage surveying and reporting.
21 |
Regulatory Assets and Liabilities
Regulatory assets and liabilities at September 30, 2014 and December 31, 2013 were comprised of the following items:
Con Edison | CECONY | |||||||||||||||
(Millions of Dollars) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Regulatory assets |
||||||||||||||||
Unrecognized pension and other postretirement costs |
$ | 2,284 | $ | 2,730 | $ | 2,185 | $ | 2,610 | ||||||||
Future income tax |
2,191 | 2,145 | 2,078 | 2,030 | ||||||||||||
Environmental remediation costs |
899 | 938 | 795 | 830 | ||||||||||||
Deferred storm costs |
348 | 441 | 252 | 334 | ||||||||||||
Revenue taxes |
218 | 207 | 207 | 196 | ||||||||||||
Surcharge for New York State assessment |
144 | 78 | 134 | 74 | ||||||||||||
Pension and other postretirement benefits deferrals |
83 | 237 | 57 | 211 | ||||||||||||
Net electric deferrals |
68 | 83 | 68 | 83 | ||||||||||||
Unamortized loss on reacquired debt |
59 | 65 | 57 | 62 | ||||||||||||
Property tax reconciliation |
32 | 22 | | | ||||||||||||
O&R transition bond charges |
28 | 33 | | | ||||||||||||
Preferred stock redemption |
27 | 28 | 27 | 28 | ||||||||||||
Workers compensation |
10 | 12 | 10 | 12 | ||||||||||||
Deferred derivative losses noncurrent |
5 | 8 | 5 | 7 | ||||||||||||
Other |
156 | 174 | 136 | 162 | ||||||||||||
Regulatory assets noncurrent |
6,552 | 7,201 | 6,011 | 6,639 | ||||||||||||
Deferred derivative losses current |
13 | 25 | 12 | 22 | ||||||||||||
Recoverable energy costs current |
1 | 4 | | 4 | ||||||||||||
Regulatory assets current |
14 | 29 | 12 | 26 | ||||||||||||
Total Regulatory Assets |
$ | 6,566 | $ | 7,230 | $ | 6,023 | $ | 6,665 | ||||||||
Regulatory liabilities |
||||||||||||||||
Allowance for cost of removal less salvage |
$ | 572 | $ | 540 | $ | 475 | $ | 453 | ||||||||
Property tax reconciliation |
294 | 322 | 294 | 322 | ||||||||||||
Net unbilled revenue deferrals |
120 | 133 | 120 | 133 | ||||||||||||
2014 rate plan base rate revenue deferral |
118 | | 118 | | ||||||||||||
Property tax refunds |
97 | 130 | 97 | 130 | ||||||||||||
Long-term interest rate reconciliation |
85 | 105 | 85 | 105 | ||||||||||||
Carrying charges on repair allowance and bonus depreciation |
80 | 98 | 64 | 87 | ||||||||||||
New York State income tax rate change |
61 | | 57 | | ||||||||||||
Unrecognized other postretirement benefits costs |
50 | | 42 | | ||||||||||||
Pension and other postretirement benefits deferrals |
49 | 50 | 41 | 50 | ||||||||||||
World Trade Center settlement proceeds |
46 | 62 | 46 | 62 | ||||||||||||
Prudence proceeding |
36 | 40 | 36 | 40 | ||||||||||||
Carrying charges on T&D net plant electric and steam |
24 | 28 | 22 | 20 | ||||||||||||
Electric excess earnings |
21 | 22 | 20 | 18 | ||||||||||||
Other |
248 | 198 | 221 | 178 | ||||||||||||
Regulatory liabilities noncurrent |
1,901 | 1,728 | 1,738 | 1,598 | ||||||||||||
Refundable energy costs current |
118 | 100 | 82 | 66 | ||||||||||||
Deferred derivative gains current |
39 | 14 | 31 | 11 | ||||||||||||
Revenue decoupling mechanism |
21 | 34 | 20 | 30 | ||||||||||||
Future income tax |
16 | | 16 | | ||||||||||||
Regulatory liabilities current |
194 | 148 | 149 | 107 | ||||||||||||
Total Regulatory Liabilities |
$ | 2,095 | $ | 1,876 | $ | 1,887 | $ | 1,705 |
22 |
Note C Capitalization
In February 2014, CECONY redeemed at maturity $200 million of 4.70 percent 10-year debentures. In March 2014, CECONY issued $850 million aggregate principal amount of 4.45 percent 30-year debentures. In April 2014, CECONY redeemed at maturity $275 million of 5.55 percent 5-year debentures. In May 2014, Con Edison deconsolidated $217 million of long-term debt of a subsidiary in which Con Edison Development sold a 50 percent interest. See Note N.
The carrying amounts and fair values of long-term debt are:
(Millions of Dollars) | September 30, 2014 | December 31, 2013 | ||||||||||||||
Long-Term Debt (including current portion) | Carrying Amount |
Fair Value |
Carrying Amount |
Fair Value |
||||||||||||
Con Edison |
$ | 11,195 | $ | 12,696 | $ | 10,974 | $ | 12,082 | ||||||||
CECONY |
$ | 10,216 | $ | 11,537 | $ | 9,841 | $ | 10,797 |
Fair values of long-term debt have been estimated primarily using available market information. For Con Edison, $12,060 million and $636 million of the fair value of long-term debt at September 30, 2014 are classified as Level 2 and Level 3, respectively. For CECONY, $10,901 million and $636 million of the fair value of long-term debt at September 30, 2014 are classified as Level 2 and Level 3, respectively (see Note M). The $636 million of long-term debt classified as Level 3 is CECONYs tax-exempt, auction-rate securities for which the market is highly illiquid and there is a lack of observable inputs.
Note D Short-Term Borrowing
At September 30, 2014, Con Edison had $1,425 million of commercial paper outstanding of which $1,201 million was outstanding under CECONYs program. The weighted average interest rate was 0.2 percent for both Con Edison and CECONY. At December 31, 2013, Con Edison had $1,451 million of commercial paper outstanding of which $1,210 million was outstanding under CECONYs program. The weighted average interest rate was 0.2 percent for both Con Edison and CECONY. At September 30, 2014 and December 31, 2013, no loans were outstanding under the Companies credit agreement and $11 million and $26 million (including $11 million in both periods for CECONY) of letters of credit were outstanding, respectively, under the credit agreement.
23 |
Note E Pension Benefits
Net Periodic Benefit Cost
The components of the Companies net periodic benefit costs for the three and nine months ended September 30, 2014 and 2013 were as follows:
For the Three Months Ended September 30, | ||||||||||||||||
Con Edison | CECONY | |||||||||||||||
(Millions of Dollars) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Service cost including administrative expenses |
$ | 57 | $ | 67 | $ | 53 | $ | 62 | ||||||||
Interest cost on projected benefit obligation |
143 | 134 | 134 | 126 | ||||||||||||
Expected return on plan assets |
(208 | ) | (187 | ) | (198 | ) | (178 | ) | ||||||||
Recognition of net actuarial loss |
154 | 208 | 146 | 197 | ||||||||||||
Recognition of prior service costs |
1 | 1 | 1 | 1 | ||||||||||||
NET PERIODIC BENEFIT COST |
$ | 147 | $ | 223 | $ | 136 | $ | 208 | ||||||||
Amortization of regulatory asset |
1 | 1 | 1 | 1 | ||||||||||||
TOTAL PERIODIC BENEFIT COST |
$ | 148 | $ | 224 | $ | 137 | $ | 209 | ||||||||
Cost capitalized |
(57 | ) | (86 | ) | (54 | ) | (78 | ) | ||||||||
Reconciliation to rate level |
30 | (31 | ) | 28 | (34 | ) | ||||||||||
Cost charged to operating expenses |
$ | 121 | $ | 107 | $ | 111 | $ | 97 |
For the Nine Months Ended September 30, | ||||||||||||||||
Con Edison | CECONY | |||||||||||||||
(Millions of Dollars) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Service cost including administrative expenses |
$ | 170 | $ | 200 | $ | 158 | $ | 186 | ||||||||
Interest cost on projected benefit obligation |
429 | 403 | 402 | 377 | ||||||||||||
Expected return on plan assets |
(624 | ) | (563 | ) | (592 | ) | (534 | ) | ||||||||
Recognition of net actuarial loss |
464 | 624 | 439 | 591 | ||||||||||||
Recognition of prior service costs |
3 | 4 | 2 | 3 | ||||||||||||
NET PERIODIC BENEFIT COST |
$ | 442 | $ | 668 | $ | 409 | $ | 623 | ||||||||
Amortization of regulatory asset |
2 | 2 | 2 | 2 | ||||||||||||
TOTAL PERIODIC BENEFIT COST |
$ | 444 | $ | 670 | $ | 411 | $ | 625 | ||||||||
Cost capitalized |
(166 | ) | (256 | ) | (156 | ) | (241 | ) | ||||||||
Reconciliation to rate level |
86 | (55 | ) | 78 | (56 | ) | ||||||||||
Cost charged to operating expenses |
$ | 364 | $ | 359 | $ | 333 | $ | 328 |
Contributions
The Companies made contributions to the pension plan during 2014 of $564 million (of which $524 million was contributed by CECONY). The Companies policy is to fund their accounting cost to the extent tax deductible. During the first nine months of 2014, CECONY also funded $13 million for the non-qualified supplemental plans.
Mortality Table Revision
In October 2014, the Society of Actuaries issued revised mortality tables for use in estimating pension and other postretirement benefit plan obligations, accounting costs and required contribution amounts. The new mortality tables indicate substantial life expectancy improvements since the last tables published in 2000 (RP 2000). These improvements are expected to result in significant increases in future pension and other postretirement benefit plan obligations, accounting costs, and required contribution amounts for many plan sponsors. The Companies are currently evaluating the impact of the revised mortality tables on the December 31, 2014 plan obligations, future accounting costs and expected plan contributions. The Utilities, under their current New York rate plans, defer as a regulatory asset or liability, as the case may be, the differences between the actual level of expenses for pension and other postretirement benefits and amounts for those expenses reflected in rates.
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Note F Other Postretirement Benefits
Net Periodic Benefit Cost
The components of the Companies net periodic postretirement benefit costs for the three and nine months ended September 30, 2014 and 2013 were as follows:
For the Three Months Ended September 30, | ||||||||||||||||
Con Edison | CECONY | |||||||||||||||
(Millions of Dollars) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Service cost |
$ | 5 | $ | 6 | $ | 4 | $ | 5 | ||||||||
Interest cost on accumulated other postretirement benefit obligation |
15 | 13 | 13 | 12 | ||||||||||||
Expected return on plan assets |
(19 | ) | (19 | ) | (17 | ) | (17 | ) | ||||||||
Recognition of net actuarial loss |
14 | 16 | 13 | 14 | ||||||||||||
Recognition of prior service cost |
(5 | ) | (7 | ) | (4 | ) | (6 | ) | ||||||||
NET PERIODIC POSTRETIREMENT BENEFIT COST |
$ | 10 | $ | 9 | $ | 9 | $ | 8 | ||||||||
Cost capitalized |
(4 | ) | (3 | ) | (4 | ) | (3 | ) | ||||||||
Reconciliation to rate level |
3 | 14 | 1 | 12 | ||||||||||||
Cost charged to operating expenses |
$ | 9 | $ | 20 | $ | 6 | $ | 17 |
For the Nine Months Ended September 30, | ||||||||||||||||
Con Edison | CECONY | |||||||||||||||
(Millions of Dollars) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Service cost |
$ | 14 | $ | 18 | $ | 11 | $ | 14 | ||||||||
Interest cost on accumulated other postretirement benefit obligation |
45 | 40 | 39 | 34 | ||||||||||||
Expected return on plan assets |
(58 | ) | (58 | ) | (51 | ) | (51 | ) | ||||||||
Recognition of net actuarial loss |
43 | 48 | 38 | 43 | ||||||||||||
Recognition of prior service cost |
(14 | ) | (20 | ) | (11 | ) | (17 | ) | ||||||||
NET PERIODIC POSTRETIREMENT BENEFIT COST |
$ | 30 | $ | 28 | $ | 26 | $ | 23 | ||||||||
Cost capitalized |
(11 | ) | (10 | ) | (10 | ) | (9 | ) | ||||||||
Reconciliation to rate level |
8 | 43 | 2 | 37 | ||||||||||||
Cost charged to operating expenses |
$ | 27 | $ | 61 | $ | 18 | $ | 51 |
Contributions
The Companies made a contribution of $7 million, nearly all of which is for CECONY, to the other postretirement benefit plans in 2014.
Note G Environmental Matters
Superfund Sites
Hazardous substances, such as asbestos, polychlorinated biphenyls (PCBs) and coal tar, have been used or generated in the course of operations of the Utilities and their predecessors and are present at sites and in facilities and equipment they currently or previously owned, including sites at which gas was manufactured or stored.
The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 and similar state statutes (Superfund) impose joint and several liability, regardless of fault, upon generators of hazardous substances for investigation and remediation costs (which include costs of demolition, removal, disposal, storage, replacement, containment, and monitoring) and natural resource damages. Liability under these laws can be material and may be imposed for contamination from past acts, even though such past acts may have been lawful at the time they occurred. The sites at which the Utilities have been asserted to have liability under these laws, including their manufactured gas plant sites and any neighboring areas to which contamination may have migrated, are referred to herein as Superfund Sites.
For Superfund Sites where there are other potentially responsible parties and the Utilities are not managing the site investigation and remediation, the accrued liability represents an estimate of the amount the Utilities will need to pay to investigate and, where determinable, discharge their related obligations. For Superfund Sites (including the manufactured gas plant sites) for which one of the Utilities is managing the investigation and remediation, the accrued liability represents an estimate of the companys share of
25 |
undiscounted cost to investigate the sites and, for sites that have been investigated in whole or in part, the cost to remediate the sites, if remediation is necessary and if a reasonable estimate of such cost can be made. Remediation costs are estimated in light of the information available, applicable remediation standards, and experience with similar sites.
The accrued liabilities and regulatory assets related to Superfund Sites at September 30, 2014 and December 31, 2013 were as follows:
Con Edison | CECONY | |||||||||||||||
(Millions of Dollars) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Accrued Liabilities: |
||||||||||||||||
Manufactured gas plant sites |
$655 | $665 | $558 | $562 | ||||||||||||
Other Superfund Sites |
79 | 84 | 78 | 82 | ||||||||||||
Total |
$734 | $749 | $636 | $644 | ||||||||||||
Regulatory assets |
$899 | $938 | $795 | $830 |
Most of the accrued Superfund Site liability relates to sites that have been investigated, in whole or in part. However, for some of the sites, the extent and associated cost of the required remediation has not yet been determined. As investigations progress and information pertaining to the required remediation becomes available, the Utilities expect that additional liability may be accrued, the amount of which is not presently determinable but may be material. Under their current rate plans, the Utilities are permitted to recover or defer as regulatory assets (for subsequent recovery through rates) certain site investigation and remediation costs.
Environmental remediation costs incurred and insurance recoveries received related to Superfund Sites for the three and nine months ended September 30, 2014 and 2013 were as follows:
For the Three Months Ended September 30, | ||||||||||||||||
Con Edison | CECONY | |||||||||||||||
(Millions of Dollars) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Remediation costs incurred |
$5 | $10 | $2 | $10 | ||||||||||||
Insurance recoveries received |
| | | |
For the Nine Months Ended September 30, | ||||||||||||||||
Con Edison | CECONY | |||||||||||||||
(Millions of Dollars) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Remediation costs incurred |
$19 | $35 | $12 | $30 | ||||||||||||
Insurance recoveries received* |
$5 | | $5 | | ||||||||||||
* Reduced amount deferred for recovery from customers |
|
In 2013, CECONY estimated that for its manufactured gas plant sites, its aggregate undiscounted potential liability for the investigation and remediation of coal tar and/or other manufactured gas plant-related environmental contaminants could range up to $2.4 billion. In 2013, O&R estimated that for its manufactured gas plant sites, each of which has been investigated, the aggregate undiscounted potential liability for the remediation of such contaminants could range up to $167 million. These estimates were based on the assumption that there is contamination at all sites, including those that have not yet been fully investigated and additional assumptions about the extent of the contamination and the type and extent of the remediation that may be required. Actual experience may be materially different.
Asbestos Proceedings
Suits have been brought in New York State and federal courts against the Utilities and many other defendants, wherein a large number of plaintiffs sought large amounts of compensatory and punitive damages for deaths and injuries allegedly caused by exposure to asbestos at various premises of the Utilities. The suits that have been resolved, which are many, have been resolved without any payment by the Utilities, or for amounts that were not, in the aggregate, material to them. The amounts specified in all the remaining thousands of suits total billions of dollars; however, the Utilities believe that these amounts are greatly exaggerated, based on the disposition of previous claims. In 2013, Con Edison and CECONY estimated that their aggregate undiscounted potential liability for these suits and additional suits that may be brought over the next 15 years was $8 million and $7 million, respectively. The estimates were based upon a combination of modeling, historical data analysis and risk factor assessment. In addition, certain current and former employees have claimed or are claiming
26 |
workers compensation benefits based on alleged disability from exposure to asbestos. Under its current rate plans, CECONY is permitted to defer as regulatory assets (for subsequent recovery through rates) costs incurred for its asbestos lawsuits and workers compensation claims. In the Companies estimation, there is not a reasonable possibility that an exposure to loss exists for the asbestos proceedings that is materially in excess of the estimated liability accrued. The accrued liability for asbestos suits and workers compensation proceedings (including those related to asbestos exposure) and the amounts deferred as regulatory assets for the Companies at September 30, 2014 and December 31, 2013 were as follows:
Con Edison | CECONY | |||||||||||||||
(Millions of Dollars) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Accrued liability asbestos suits |
$ | 8 | $ | 8 | $ | 7 | $ | 7 | ||||||||
Regulatory assets asbestos suits |
$ | 8 | $ | 8 | $ | 7 | $ | 7 | ||||||||
Accrued liability workers compensation |
$ | 86 | $ | 87 | $ | 81 | $ | 82 | ||||||||
Regulatory assets workers compensation |
$ | 10 | $ | 12 | $ | 10 | $ | 12 |
Note H Other Material Contingencies
Manhattan Steam Main Rupture
In July 2007, a CECONY steam main located in midtown Manhattan ruptured. It has been reported that one person died and others were injured as a result of the incident. Several buildings in the area were damaged. Debris from the incident included dirt and mud containing asbestos. The response to the incident required the closing of several buildings and streets for various periods. Approximately 90 suits are pending against the company seeking generally unspecified compensatory and, in some cases, punitive damages, for personal injury, property damage and business interruption. The company has notified its insurers of the incident and believes that the policies in force at the time of the incident will cover the companys costs to satisfy its liability to others in connection with the suits. In the companys estimation, there is not a reasonable possibility that an exposure to loss exists for the suits that is materially in excess of the estimated liability accrued. At September 30, 2014, the company had accrued its estimated liability for the suits of $50 million and an insurance receivable in the same amount.
Manhattan Explosion and Fire
On March 12, 2014, two multi-use five-story tall buildings located on Park Avenue between 116th and 117th Street in Manhattan were destroyed by an explosion and fire. CECONY had delivered gas to the buildings through service lines from a distribution main located below ground on Park Avenue. Eight people died and more than 48 people were injured. Additional buildings were also damaged. The National Transportation Safety Board is investigating. The parties to the investigation include the company, the City of New York, the Pipeline and Hazardous Materials Safety Administration and the NYSPSC (which is also conducting an investigation). Approximately 20 suits are pending against the company seeking generally unspecified damages for personal injury and property damage. The company has notified its insurers of the incident and believes that the policies in force at the time of the incident will cover the companys costs, in excess of a required retention (the amount of which is not material), to satisfy any liability it may have for damages in connection with the incident. The company is unable to estimate the amount or range of its possible loss related to the incident. At September 30, 2014, the company had not accrued a liability for the incident.
Other Contingencies
See Other Regulatory Matters in Note B.
Guarantees
Con Edison and its subsidiaries enter into various agreements providing financial or performance assurance primarily to third parties on behalf of their subsidiaries. Maximum amounts guaranteed by Con Edison totaled $1,418 million and $1,331 million at September 30, 2014 and December 31, 2013, respectively.
A summary, by type and term, of Con Edisons total guarantees at September 30, 2014 is as follows:
Guarantee Type | 0 3 years | 4 10 years | > 10 years | Total | ||||||||||||
(Millions of Dollars) | ||||||||||||||||
Energy transactions |
$ | 760 | $ | 25 | $ | 96 | $ | 881 | ||||||||
Solar energy projects |
507 | | | 507 | ||||||||||||
Other |
30 | | | 30 | ||||||||||||
Total |
$ | 1,297 | $ | 25 | $ | 96 | $ | 1,418 |
27 |
Energy Transactions Con Edison guarantees payments on behalf of its competitive energy businesses in order to facilitate physical and financial transactions in natural gas, pipeline capacity, transportation, oil, electricity, renewable energy credits and energy services. To the extent that liabilities exist under the contracts subject to these guarantees, such liabilities are included in Con Edisons consolidated balance sheet.
Solar Energy Projects Con Edison and Con Edison Development guarantee payments associated with the investment in solar energy facilities on behalf of their wholly-owned subsidiaries. In addition, Con Edison Development has entered into two guarantees ($78 million maximum and $69 million maximum, respectively) on behalf of two entities in which it has a 50 percent interest in connection with the construction of solar energy facilities. Con Edison Development also provided $3 million in guarantees to Travelers Insurance Company for indemnity agreements for surety bonds in connection with the construction and operation of solar energy facilities performed by its subsidiaries.
