Regulatory Matters

9 Months Ended

Sep. 30, 2014

Regulatory Matters

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&R’s 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&R’s 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 company’s revenues (currently, $249 million, $32 million and $6 million on an annual basis for electric, gas and steam service, respectively) is being collected subject to potential refund to customers. The amount of electric revenues collected subject to refund, which was established in a different proceeding, and the amount of gas and steam revenues collected subject to refund were not established as indicative of the company’s potential liability in this proceeding. At 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 company’s construction expenditures from January 2000 to January 2009. The company is disputing the consultant’s estimate, including its determinations as to overcharges regarding specific construction expenditures it selected to review and its methodology of extrapolating such determinations over a substantial portion of the construction expenditures during this period. The NYSPSC’s consultant has not reviewed the company’s other expenditures. The company and NYSPSC staff are exploring a settlement in this proceeding. In May 2014, the NYSPSC’s 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 consultant’s $208 million estimate of overcharges.

In late October 2012, Superstorm Sandy caused extensive damage to the Utilities’ electric distribution system and interrupted service to approximately 1.4 million customers. Superstorm Sandy also damaged CECONY’s steam system and interrupted service to many of its steam customers. As of 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 asset under the Utilities’ electric rate plans. See “Regulatory Assets and Liabilities” below. CECONY’s 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. RECO’s 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. CECONY’s 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.

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

CECONY [Member]

Regulatory Matters

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&R’s 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&R’s 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 company’s revenues (currently, $249 million, $32 million and $6 million on an annual basis for electric, gas and steam service, respectively) is being collected subject to potential refund to customers. The amount of electric revenues collected subject to refund, which was established in a different proceeding, and the amount of gas and steam revenues collected subject to refund were not established as indicative of the company’s potential liability in this proceeding. At 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 company’s construction expenditures from January 2000 to January 2009. The company is disputing the consultant’s estimate, including its determinations as to overcharges regarding specific construction expenditures it selected to review and its methodology of extrapolating such determinations over a substantial portion of the construction expenditures during this period. The NYSPSC’s consultant has not reviewed the company’s other expenditures. The company and NYSPSC staff are exploring a settlement in this proceeding. In May 2014, the NYSPSC