Other Other guarantees primarily relate to guarantees provided by Con Edison to Travelers Insurance Company for indemnity agreements for surety bonds in connection with energy service projects performed by Con Edison Solutions ($25 million). In addition, Con Edison issued a guarantee to the Public Utility Commission of Texas covering obligations of Con Edison Solutions as a retail electric provider. Con Edisons estimate of the maximum potential obligation for this guarantee is $5 million as of September 30, 2014.
Note I Lease In/Lease Out Transactions
As a result of the January 2013 Court of Appeals decision, in March 2013, Con Edison recorded an after-tax charge of $150 million to reflect, as required by the accounting rules for leveraged lease transactions, the recalculation of the accounting effect of its 1997 and 1999 Lease in/Lease Out (LILO) transactions based on the revised after-tax cash flows projected from the inception of the leveraged leases, as well as the interest on the potential tax liability resulting from the disallowance of federal and state income tax losses with respect to the LILO transactions. In the second and third quarters of 2013, the 1999 and the 1997 LILO transactions were terminated, as a result of which the company realized a $29 million gain (after-tax) and a $26 million gain (after-tax), respectively. In the first quarter of 2014, the interest accrued on the liability was reduced by $13 million ($7 million, net of tax).
The effect of the LILO transactions on Con Edisons consolidated income statement for the three and nine months ended as of September 30, 2014 and 2013 was as follows:
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
(Millions of Dollars) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Increase/(decrease) to non-utility operating revenues |
$ | | $ | 44 | $ | | $ | (27 | ) | |||||||
(Increase)/decrease to other interest expense |
| | 13 | (131 | ) | |||||||||||
Income tax benefit/(expense) |
| (18 | ) | (6 | ) | 63 | ||||||||||
Total increase/(decrease) in net income |
$ | | $ | 26 | $ | 7 | $ | (95 | ) |
In January 2013, to defray interest charges, the company deposited $447 million with federal and state tax agencies relating primarily to the potential tax liability from the LILO transactions in past tax years and interest thereon. During 2013, $125 million of the deposit was returned from the Internal Revenue Service (IRS) at the companys request. Also in 2013, the deposit balance was reduced by an additional $48 million, due to a $10 million refund from the IRS and the application of $38 million toward the settlement of tax and interest for certain tax years, primarily relating to tax liability from the LILO transactions. In the first quarter of 2014, Con Edison applied the remainder of the deposit against its federal and state tax liabilities, including interest.
Note J Income Tax
Con Edisons income tax expense increased to $259 million for the three months ended September 30, 2014 from $250 million for the three months ended September 30, 2013. The effective tax rate for the three months ended September 30, 2014 and 2013 was 37 percent and 35 percent, respectively.
28 |
The increase in the effective tax rate was primarily attributable to the reduction in liabilities for uncertain tax positions recorded in the third quarter of 2013 (see Uncertain Tax Positions below) and lower favorable tax adjustments related to flow-through federal income tax benefits associated with plant and renewable energy credits recorded in conjunction with filing Con Edisons consolidated federal tax return in September of 2014.
Con Edisons income tax expense increased to $559 million for the nine months ended September 30, 2014 from $373 million for the nine months ended September 30, 2013. The effective tax rate for the nine months ended September 30, 2014 and 2013 was 36 percent and 31 percent, respectively. The increase in the effective tax rate was primarily attributable to the tax items discussed above and the IRS acceptance in the first quarter of 2013 of the Companys claim for a manufacturing tax deduction, which reduced the 2013 income tax expense by $15 million. Additionally, the effective tax rate is impacted by consistent flow-through items relative to lower consolidated income before income tax expense for Con Edison for the nine months ended September 30, 2013, compared to the same period in 2014.
CECONYs income tax expense increased to $233 million for the three months ended September 30, 2014 from $222 million for the three months ended September 30, 2013. The effective tax rate for the three months ended September 30, 2014 and 2013 was 37 percent and 36 percent, respectively. CECONYs income tax expense increased to $496 million for the nine months ended September 30, 2014 from $431 million for the nine months ended September 30, 2013. The effective tax rate for the nine months ended September 30, 2014 and 2013 was 35 percent and 34 percent, respectively. The increases in the effective tax rate for the three and nine months ended September 30, 2014, was primarily attributable to lower favorable tax adjustments related to flow-through federal income tax benefits associated with plant recorded in conjunction with filing CECONYs federal tax return in September of 2014.
In March 2014, tax legislation was enacted in the State of New York that reduces the corporate franchise tax rate from 7.1 percent to 6.5 percent, beginning January 1, 2016. The application of this legislation decreased Con Edisons accumulated deferred tax liabilities by $72 million ($67 million for CECONY), decreased Con Edisons regulatory asset for future income tax by $11 million ($10 million for CECONY) and increased Con Edisons regulatory liability by $61 million ($57 million for CECONY). The impact of this tax legislation on Con Edisons effective tax rate was not material, and there was no impact on CECONYs effective tax rate for the nine months ended September 30, 2014.
Uncertain Tax Positions
In the third quarter of 2013, the IRS completed its audits for the tax years 1998 through 2011 and the Companies recognized approximately $13 million of income tax benefits ($7 million for CECONY), including $6 million that favorably affected Con Edisons effective tax rate for the three and nine months ended September 30, 2013.
In 2014 following the conclusion of its IRS audit, Con Edison filed amended state tax returns for tax years 1998 through 2011. As a result of positions taken on the amended state tax returns, Con Edison increased its estimated liabilities for uncertain tax positions by $25 million. The amended returns contain uncertain tax positions unique to the states, and the returns remain open for examination. At September 30, 2014, the estimated liability for uncertain tax positions for Con Edison was $34 million ($2 million for CECONY) and was reflected as a noncurrent liability on its consolidated balance sheet.
The Companies recognize interest on liabilities for uncertain tax positions in interest expense and would recognize penalties, if any, in operating expenses in the Companies consolidated income statements. In the nine months ended September 30, 2014, Con Edison recognized an immaterial amount of interest expense and no penalties for uncertain tax positions in its consolidated income statements. At September 30, 2014 and December 31, 2013, Con Edison recognized an immaterial amount of accrued interest on its consolidated balance sheets.
29 |
As of September 30, 2014, Con Edison reasonably expects to resolve approximately $25 million ($16 million, net of federal taxes) of its uncertainties related to certain tax matters within the next twelve months, of which the entire amount, if recognized, would reduce Con Edisons effective tax rate. The amount related to CECONY is approximately $2 million ($1 million, net of federal taxes), of which the entire amount, if recognized, would reduce CECONYs effective tax rate. The total amount of unrecognized tax benefits, if recognized, that would reduce Con Edisons effective tax rate is $34 million ($22 million, net of federal taxes).
Note K Financial Information by Business Segment
The financial data for the business segments are as follows:
For the Three Months Ended September 30, | ||||||||||||||||||||||||||||||||
Operating revenues |
Inter-segment revenues |
Depreciation and amortization |
Operating income |
|||||||||||||||||||||||||||||
(Millions of Dollars) | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | ||||||||||||||||||||||||
CECONY |
||||||||||||||||||||||||||||||||
Electric |
$ | 2,582 | $ | 2,622 | $ | 4 | $ | 4 | $ | 198 | $ | 188 | $ | 811 | $ | 811 | ||||||||||||||||
Gas |
210 | 199 | 1 | 1 | 33 | 33 | (14 | ) | (24 | ) | ||||||||||||||||||||||
Steam |
46 | 72 | 21 | 22 | 19 | 16 | (41 | ) | (35 | ) | ||||||||||||||||||||||
Consolidation adjustments |
| | (26 | ) | (27 | ) | | | | | ||||||||||||||||||||||
Total CECONY |
$ | 2,838 | $ | 2,893 | $ | | $ | | $ | 250 | $ | 237 | $ | 756 | $ | 752 | ||||||||||||||||
O&R |
||||||||||||||||||||||||||||||||
Electric |
$ | 205 | $ | 200 | $ | | $ | | $ | 12 | $ | 10 | $ | 51 | $ | 46 | ||||||||||||||||
Gas |
27 | 26 | | | 4 | 4 | (8 | ) | (7 | ) | ||||||||||||||||||||||
Total O&R |
$ | 232 | $ | 226 | $ | | $ | | $ | 16 | $ | 14 | $ | 43 | $ | 39 | ||||||||||||||||
Competitive energy businesses |
$ | 321 | $ | 365 | $ | (3 | ) | $ | | $ | 3 | $ | 6 | $ | 20 | $ | 63 | |||||||||||||||
Other* |
(1 | ) | | 3 | | 1 | 1 | | 1 | |||||||||||||||||||||||
Total Con Edison |
$ | 3,390 | $ | 3,484 | $ | | $ | | $ | 270 | $ | 258 | $ | 819 | $ | 855 |
* | Parent company expenses, primarily interest, and consolidation adjustments. Other does not represent a business segment. |
For the Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||
Operating revenues |
Inter-segment revenues |
Depreciation and amortization |
Operating Income |
|||||||||||||||||||||||||||||
(Millions of Dollars) | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | ||||||||||||||||||||||||
CECONY |
||||||||||||||||||||||||||||||||
Electric |
$ | 6,635 | $ | 6,309 | $ | 12 | $ | 12 | $ | 581 | $ | 559 | $ | 1,416 | $ | 1,307 | ||||||||||||||||
Gas |
1,359 | 1,190 | 4 | 4 | 98 | 97 | 273 | 272 | ||||||||||||||||||||||||
Steam |
485 | 522 | 62 | 60 | 58 | 49 | 97 | 80 | ||||||||||||||||||||||||
Consolidation adjustments |
| | (78 | ) | (76 | ) | | | | | ||||||||||||||||||||||
Total CECONY |
$ | 8,479 | $ | 8,021 | $ | | $ | | $ | 737 | $ | 705 | $ | 1,786 | $ | 1,659 | ||||||||||||||||
O&R |
||||||||||||||||||||||||||||||||
Electric |
$ | 525 | $ | 492 | $ | | $ | | $ | 33 | $ | 31 | $ | 87 | $ | 81 | ||||||||||||||||
Gas |
155 | 143 | | | 12 | 11 | 15 | 20 | ||||||||||||||||||||||||
Total O&R |
$ | 680 | $ | 635 | $ | | $ | | $ | 45 | $ | 42 | $ | 102 | $ | 101 | ||||||||||||||||
Competitive energy businesses |
$ | 934 | $ | 834 | $ | (2 | ) | $ | 4 | $ | 14 | $ | 16 | $ | 70 | $ | 7 | |||||||||||||||
Other* |
(2 | ) | (3 | ) | 2 | (4 | ) | | 1 | 1 | | |||||||||||||||||||||
Total Con Edison |
$ | 10,091 | $ | 9,487 | $ | | $ | | $ | 796 | $ | 764 | $ | 1,959 | $ | 1,767 |
* | Parent company expenses, primarily interest, and consolidation adjustments. Other does not represent a business segment. |
Note L 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.
30 |
Energy Price Hedging
Con Edisons 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 Companies enter into master agreements for their commodity derivatives. These agreements typically provide for setoff in the event of contract termination. In such case, generally the non-defaulting or non-affected partys payable will be set-off by the other partys payable. The non-defaulting party will customarily notify the defaulting party within a specific time period and come to an agreement on the early termination amount.
The fair values of the Companies commodity derivatives including the offsetting of assets and liabilities at September 30, 2014 were:
(Millions of Dollars) | ||||||||||||||||||||||||
Commodity Derivatives | Gross Amounts of Recognized |
Gross Amounts Offset in the Statement of Financial Position |
Net Amounts of the Statement of Financial |
Gross Amounts Not Offset in the Statement of Financial Position |
Net Amount |
|||||||||||||||||||
Financial instruments |
Cash collateral received |
|||||||||||||||||||||||
Con Edison |
||||||||||||||||||||||||
Derivative assets |
$ | 240 | $ | (138 | ) | $ | 102 | (a) | $ | | $ | | $ | 102 | (a) | |||||||||
Derivative liabilities |
(124 | ) | 114 | (10 | ) | | | (10 | ) | |||||||||||||||
Net derivative assets/(liabilities) |
$ | 116 | $ | (24 | ) | $ | 92 | (a) | $ | | $ | | $ | 92 | (a) | |||||||||
CECONY |
||||||||||||||||||||||||
Derivative assets |
$ | 103 | $ | (63 | ) | $ | 40 | (a) | $ | | $ | | $ | 40 | (a) | |||||||||
Derivative liabilities |
(69 | ) | 65 | (4) | | | (4) | |||||||||||||||||
Net derivative assets/(liabilities) |
$ | 34 | $ | 2 | $ | 36 | (a) | $ | | $ | | $ | 36 | (a) |
(a) | At September 30, 2014, Con Edison and CECONY had margin deposits of $8 million classified as derivative assets in the balance sheet, but not included in the table. As required by an exchange, a margin is collateral, typically cash, that the holder of a derivative instrument has to deposit in order to transact on an exchange and to cover its potential losses with its broker or the exchange. |
The fair values of the Companies commodity derivatives including the offsetting of assets and liabilities at December 31, 2013 were:
(Millions of Dollars) | ||||||||||||||||||||||||
Commodity Derivatives | Gross Amounts of Recognized |
Gross Amounts Offset in the Statement of Financial Position |
Net Amounts of the Statement of Financial |
Gross Amounts Not Offset in the Statement of Financial Position |
Net Amount |
|||||||||||||||||||
Financial instruments |
Cash collateral received |
|||||||||||||||||||||||
Con Edison |
||||||||||||||||||||||||
Derivative assets |
$ | 166 | $ | (101 | ) | $ | 65 | (a) | $ | | $ | | $ | 65 | (a) | |||||||||
Derivative liabilities |
(113 | ) | 98 | (15 | ) | | | (15 | ) | |||||||||||||||
Net derivative assets/(liabilities) |
$ | 53 | $ | (3 | ) | $ | 50 | (a) | $ | | $ | | $ | 50 | (a) | |||||||||
CECONY |
||||||||||||||||||||||||
Derivative assets |
$ | 41 | $ | (32 | ) | $ | 9 | (a) | $ | | $ | | $ | 9 | (a) | |||||||||
Derivative liabilities |
(51 | ) | 37 | (14 | ) | | | (14 | ) | |||||||||||||||
Net derivative assets/(liabilities) |
$ | (10 | ) | $ | 5 | $ | (5 | )(a) | $ | | $ | | $ | (5 | )(a) |
(a) | At December 31, 2013, Con Edison and CECONY had margin deposits of $17 million and $16 million, respectively, classified as derivative assets in the balance sheet, but not included in the table. As required by an exchange, a margin is collateral, typically cash, that the holder of a derivative instrument has to deposit in order to transact on an exchange and to cover its potential losses with its broker or the exchange. |
31 |
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. Credit risk relates to the loss that may result from a counterpartys nonperformance. 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. The Companies measure credit risk exposure as the replacement cost for open energy commodity and derivative positions plus amounts owed from counterparties for settled transactions. The replacement cost of open positions represents unrealized gains, net of any unrealized losses where the Companies have a legally enforceable right of setoff.
At September 30, 2014, Con Edison and CECONY had $151 million and $28 million of credit exposure in connection with energy supply and hedging activities, net of collateral, respectively. Con Edisons net credit exposure consisted of $54 million with independent system operators, $63 million with commodity exchange brokers, $31 million with investment-grade counterparties and $3 million with non-investment grade/non-rated counterparties. CECONYs net credit exposure consisted of $20 million with commodity exchange brokers and $8 million with investment-grade counterparties.
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 September 30, 2014 were:
(Millions of Dollars) | Fair Value of Commodity Derivatives(a) Balance Sheet Location |
Con Edison | CECONY | |||||||
Derivative Assets | ||||||||||
Current |
Other current assets | $ | 192 | $ | 75 | |||||
Noncurrent |
Other deferred charges and noncurrent assets | 48 | 28 | |||||||
Total derivative assets |
$ | 240 | $ | 103 | ||||||
Impact of netting |
(130 | ) | (55 | ) | ||||||
Net derivative assets |
$ | 110 | $ | 48 | ||||||
Derivative Liabilities | ||||||||||
Current |
Fair value of derivative liabilities | $ | 82 | $ | 40 | |||||
Noncurrent |
Fair value of derivative liabilities | 42 | 29 | |||||||
Total derivative liabilities |
$ | 124 | $ | 69 | ||||||
Impact of netting |
(114 | ) | (65 | ) | ||||||
Net derivative liabilities |
$ | 10 | $ | 4 |
(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. |
32 |
The fair values of the Companies commodity derivatives at December 31, 2013 were:
(Millions of Dollars) | Fair Value of Commodity Derivatives(a) Balance Sheet Location |
Con Edison | CECONY | |||||||
Derivative Assets | ||||||||||
Current |
Other current assets | $ | 134 | $ | 27 | |||||
Noncurrent |
Other deferred charges and noncurrent assets | 32 | 14 | |||||||
Total derivative assets |
$ | 166 | $ | 41 | ||||||
Impact of netting |
(84 | ) | (16 | ) | ||||||
Net derivative assets |
$ | 82 | $ | 25 | ||||||
Derivative Liabilities | ||||||||||
Current |
Fair value of derivative liabilities | $ | 82 | $ | 32 | |||||
Noncurrent |
Fair value of derivative liabilities | 31 | 19 | |||||||
Total derivative liabilities |
$ | 113 | $ | 51 | ||||||
Impact of netting |
(98 | ) | (37 | ) | ||||||
Net derivative liabilities |
$ | 15 | $ | 14 |
(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 Edisons 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 table presents the changes in the fair values of commodity derivatives that have been deferred or recognized in earnings for the three and nine months ended September 30, 2014:
Realized and Unrealized Gains/(Losses) on Commodity Derivatives(a) Deferred or Recognized in Income for the Three Months Ended September 30, 2014 |
||||||||||
(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 | $ | (6 | ) | $ | (5 | ) | |||
Noncurrent |
Deferred derivative gains | (5 | ) | (5 | ) | |||||
Total deferred gains/(losses) |
$ | (11 | ) | $ | (10 | ) | ||||
Current |
Deferred derivative losses | $ | (6 | ) | $ | (5 | ) | |||
Current |
Recoverable energy costs | (33 | ) | (29 | ) | |||||
Noncurrent |
Deferred derivative losses | 3 | 3 | |||||||
Total deferred gains/(losses) |
$ | (36 | ) | $ | (31 | ) | ||||
Net deferred gains/(losses) |
$ | (47 | ) | $ | (41 | ) | ||||
Income Statement Location | ||||||||||
Pre-tax gain/(loss) recognized in income |
||||||||||
Purchased power expense | $ | (28 | )(b) | $ | | |||||
Gas purchased for resale | (29 | ) | | |||||||
Non-utility revenue | 20 | (b) | | |||||||
Total pre-tax gain/(loss) recognized in income |
$ | (37 | ) | $ | |
(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 September 30, 2014, Con Edison recorded in purchased power expense an unrealized pre-tax loss of $1 million. |
33 |
Realized and Unrealized Gains/(Losses) on Commodity Derivatives(a) Deferred or Recognized in Income for the Nine Months Ended September 30, 2014 |
||||||||||
(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 | $ | 25 | $ | 20 | |||||
Noncurrent |
Deferred derivative gains | 1 | 1 | |||||||
Total deferred gains/(losses) |
$ | 26 | $ | 21 | ||||||
Current |
Deferred derivative losses | $ | 10 | $ | 10 | |||||
Current |
Recoverable energy costs | 54 | 41 | |||||||
Noncurrent |
Deferred derivative losses | 3 | 2 | |||||||
Total deferred gains/(losses) |
$ | 67 | $ | 53 | ||||||
Net deferred gains/(losses) |
$ | 93 | $ | 74 | ||||||
Income Statement Location | ||||||||||
Pre-tax gain/(loss) recognized in income |
||||||||||
Purchased power expense | $ | 134 | (b) | $ | | |||||
Gas purchased for resale | (75 | ) | | |||||||
Non-utility revenue | 10 | (b) | | |||||||
Total pre-tax gain/(loss) recognized in income |
$ | 69 | $ | |
(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 nine months ended September 30, 2014, Con Edison recorded in purchased power expense an unrealized pre-tax gain of $14 million. |
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 nine months ended September 30, 2013:
Realized and Unrealized Gains/(Losses) on Commodity Derivatives(a) Deferred or Recognized in Income for the Three Months Ended September 30, 2013 |
||||||||||
(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 | $ | | $ | | |||||
Noncurrent |
Regulatory liabilities | | | |||||||
Total deferred gains/(losses) |
$ | | $ | |||||||
Current |
Deferred derivative losses | $ | 11 | $ | 9 | |||||
Current |
Recoverable energy costs | (19 | ) | (17 | ) | |||||
Noncurrent |
Deferred derivative losses | 6 | 7 | |||||||
Total deferred gains/(losses) |
$ | (2 | ) | $ | (1 | ) | ||||
Net deferred gains/(losses) |
$ | (2 | ) | $ | (1 | ) | ||||
Income Statement Location | ||||||||||
Pre-tax gain/(loss) recognized in income |
||||||||||
Purchased power expense | $ | 3 | (b) | $ | | |||||
Gas purchased for resale | (6 | ) | | |||||||
Non-utility revenue | 7 | | ||||||||
Total pre-tax gain/(loss) recognized in income |
$ | 4 | $ | |
(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 September 30, 2013, Con Edison recorded in purchased power expense an unrealized pre-tax gain of $6 million. |
34 |
Realized and Unrealized Gains/(Losses) on Commodity Derivatives(a) Deferred or Recognized in Income for the Nine Months Ended September 30, 2013 |
||||||||||
(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 | |||||
Noncurrent |
Regulatory liabilities | | | |||||||
Total deferred gains/(losses) |
$ | 1 | $ | 1 | ||||||
Current |
Deferred derivative losses | $ | 24 | $ | 19 | |||||
Current |
Recoverable energy costs | (22 | ) | (19 | ) | |||||
Noncurrent |
Deferred derivative losses | 3 | 7 | |||||||
Total deferred gains/(losses) |
$ | 5 | $ | 7 | ||||||
Net deferred gains/(losses) |
$ | 6 | $ | 8 | ||||||
Income Statement Location | ||||||||||
Pre-tax gain/(loss) recognized in income |
||||||||||
Purchased power expense | $ | 32 | (b) | $ | | |||||
Gas purchased for resale | (17 | ) | | |||||||
Non-utility revenue | 8 | (b) | | |||||||
Total pre-tax gain/(loss) recognized in income |
$ | 23 | $ | |
(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 nine months ended September 30, 2013, Con Edison recorded in purchased power expense an unrealized pre-tax gain of $22 million. |
As of September 30, 2014, Con Edison had 1,335 contracts, including 565 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 |
561 | 13,588,195 | 79 | 5,758 | 695 | 75,092,291 | 1,335 | |||||||||||||||||||||
CECONY |
75 | 3,612,475 | 6 | 1,500 | 484 | 69,880,000 | 565 |
(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, 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 September 30, 2014, 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:
35 |
(Millions of Dollars) | Con Edison (a) | CECONY (a) | ||||||
Aggregate fair value net liabilities |
$ | 3 | $ | 2 | ||||
Collateral posted |
$ | 1 | $ | | ||||
Additional collateral(b) (downgrade one level from current ratings) |
$ | | $ | | ||||
Additional collateral(b) (downgrade to below investment grade from current ratings) |
$ | 19 | (c) | $ | 2 | (c) |
(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 Edisons competitive energy businesses were no longer extended unsecured credit for such purchases, the Companies would be required to post collateral, which at September 30, 2014, would have amounted to an estimated $17 million for Con Edison, including $5 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) | Derivative instruments that are net assets have been excluded from the table. At September 30, 2014, if Con Edison had been downgraded to below investment grade, it would have been required to post additional collateral for such derivative instruments of $28 million, including $1 million for CECONY. |
Interest Rate Swap
O&R had an interest rate swap that expired on October 1, 2014, pursuant to which it paid a fixed-rate of 6.09 percent and received a LIBOR-based variable rate. The fair value of this interest rate swap at September 30, 2014 was immaterial. The increase in the fair value of the swap for the three and nine months ended September 30, 2014 was $1 million and $2 million, respectively.
Note M Fair Value Measurements
The accounting rules for fair value measurements and disclosures define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in a principal or most advantageous market. Fair value is a market-based measurement that is determined based on inputs, which refer broadly to assumptions that market participants use in pricing assets or liabilities. These inputs can be readily observable, market corroborated, or generally unobservable firm inputs. The Companies often make certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, and the risks inherent in the inputs to valuation techniques. The Companies use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.
The accounting rules for fair value measurements and disclosures established a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value in three broad levels. The rules require that assets and liabilities be classified in their entirety based on the level of input that is significant to the fair value measurement. Assessing the significance of a particular input may require judgment considering factors specific to the asset or liability, and may affect the valuation of the asset or liability and their placement within the fair value hierarchy. The Companies classify fair value balances based on the fair value hierarchy defined by the accounting rules for fair value measurements and disclosures as follows:
| Level 1 Consists of assets or liabilities whose value is based on unadjusted quoted prices in active markets at the measurement date. An active market is one in which transactions for assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis. This category includes contracts traded on active exchange markets valued using unadjusted prices quoted directly from the exchange. |
| Level 2 Consists of assets or liabilities valued using industry standard models and based on prices, other than quoted prices within Level 1, that are either directly or indirectly observable as of the measurement date. The industry standard models consider observable assumptions including time value, volatility factors, and current market and contractual prices for the underlying commodities, in addition to other economic measures. This category includes contracts traded on active exchanges or in over-the-counter markets priced with industry standard models. |
| Level 3 Consists of assets or liabilities whose fair value is estimated based on internally developed models or methodologies using inputs that are generally less readily observable and supported by little, if any, market activity at the measurement |
36 |
date. Unobservable inputs are developed based on the best available information and subject to cost benefit constraints. This category includes contracts priced using models that are internally developed and contracts placed in illiquid markets. It also includes contracts that expire after the period of time for which quoted prices are available and internal models are used to determine a significant portion of the value. |
Assets and liabilities measured at fair value on a recurring basis as of September 30, 2014 are summarized below.
Level 1 | Level 2 | Level 3 | Netting Adjustments (d) |
Total | ||||||||||||||||||||||||||||||||||||
(Millions of Dollars) | Con Edison |
CECONY | Con Edison |
CECONY | Con Edison |
CECONY | Con Edison |
CECONY | Con Edison |
CECONY | ||||||||||||||||||||||||||||||
Derivative assets: |
||||||||||||||||||||||||||||||||||||||||
Commodity (a)(e)(f) |
$ | 5 | $ | 5 | $ | 152 | $ | 38 | $ | 24 | $ | 11 | $ | (71) | $ | (6) | $ | 110 | $ | 48 | ||||||||||||||||||||
Other assets (c)(e)(f) |
163 | 156 | 116 | 106 | | | | | 279 | 262 | ||||||||||||||||||||||||||||||
Total |
$ | 168 | $ | 161 | $ | 268 | $ | 144 | $ | 24 | $ | 11 | $ | (71) | $ | (6) | $ | 389 | $ | 310 | ||||||||||||||||||||
Derivative liabilities: |
||||||||||||||||||||||||||||||||||||||||
Commodity (a)(e)(f) |
$ | 4 | $ | 4 | $ | 58 | $ | 16 | $ | 3 | $ | | $ | (55) | $ | (16) | $ | 10 | $ | 4 | ||||||||||||||||||||
Interest rate contract (b)(e)(f) |
| | | | | | | | | | ||||||||||||||||||||||||||||||
Total |
$ | 4 | $ | 4 | $ | 58 | $ | 16 | $ | 3 | $ | | $ | (55) | $ | (16) | $ | 10 | $ | 4 |
(a) | A portion of the commodity derivatives categorized in Level 3 is valued using an internally developed model with observable inputs. The models also include some less readily observable inputs resulting in the classification of the entire contract as Level 3. See Note L. |
(b) | The interest rate contract expired on October 1, 2014. See Note L. |
(c) | Other assets are comprised of assets such as life insurance contracts within the deferred compensation plan and non-qualified retirement plans. |
(d) | Amounts represent the impact of legally-enforceable master netting agreements that allow the Companies to net gain and loss positions and cash collateral held or placed with the same counterparties. |
(e) | The Companies policy is to recognize transfers into and transfers out of the levels at the end of the reporting period. There were no transfers between levels 1, 2, and 3 for the nine months ended September 30, 2014. |
(f) | Level 2 assets and liabilities include investments held in the deferred compensation plan and/or non-qualified retirement plans, interest rate swap, or exchange-traded contracts where there is insufficient market liquidity to warrant inclusion in Level 1, and certain over-the-counter derivative instruments for electricity and natural gas. Derivative instruments classified as Level 2 are valued using industry standard models that incorporate corroborated observable inputs; such as pricing services or prices from similar instruments that trade in liquid markets, time value, and volatility factors. |
Assets and liabilities measured at fair value on a recurring basis as of December 31, 2013 are summarized below.
Level 1 | Level 2 | Level 3 | Netting Adjustments (d) |
Total | ||||||||||||||||||||||||||||||||||||
(Millions of Dollars) | Con Edison |
CECONY | Con Edison |
CECONY | Con Edison |
CECONY | Con Edison |
CECONY | Con Edison |
CECONY | ||||||||||||||||||||||||||||||
Derivative assets: |
||||||||||||||||||||||||||||||||||||||||
Commodity (a)(e)(f) |
$ | 3 | $ | 3 | $ | 130 | $ | 13 | $ | 11 | $ | 6 | $ | (62) | $ | 3 | $ | 82 | $ | 25 | ||||||||||||||||||||
Other assets (c)(e)(f) |
141 | 134 | 113 | 103 | | | | | 254 | 237 | ||||||||||||||||||||||||||||||
Total |
$ | 144 | $ | 137 | $ | 243 | $ | 116 | $ | 11 | $ | 6 | $ | (62) | $ | 3 | $ | 336 | $ | 262 | ||||||||||||||||||||
Derivative liabilities: |
||||||||||||||||||||||||||||||||||||||||
Commodity (a)(e)(f) |
$ | 5 | $ | 5 | $ | 84 | $ | 27 | $ | 2 | $ | | $ | (76) | $ | (18) | $ | 15 | $ | 14 | ||||||||||||||||||||
Interest rate contract (b)(e)(f) |
| | 2 | | | | | | 2 | | ||||||||||||||||||||||||||||||
Total |
$ | 5 | $ | 5 | $ | 86 | $ | 27 | $ | 2 | $ | | $ | (76) | $ | (18) | $ | 17 | $ | 14 |
(a) | A portion of the commodity derivatives categorized in Level 3 is valued using an internally developed model with observable inputs. The models also include some less readily observable inputs resulting in the classification of the entire contract as Level 3. See Note L. |
(b) | See Note L. |
(c) | Other assets are comprised of assets such as life insurance contracts within the deferred compensation plan and non-qualified retirement plans. |
(d) | Amounts represent the impact of legally-enforceable master netting agreements that allow the Companies to net gain and loss positions and cash collateral held or placed with the same counterparties. |
(e) | The Companies policy is to recognize transfers into and transfers out of the levels at the end of the reporting period. There were no transfers between levels 1, 2, and 3 for the year ended December 31, 2013. |
(f) | Level 2 assets and liabilities include investments held in the deferred compensation plan and/or non-qualified retirement plans, interest rate swap, or exchange-traded contracts where there is insufficient market liquidity to warrant inclusion in Level 1, and certain over-the-counter derivative instruments for electricity and natural gas. Derivative instruments classified as Level 2 are valued using industry standard models that incorporate corroborated observable inputs; such as pricing services or prices from similar instruments that trade in liquid markets, time value, and volatility factors. |
The employees in the risk management groups of the Utilities and the competitive energy businesses develop and maintain the Companies valuation policies and procedures for, and verify pricing and fair value valuation of, commodity derivatives. Under the Companies policies and procedures, multiple
37 |
independent sources of information are obtained for forward price curves used to value commodity derivatives. Fair value and changes in fair value of commodity derivatives are reported on a monthly basis to the Companies risk committees, comprised of officers and employees of the Companies that oversee energy hedging at the Utilities and the competitive energy businesses. The managers of the risk management groups report to the Companies Vice President and Treasurer.
Fair Value of Level 3 at September 30, 2014 (Millions of Dollars) |
Valuation Techniques |
Unobservable Inputs | Range | |||||||
Con EdisonCommodity |
||||||||||
Electricity |
$ 9 | Discounted Cash Flow | Forward energy prices (a) | $28.43-$170.00 per MWH | ||||||
Discounted Cash Flow | Forward capacity prices (a) | $5.39-$17.94 per kW-month | ||||||||
Transmission Congestion Contracts / Financial Transmission Rights |
12 | Discounted Cash Flow | Discount to adjust auction prices for inter-zonal forward price curves (b) | (5.8)%-57.9% | ||||||
Discount to adjust auction prices for historical monthly realized settlements (b) | 6.1%-49.1% | |||||||||
Inter-zonal forward price curves adjusted for historical zonal losses (b) | $0.08-$7.61 per MWH | |||||||||
Total Con EdisonCommodity |
$21 | |||||||||
CECONYCommodity |
||||||||||
Transmission Congestion Contracts |
$11 | Discounted Cash Flow | Discount to adjust auction prices for inter-zonal forward price curves (b) | (5.8)%-57.9% | ||||||
Discount to adjust auction prices for historical monthly realized settlements (b) | 6.1%-49.1% |
(a) | Generally, increases/(decreases) in this input in isolation would result in a higher/(lower) fair value measurement. |
(b) | Generally, increases/(decreases) in this input in isolation would result in a lower/(higher) fair value measurement. |
The table listed below provides a reconciliation of the beginning and ending net balances for assets and liabilities measured at fair value as of September 30, 2014 and 2013 and classified as Level 3 in the fair value hierarchy:
For the Three Months Ended September 30, 2014 | ||||||||||||||||||||||||||||||||||||
Total Gains/(Losses) Realized and Unrealized |
||||||||||||||||||||||||||||||||||||
(Millions of Dollars) | Beginning Balance as of July 1, 2014 |
Included in Earnings |
Included in Regulatory Assets and Liabilities |
Purchases | Issuances | Sales | Settlements | Transfer In/Out of Level 3 |
Ending Balance as of September 30, 2014 |
|||||||||||||||||||||||||||
Con Edison |
||||||||||||||||||||||||||||||||||||
Derivatives: |
||||||||||||||||||||||||||||||||||||
Commodity |
$27 | $(8) | $(4) | $3 | $ | $ | $3 | $ | $21 | |||||||||||||||||||||||||||
CECONY |
||||||||||||||||||||||||||||||||||||
Derivatives: |
||||||||||||||||||||||||||||||||||||
Commodity |
$14 | $(3) | $(4) | $3 | $ | $ | $1 | $ | $11 | |||||||||||||||||||||||||||
For the Nine Months Ended September 30, 2014 | ||||||||||||||||||||||||||||||||||||
Total Gains/(Losses) Realized and Unrealized |
||||||||||||||||||||||||||||||||||||
(Millions of Dollars) | Beginning Balance as of January 1, 2014 |
Included in Earnings |
Included in Regulatory Assets and Liabilities |
Purchases | Issuances | Sales | Settlements | Transfer In/Out of Level 3 |
Ending Balance as of September 30, 2014 |
|||||||||||||||||||||||||||
Con Edison |
||||||||||||||||||||||||||||||||||||
Derivatives: |
||||||||||||||||||||||||||||||||||||
Commodity |
$9 | $41 | $4 | $15 | $ | $ | $(48) | $ | $21 | |||||||||||||||||||||||||||
CECONY |
||||||||||||||||||||||||||||||||||||
Derivatives: |
||||||||||||||||||||||||||||||||||||
Commodity |
$6 | $6 | $4 | $13 | $ | $ | $(18) | $ | $11 |
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For Three Months Ended September 30, 2013 | ||||||||||||||||||||||||||||||||||||
Total Gains/(Losses) Realized and Unrealized |
||||||||||||||||||||||||||||||||||||
(Millions of Dollars) | Beginning Balance as of July 1, 2013 |
Included in Earnings |
Included in Regulatory Assets and Liabilities |
Purchases | Issuances | Sales | Settlements | Transfer In/Out of Level 3 |
Ending Balance as of September 30, 2013 |
|||||||||||||||||||||||||||
Con Edison |
||||||||||||||||||||||||||||||||||||
Derivatives: |
||||||||||||||||||||||||||||||||||||
Commodity |
$ | (6) | $ | (3 | ) | $ | (2 | ) | $ | 5 | $ | | $ | | $ | (8) | $ | | $ | (14) | ||||||||||||||||
CECONY |
||||||||||||||||||||||||||||||||||||
Derivatives: |
||||||||||||||||||||||||||||||||||||
Commodity |
$ | 8 | $ | 2 | $ | (1 | ) | $ | 5 | $ | | $ | | $ | (6) | $ | | $ | 8 | |||||||||||||||||
For Nine Months Ended September 30, 2013 | ||||||||||||||||||||||||||||||||||||
Total Gains/(Losses) Realized and Unrealized |
||||||||||||||||||||||||||||||||||||
(Millions of Dollars) | Beginning Balance as of January 1, 2013 |
Included in Earnings |
Included in Regulatory Assets and Liabilities |
Purchases | Issuances | Sales | Settlements | Transfer In/Out of Level 3 |
Ending Balance as of September 30, 2013 |
|||||||||||||||||||||||||||
Con Edison |
||||||||||||||||||||||||||||||||||||
Derivatives: |
||||||||||||||||||||||||||||||||||||
Commodity |
$ | (5) | $ | 5 | $ | 1 | $ | 12 | $ | | $ | | $ | (27) | $ | | $ | (14) | ||||||||||||||||||
CECONY |
||||||||||||||||||||||||||||||||||||
Derivatives: |
||||||||||||||||||||||||||||||||||||
Commodity |
$ | 10 | $ | 9 | $ | | $ | 10 | $ | | $ | | $ | (21) | $ | | $ | 8 |
For the Utilities, realized gains and losses on Level 3 commodity derivative assets and liabilities are reported as part of purchased power, gas and fuel costs. The Utilities generally recover these costs in accordance with rate provisions approved by the applicable state public utilities commissions. Unrealized gains and losses for commodity derivatives are generally deferred on the consolidated balance sheet in accordance with the accounting rules for regulated operations.
For the competitive energy businesses, realized and unrealized gains and losses on Level 3 commodity derivative assets and liabilities are reported in non-utility revenues (immaterial) and purchased power costs ($5 million loss and $4 million loss) on the consolidated income statement for the three months ended September 30, 2014 and 2013, respectively. Realized and unrealized gains and losses on Level 3 commodity derivative assets and liabilities are reported in non-utility revenues (immaterial and $2 million loss) and purchased power costs ($35 million gain and immaterial) on the consolidated income statement for the nine months ended September 30, 2014 and 2013, respectively. The change in fair value relating to Level 3 commodity derivative assets and liabilities held at September 30, 2014 and 2013 is included in non-utility revenues (immaterial) and purchased power costs ($2 million loss and $5 million loss) on the consolidated income statement for the three months ended September 30, 2014 and 2013, respectively. For the nine months ended September 30, 2014 and 2013, the change in fair value relating to Level 3 commodity derivative assets and liabilities is included in non-utility revenues (immaterial and $2 million loss) and purchased power costs ($8 million gain and $3 million loss) on the consolidated income statement, respectively.
The accounting rules for fair value measurements and disclosures require consideration of the impact of nonperformance risk (including credit risk) from a market participant perspective in the measurement of the fair value of assets and liabilities. At September 30, 2014, the Companies determined that nonperformance risk would have no material impact on their financial position or results of operations. To assess nonperformance risk, the Companies considered information such as collateral requirements, master netting arrangements, letters of credit and parent company guarantees, and applied a historical default
39 |
probability based on current credit ratings and a market-based method by using the counterparty (for an asset) or the Companies (for a liability) credit default swaps rates.
Note N Variable Interest Entities
In March 2014, Con Edison Development purchased a 50 percent membership interest in Copper Mountain Solar 3 Holdings, LLC (CMS 3). As a result, Con Edison has a variable interest in CMS 3, which is a non-consolidated entity. CMS 3 owns a project company that is developing a 250 MW (AC) solar energy project in Nevada. Electricity generated by the project is to be sold to the Southern California Public Power Authority pursuant to a long-term power purchase agreement. Con Edison is not the primary beneficiary since the power to direct the activities that most significantly impact the economics of CMS 3 is shared equally between Con Edison Development and a third party. At September 30, 2014, Con Edisons consolidated balance sheet includes $155 million in investments (including earnings) related to CMS 3, which assessed in accordance with the accounting rules for variable interest entities (VIE), is Con Edisons current maximum exposure to loss in the entity. In addition, Con Edison and Con Edison Development have issued certain guarantees to third parties in connection with CMS 3. See Guarantees in Note H.
In May 2014, Con Edison Development sold 50 percent of its membership interest in CED California Holdings Financing I, LLC (CCH), which was previously a wholly owned subsidiary. As a result, Con Edison has a variable interest in CCH, which is no longer a consolidated entity. CCH owns project companies that operate 110 MW (AC) of solar energy projects in California. Electricity generated by the projects is sold to Pacific Gas and Electric Company pursuant to long-term power purchase agreements. Con Edison is not the primary beneficiary since the power to direct the activities that most significantly impact the economics of CCH is shared equally between Con Edison Development and a third party. Con Edison Developments remaining 50 percent interest in CCH is now accounted for under the equity method.
As a result of the sale, Con Edison Development received net proceeds of $108 million and recognized a pre-tax gain on the sale of $45 million ($26 million, net of tax). The following table summarizes the sale and resultant deconsolidation on the transaction date:
(Millions of Dollars) | ||||
Proceeds from sale, net of transaction costs of $1 |
$ | 108 | ||
Non-utility property, less accumulated depreciation |
(341 | ) | ||
Other assets, including working capital |
(31 | ) | ||
Long-term debt, including current portion |
217 | |||
Other liabilities |
9 | |||
Gain on sale of solar energy projects |
(45 | ) | ||
Equity method investment upon deconsolidation |
$ | (83 | ) |
At September 30, 2014, Con Edisons consolidated balance sheet includes $82 million in investments (including earnings) related to CCH, which assessed in accordance with the accounting rules for variable interest entities, is Con Edisons current maximum exposure to loss in the entity.
In August 2014, Con Edison Development purchased an 80 percent membership interest in OCI Solar San Antonio 4 LLC (Texas Solar) for $49 million. As a result, Con Edison has a variable interest in Texas Solar, which is a consolidated entity. Texas Solar owns a project company that developed a 40 MW (AC) solar energy project in Texas. Electricity generated by the project is sold to the City of San Antonio pursuant to a long-term power purchase agreement. Con Edison is the primary beneficiary since the power to direct the activities that most significantly impact the economics of Texas Solar is held by Con Edison Development. At September 30, 2014, Con Edisons consolidated balance sheet includes $58 million in net assets (as detailed in the table below) and the non-controlling interest of the third party of $9 million related to Texas Solar. Earnings for the nine months ended September 30, 2014 were immaterial.
40 |
(Millions of Dollars) | ||||
Restricted cash |
$13 | |||
Non-utility property, less accumulated depreciation |
111 | |||
Other assets |
12 | |||
Total assets (a) |
$136 | |||
Long-term debt due within one year |
$66 | |||
Other liabilities |
12 | |||
Total liabilities (b) |
$78 |
(a) | The assets of Texas Solar represent assets of a consolidated VIE that can be used only to settle obligations of the consolidated VIE. |
(b) | The liabilities of Texas Solar represent liabilities of a consolidated VIE for which creditors do not have recourse to the general credit of the primary beneficiary. |
Note O New Financial Accounting Standards
In April 2014, the Financial Accounting Standards Board (FASB) issued new amendments on reporting discontinued operations through Accounting Standards Update (ASU) No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this update revise the definition of a discontinued operation as a disposal of a component of an entity or a group of components of an entity, or a business or nonprofit activity that represents a strategic shift that has or will have a major effect on an entitys operations and financial results. The amendments also require additional disclosures for discontinued operations and individually significant disposals that do not qualify for discontinued operations presentation in the financial statements. For public entities, the amendments are effective prospectively for reporting periods beginning on or after December 15, 2014. The application of this guidance is not expected to have a material impact on the Companies financial position, results of operations and liquidity.
In May 2014, the FASB and the International Accounting Standards Board (IASB) jointly issued a new revenue recognition standard that will supersede the revenue recognition requirements within Accounting Standards Codification (ASC) Topic 605, Revenue Recognition, and most industry-specific guidance under the Codification through ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The purpose of the new guidance is to create a consistent framework for revenue recognition. The guidance clarifies how to measure and recognize revenue arising from customer contracts to depict the transfer of goods or services in an amount that reflects the consideration the entity expects to receive. The new guidance must be adopted using either a full retrospective approach or a modified retrospective approach. For public entities reporting under accounting principles generally accepted in the United States of America, the new guidance is effective for periods beginning after December 15, 2016. The Companies are in the process of evaluating the application and impact of the new guidance on the Companies financial position, results of operations and liquidity.
In June 2014, the FASB issued ASU No. 2014-12, CompensationStock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (a consensus of the FASB Emerging Issues Task Force). The purpose of the amendments is to clarify the accounting treatment regarding performance targets. Under the new guidance, a performance target that affects vesting and that could be achieved after the requisite service period is required to be treated as a performance condition and should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized only when it becomes probable that the performance target will be achieved. The amendments are effective for periods beginning after December 15, 2015. The Companies are in the process of evaluating the application and impact of the new guidance on the Companies financial position, results of operations and liquidity.
In August 2014, the FASB issued amendments on reporting about an entitys ability to continue as a going concern in ASU No. 2014-15, Presentation of Financial StatementsGoing Concern (Subtopic 205 40): Disclosure of Uncertainties about an Entitys
41 |
Ability to Continue as a Going Concern. The amendments provide guidance about managements responsibility to evaluate whether there is substantial doubt surrounding an entitys ability to continue as a going concern. If management concludes that substantial doubt exists, the amendments also require additional disclosures relating to managements evaluation and conclusion. The amendments are effective for the annual reporting period ending after December 15, 2016 and interim periods thereafter. The application of this guidance is not expected to have a material impact on the Companies financial position, results of operations and liquidity.
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Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
This combined managements discussion and analysis of financial condition and results of operations relates to the consolidated financial statements (the Third Quarter Financial Statements) included in this report of two separate registrants: Con Edison and CECONY and should be read in conjunction with the financial statements and the notes thereto. As used in this report, the term the Companies refers to Con Edison and CECONY. CECONY is a subsidiary of Con Edison and, as such, information in this managements discussion and analysis about CECONY applies to Con Edison.
This MD&A should be read in conjunction with the Third Quarter Financial Statements and the notes thereto and the MD&A in Item 7 of the Companies combined Annual Report on Form 10-K for the year ended December 31, 2013 (File Nos. 1-14514 and 1-1217, the Form 10-K) and the MD&A in Part 1, Item 2 of the Companies combined Quarterly Report on Form 10-Q for the quarterly periods ended March 31, 2014 and June 30, 2014 (File Nos. 1-14514 and 1-217).
Information in any item of this report referred to in this discussion and analysis is incorporated by reference herein. The use of terms such as see or refer to shall be deemed to incorporate by reference into this discussion and analysis the information to which reference is made.
Con Edison, incorporated in New York State in 1997, is a holding company which owns all of the outstanding common stock of CECONY, Orange and Rockland Utilities, Inc. (O&R) and the competitive energy businesses. As used in this report, the term the Utilities refers to CECONY and O&R.
CECONYs principal business operations are its regulated electric, gas and steam delivery businesses. O&Rs principal business operations are its regulated electric and gas delivery businesses. The competitive energy businesses sell electricity to retail customers, provide energy-related products and services, and participate in energy infrastructure projects.
Con Edisons strategy is to provide reliable energy services, maintain public and employee safety, promote energy efficiency, and develop cost-effective ways of performing its business. Con Edison seeks to be a responsible steward of the environment and enhance its relationships with customers, regulators and members of the communities it serves.
43 |
CECONY
Electric
CECONY provides electric service to approximately 3.4 million customers in all of New York City (except a part of Queens) and most of Westchester County, an approximately 660 square mile service area with a population of more than nine million.
The weather during the summer of 2014 was cooler than design conditions. At design conditions, electric peak demand in the companys service area would have been 13,600 MW in 2014 compared to the companys forecast of 13,675 MW. The company has decreased its forecast of average annual growth in electric peak demand in its service area at design conditions over the next five years from 1.4 percent to approximately 0.9 percent due to a forecasted increase of demand side management as well as lower growth in demand from large commercial customers.
Gas
CECONY delivers gas to approximately 1.1 million customers in Manhattan, the Bronx and parts of Queens and Westchester County.
In June 2014, the company decreased its five-year forecast of average annual growth of the peak gas demand in its service area at design conditions from approximately 3.8 percent (for 2014 to 2018) to 2.8 percent (for 2015 to 2019). The decrease reflects, among other things, that the new five-year forecast no longer covers 2014, the second year in which there was a significant increase in conversions from oil to gas by energy consumers.
Steam
CECONY operates the largest steam distribution system in the United States by producing and delivering approximately 22,000 MMlbs of steam annually to approximately 1,700 customers in parts of Manhattan.
O&R
Electric
O&R and its utility subsidiaries, Rockland Electric Company (RECO) and Pike County Light & Power Company (Pike) (together referred to herein as O&R) provide electric service to approximately 0.3 million customers in southeastern New York and in adjacent areas of northern New Jersey and northeastern Pennsylvania, an approximately 1,350 square mile service area.
Gas
O&R delivers gas to over 0.1 million customers in southeastern New York and adjacent areas of northeastern Pennsylvania.
Competitive Energy Businesses
Con Edison pursues competitive energy opportunities through three wholly-owned subsidiaries: Con Edison Solutions, Con Edison Energy and Con Edison Development. These businesses sell to retail customers electricity purchased in wholesale markets and enter into related hedging transactions, provide energy-related products and services to wholesale and retail customers, and participate in energy infrastructure projects. At September 30, 2014, Con Edisons equity investment in its competitive energy businesses was $545 million and their assets amounted to $1,164 million. See Note N to the Third Quarter Financial Statements.
44 |
Certain financial data of Con Edisons businesses are presented below:
Three Months Ended September 30, 2014 | Nine Months Ended September 30, 2014 | At September 30, 2014 | ||||||||||||||||||||||||||||||||||||||
(Millions of Dollars, except percentages) |
Operating Revenues |
Net Income for Common Stock |
Operating Revenues |
Net Income for Common Stock |
Assets | |||||||||||||||||||||||||||||||||||
CECONY |
$ | 2,838 | 84 | % | $ | 399 | 91 | % | $ | 8,479 | 84 | % | $ | 905 | 89 | % | $ | 36,488 | 90 | % | ||||||||||||||||||||
O&R |
232 | 7 | % | 20 | 5 | % | 680 | 7 | % | 49 | 5 | % | 2,551 | 6 | % | |||||||||||||||||||||||||
Total Utilities |
3,070 | 91 | % | 419 | 96 | % | 9,159 | 91 | % | 954 | 94 | % | 39,039 | 96 | % | |||||||||||||||||||||||||
Con Edison Solutions (a) |
278 | 8 | % | 7 | 2 | % | 806 | 8 | % | (1 | ) | | 386 | 1 | % | |||||||||||||||||||||||||
Con Edison Energy (a) |
31 | 1 | % | 4 | 1 | % | 93 | 1 | % | 12 | 1 | % | 116 | | ||||||||||||||||||||||||||
Con Edison Development (b) |
9 | | 9 | 2 | % | 33 | | 51 | 5 | % | 662 | 2 | % | |||||||||||||||||||||||||||
Other (c) |
2 | | (3 | ) | (1 | )% | | | (6 | ) | | 464 | 1 | % | ||||||||||||||||||||||||||
Total Con Edison |
$ | 3,390 | 100 | % | $ | 436 | 100 | % | $ | 10,091 | 100 | % | $ | 1,010 | 100 | % | $ | 40,667 | 100 | % |
(a) | Net income from the competitive energy businesses for the nine months ended September 30, 2014 includes $8 million of net after-tax mark-to-market gains. |
(b) | Includes an after-tax gain on sale of solar energy projects of $26 million in the nine months ended September 30, 2014 (see Note N to the Third Quarter Financial Statements) and an after-tax benefit of $7 million in the nine months ended September 30, 2014 due primarily to lower than previously estimated interest on the tax liability from the lease in/lease out (LILO) transactions (see Note I to the Third Quarter Financial Statements). |
(c) | Other includes parent company expenses, primarily interest, and consolidation adjustments. See Results of Operations, below. |
Con Edisons net income for common stock for the three months ended September 30, 2014 was $436 million or $1.49 a share ($1.48 on a diluted basis) compared with $464 million or $1.58 a share ($1.58 on a diluted basis) for the three months ended September 30, 2013. Net income for common stock for the nine months ended September 30, 2014 was $1,010 million or $3.45 a share ($3.44 on a diluted basis) compared with $828 million or $2.83 a share ($2.81 on a diluted basis) for the nine months ended September 30, 2013. See Results of Operations Summary, below. For segment financial information, see Note K to the Third Quarter Financial Statements and Results of Operations, below.
Results of Operations Summary
Net income for common stock for the three and nine months ended September 30, 2014 and 2013 was as follows:
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
(Millions of Dollars) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
CECONY |
$ | 399 | $ | 401 | $ | 905 | $ | 831 | ||||||||
O&R |
20 | 19 | 49 | 56 | ||||||||||||
Competitive energy businesses (a) |
20 | 40 | 62 | (55 | ) | |||||||||||
Other (b) |
(3 | ) | 4 | (6 | ) | (4 | ) | |||||||||
Con Edison |
$ | 436 | $ | 464 | $ | 1,010 | $ | 828 |
(a) | Includes an after-tax gain on sale of solar energy projects of $26 million in the nine months ended September 30, 2014 (see Note N to the Third Quarter Financial Statements). Includes an after-tax benefit of $26 million in the three months ended September 30, 2013 and an after-tax benefit/(charge) of $7 million and $(95) million in the nine months ended September 30, 2014 and 2013, respectively, relating to the LILO transactions (see Note I to the Third Quarter Financial Statements). Also includes a tax benefit of $15 million resulting from the acceptance by the Internal Revenue Service (IRS) of the companys claim for a manufacturing tax deduction in the nine months ended September 30, 2013 (see Note J to the Third Quarter Financial Statements). Also includes $4 million of net after-tax mark-to-market gains in the three months ended September 30, 2013 and $8 million and $12 million of net after-tax mark-to-market gains for the nine months ended September 30, 2014 and 2013. |
(b) | Other includes parent company expenses, primarily interest, and consolidation adjustments. |
The Companies results of operations for the three and nine months ended September 30, 2014, as compared with the 2013 periods, reflect primarily changes in rate plans of Con Edisons utility subsidiaries and the weather impact on its steam delivery service. The rate plans provide for revenues to cover expected increases in certain operations and maintenance expenses and depreciation, reflecting primarily the impact of higher utility plant balances. The results of operations also include the gain on sale of solar energy projects, the impact of the LILO transactions and the net mark-to-market effects of the competitive energy businesses.
Operations and maintenance expenses for CECONY were higher in the 2014 periods primarily due to operating costs attributable to emergency response, the support and protection of company underground facilities to accommodate municipal projects, increases in healthcare costs and, in the nine month period were offset in part by lower pension costs.
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The following table presents the estimated effect on earnings per share and net income for common stock for the three and nine months ended September 30, 2014 period as compared with the 2013 periods, resulting from these and other major factors:
Three Months Variation | Nine Months Variation | |||||||||||||||
Earnings per Share Variation |
Net Income for Common Stock Variation (Millions of Dollars) |
Earnings per Share Variation |
Net Income for Common Stock Variation (Millions of Dollars) |
|||||||||||||
CECONY (a) |
||||||||||||||||
Changes in rate plans |
$ | 0.09 | $ | 26 | $ | 0.40 | $ | 117 | ||||||||
Weather impact on steam revenues |
| (1 | ) | 0.04 | 12 | |||||||||||
Operations and maintenance expenses |
(0.13 | ) | (37 | ) | (0.14 | ) | (42 | ) | ||||||||
Depreciation and property taxes |
0.03 | 10 | (0.06 | ) | (17 | ) | ||||||||||
Other |
| | 0.01 | 4 | ||||||||||||
Total CECONY |
(0.01 | ) | (2 | ) | 0.25 | 74 | ||||||||||
O&R (a) |
| 1 | (0.02 | ) | (7 | ) | ||||||||||
Competitive energy businesses (b) |
(0.06 | ) | (20 | ) | 0.40 | 117 | ||||||||||
Other, including parent company expenses (c) |
(0.02 | ) | (7 | ) | (0.01 | ) | (2 | ) | ||||||||
Total variations |
$ | (0.09 | ) | $ | (28 | ) | $ | 0.62 | $ | 182 |
(a) | Under the revenue decoupling mechanisms in the Utilities New York electric and gas rate plans and the weather-normalization clause applicable to their gas businesses, revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved. Under the rate plans, pension and other postretirement costs and certain other costs are reconciled to amounts reflected in rates for such costs. |
(b) | These variations reflect the gain on sale of solar energy projects, the impact of the LILO transactions, the manufacturing tax deduction and the net mark-to-market effects described in note (a) to the preceding table. |
(c) | Variations for the three and nine months ended September 30 reflect certain federal income tax benefits and related interest ($7 million) recorded in the 2013 periods for Con Edison (parent company). |
See Results of Operations below for further discussion and analysis of results of operations.
Liquidity and Capital Resources
The Companies liquidity reflects cash flows from operating, investing and financing activities, as shown on their respective consolidated statement of cash flows and as discussed below.
Changes in the Companies cash and temporary cash investments resulting from operating, investing and financing activities for the nine months ended September 30, 2014 and 2013 are summarized as follows:
Con Edison | CECONY | |||||||||||||||||||||||
(Millions of Dollars) | 2014 | 2013 | Variance | 2014 | 2013 | Variance | ||||||||||||||||||
Operating activities |
$ | 1,751 | $ | 1,238 | $ | 513 | $ | 1,306 | $ | 1,369 | $ | (63 | ) | |||||||||||
Investing activities |
(1,996 | ) | (1,895 | ) | (101 | ) | (1,717 | ) | (1,753 | ) | 36 | |||||||||||||
Financing activities |
(224 | ) | 337 | (561 | ) | (177 | ) | 69 | (246 | ) | ||||||||||||||
Net change |
(469 | ) | (320 | ) | (149 | ) | (588 | ) | (315 | ) | (273 | ) | ||||||||||||
Balance at beginning of period |
674 | 394 | 280 | 633 | 353 | 280 | ||||||||||||||||||
Balance at end of period |
$ | 205 | $ | 74 | $ | 131 | $ | 45 | $ | 38 | $ | 7 |
Cash Flows from Operating Activities
The Utilities cash flows from operating activities reflect principally their energy sales and deliveries and cost of operations. The volume of energy sales and deliveries is dependent primarily on factors external to the Utilities, such as growth of customer demand, weather, market prices for energy, economic conditions and measures that promote energy efficiency. Under the revenue decoupling mechanisms in the Utilities New York electric and gas rate plans, changes in delivery volumes from levels assumed when rates were approved may affect the timing of cash flows but generally not net income. The prices at which the Utilities provide energy to their customers are determined in accordance with their rate plans. In general, changes in the Utilities cost of purchased power, fuel and gas may affect the timing of cash flows but not net income because the costs are recovered in accordance with rate plans.
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Net income is the result of cash and non-cash (or accrual) transactions. Only cash transactions affect the Companies cash flows from operating activities. Principal non-cash charges include depreciation, deferred income tax expense and amortizations of certain regulatory assets and liabilities. Non-cash charges or credits may also be accrued under the revenue decoupling and cost reconciliation mechanisms in the Utilities New York electric and gas rate plans.
Net cash flows from operating activities for the nine months ended September 30, 2014 for Con Edison and CECONY were $513 million higher and $63 million lower, respectively, than in 2013. The increase in net cash flows for Con Edison reflects the deposits made in 2013 with federal and state tax agencies that were settled and applied in 2014 primarily related to the LILO transactions (see Note I to the Third Quarter Financial Statements) and decreased pension contributions in 2014 ($303 million), offset in part by higher income tax payments ($608 million) in 2014. The decrease in net cash for CECONY reflects primarily higher income tax payments ($632 million) in 2014, offset in part by decreased pension contributions in 2014 ($286 million). The Companies contributed $584 million and $887 million (of which $544 million and $830 million was contributed by CECONY) to the pension plan during 2014 and 2013, respectively.
The change in net cash flows also reflects the timing of payments for and recovery of energy costs. This timing is reflected within changes to accounts receivable customers, recoverable energy costs and accounts payable balances.
Cash Flows Used in Investing Activities
Net cash flows used in investing activities for Con Edison and CECONY were $101 million higher and $36 million lower, respectively, for the nine months ended September 30, 2014 compared with the 2013 period. For Con Edison, the change reflects the proceeds from the termination of the LILO transactions in 2013 (see Note I to the Third Quarter Financial Statements), offset by proceeds from sale relating to its solar energy projects in 2014 (see Note N to the Third Quarter Financial Statements). In addition, the changes for Con Edison and CECONY primarily reflect decreased utility construction expenditures in 2014.
Cash Flows from Financing Activities
Net cash flows from financing activities for Con Edison and CECONY were $561 million and $246 million lower, respectively, in the nine months ended September 30, 2014 compared with the 2013 period.
In March 2014, CECONY issued $850 million of 4.45 percent 30-year debentures, the net proceeds from the sale of which were used to repay short-term borrowings and for other general corporate purposes. In February 2014, CECONY redeemed at maturity $200 million of 4.70 percent 10-year debentures. In April 2014, CECONY redeemed at maturity $275 million of 5.55 percent 5-year debentures.
In February 2013, CECONY issued $700 million of 3.95 percent 30-year debentures, the net proceeds from the sale of which were used to repay short-term borrowings and for other general corporate purposes. In February 2013, CECONY redeemed at maturity $500 million of 4.875 percent 10-year debentures. In June 2013, CECONY redeemed at maturity $200 million of 3.85 percent 10-year debentures.
In April 2013, a Con Edison Development subsidiary issued $219 million aggregate principal amount of 4.78 percent senior notes secured by the companys California solar projects. In May 2014, the company sold a 50 percent interest in the subsidiary. See Note N to the Third Quarter Financial Statements.
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Cash flows from financing activities of the Companies also reflect commercial paper issuance. The commercial paper amounts outstanding at September 30, 2014 and 2013 and the average daily balances for the nine months ended September 30, 2014 and 2013 for Con Edison and CECONY were as follows:
2014 | 2013 | |||||||||||||||
(Millions of Dollars, except Weighted Average Yield) | Outstanding at September 30 |
Daily average |
Outstanding at September 30 |
Daily average |
||||||||||||
Con Edison |
$ | 1,425 | $ | 933 | $ | 1,220 | $ | 901 | ||||||||
CECONY |
$ | 1,201 | $ | 813 | $ | 1,042 | $ | 557 | ||||||||
Weighted average yield |
0.2 | % | 0.2 | % | 0.3 | % | 0.3 | % |
Other Changes in Assets and Liabilities
The following table shows changes in certain assets and liabilities at September 30, 2014, compared with December 31, 2013.
Con Edison | CECONY | |||||||
(Millions of Dollars) | 2014 vs. 2013 Variance |
2014 vs. 2013 Variance |
||||||
Assets |
||||||||
Prepayments |
$ | 508 | $ | 353 | ||||
Investments |
279 | 25 | ||||||
Non-utility property, less accumulated depreciation |
(256 | ) | 1 | |||||
Special deposits |
(319 | ) | (84 | ) | ||||
Regulatory asset Unrecognized pension and other postretirement costs |
(446 | ) | (425 | ) | ||||
Liabilities |
||||||||
Deferred income taxes and investment tax credits |
$ | 351 | $ | 209 | ||||
Accrued taxes |
(428 | ) | (7 | ) | ||||
Pension and retiree benefits |
(621 | ) | (576 | ) |
Prepayments
The increase in prepayments for Con Edison and CECONY reflects the portion allocable to the 2014 fourth quarter of CECONYs July 2014 payment of its New York City semi-annual property taxes.
Investments and Non-Utility Property, Less Accumulated Depreciation
The increase in investments and decrease in non-utility property, less accumulated depreciation for Con Edison primarily reflect the purchase and sale of interests in solar energy projects. See Note N to the Third Quarter Financial Statements.
Special Deposits and Accrued Taxes
The decreases in Con Edisons special deposits and accrued taxes reflect applying the deposits made in 2013 against the federal and state tax liabilities in 2014 that primarily related to settling the LILO transactions. See Note I to the Third Quarter Financial Statements.
Regulatory Asset for Unrecognized Pension and Other Postretirement Costs and Liability for Pension and Retiree Benefits
The decrease in the regulatory asset for unrecognized pension and other postretirement costs and the liability for pension and retiree benefits reflects the final actuarial valuation of the pension and other retiree benefit plans as measured at December 31, 2013, in accordance with the accounting rules for retirement benefits. The change in the regulatory asset also reflects the years amortization of accounting costs. The decrease in the liability for pension and retiree benefits reflects in part contributions to the plans made by the Utilities in 2014. See Notes B, E and F to the Third Quarter Financial Statements.
Deferred Income Taxes and Investment Tax Credits
The increase in the liability for deferred income taxes and investment tax credits reflects the timing of the deduction of expenditures for utility plant which resulted in amounts being collected from customers to
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pay income taxes in advance of when the income tax payments will be required. For Con Edison, the increase also reflects the accelerated deductions for expenditures primarily related to its solar energy projects.
Capital Requirements and Resources
In July 2014, Con Edison increased its estimate of capital expenditures in 2014 by its competitive energy businesses from $243 million to $470 million to fund additional renewable energy project development. See Note N to the Third Quarter Financial Statements. In November 2014, Con Edison Development purchased a 50 percent membership interest in Broken Bow II Wind Holdings LLC (Broken Bow 2). Broken Bow 2 owns a project company that operates a 75 MW (AC) wind energy project in Nebraska. Electricity generated by the project is to be sold to the Nebraska Public Power District pursuant to a long-term power purchase agreement.
For each of the Companies, the ratio of earnings to fixed charges (Securities and Exchange Commission basis) for the nine months ended September 30, 2014 and 2013 and the twelve months ended December 31, 2013 was:
Ratio of Earnings to Fixed Charges | ||||||
For the Nine Months Ended September 30, 2014 |
For the Nine Months Ended September 30, 2013 |
For the Twelve Months Ended December 31, 2013 | ||||
Con Edison (a) |
4.3 | 3.0 | 3.0 | |||
CECONY |
4.3 | 4.0 | 3.7 |
(a) | Reflects the gain on sale of solar energy projects, the impact of the LILO transactions, the manufacturing tax deduction and the net mark-to-market effects described in note (a) to the first table under Results of Operations Summary, above. |
For each of the Companies, the common equity ratio at September 30, 2014 and December 31, 2013 was:
Common Equity Ratio (Percent of total capitalization) |
||||||||
September 30, 2014 | December 31, 2013 | |||||||
Con Edison |
53.7 | 53.9 | ||||||
CECONY |
52.3 | 53.7 |
Off-Balance Sheet Arrangements
The Companies have no off-balance sheet arrangements other than two guarantees ($78 million maximum and $69 million maximum) issued by Con Edison Development on behalf of two entities in which it acquired a 50 percent interest in July 2013 and March 2014, respectively (see Guarantees in Note H to the Third Quarter Financial Statements). The entities were formed to develop, construct and operate solar energy facilities with a cumulative capacity of 400 MW (AC). Con Edison Development is not the primary beneficiary of these entities since the power to direct the activities that most significantly impact the economics of the facilities is shared equally between Con Edison Development and a third party. No payments have been made nor are any expected to be made under the guarantees.
Regulatory Matters
In April 2014, the NYSPSC instituted its reforming the energy vision (REV) proceeding to improve system efficiency and reliability, encourage renewable energy resources, support distributed energy resources and empower customer choice. Through the proceeding, the NYSPSC is examining the establishment of Distributed System Platform Providers (DSPP) to actively manage and coordinate distributed energy resources, and provide customers with market data and tools to optimize their energy usage. The NYSPSC also is examining how its regulatory practices should be modified to incent utility practices that best promote their policy objectives. The proceeding will follow a two-phased schedule with policy determinations for DSPP and related matters expected in early 2015 and for regulatory design and ratemaking matters later in 2015.
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In August 2014, the NYSPSC staff issued a straw proposal in the REV proceeding in which it indicated that The reforms envisioned in this proceeding are comprehensive and transformative, and the on-going design and pragmatic implementation of them will take years. The NYSPSC staff recommended, among other things, that:
| The NYSPSC should adopt the basic elements of the REV vision and proceed with implementation as proposed in the straw proposal; |
| Existing utilities should serve as DSPPs subject to performance reviews; |
| Customers and energy service providers should have access to energy usage information, to enable customers to assess the economic value of off-peak usage; |
| Utilities should only be allowed to own distributed energy resources under certain clearly defined conditions, or pursuant to an approved plan; |
| Where utility affiliates participate in Distributed System Platform markets within the service territory operated by their parent company, appropriate market power protections must be in place; and |
| As a transition toward market-based approaches to increase levels of efficiency and renewables, utilities should integrate energy efficiency into their regular operations and should take responsibility for procurement of renewable energy. |
The Utilities are not able to predict the outcome of the REV proceeding or its impact on the Utilities.
Environmental Matters
In May 2014, the NYSPSC directed New York State Energy Research and Development Authority (NYSERDA) to submit for its consideration a proposal for a comprehensive clean energy fund. In September 2014, NYSERDA submitted its clean energy fund proposal seeking a 10-year program that it indicated is designed to pursue greater levels of scale for clean energy in the New York economy; foster new investment opportunities to attract private capital to invest in clean energy in New York; and significantly reduce greenhouse gas (GHG) emissions from New Yorks energy sector.
In June 2014, the United States Environmental Protection Agency (EPA) proposed its Clean Power Plan to reduce carbon dioxide emissions from existing power plants 30 percent from 2005 levels by 2030. As proposed, each state will be required to submit for EPA approval a plan to reduce its emissions rate (as determined in accordance with the Clean Power Plan) to a specified target level applicable to the state. For New York State, the emissions rate target level for 2030 would be 44 percent below its 2012 level. State plans may, among other things, include participation in regional cap-and-trade programs, such as the Regional Greenhouse Gas Initiative (in which New York State participates), and renewable energy and energy efficiency programs. Initial state plans would be due by June 2016, with single-state plans to be finalized by June 2017 and multi-state plans to be finalized by June 2018. The costs resulting from the Clean Power Plan could be substantial.
In October 2014, the U.S. Court of Appeals for the District of Columbia lifted its stay of the Transport Rule (also referred to as the Cross-State Air Pollution Rule). The appellate court acted on remand from the U.S. Supreme Court, which in April 2014 reversed the appellate courts August 2012 decision that vacated the rule. The Transport Rule establishes a new cap and trade program requiring further reductions in air emissions than the Clean Air Intrastate Rule (CAIR) that it replaces. Under the Transport Rule, the EPA will allocate emissions allowances to utilities that may sell the allowances or buy additional allowances. In July 2014, CECONY requested the NYSPSC to approve changes to the provisions under which the company recovers its purchased power costs to provide for costs incurred to purchase emissions allowances and revenues received from the sale of allowances. Until the Transport Rule is implemented, which is currently expected to be in January 2015, CAIR remains in effect. CECONY is complying with CAIR in 2014 and expects to comply with the Transport Rule when it is implemented.
NY Transco
In September 2014, Con Edison formed a wholly-owned subsidiary, Consolidated Edison Transmission,
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LLC (CET). Con Edison expects that CET, along with affiliates of certain other New York transmission owners, will form a transmission company (NY Transco) in 2014. NY Transcos transmission projects are expected to be developed initially by CECONY and other New York transmission owners and then transferred to NY Transco. The development and transfer of the projects would be subject to authorizations from the NYSPSC, FERC and other federal, state and local agencies. The company expects that CECONY, certain other New York transmission owners and NY Transco will make a joint filing with the FERC to establish NY Transcos wholesale transmission rate.
NY Transco projects are expected to include:
| Three projects ($450 million estimated cost) which the NYSPSC approved in October 2013 in its proceeding to address potential needs that could arise should the Indian Point Energy Center (which is owned by Entergy Corporation subsidiaries) no longer be able to operate. These projects, which are scheduled to be placed into service by 2016, include two projects ($371 million estimated cost) that CECONY is developing and one project that another New York transmission owner is developing. |
| Two projects ($1,250 million estimated cost) that were submitted for consideration by the NYSPSC in its proceeding to review proposals to address transmission congestion between upstate and downstate. In August 2014, the NYSPSC staff indicated that the NYSPSC could decide on the proposals as early as April 2015. These projects, which could be completed in the 2017 to 2021 timeframe, would be developed by New York transmission owners other than CECONY. |
Financial and Commodity Market Risks
The Companies are subject to various risks and uncertainties associated with financial and commodity markets. The most significant market risks include interest rate risk, commodity price risk, credit risk and investment risk.
Interest Rate Risk
The interest rate risk relates primarily to variable rate debt and to new debt financing needed to fund capital requirements, including the construction expenditures of the Utilities and maturing debt securities. Con Edison and its businesses manage interest rate risk through the issuance of mostly fixed-rate debt with varying maturities and through opportunistic refinancing of debt. Con Edison and CECONY estimate that at September 30, 2014, a 10 percent variation in interest rates applicable to its variable rate debt would result in an increase in annual interest expense of less than $1 million. Under CECONYs current gas, steam and electric rate plans, variations in actual variable rate tax-exempt debt interest expense are reconciled to levels reflected in rates. Under O&Rs current New York rate plans, variations in actual tax-exempt (and under the gas rate plan, taxable) long-term debt interest expense are reconciled to the level set in rates.
In addition, from time to time, Con Edison and its businesses enter into derivative financial instruments to hedge interest rate risk on certain debt securities. See Interest Rate Swap in Note L to the Third Quarter Financial Statements.
Commodity Price Risk
Con Edisons commodity price risk relates primarily to the purchase and sale of electricity, gas and related derivative instruments. The Utilities and Con Edisons competitive energy businesses apply risk management strategies to mitigate their related exposures. See Note L to the Third Quarter Financial Statements.
Con Edison estimates that, as of September 30, 2014, a 10 percent decline in market prices would result in a decline in fair value of $60 million for the derivative instruments used by the Utilities to hedge purchases of electricity and gas, of which $52 million is for CECONY and $8 million is for O&R. Con Edison expects that any such change in fair value would be largely offset by directionally opposite changes in the cost of the electricity and gas purchased. In accordance with provisions approved by state regulators, the Utilities generally recover from customers the costs they incur for energy purchased for their customers,
51 |
including gains and losses on certain derivative instruments used to hedge energy purchased and related costs.
Con Edisons competitive energy businesses use a value-at-risk (VaR) model to assess the market price risk of their portfolio of electricity and gas commodity fixed-price purchase and sales commitments, physical forward contracts, generating assets and commodity derivative instruments. VaR represents the potential change in fair value of the portfolio due to changes in market prices, for a specified time period and confidence level. These businesses estimate VaR across their portfolio using a delta-normal variance/covariance model with a 95 percent confidence level. Since the VaR calculation involves complex methodologies and estimates and assumptions that are based on past experience, it is not necessarily indicative of future results. VaR for the portfolio, assuming a one-day holding period, for the nine months ended September 30, 2014 and the year ended December 31, 2013, respectively, was as follows:
95% Confidence Level, One-Day Holding Period |
September 30, 2014 | December 31, 2013 | ||||||
(Millions of Dollars) | ||||||||
Average for the period |
$1 | $1 | ||||||
High |
7 | 1 | ||||||
Low |
| |
The competitive energy businesses compare the measured VaR results against performance due to actual prices and stress test the portfolio each quarter using an assumed 30 percent price change from forecast. The stress test includes an assessment of the impact of volume changes on the portfolio because the businesses generally commit to sell their customers their actual requirements, an amount which is estimated when the sales commitments are made. The businesses limit the volume of commodity derivative instruments entered into relative to their estimated sale commitments to maintain net market price exposures to their estimated sale commitments within a certain percentage of maximum and minimum exposures.
Credit Risk
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. See Credit Exposure in Note L to the Third Quarter Financial Statements.
Investment Risk
The Companies investment risk relates to the investment of plan assets for their pension and other postretirement benefit plans. The Companies current investment policy for pension plan assets includes investment targets of 60 percent equities and 40 percent fixed income and other securities. At September 30, 2014, the pension plan investments consisted of 60 percent equity and 40 percent fixed income and other securities.
Material Contingencies
For information concerning potential liabilities arising from the Companies material contingencies, see Notes B, G and H to the Third Quarter Financial Statements.
Results of Operations
See Results of Operations Summary, above.
Results of operations reflect, among other things, the Companies accounting policies and rate plans that limit the rates the Utilities can charge their customers. Under the revenue decoupling mechanisms currently applicable to the Utilities New York electric and gas businesses, delivery revenues generally will not be affected by changes in delivery volumes from levels assumed when rates were approved. Revenues for CECONYs steam business and O&Rs businesses in New Jersey and Pennsylvania are affected by changes in delivery volumes resulting from weather, economic conditions and other factors.
In general, the Utilities recover on a current basis the fuel, gas purchased for resale and purchased power costs they incur in supplying energy to their full-service customers. Accordingly, such costs do not generally affect the Companies results of operations. Management uses the term net revenues (operating revenues less such costs) to identify changes in operating revenues that may affect the Companies results of operations. Management believes that,
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although net revenues may not be a measure determined in accordance with accounting principles generally accepted in the United States of America, the measure facilitates the analysis by management and investors of the Companies results of operations.
Con Edisons principal business segments are CECONYs regulated utility activities, O&Rs regulated utility activities and Con Edisons competitive energy businesses. CECONYs principal business segments are its regulated electric, gas and steam utility activities. A discussion of the results of operations by principal business segment for the three and nine months ended September 30, 2014 and 2013 follows. For additional business segment financial information, see Note K to the Third Quarter Financial Statements.
Three Months Ended September 30, 2014 Compared with Three Months Ended September 30, 2013
The Companies results of operations (which were discussed above under Results of Operations Summary) in 2014 compared with 2013 were:
CECONY | O&R | Competitive Energy |
Con Edison(b) | |||||||||||||||||||||||||||||
(Millions of Dollars) | Increases (Decreases) Amount |
Increases (Decreases) Percent |
Increases (Decreases) Amount |
Increases (Decreases) Percent |
Increases (Decreases) Amount |
Increases (Decreases) Percent |
Increases (Decreases) Amount |
Increases (Decreases) Percent |
||||||||||||||||||||||||
Operating revenues |
$ | (55 | ) | (1.9 | )% | $ | 6 | 2.7 | % | $ | (45 | ) | (12.3 | )% | $ | (94 | ) | (2.7 | )% | |||||||||||||
Purchased power |
(51 | ) | (8.2 | ) | (1 | ) | (1.5 | ) | (19 | ) | (7.5 | ) | (71 | ) | (7.5 | ) | ||||||||||||||||
Fuel |
(14 | ) | (25.0 | ) | | | (1 | ) | Large | (15 | ) | (26.8 | ) | |||||||||||||||||||
Gas purchased for resale |
(22 | ) | (37.9 | ) | 1 | 10.0 | 23 | Large | 2 | 2.7 | ||||||||||||||||||||||
Operating revenues less purchased power, fuel and gas purchased for resale (net revenues) |
32 | 1.5 | 6 | 4.1 | (48 | ) | (45.7 | ) | (10 | ) | (0.4 | ) | ||||||||||||||||||||
Other operations and maintenance |
62 | 9.0 | 2 | 2.5 | (2 | ) | (6.7 | ) | 62 | 7.8 | ||||||||||||||||||||||
Depreciation and amortization |
13 | 5.5 | 2 | 14.3 | (3 | ) | (42.9 | ) | 12 | 4.7 | ||||||||||||||||||||||
Taxes, other than income taxes |
(47 | ) | (9.8 | ) | (2 | ) | (12.5 | ) | 1 | 25.0 | (48 | ) | (9.6 | ) | ||||||||||||||||||
Gain on sale of solar energy projects |
| | | | | | | | ||||||||||||||||||||||||
Operating income |
4 | 0.5 | 4 | 10.3 | (44 | ) | (68.8 | ) | (36 | ) | (4.2 | ) | ||||||||||||||||||||
Other income (deductions) |
11 | Large | | | 10 | Large | 21 | Large | ||||||||||||||||||||||||
Net interest expense |
6 | 4.7 | | | (2 | ) | (20.0 | ) | 4 | 2.7 | ||||||||||||||||||||||
Income before income tax expense |
9 | 1.4 | 4 | 12.9 | (32 | ) | (53.3 | ) | (19 | ) | (2.7 | ) | ||||||||||||||||||||
Income tax expense |
11 | 5.0 | 3 | 25.0 | (5 | ) | (31.3 | ) | 9 | 3.6 | ||||||||||||||||||||||
Net income for common stock |
$ | (2 | ) | (0.5 | )% | $ | 1 | 5.3 | % | $ | (27 | ) | (61.4 | ) | $ | (28 | ) | (6.0 | )% |
(a) | Other includes parent company expenses, primarily interest, and consolidation adjustments. |
(b) | Represents the consolidated financial results of Con Edison and its businesses. |
CECONY
Three Months Ended September 30, 2014 |
Three Months Ended September 30, 2013 |
|||||||||||||||||||||||||||||||||||
(Millions of Dollars) | Electric | Gas | Steam | 2014 Total |
Electric | Gas | Steam | 2013 Total |
2014-2013 Variation |
|||||||||||||||||||||||||||
Operating revenues |
$ | 2,582 | $ | 210 | $ | 46 | $ | 2,838 | $ | 2,622 | $ | 199 | $ | 72 | $ | 2,893 | $ | (55 | ) | |||||||||||||||||
Purchased power |
564 | | 9 | 573 | 615 | | 9 | 624 | (51 | ) | ||||||||||||||||||||||||||
Fuel |
37 | | 5 | 42 | 45 | | 11 | 56 | (14 | ) | ||||||||||||||||||||||||||
Gas purchased for resale |
| 36 | | 36 | | 58 | | 58 | (22 | ) | ||||||||||||||||||||||||||
Net revenues |
1,981 | 174 | 32 | 2,187 | 1,962 | 141 | 52 | 2,155 | 32 | |||||||||||||||||||||||||||
Operations and maintenance |
603 | 102 | 43 | 748 | 565 | 75 | 46 | 686 | 62 | |||||||||||||||||||||||||||
Depreciation and amortization |
198 | 33 | 19 | 250 | 188 | 33 | 16 | 237 | 13 | |||||||||||||||||||||||||||
Taxes, other than income taxes |
369 | 53 | 11 | 433 | 398 | 57 | 25 | 480 | (47 | ) | ||||||||||||||||||||||||||
Operating income |
$ | 811 | $ | (14 | ) | $ | (41 | ) | $ | 756 | $ | 811 | $ | (24 | ) | $ | (35 | ) | $ | 752 | $ | 4 |
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Electric
CECONYs results of electric operations for the three months ended September 30, 2014 compared with the 2013 period is as follows:
Three Months Ended | ||||||||||||
(Millions of Dollars) | September 30, 2014 |
September 30, 2013 |
Variation | |||||||||
Operating revenues |
$ | 2,582 | $ | 2,622 | $ | (40 | ) | |||||
Purchased power |
564 | 615 | (51 | ) | ||||||||
Fuel |
37 | 45 | (8 | ) | ||||||||
Net revenues |
1,981 | 1,962 | 19 | |||||||||
Operations and maintenance |
603 | 565 | 38 | |||||||||
Depreciation and amortization |
198 | 188 | 10 | |||||||||
Taxes, other than income taxes |
369 | 398 | (29 | ) | ||||||||
Electric operating income |
$ | 811 | $ | 811 | $ | |
CECONYs electric sales and deliveries for the three months ended September 30, 2014 compared with the 2013 period were:
Millions of kWhs Delivered | Revenues in Millions | |||||||||||||||||||||||||||||||
Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||||
Description | September 30, 2014 |
September 30, 2013 |
Variation | Percent Variation |
September 30, 2014 |
September 30, 2013 |
Variation | Percent Variation |
||||||||||||||||||||||||
Residential/Religious(a) |
3,129 | 3,460 | (331 | ) | (9.6 | )% | $ | 852 | $ | 931 | ($79 | ) | (8.5 | )% | ||||||||||||||||||
Commercial/Industrial |
2,725 | 2,835 | (110 | ) | (3.9 | ) | 606 | 622 | (16 | ) | (2.6 | ) | ||||||||||||||||||||
Retail access customers |
7,479 | 7,889 | (410 | ) | (5.2 | ) | 891 | 889 | 2 | 0.2 | ||||||||||||||||||||||
NYPA, Municipal Agency and other sales |
2,779 | 2,853 | (74 | ) | (2.6 | ) | 194 | 200 | (6 | ) | (3.0 | ) | ||||||||||||||||||||
Other operating revenues |
| | | | 39 | (20 | ) | 59 | Large | |||||||||||||||||||||||
Total |
16,112 | 17,037 | (925 | ) | (5.4 | )% | $ | 2,582 | $ | 2,622 | ($40 | ) | (1.5 | )% |
(a) | Residential/Religious generally includes single-family dwellings, individual apartments in multi-family dwellings, religious organizations and certain other not-for-profit organizations. |
CECONYs electric operating revenues decreased $40 million in the three months ended September 30, 2014 compared with the 2013 period due primarily to lower purchased power costs ($51 million) and fuel costs ($8 million), offset in part by higher revenues from the electric rate plan ($33 million). CECONYs revenues from electric sales are subject to a revenue decoupling mechanism, as a result of which delivery revenues generally are not affected by changes in delivery volumes from levels assumed when rates were approved. Other electric operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the revenue decoupling mechanism and other provisions of the companys rate plans.
Electric delivery volumes in CECONYs service area decreased 5.4 percent in the three months ended September 30, 2014 compared with the 2013 period. After adjusting for variations, principally weather and billing days, electric delivery volumes in CECONYs service area decreased 1.3 percent in the three months ended September 30, 2014 compared with the 2013 period.
CECONYs electric purchased power costs decreased $51 million in the three months ended September 30, 2014 compared with the 2013 due to a decrease in purchased volumes ($78 million), offset by an increase in unit costs ($27 million). Electric fuel costs decreased $8 million in the three months ended September 30, 2014 compared with the 2013 period due to lower unit costs ($6 million) and sendout volumes from the companys electric generating facilities ($2 million).
54 |
CECONYs electric operating income was the same in the three months ended September 30, 2014 compared with the 2013 period reflecting primarily lower taxes other than income taxes ($29 million, principally property taxes and sales and use tax refund) and higher revenues from the electric rate plan ($33 million), offset in part by higher operations and maintenance expenses ($38 million) and higher depreciation and amortization ($10 million). Operations and maintenance expenses reflect primarily an increase in healthcare costs ($11 million), higher support and protection of company underground facilities to accommodate municipal projects ($8 million), higher costs for injuries and damages ($6 million) and an increase in pension costs ($4 million).
Gas
CECONYs results of gas operations for the three months ended September 30, 2014 compared with the 2013 period is as follows:
Three Months Ended | ||||||||||||
(Millions of Dollars) | September 30, 2014 |
September 30, 2013 |
Variation | |||||||||
Operating revenues |
$ | 210 | $ | 199 | $ | 11 | ||||||
Gas purchased for resale |
36 | 58 | (22 | ) | ||||||||
Net revenues |
174 | 141 | 33 | |||||||||
Operations and maintenance |
102 | 75 | 27 | |||||||||
Depreciation and amortization |
33 | 33 | | |||||||||
Taxes, other than income taxes |
53 | 57 | (4 | ) | ||||||||
Gas operating income |
$ | (14 | ) | $ | (24 | ) | $ | 10 |
CECONYs gas sales and deliveries, excluding off-system sales, for the three months ended September 30, 2014 compared with the 2013 period were:
Thousands of dths Delivered | Revenues in Millions | |||||||||||||||||||||||||||||||
Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||||
Description | September 30, 2014 |
September 30, 2013 |
Variation | Percent Variation |
September 30, 2014 |
September 30, 2013 |
Variation | Percent Variation |
||||||||||||||||||||||||
Residential |
3,844 | 3,405 | 439 | 12.9 | % | $ | 88 | $ | 90 | ($2 | ) | (2.2 | )% | |||||||||||||||||||
General |
3,527 | 3,423 | 104 | 3.0 | 43 | 47 | (4 | ) | (8.5 | ) | ||||||||||||||||||||||
Firm transportation |
8,090 | 7,090 | 1,000 | 14.1 | 61 | 53 | 8 | 15.1 | ||||||||||||||||||||||||
Total firm sales and transportation |
15,461 | 13,918 | 1,543 | 11.1 | 192 | 190 | 2 | 1.1 | ||||||||||||||||||||||||
Interruptible sales (a) |
933 | 2,341 | (1,408 | ) | (60.1 | ) | (9 | ) | 12 | (21 | ) | Large | ||||||||||||||||||||
NYPA |
12,433 | 13,844 | (1,411 | ) | (10.2 | ) | 1 | | 1 | Large | ||||||||||||||||||||||
Generation plants |
33,557 | 23,447 | 10,110 | 43.1 | 8 | 7 | 1 | 14.3 | ||||||||||||||||||||||||
Other |
4,120 | 4,833 | (713 | ) | (14.8 | ) | 7 | 6 | 1 | 16.7 | ||||||||||||||||||||||
Other operating revenues |
| | | | 11 | (16 | ) | 27 | Large | |||||||||||||||||||||||
Total |
66,504 | 58,383 | 8,121 | 13.9 | % | $ | 210 | $ | 199 | $ | 11 | 5.5 | % |
(a) | Includes 246 and 1,530 thousands of dths for 2014 and 2013 periods, respectively, which are also reflected in firm transportation and other. |
CECONYs gas operating revenues increased $11 million in the three months ended September 30, 2014 compared with the 2013 period due primarily to higher revenues from the gas rate plan ($26 million), offset in part by a decrease in gas purchased for resale costs ($22 million). CECONYs revenues from gas sales are subject to a weather normalization clause and a revenue decoupling mechanism as a result of which delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved. Other gas operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the companys rate plans.
CECONYs sales and transportation volumes for firm customers increased 11.1 percent in the three months ended September 30, 2014 compared with the 2013 period. After adjusting for variations, principally weather and billing days, firm gas sales and transportation volumes in the companys service area increased 9.9 percent in the three months ended September 30, 2014 compared with the 2013 period, reflecting primarily oil-to-gas conversions and transfers to firm service.
CECONYs purchased gas cost decreased $22 million in the three months ended September 30, 2014 compared with the 2013 period due to lower unit costs ($19 million) and sendout volumes ($3 million).
55 |
CECONYs gas operating income increased $10 million in the three months ended September 30, 2014 compared with the 2013 period. The increase reflects primarily higher revenues from the gas rate plan ($26 million) and lower taxes other than income taxes ($4 million, principally property taxes and sales and use tax refund), offset in part by higher operations and maintenance expense ($27 million, due primarily to higher operating costs attributable to emergency response ($11 million), increases in surcharges and fees that are collected in revenues from customers ($5 million), higher pension costs ($4 million) and higher healthcare costs ($2 million)).
Steam
CECONYs results of steam operations for the three months ended September 30, 2014 compared with the 2013 period is as follows:
Three Months Ended | ||||||||||||
(Millions of Dollars) | September 30, 2014 |
September 30, 2013 |
Variation | |||||||||
Operating revenues |
$ | 46 | $ | 72 | $ | (26) | ||||||
Purchased power |
9 | 9 | | |||||||||
Fuel |
5 | 11 | (6) | |||||||||
Net revenues |
32 | 52 | (20) | |||||||||
Operations and maintenance |
43 | 46 | (3) | |||||||||
Depreciation and amortization |
19 | 16 | 3 | |||||||||
Taxes, other than income taxes |
11 | 25 | (14) | |||||||||
Steam operating income |
$ | (41) | $ | (35) | $ | (6) |
CECONYs steam sales and deliveries for the three months ended September 30, 2014 compared with the 2013 period were:
Millions of Pounds Delivered | Revenues in Millions | |||||||||||||||||||||||||||||||
Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||||
Description | September 30, 2014 |
September 30, 2013 |
Variation | Percent Variation |
September 30, 2014 |
September 30, 2013 |
Variation | Percent Variation |
||||||||||||||||||||||||
General |
14 | 16 | (2 | ) | (12.5 | )% | $ | 2 | $ | 2 | $ | | | |||||||||||||||||||
Apartment house |
845 | 903 | (58 | ) | (6.4 | ) | 16 | 19 | (3 | ) | (15.8 | )% | ||||||||||||||||||||
Annual power |
2,779 | 3,112 | (333 | ) | (10.7 | ) | 46 | 58 | (12 | ) | (20.7 | ) | ||||||||||||||||||||
Other operating revenues |
| | | | (18 | ) | (7 | ) | (11 | ) | Large | |||||||||||||||||||||
Total |
3,638 | 4,031 | (393 | ) | (9.7 | )% | $ | 46 | $ | 72 | ($ | 26 | ) | (36.1 | )% |
CECONYs steam operating revenues decreased $26 million in the three months ended September 30, 2014 compared with the 2013 period due primarily to lower revenues from the steam rate plan ($15 million) and lower fuel costs ($6 million). Other steam operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the companys rate plans.
Steam sales and delivery volumes decreased 9.7 percent in the three months ended September 30, 2014 compared with the 2013 period. After adjusting for variations, principally weather and billing days, steam sales and deliveries decreased 4.2 percent in the three months ended September 30, 2014 compared with the 2013 period.
Steam fuel costs decreased $6 million in the three months ended September 30, 2014 compared with the 2013 period due to lower unit costs ($6 million).
Steam operating income decreased $6 million in the three months ended September 30, 2014 compared with the 2013 period. The decrease reflects primarily lower revenues from the steam rate plan ($15 million) and higher depreciation and amortization ($3 million), offset in part by lower taxes other than income taxes ($14 million, principally property taxes and sales and use tax refund) and lower operations and maintenance expense ($3 million, due primarily to lower pension expense ($5 million), offset in part by higher healthcare
56 |
costs ($1 million) and higher support and protection of company underground facilities to accommodate municipal projects ($1 million)).
Other Income (Deductions)
Other income (deductions) increased $11 million in the three months ended September 30, 2014 compared with the 2013 period due primarily to the gain on sale of certain non-utility property.
Income Tax Expense
Income taxes increased $11 million in the three months ended September 30, 2014 compared with the 2013 period due primarily to higher income before income tax expense and lower favorable tax adjustments related to flow-through federal income tax benefits associated with plant recorded in conjunction with filing CECONYs federal tax return in September of 2014 ($6 million).
O&R
Three Months Ended September 30, 2014 |
Three Months Ended September 30, 2013 |
|||||||||||||||||||||||||||
(Millions of Dollars) | Electric | Gas | 2014 Total |
Electric | Gas | 2013 Total |
2014-2013 Variation |
|||||||||||||||||||||
Operating revenues |
$ | 205 | $ | 27 | $ | 232 | $ | 200 | $ | 26 | $ | 226 | $ | 6 | ||||||||||||||
Purchased power |
67 | | 67 | 68 | | 68 | (1 | ) | ||||||||||||||||||||
Gas purchased for resale |
| 11 | 11 | | 10 | 10 | 1 | |||||||||||||||||||||
Net revenues |
138 | 16 | 154 | 132 | 16 | 148 | 6 | |||||||||||||||||||||
Operations and maintenance |
65 | 16 | 81 | 64 | 15 | 79 | 2 | |||||||||||||||||||||
Depreciation and amortization |
12 | 4 | 16 | 10 | 4 | 14 | 2 | |||||||||||||||||||||
Taxes, other than income taxes |
10 | 4 | 14 | 12 | 4 | 16 | (2 | ) | ||||||||||||||||||||
Operating income |
$ | 51 | $ | (8 | ) | $ | 43 | $ | 46 | $ | (7 | ) | $ | 39 | $ | 4 |
Electric
O&Rs results of electric operations for the three months ended September 30, 2014 compared with the 2013 period is as follows:
Three Months Ended | ||||||||||||
(Millions of Dollars) | September 30, 2014 |
September 30, 2013 |
Variation | |||||||||
Operating revenues |
$ | 205 | $ | 200 | $ | 5 | ||||||
Purchased power |
67 | 68 | (1 | ) | ||||||||
Net revenues |
138 | 132 | 6 | |||||||||
Operations and maintenance |
65 | 64 | 1 | |||||||||
Depreciation and amortization |
12 | 10 | 2 | |||||||||
Taxes, other than income taxes |
10 | 12 | (2 | ) | ||||||||
Electric operating income |
$ | 51 | $ | 46 | $ | 5 |
O&Rs electric sales and deliveries for the three months ended September 30, 2014 compared with the 2013 period were:
Millions of kWhs Delivered | Revenues in Millions | |||||||||||||||||||||||||||||||
Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||||
Description | September 30, 2014 |
September 30, 2013 |
Variation | Percent Variation |
September 30, 2014 |
September 30, 2013 |
Variation | Percent Variation |
||||||||||||||||||||||||
Residential/Religious(a) |
477 | 508 | (31 | ) | (6.1 | )% | $ | 98 | $ | 94 | $ | 4 | 4.3 | % | ||||||||||||||||||
Commercial/Industrial |
211 | 240 | (29 | ) | (12.1 | ) | 36 | 38 | (2 | ) | (5.3 | ) | ||||||||||||||||||||
Retail access customers |
884 | 889 | (5 | ) | (0.6 | ) | 66 | 61 | 5 | 8.2 | ||||||||||||||||||||||
Public authorities |
28 | 28 | | | 3 | 3 | | | ||||||||||||||||||||||||
Other operating revenues |
| | | | 2 | 4 | (2 | ) | (50.0 | ) | ||||||||||||||||||||||
Total |
1,600 | 1,665 | (65 | ) | (3.9 | )% | $ | 205 | $ | 200 | $ | 5 | 2.5 | % |
(a) | Residential/Religious generally includes single-family dwellings, individual apartments in multi-family dwellings, religious organizations and certain other not-for-profit organizations. |
57 |
O&Rs electric operating revenues increased $5 million in the three months ended September 30, 2014 compared with the 2013 period due primarily to higher revenues from the New York electric rate plan ($5 million). O&Rs New York electric delivery revenues are subject to a revenue decoupling mechanism, as a result of which delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved. O&Rs electric sales in New Jersey and Pennsylvania are not subject to a decoupling mechanism, and as a result, changes in such volumes do impact revenues. Other electric operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the companys electric rate plans.
Electric delivery volumes in O&Rs service area decreased 3.9 percent in the three months ended September 30, 2014 compared with the 2013 period. After adjusting for weather and other variations, electric delivery volumes in O&Rs service area increased 0.4 percent in the three months ended September 30, 2014 compared with the 2013 period.
Electric operating income increased $5 million in the three months ended September 30, 2014 compared with the 2013 period. The increase reflects primarily higher revenues from the New York electric rate plan ($5 million) and lower taxes other than income taxes ($2 million), offset in part by higher depreciation and amortization ($2 million) and higher operations and maintenance expenses ($1 million).
Gas
O&Rs results of gas operations for the three months ended September 30, 2014 compared with the 2013 period is as follows:
Three Months Ended | ||||||||||||
(Millions of Dollars) | September 30, 2014 |
September 30, 2013 |
Variation | |||||||||
Operating revenues |
$ | 27 | $ | 26 | $ | 1 | ||||||
Gas purchased for resale |
11 | 10 | 1 | |||||||||
Net revenues |
16 | 16 | | |||||||||
Operations and maintenance |
16 | 15 | 1 | |||||||||
Depreciation and amortization |
4 | 4 | | |||||||||
Taxes, other than income taxes |
4 | 4 | | |||||||||
Gas operating income |
$ | (8 | ) | $ | (7 | ) | $ | (1 | ) |
O&Rs gas sales and deliveries, excluding off-system sales, for the three months ended September 30, 2014 compared with the 2013 period were:
Thousands of dths Delivered | Revenues in Millions | |||||||||||||||||||||||||||||||
Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||||
Description | September 30, 2014 |
September 30, 2013 |
Variation | Percent Variation |
September 30, 2014 |
September 30, 2013 |
Variation | Percent Variation |
||||||||||||||||||||||||
Residential |
487 | 481 | 6 | 1.2 | % | $ | 8 | $ | 9 | $ | (1 | ) | (11.1 | )% | ||||||||||||||||||
General |
125 | 114 | 11 | 9.6 | 2 | 1 | 1 | Large | ||||||||||||||||||||||||
Firm transportation |
1,039 | 1,050 | (11 | ) | (1.0 | ) | 9 | 10 | (1 | ) | (10.0 | ) | ||||||||||||||||||||
Total firm sales and transportation |
1,651 | 1,645 | 6 | 0.4 | 19 | 20 | (1 | ) | (5.0 | ) | ||||||||||||||||||||||
Interruptible sales |
891 | 959 | (68 | ) | (7.1 | ) | | | | | ||||||||||||||||||||||
Generation plants |
21 | 11 | 10 | 90.9 | | | | | ||||||||||||||||||||||||
Other |
76 | 65 | 11 | 16.9 | | | | | ||||||||||||||||||||||||
Other gas revenues |
| | | | 8 | 6 | 2 | 33.3 | ||||||||||||||||||||||||
Total |
2,639 | 2,680 | (41 | ) | (1.5 | )% | $ | 27 | $ | 26 | $ | 1 | 3.8 | % |
58 |
O&Rs gas operating revenues increased $1 million in the three months ended September 30, 2014 compared with the 2013 period due primarily to the increase in gas purchased for resale ($1 million). O&Rs New York revenues from gas sales are subject to a revenue decoupling mechanism as a result of which delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved.
Sales and transportation volumes for firm customers increased 0.4 percent in the three months ended September 30, 2014 compared with the 2013 period. After adjusting for weather and other variations, total firm sales and transportation volumes increased 5.0 percent in the three months ended September 30, 2014 compared with the 2013 period.
Gas operating income decreased $1 million in the three months ended September 30, 2014 compared with the 2013 period. The decrease reflects primarily higher operations and maintenance expense ($1 million).
Income Tax Expense
Income taxes increased $3 million in three months ended September 30, 2014 compared with the 2013 period, reflecting higher income before income tax expense and unfavorable tax adjustments related to flow-through federal income tax benefits associated with plant recorded in conjunction with filing O&Rs federal tax return in September of 2014 ($1 million).
Competitive Energy Businesses
The competitive energy businesses results of operations for the three months ended September 30, 2014 compared with the 2013 period reflect the following:
Three Months Ended | ||||||||||||
(Millions of Dollars) | September 30, 2014 |
September 30, 2013 |
Variation | |||||||||
Operating revenues |
$ | 321 | $ | 365 | $ | (44) | ||||||
Purchased power |
236 | 255 | (19) | |||||||||
Gas purchased for resale |
29 | 6 | 23 | |||||||||
Net revenues |
56 | 104 | (48) | |||||||||
Operations and maintenance |
28 | 31 | (3) | |||||||||
Depreciation and amortization |
3 | 6 | (3) | |||||||||
Taxes, other than income taxes | 5 | 4 | 1 | |||||||||
Operating income |
$ | 20 | $ | 63 | $ | (43) |
The competitive energy businesses operating revenues decreased $44 million in the three months ended September 30, 2014 compared with the 2013 period, due primarily to the impact of the LILO transactions ($44 million, see Note I to the Third Quarter Financial Statements). Electric retail revenues decreased $12 million due to lower sales volume, while wholesale revenues and other revenues increased $19 million and $6 million, respectively, in the three months ended September 30, 2014 as compared with the 2013 period. In addition, solar revenues decreased $13 million in the three months ended September 30, 2014 as compared with the September 30, 2013 period due primarily to Con Edison Developments sale of 50 percent of its membership interest in CCH, as these projects are now accounted for under the equity method (see Note N to the Third Quarter Financial Statements).
Purchased power costs decreased $19 million in the three months ended September 30, 2014 compared with the 2013 period, due primarily to lower unit prices ($15 million) and lower volumes ($12 million), offset by changes in mark-to-market values ($8 million). Gas purchased for resale increased $23 million in the three months ended September 30, 2014 compared with the 2013 period, due primarily to higher volumes.
Operating income decreased $43 million in the three months ended September 30, 2014 compared with the 2013 period due primarily to the impact of the LILO transactions ($44 million).
59 |
Other Income (Deductions)
Other income (deductions) increased $11 million in the three months ended September 30, 2014 compared with the 2013 period, primarily reflecting income from those of Con Edison Developments solar investments that are accounted for under the equity method.
Income Tax Expense
Income taxes decreased $10 million in the three months ended September 30, 2014 compared with the 2013 period due primarily to lower income before income tax expense.
Other
For Con Edison, Other also includes inter-company eliminations relating to operating revenues and operating expenses.
Nine Months Ended September 30, 2014 Compared with Nine Months Ended September 30, 2013
The Companies results of operations (which were discussed above under Results of Operations Summary) in 2014 compared with 2013 were:
CECONY | O&R | Competitive Energy |
Con Edison(b) | |||||||||||||||||||||||||||||
(Millions of Dollars) | Increases (Decreases) Amount |
Increases (Decreases) Percent |
Increases (Decreases) Amount |
Increases (Decreases) Percent |
Increases (Decreases) Amount |
Increases (Decreases) Percent |
Increases (Decreases) Amount |
Increases (Decreases) Percent |
||||||||||||||||||||||||
Operating revenues |
$ | 458 | 5.7 | % | $ | 45 | 7.1 | % | $ | 101 | 12.2 | % | $ | 604 | 6.4 | % | ||||||||||||||||
Purchased power |
159 | 10.3 | 18 | 10.7 | 23 | 3.3 | 200 | 8.3 | ||||||||||||||||||||||||
Fuel |
(30 | ) | (11.5 | ) | | | | | (30 | ) | (11.5 | ) | ||||||||||||||||||||
Gas purchased for resale |
111 | 29.5 | 15 | 30.0 | 58 | Large | 184 | 41.5 | ||||||||||||||||||||||||
Operating revenues less purchased power, fuel and gas purchased for resale (net revenues) |
218 | 3.7 | 12 | 2.9 | 20 | 18.2 | 250 | 3.9 | ||||||||||||||||||||||||
Other operations and maintenance |
70 | 3.3 | 10 | 4.4 | 3 | 4.1 | 83 | 3.5 | ||||||||||||||||||||||||
Depreciation and amortization |
32 | 4.5 | 3 | 7.1 | (3 | ) | (17.6 | ) | 32 | 4.2 | ||||||||||||||||||||||
Taxes, other than income taxes |
(11 | ) | (0.8 | ) | (2 | ) | (4.2 | ) | 1 | 7.7 | (12 | ) | (0.8 | ) | ||||||||||||||||||
Gain on sale of solar energy projects |
| | | | 45 | Large | 45 | Large | ||||||||||||||||||||||||
Operating income |
127 | 7.7 | 1 | 1.0 | 64 | Large | 192 | 10.9 | ||||||||||||||||||||||||
Other income (deductions) |
15 | Large | 2 | Large | 19 | Large | 36 | Large | ||||||||||||||||||||||||
Net interest expense |
3 | 0.8 | (3 | ) | (10.3 | ) | (140 | ) | (92.7 | ) | (140 | ) | (24.3 | ) | ||||||||||||||||||
Income before income tax expense |
139 | 11.0 | 6 | 8.2 | 223 | Large | 368 | 30.6 | ||||||||||||||||||||||||
Income tax expense |
65 | 15.1 | 13 | 76.5 | 108 | Large | 186 | 49.9 | ||||||||||||||||||||||||
Net income for common stock |
$ | 74 | 8.9 | % | $ | (7 | ) | (12.5 | )% | $ | 115 | Large | $ | 182 | 22.0 | % |
(a) | Other includes parent company expenses, primarily interest, and consolidation adjustments. |
(b) | Represents the consolidated financial results of Con Edison and its businesses. |
CECONY
Nine Months Ended September 30, 2014 |
Nine Months Ended September 30, 2013 |
|||||||||||||||||||||||||||||||||||
(Millions of Dollars) | Electric | Gas | Steam | 2014 Total |
Electric | Gas | Steam | 2013 Total |
2014-2013 Variation |
|||||||||||||||||||||||||||
Operating revenues |
$ | 6,635 | $ | 1,359 | $ | 485 | $ | 8,479 | $ | 6,309 | $ | 1,190 | $ | 522 | $ | 8,021 | $ | 458 | ||||||||||||||||||
Purchased power |
1,667 | | 40 | 1,707 | 1,515 | | 33 | 1,548 | 159 | |||||||||||||||||||||||||||
Fuel |
149 | | 82 | 231 | 139 | | 122 | 261 | (30 | ) | ||||||||||||||||||||||||||
Gas purchased for resale |
| 487 | | 487 | | 376 | | 376 | 111 | |||||||||||||||||||||||||||
Net revenues |
4,819 | 872 | 363 | 6,054 | 4,655 | 814 | 367 | 5,836 | 218 | |||||||||||||||||||||||||||
Operations and maintenance |
1,719 | 312 | 141 | 2,172 | 1,681 | 262 | 159 | 2,102 | 70 | |||||||||||||||||||||||||||
Depreciation and amortization |
581 | 98 | 58 | 737 | 559 | 97 | 49 | 705 | 32 | |||||||||||||||||||||||||||
Taxes, other than income taxes |
1,103 | 189 | 67 | 1,359 | 1,108 | 183 | 79 | 1,370 | (11 | ) | ||||||||||||||||||||||||||
Operating income |
$ | 1,416 | $ | 273 | $ | 97 | $ | 1,786 | $ | 1,307 | $ | 272 | $ | 80 | $ | 1,659 | $ | 127 |
60 |
Electric
CECONYs results of electric operations for the nine months ended September 30, 2014 compared with the 2013 period is as follows:
Nine Months Ended | ||||||||||||
(Millions of Dollars) | September 30, 2014 |
September 30, 2013 |
Variation | |||||||||
Operating revenues |
$ | 6,635 | $ | 6,309 | $ | 326 | ||||||
Purchased power |
1,667 | 1,515 | 152 | |||||||||
Fuel |
149 | 139 | 10 | |||||||||
Net revenues |
4,819 | 4,655 | 164 | |||||||||
Operations and maintenance |
1,719 | 1,681 | 38 | |||||||||
Depreciation and amortization |
581 | 559 | 22 | |||||||||
Taxes, other than income taxes |
1,103 | 1,108 | (5 | ) | ||||||||
Electric operating income |
$ | 1,416 | $ | 1,307 | $ | 109 |
CECONYs electric sales and deliveries for the nine months ended September 30, 2014 compared with the 2013 period were:
Millions of kWhs Delivered | Revenues in Millions | |||||||||||||||||||||||||||||||
Nine Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
Description | September 30, 2014 |
September 30, 2013 |
Variation | Percent Variation |
September 30, 2014 |
September 30, 2013 |
Variation | Percent Variation |
||||||||||||||||||||||||
Residential/Religious(a) |
7,636 | 8,025 | (389 | ) | (4.8 | )% | $ | 2,234 | $ | 2,154 | $ | 80 | 3.7 | % | ||||||||||||||||||
Commercial/Industrial |
7,472 | 7,488 | (16 | ) | (0.2 | ) | 1,697 | 1,548 | 149 | 9.6 | ||||||||||||||||||||||
Retail access customers |
20,014 | 20,238 | (224 | ) | (1.1 | ) | 2,012 | 2,073 | (61 | ) | (2.9 | ) | ||||||||||||||||||||
NYPA, Municipal Agency and other sales |
7,807 | 7,794 | 13 | 0.2 | 480 | 474 | 6 | 1.3 | ||||||||||||||||||||||||
Other operating revenues |
| | | | 212 | 60 | 152 | Large | ||||||||||||||||||||||||
Total |
42,929 | 43,545 | (616 | ) | (1.4 | )% | $ | 6,635 | $ | 6,309 | $ | 326 | 5.2 | % |
(a) | Residential/Religious generally includes single-family dwellings, individual apartments in multi-family dwellings, religious organizations and certain other not-for-profit organizations. |
CECONYs electric operating revenues increased $326 million in the nine months ended September 30, 2014 compared with the 2013 period due primarily to higher revenues from the electric rate plan ($163 million), higher purchased power costs ($152 million) and higher fuel costs ($10 million). CECONYs revenues from electric sales are subject to a revenue decoupling mechanism, as a result of which delivery revenues generally are not affected by changes in delivery volumes from levels assumed when rates were approved. Other electric operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the revenue decoupling mechanism and other provisions of the companys rate plans.
Electric delivery volumes in CECONYs service area decreased 1.4 percent in the nine months ended September 30, 2014 compared with the 2013 period. After adjusting for variations, principally weather and billing days, electric delivery volumes in CECONYs service area decreased 0.2 percent in the nine months ended September 30, 2014 compared with the 2013 period.
CECONYs electric purchased power costs increased $152 million in the nine months ended September 30, 2014 compared with the 2013 period due to an increase in unit costs ($180 million), offset by lower purchased volumes ($28 million). Electric fuel costs increased $10 million in the nine months ended September 30, 2014 compared with the 2013 period due to higher unit costs ($27 million), offset by lower sendout volumes from the companys electric generating facilities ($17 million).
CECONYs electric operating income increased $109 million in the nine months ended September 30, 2014 compared with the 2013 period. The increase reflects
61 |
primarily higher revenues from the electric rate plan ($163 million) and lower taxes other than income taxes ($5 million, principally sales and use tax refund, offset in part by higher property taxes and local revenue taxes), offset in part by higher operations and maintenance expenses ($38 million) and depreciation and amortization ($22 million). Operations and maintenance expenses primarily reflect higher support and protection of company underground facilities to accommodate municipal projects ($18 million), higher costs for injuries and damages ($16 million) and an increase in healthcare costs ($9 million), offset in part by lower pension costs ($15 million).
Gas
CECONYs results of gas operations for the nine months ended September 30, 2014 compared with the 2013 period is as follows:
Nine Months Ended | ||||||||||||
(Millions of Dollars) | September 30, 2014 |
September 30, 2013 |
Variation | |||||||||
Operating revenues |
$ | 1,359 | $ | 1,190 | $ | 169 | ||||||
Gas purchased for resale |
487 | 376 | 111 | |||||||||
Net revenues |
872 | 814 | 58 | |||||||||
Operations and maintenance |
312 | 262 | 50 | |||||||||
Depreciation and amortization |
98 | 97 | 1 | |||||||||
Taxes, other than income taxes |
189 | 183 | 6 | |||||||||
Gas operating income |
$ | 273 | $ | 272 | $ | 1 |
CECONYs gas sales and deliveries, excluding off-system sales, for the nine months ended September 30, 2014 compared with the 2013 period were:
Thousands of dths Delivered | Revenues in Millions | |||||||||||||||||||||||||||||||
Nine Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
Description | September 30, 2014 |
September 30, 2013 |
Variation | Percent Variation |
September 30, 2014 |
September 30, 2013 |
Variation | Percent Variation |
||||||||||||||||||||||||
Residential |
35,649 | 28,795 | 6,854 | 23.8 | % | $ | 616 | $ | 542 | $ | 74 | 13.7 | % | |||||||||||||||||||
General |
22,150 | 21,515 | 635 | 3.0 | 284 | 253 | 31 | 12.3 | ||||||||||||||||||||||||
Firm transportation |
51,481 | 45,329 | 6,152 | 13.6 | 341 | 308 | 33 | 10.7 | ||||||||||||||||||||||||
Total firm sales and transportation |
109,280 | 95,639 | 13,641 | 14.3 | 1,241 | 1,103 | 138 | 12.5 | ||||||||||||||||||||||||
Interruptible sales (a) |
9,593 | 7,956 | 1,637 | 20.6 | 84 | 53 | 31 | 58.5 | ||||||||||||||||||||||||
NYPA |
37,302 | 37,011 | 291 | 0.8 | 2 | 2 | | | ||||||||||||||||||||||||
Generation plants |
65,211 | 49,766 | 15,445 | 31.0 | 23 | 19 | 4 | 21.1 | ||||||||||||||||||||||||
Other |
17,860 | 18,576 | (716 | ) | (3.9 | ) | 31 | 34 | (3 | ) | (8.8 | ) | ||||||||||||||||||||
Other operating revenues |
| | | | (22 | ) | (21 | ) | (1 | ) | 4.8 | |||||||||||||||||||||
Total |
239,246 | 208,948 | 30,298 | 14.5 | % | $ | 1,359 | $ | 1,190 | $ | 169 | 14.2 | % |
(a) | Includes 5,914 and 3,727 thousands of dths for the 2014 and 2013 period, respectively, which are also reflected in firm transportation and other. |
CECONYs gas operating revenues increased $169 million in the nine months ended September 30, 2014 compared with the 2013 period due primarily to an increase in gas purchased for resale costs ($111 million) and higher revenues from the gas rate plan ($53 million). CECONYs revenues from gas sales are subject to a weather normalization clause and a revenue decoupling mechanism as a result of which delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved. Other gas operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the companys rate plans.
CECONYs sales and transportation volumes for firm customers increased 14.3 percent in the nine months ended September 30, 2014 compared with the 2013 period. After adjusting for variations, principally weather and billing days, firm gas sales and transportation volumes in the companys service area
62 |
increased 7.9 percent in the nine months ended September 30, 2014 compared with the 2013 period, reflecting primarily higher oil-to-gas conversions and transfers to firm service.
CECONYs purchased gas cost increased $111 million in the nine months ended September 30, 2014 compared with the 2013 period due to higher unit costs ($64 million) and sendout volumes ($47 million).
CECONYs gas operating income increased $1 million in the nine months ended September 30, 2014 compared with the 2013 period. The increase reflects primarily higher revenues from the gas rate plan ($53 million), offset by higher operations and maintenance expense ($50 million, due primarily to higher operating costs attributable to emergency response ($22 million) and higher healthcare costs ($2 million)), higher taxes other than income taxes ($6 million, principally property taxes and local revenue taxes, offset in part by sales and use tax refund) and higher depreciation and amortization ($1 million).
Steam
CECONYs results of steam operations for the nine months ended September 30, 2014 compared with the 2013 period is as follows:
Nine Months Ended | ||||||||||||
(Millions of Dollars) | September 30, 2014 |
September 30, 2013 |
Variation | |||||||||
Operating revenues |
$ | 485 | $ | 522 | $ | (37) | ||||||
Purchased power |
40 | 33 | 7 | |||||||||
Fuel |
82 | 122 | (40 | ) | ||||||||
Net revenues |
363 | 367 | (4 | ) | ||||||||
Operations and maintenance |
141 | 159 | (18 | ) | ||||||||
Depreciation and amortization |
58 | 49 | 9 | |||||||||
Taxes, other than income taxes |
67 | 79 | (12 | ) | ||||||||
Steam operating income |
$ | 97 | $ | 80 | $ | 17 |
CECONYs steam sales and deliveries for the nine months ended September 30, 2014 compared with the 2013 period were:
Millions of Pounds Delivered | Revenues in Millions | |||||||||||||||||||||||||||||||
Nine Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
Description | September 30, 2014 |
September 30, 2013 |
Variation | Percent Variation |
September 30, 2014 |
September 30, 2013 |
Variation | Percent Variation |
||||||||||||||||||||||||
General |
470 | 400 | 70 | 17.5 | % | $ | 24 | $ | 24 | $ | | | ||||||||||||||||||||
Apartment house |
4,956 | 4,630 | 326 | 7.0 | 135 | 146 | (11 | ) | (7.5 | )% | ||||||||||||||||||||||
Annual power |
12,551 | 11,658 | 893 | 7.7 | 365 | 383 | (18 | ) | (4.7 | ) | ||||||||||||||||||||||
Other operating revenues |
| | | | (39 | ) | (31 | ) | (8 | ) | 25.8 | |||||||||||||||||||||
Total |
17,977 | 16,688 | 1,289 | 7.7 | % | $ | 485 | $ | 522 | ($ | 37 | ) | (7.1 | )% |
CECONYs steam operating revenues decreased $37 million in the nine months ended September 30, 2014 compared with the 2013 period due primarily to lower fuel costs ($40 million) and lower revenues from the steam rate plans ($21 million), offset by the weather impact on revenues ($21 million) and higher purchased power costs ($7 million). Other steam operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the companys rate plans.
Steam sales and delivery volumes increased 7.7 percent in the nine months ended September 30, 2014 compared with the 2013 period. After adjusting for variations, principally weather and billing days, steam sales and deliveries increased 2.6 percent in the nine months ended September 30, 2014, reflecting lower average normalized use per customer.
CECONYs steam fuel costs decreased $40 million in the nine months ended September 30, 2014 compared
63 |
with the 2013 period due to lower unit costs ($44 million), offset by higher sendout volumes ($4 million). Steam purchased power costs increased $7 million in the nine months ended September 30, 2014 compared with the 2013 period due to an increase in unit costs ($6 million) and sendout volumes ($1 million).
Steam operating income increased $17 million in the nine months ended September 30, 2014 compared with the 2013 period. The increase reflects primarily lower operations and maintenance expense ($18 million, due primarily to lower pension expense ($19 million), offset by higher healthcare costs $1 million)) and lower taxes other than income taxes ($12 million, principally property taxes and sales and use tax refund), offset in part by higher depreciation and amortization ($9 million).
Other Income (Deductions)
Other income (deductions) increased $15 million in the nine months ended September 30, 2014 compared with the 2013 period due primarily to the gain on sale of certain non-utility property.
Income Tax Expense
Income taxes increased $65 million in the nine months ended September 30, 2014 compared with the 2013 period due primarily to higher income before income tax expense and lower favorable tax adjustments related to flow-through federal income tax benefits associated with plant recorded in conjunction with filing CECONYs federal tax return in September of 2014 ($6 million).
O&R
Nine Months Ended September 30, 2014 |
Nine Months Ended September 30, 2013 |
|||||||||||||||||||||||||||
(Millions of Dollars) | Electric | Gas | 2014 Total |
Electric | Gas | 2013 Total |
2014-2013 Variation |
|||||||||||||||||||||
Operating revenues |
$ | 525 | $ | 155 | $ | 680 | $ | 492 | $ | 143 | $ | 635 | $ | 45 | ||||||||||||||
Purchased power |
187 | | 187 | 169 | | 169 | 18 | |||||||||||||||||||||
Gas purchased for resale |
| 65 | 65 | | 50 | 50 | 15 | |||||||||||||||||||||
Net revenues |
338 | 90 | 428 | 323 | 93 | 416 | 12 | |||||||||||||||||||||
Operations and maintenance |
185 | 50 | 235 | 176 | 49 | 225 | 10 | |||||||||||||||||||||
Depreciation and amortization |
33 | 12 | 45 | 31 | 11 | 42 | 3 | |||||||||||||||||||||
Taxes, other than income taxes |
33 | 13 | 46 | 35 | 13 | 48 | (2 | ) | ||||||||||||||||||||
Operating income |
$ | 87 | $ | 15 | $ | 102 | $ | 81 | $ | 20 | $ | 101 | $ | 1 |
Electric
O&Rs results of electric operations for the nine months ended September 30, 2014 compared with the 2013 period is as follows:
Nine Months Ended | ||||||||||||
(Millions of Dollars) | September 30, 2014 |
September 30, 2013 |
Variation | |||||||||
Operating revenues |
$ | 525 | $ | 492 | $ | 33 | ||||||
Purchased power |
187 | 169 | 18 | |||||||||
Net revenues |
338 | 323 | 15 | |||||||||
Operations and maintenance |
185 | 176 | 9 | |||||||||
Depreciation and amortization |
33 | 31 | 2 | |||||||||
Taxes, other than income taxes |
33 | 35 | (2 | ) | ||||||||
Electric operating income |
$ | 87 | $ | 81 | $ | 6 |
64 |
O&Rs electric sales and deliveries for the nine months ended September 30, 2014 compared with the 2013 period were:
Millions of kWhs Delivered | Revenues in Millions | |||||||||||||||||||||||||||||||
Nine Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
Description | September 30, 2014 |
September 30, 2013 |
Variation | Percent Variation |
September 30, 2014 |
September 30, 2013 |
Variation | Percent Variation |
||||||||||||||||||||||||
Residential/Religious(a) |
1,181 | 1,235 | (54 | ) | (4.4 | )% | $237 | $224 | $13 | 5.8 | % | |||||||||||||||||||||
Commercial/Industrial |
620 | 667 | (47 | ) | (7.0 | ) | 106 | 100 | 6 | 6.0 | ||||||||||||||||||||||
Retail access customers |
2,463 | 2,394 | 69 | 2.9 | 158 | 148 | 10 | 6.8 | ||||||||||||||||||||||||
Public authorities |
77 | 79 | (2 | ) | (2.5 | ) | 10 | 8 | 2 | 25.0 | ||||||||||||||||||||||
Other operating revenues |
| | | | 14 | 12 | 2 | 16.7 | ||||||||||||||||||||||||
Total |
4,341 | 4,375 | (34 | ) | (0.8 | )% | $525 | $492 | $33 | 6.7 | % |
(a) | Residential/Religious generally includes single-family dwellings, individual apartments in multi-family dwellings, religious organizations and certain other not-for-profit organizations. |
O&Rs electric operating revenues increased $33 million in the nine months ended September 30, 2014 compared with the 2013 period due primarily to higher purchased power costs ($18 million) and higher revenues from the New York electric rate plan ($11 million). O&Rs New York electric delivery revenues are subject to a revenue decoupling mechanism, as a result of which delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved. O&Rs electric sales in New Jersey and Pennsylvania are not subject to a decoupling mechanism, and as a result, changes in such volumes do impact revenues. Other electric operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the companys electric rate plan.
Electric delivery volumes in O&Rs service area decreased 0.8 percent in the nine months ended September 30, 2014 compared with the 2013 period. After adjusting for variations, principally weather and billing days, electric delivery volumes in O&Rs service area in the nine months ended September 30, 2014 was the same as in the 2013 period.
Electric operating income increased $6 million in the nine months ended September 30, 2014 compared with the 2013 period. The increase reflects primarily higher revenues from the New York electric rate plan ($11 million) and lower taxes other than income taxes ($2 million), offset in part by higher operations and maintenance expense ($9 million, reflecting primarily certain regulatory credits in the 2013 period ($3 million), higher costs for injuries and damages ($2 million), higher pension expense ($2 million) and higher healthcare costs ($1 million)) and higher depreciation and amortization ($2 million).
Gas
O&Rs results of gas operations for the nine months ended September 30, 2014 compared with the 2013 period is as follows:
Nine Months Ended | ||||||||||||
(Millions of Dollars) | September 30, 2014 |
September 30, 2013 |
Variation | |||||||||
Operating revenues |
$ | 155 | $ | 143 | $ | 12 | ||||||
Gas purchased for resale |
65 | 50 | 15 | |||||||||
Net revenues |
90 | 93 | (3 | ) | ||||||||
Operations and maintenance |
50 | 49 | 1 | |||||||||
Depreciation and amortization |
12 | 11 | 1 | |||||||||
Taxes, other than income taxes |
13 | 13 | | |||||||||
Gas operating income |
$ | 15 | $ | 20 | $ | (5 | ) |
65 |
O&Rs gas sales and deliveries, excluding off-system sales, for the nine months ended September 30, 2014 compared with the 2013 period were:
Thousands of dths Delivered | Revenues in Millions | |||||||||||||||||||||||||||||||
Nine Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
Description | September 30, 2014 |
September 30, 2013 |
Variation | Percent Variation |
September 30, 2014 |
September 30, 2013 |
Variation | Percent Variation |
||||||||||||||||||||||||
Residential |
5,493 | 4,894 | 599 | 12.2 | % | $ | 73 | $ | 66 | $ | 7 | 10.6 | % | |||||||||||||||||||
General |
1,238 | 1,066 | 172 | 16.1 | 14 | 12 | 2 | 16.7 | ||||||||||||||||||||||||
Firm transportation |
8,970 | 8,186 | 784 | 9.6 | 55 | 55 | | | ||||||||||||||||||||||||
Total firm sales and transportation |
15,701 | 14,146 | 1,555 | 11.0 | 142 | 133 | 9 | 6.8 | ||||||||||||||||||||||||
Interruptible sales |
3,236 | 3,116 | 120 | 3.9 | 2 | 2 | | | ||||||||||||||||||||||||
Generation plants |
58 | 15 | 43 | Large | 1 | | 1 | Large | ||||||||||||||||||||||||
Other |
663 | 600 | 63 | 10.5 | | | | | ||||||||||||||||||||||||
Other gas revenues |
| | | | 10 | 8 | 2 | 25.0 | ||||||||||||||||||||||||
Total |
19,658 | 17,877 | 1,781 | 10.0 | % | $ | 155 | $ | 143 | $ | 12 | 8.4 | % |
O&Rs gas operating revenues increased $12 million in the nine months ended September 30, 2014 compared with the 2013 period due primarily to an increase in gas purchased for resale costs in 2014 ($15 million). O&Rs New York revenues from gas sales are subject to a revenue decoupling mechanism as a result of which delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved.
Sales and transportation volumes for firm customers increased 11.0 percent in the nine months ended September 30, 2014 compared with the 2013 period. After adjusting for variations, principally weather and billing days, total firm sales and transportation volumes increased 2.1 percent in the nine months ended September 30, 2014 compared with the 2013 period.
Gas operating income decreased $5 million in the nine months ended September 30, 2014 compared with the 2013 period. The decrease reflects primarily lower net revenues ($3 million), higher operations and maintenance expense ($1 million) and higher depreciation and amortization ($1 million).
Income Taxes
Income taxes increased $13 million in the nine months ended September 30, 2014 compared with the 2013 period due primarily to higher income before income tax expense, changes in estimates of accumulated deferred income taxes in the 2013 period ($6 million) and unfavorable tax adjustments related to flow-through federal income taxes associated with plant recorded in conjunction with filing O&Rs federal tax return in September of 2014 ($1 million).
Competitive Energy Businesses
The competitive energy businesses results of operations for the nine months ended September 30, 2014 compared with the 2013 period reflect the following:
Nine Months Ended | ||||||||||||
(Millions of Dollars) | September 30, 2014 |
September 30, 2013 |
Variation | |||||||||
Operating revenues |
$ | 934 | $ | 834 | $ | 100 | ||||||
Purchased power |
727 | 705 | 22 | |||||||||
Gas purchased for resale |
75 | 17 | 58 | |||||||||
Net revenues |
132 | 112 | 20 | |||||||||
Operations and maintenance |
78 | 76 | 2 | |||||||||
Depreciation and amortization |
14 | 16 | (2 | ) | ||||||||
Taxes, other than income taxes |
15 | 13 | 2 | |||||||||
Gain on sale of solar energy projects |
(45 | ) | | (45 | ) | |||||||
Operating income |
$ | 70 | $ | 7 | $ | 63 |
66 |
The competitive energy businesses operating revenues increased $100 million in the nine months ended September 30, 2014 compared with the 2013 period, due primarily to higher wholesale and electric retail revenues and the impact of the LILO transactions ($27 million, see Note I to the Third Quarter Financial Statements). Wholesale revenues increased $44 million, electric retail revenues increased $29 million, due primarily to higher unit prices ($57 million), offset by lower sales volume ($28 million), and energy services and other revenues increased $5 million and $7 million, respectively, in the nine months ended September 30, 2014 as compared with the 2013 period. Solar revenues decreased $12 million in the nine months ended September 30, 2014 as compared with the 2013 period due primarily to Con Edison Developments sale of 50 percent of its membership interest in CCH as these projects are now accounted for under the equity method (see Note N to the Third Quarter Financial Statements).
Purchased power costs increased $22 million in the nine months ended September 30, 2014 compared with the 2013 period, due primarily to higher unit prices ($63 million) and changes in mark-to-market values ($9 million), offset by lower volumes ($50 million). Gas purchased for resale increased $58 million in the nine months ended September 30, 2014 compared with the 2013 period, due primarily to higher volumes.
Operating income increased $63 million in 2014 compared with 2013 due primarily to the gain on sale of solar energy projects ($45 million) and the impact of the LILO transactions ($27 million), offset by changes in mark-to-market values ($7 million).
Other Income (Deductions)
Other income (deductions) increased $20 million in the nine months ended September 30, 2014 compared with the 2013 period, primarily reflecting income from those of Con Edison Developments solar investments that are accounted for under the equity method.
Net Interest Expense
Net interest expense decreased $141 million in the nine months ended September 30, 2014 compared with the 2013 period, due primarily to the impact of the LILO transactions. See Note I to the Third Quarter Financial Statements.
Income Taxes
Income taxes increased $106 million in the nine months ended September 30, 2014 compared with the 2013 period, due primarily to higher income before income tax expense and a tax benefit resulting from the acceptance by the IRS of the companys claim for a manufacturing tax deduction in 2013 ($15 million). See Note J to the Third Quarter Financial Statements.
67 |
Item 3: Quantitative and Qualitative Disclosures About Market Risk
For information about the Companies primary market risks associated with activities in derivative financial instruments, other financial instruments and derivative commodity instruments, see Financial and Commodity Market Risks, in Part I, Item 2 of this report, which information is incorporated herein by reference.
Item 4: Controls and Procedures
The Companies maintain disclosure controls and procedures designed to provide reasonable assurance that the information required to be disclosed in the reports that they submit to the Securities and Exchange Commission (SEC) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the issuers management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. For each of the Companies, its management, with the participation of its principal executive officer and principal financial officer, has evaluated its disclosure controls and procedures as of the end of the period covered by this report and, based on such evaluation, has concluded that the controls and procedures are effective to provide such reasonable assurance. Reasonable assurance is not absolute assurance, however, and there can be no assurance that any design of controls or procedures would be effective under all potential future conditions, regardless of how remote.
There was no change in the Companies internal control over financial reporting that occurred during the Companies most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Companies internal control over financial reporting.
68 |
For information about certain legal proceedings affecting the Companies, see Notes B, G and H to the financial statements in Part I, Item 1 of this report, which information is incorporated herein by reference.
There were no material changes in the Companies risk factors compared to those disclosed in Item 1A of the Form 10-K.
69 |
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
ISSUER PURCHASES OF EQUITY SECURITIES
Period | Total Number of Shares (or Units) Purchased* |
Average Price Paid per Share (or Unit) |
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs |
Maximum Number (or Appropriate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs |
||||||||||||
July 1, 2014 to July 31, 2014 |
182,583 | $56.33 | | | ||||||||||||
August 1, 2014 to August 31, 2014 |
71,204 | 57.07 | | | ||||||||||||
September 1, 2014 to September 30, 2014 |
54,534 | 57.12 | | | ||||||||||||
Total |
308,321 | $56.64 | | |
* | Represents Con Edison common shares purchased in open-market transactions. The number of shares purchased approximated the number of treasury shares used for the companys employee stock plans. |
70 |
CON EDISON
Exhibit 12.1 | Statement of computation of Con Edisons ratio of earnings to fixed charges for the nine-month periods ended September 30, 2014 and 2013, and the 12-month period ended December 31, 2013. | |
Exhibit 31.1.1 | Rule 13a-14(a)/15d-14(a) Certifications Chief Executive Officer. | |
Exhibit 31.1.2 | Rule 13a-14(a)/15d-14(a) Certifications Chief Financial Officer. | |
Exhibit 32.1.1 | Section 1350 Certifications Chief Executive Officer. | |
Exhibit 32.1.2 | Section 1350 Certifications Chief Financial Officer. | |
Exhibit 101.INS | XBRL Instance Document. | |
Exhibit 101.SCH | XBRL Taxonomy Extension Schema. | |
Exhibit 101.CAL | XBRL Taxonomy Extension Calculation Linkbase. | |
Exhibit 101.DEF | XBRL Taxonomy Extension Definition Linkbase. | |
Exhibit 101.LAB | XBRL Taxonomy Extension Label Linkbase. | |
Exhibit 101.PRE | XBRL Taxonomy Extension Presentation Linkbase. |
71 |
CECONY
Exhibit 12.2 | Statement of computation of CECONYs ratio of earnings to fixed charges for the nine-month periods ended September 30, 2014 and 2013, and the 12-month period ended December 31, 2013. | |
Exhibit 31.2.1 | Rule 13a-14(a)/15d-14(a) Certifications Chief Executive Officer. | |
Exhibit 31.2.2 | Rule 13a-14(a)/15d-14(a) Certifications Chief Financial Officer. | |
Exhibit 32.2.1 | Section 1350 Certifications Chief Executive Officer. | |
Exhibit 32.2.2 | Section 1350 Certifications Chief Financial Officer. | |
Exhibit 101.INS | XBRL Instance Document. | |
Exhibit 101.SCH | XBRL Taxonomy Extension Schema. | |
Exhibit 101.CAL | XBRL Taxonomy Extension Calculation Linkbase. | |
Exhibit 101.DEF | XBRL Taxonomy Extension Definition Linkbase. | |
Exhibit 101.LAB | XBRL Taxonomy Extension Label Linkbase. | |
Exhibit 101.PRE | XBRL Taxonomy Extension Presentation Linkbase. |
Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, instruments defining the rights of holders of long-term debt of Con Edisons subsidiaries other than CECONY, the total amount of which does not exceed ten percent of the total assets of Con Edison and its subsidiaries on a consolidated basis, are not filed as exhibits to Con Edisons Form 10-K or Form 10-Q. Con Edison agrees to furnish to the SEC upon request a copy of any such instrument.
72 |
Pursuant to the requirements of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CONSOLIDATED EDISON, INC. | ||||||
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC. | ||||||
DATE: November 6, 2014 | By | /s/ Robert Hoglund | ||||
Robert Hoglund Senior Vice President, Chief Financial Officer and Duly Authorized Officer |
73 |
Exhibit 12.1
Consolidated Edison, Inc.
Ratio of Earnings to Fixed Charges
(Millions of Dollars)
For the Nine | For the Twelve | For the Nine | ||||||||||
Months Ended | Months Ended | Months Ended | ||||||||||
September 30, 2014 | December 31, 2013 | September 30, 2013 | ||||||||||
Earnings |
||||||||||||
Net Income for Common Stock |
$ | 1,010 | $ | 1,062 | $ | 828 | ||||||
Preferred Stock Dividend |
| | | |||||||||
(Income) or Loss from Equity Investees |
(27 | ) | (6 | ) | (5 | ) | ||||||
Minority Interest Loss |
| | | |||||||||
Income Tax |
559 | 476 | 373 | |||||||||
|
|
|
|
|
|
|||||||
Pre-Tax Income for Common Stock |
$ | 1,542 | $ | 1,532 | $ | 1,196 | ||||||
Add: Fixed Charges* |
470 | 764 | 597 | |||||||||
Add: Distributed Income of Equity Investees |
| | | |||||||||
Subtract: Interest Capitalized |
| | | |||||||||
Subtract: Pre-Tax Preferred Stock Dividend Requirement |
| | | |||||||||
|
|
|
|
|
|
|||||||
Earnings |
$ | 2,012 | $ | 2,296 | $ | 1,793 | ||||||
|
|
|
|
|
|
|||||||
* Fixed Charges |
||||||||||||
Interest on Long-term Debt |
$ | 427 | $ | 562 | $ | 421 | ||||||
Amortization of Debt Discount, Premium and Expense |
11 | 16 | 12 | |||||||||
Interest Capitalized |
| | | |||||||||
Other Interest |
(1 | ) | 143 | 143 | ||||||||
Interest Component of Rentals |
33 | 43 | 21 | |||||||||
Pre-Tax Preferred Stock Dividend Requirement |
| | | |||||||||
|
|
|
|
|
|
|||||||
Fixed Charges |
$ | 470 | $ | 764 | $ | 597 | ||||||
|
|
|
|
|
|
|||||||
Ratio of Earnings to Fixed Charges |
4.3 | 3.0 | 3.0 | |||||||||
|
|
|
|
|
|
Exhibit 31.1.1
CERTIFICATIONS
I, John McAvoy, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014 of Consolidated Edison, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: November 6, 2014
/s/ John McAvoy |
John McAvoy |
Chairman, President and Chief Executive Officer |
Exhibit 31.1.2
CERTIFICATIONS
I, Robert Hoglund, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014 of Consolidated Edison, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: November 6, 2014
/s/ Robert Hoglund |
Robert Hoglund |
Senior Vice President and Chief Financial Officer |
Exhibit 32.1.1
Certification Required Under Section 906 of the Sarbanes-Oxley Act of 2002
I, John McAvoy, the Chief Executive Officer of Consolidated Edison, Inc. (the Company) certify that the Companys Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014, which this statement accompanies, (the Form 10-Q) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ John McAvoy |
John McAvoy |
Dated: November 6, 2014
Exhibit 32.1.2
Certification Required Under Section 906 of the Sarbanes-Oxley Act of 2002
I, Robert Hoglund, the Chief Financial Officer of Consolidated Edison, Inc. (the Company) certify that the Companys Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014, which this statement accompanies, (the Form 10-Q) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Robert Hoglund |
Robert Hoglund |
Dated: November 6, 2014
Exhibit 12.2
Consolidated Edison Company of New York, Inc.
Ratio of Earnings to Fixed Charges
(Millions of Dollars)
For the Nine | For the Twelve | For the Nine | ||||||||||
Months Ended | Months Ended | Months Ended | ||||||||||
September 30, 2014 | December 31, 2013 | September 30, 2013 | ||||||||||
Earnings |
||||||||||||
Net Income for Common Stock |
$ | 905 | $ | 1,020 | $ | 831 | ||||||
Preferred Stock Dividend |
| | | |||||||||
(Income) or Loss from Equity Investees |
| | | |||||||||
Minority Interest Loss |
| | | |||||||||
Income Tax |
496 | 520 | 431 | |||||||||
|
|
|
|
|
|
|||||||
Pre-Tax Income for Common Stock |
$ | 1,401 | $ | 1,540 | $ | 1,262 | ||||||
|
|
|
|
|
|
|||||||
Add: Fixed Charges* |
431 | 564 | 415 | |||||||||
Add: Distributed Income of Equity Investees |
| | | |||||||||
Subtract: Interest Capitalized |
| | | |||||||||
Subtract: Pre-Tax Preferred Stock Dividend Requirement |
| | | |||||||||
|
|
|
|
|
|
|||||||
Earnings |
$ | 1,832 | $ | 2,104 | $ | 1,677 | ||||||
|
|
|
|
|
|
|||||||
* Fixed Charges |
||||||||||||
Interest on Long-term Debt |
$ | 378 | $ | 496 | $ | 373 | ||||||
Amortization of Debt Discount, Premium and Expense |
10 | 15 | 11 | |||||||||
Interest Capitalized |
| | | |||||||||
Other Interest |
11 | 11 | 12 | |||||||||
Interest Component of Rentals |
32 | 42 | 19 | |||||||||
Pre-Tax Preferred Stock Dividend Requirement |
| | | |||||||||
|
|
|
|
|
|
|||||||
Fixed Charges |
$ | 431 | $ | 564 | $ | 415 | ||||||
|
|
|
|
|
|
|||||||
Ratio of Earnings to Fixed Charges |
4.3 | 3.7 | 4.0 | |||||||||
|
|
|
|
|
|
Exhibit 31.2.1
CERTIFICATIONS
I, John McAvoy, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014 of Consolidated Edison Company of New York, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: November 6, 2014
/s/ John McAvoy |
John McAvoy |
Chairman and Chief Executive Officer |
Exhibit 31.2.2
CERTIFICATIONS
I, Robert Hoglund, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014 of Consolidated Edison Company of New York, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: November 6, 2014
/s/ Robert Hoglund |
Robert Hoglund |
Senior Vice President and Chief Financial Officer |
Exhibit 32.2.1
Certification Required Under Section 906 of the Sarbanes-Oxley Act of 2002
I, John McAvoy, the Chief Executive Officer of Consolidated Edison Company of New York, Inc. (the Company) certify that the Companys Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014, which this statement accompanies, (the Form 10-Q) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ John McAvoy |
John McAvoy |
Dated: November 6, 2014
Exhibit 32.2.2
Certification Required Under Section 906 of the Sarbanes-Oxley Act of 2002
I, Robert Hoglund, the Chief Financial Officer of Consolidated Edison Company of New York, Inc. (the Company) certify that the Companys Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014, which this statement accompanies, (the Form 10-Q) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Robert Hoglund |
Robert Hoglund |
Dated: November 6, 2014
KLE%%EFK@^56/D[C
MH,6]<::]J3PY]I:2MNBMF07'9E0)6C);\*T^XL.[YC4-NUW
M2XW3>T'^L*/0[M4)*3B]G255K]9D[:_V5<&CSU@J,5-R\ZXCX<\$R54C$FB<
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M>M76VFPFO;8_J]\6I+V07I^U(Z:D*3.I/M?W"[U\BKT]:DFKIF9[Y2T
86.$=``````````````
M``````````````%<9SY[F/VI(?G:PKG/F6+`6B$=````%'>?.V.9NG]2U2Q\
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MKMUVZ"Q2EBO
*UC$
Regulatory Matters - Other Regulatory Matters - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified |
9 Months Ended | 1 Months Ended | 9 Months Ended | 1 Months Ended | 9 Months Ended | 9 Months Ended | 1 Months Ended | 9 Months Ended | ||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2014
|
Dec. 31, 2013
|
Jul. 31, 2014
Rockland Electric Company [Member]
|
Sep. 30, 2014
Rockland Electric Company [Member]
|
Jul. 31, 2014
Rockland Electric Company [Member]
Effective August 1, 2014 [Member]
|
Sep. 30, 2014
CECONY [Member]
|
Dec. 31, 2013
CECONY [Member]
|
Sep. 30, 2014
Orange and Rockland Utilities, Inc. [Member]
|
Aug. 31, 2014
Pike County Light & Power Company [Member]
Effective September 1, 2014 [Member]
|
Sep. 30, 2014
Pike County Light & Power Company [Member]
Effective September 15, 2014 [Member]
|
Jul. 31, 2014
Deferred Storm Costs [Member]
Rockland Electric Company [Member]
|
Sep. 30, 2014
Storm Damage [Member]
Customer
|
|
Public Utilities, General Disclosures [Line Items] | ||||||||||||
Electric rate increases | $ 13.00 | $ 1.25 | ||||||||||
Return on common equity | 9.75% | |||||||||||
Common equity ratio | 50.00% | |||||||||||
Regulatory asset | 6,566.0 | 7,230.0 | 6,023.0 | 6,665.0 | 25.6 | |||||||
Regulatory asset recovery period | 4 years | |||||||||||
Gas rate increases | 0.1 | |||||||||||
Revenues from electric | 249 | |||||||||||
Revenues from gas | 32 | |||||||||||
Revenues from steam service | 6 | |||||||||||
Potential refund to customers | 1,603 | |||||||||||
Overcharges of construction expenditures | 208 | |||||||||||
Regulatory liability | 36 | |||||||||||
Company recovered from related parties | 16 | |||||||||||
Amount recovered for the benefit of customers | 15 | |||||||||||
Additional refundable amounts applicable to customers | 25 | |||||||||||
Number of customers interrupted electric distribution service | 1,400,000 | |||||||||||
Response and restoration costs | 500 | 91 | ||||||||||
Capital expenditures | $ 148 | $ 15 |
Lease In/Lease Out Transactions - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified |
1 Months Ended | 3 Months Ended | 12 Months Ended | |||
---|---|---|---|---|---|---|
Mar. 31, 2013
|
Jan. 31, 2013
|
Mar. 31, 2014
|
Sep. 30, 2013
|
Jun. 30, 2013
|
Dec. 31, 2013
|
|
Operating Leased Assets [Line Items] | ||||||
Estimated charge after-tax | $ 150 | |||||
Reduced interest expense | 13 | |||||
Uncertain tax positions, net of tax | 7 | |||||
Gain from LILO transaction termination | 26 | 29 | ||||
Defray of interest charges relating to potential tax liability | 447 | |||||
Refund from IRS | 10 | |||||
Settlement of tax and interest | 38 | |||||
Transaction One [Member]
|
||||||
Operating Leased Assets [Line Items] | ||||||
Returned deposit from Internal Revenue Service (IRS) | 125 | |||||
Transaction Two [Member]
|
||||||
Operating Leased Assets [Line Items] | ||||||
Returned deposit from Internal Revenue Service (IRS) | $ 48 |
Environmental Matters - Accrued Liabilities and Regulatory Assets (Detail) (USD $)
In Millions, unless otherwise specified |
Sep. 30, 2014
|
Dec. 31, 2013
|
---|---|---|
Accrued Liabilities: | ||
Accrued Liabilities | $ 734 | $ 749 |
Regulatory assets | 6,566.0 | 7,230.0 |
Manufactured Gas Plant Sites [Member]
|
||
Accrued Liabilities: | ||
Accrued Liabilities | 655 | 665 |
Other Superfund Sites [Member]
|
||
Accrued Liabilities: | ||
Accrued Liabilities | 79 | 84 |
Superfund Sites [Member]
|
||
Accrued Liabilities: | ||
Accrued Liabilities | 734 | 749 |
Regulatory assets | 899.0 | 938.0 |
CECONY [Member]
|
||
Accrued Liabilities: | ||
Accrued Liabilities | 636 | 644 |
Regulatory assets | 6,023.0 | 6,665.0 |
CECONY [Member] | Manufactured Gas Plant Sites [Member]
|
||
Accrued Liabilities: | ||
Accrued Liabilities | 558 | 562 |
CECONY [Member] | Other Superfund Sites [Member]
|
||
Accrued Liabilities: | ||
Accrued Liabilities | 78 | 82 |
CECONY [Member] | Superfund Sites [Member]
|
||
Accrued Liabilities: | ||
Accrued Liabilities | 636 | 644 |
Regulatory assets | $ 795.0 | $ 830.0 |
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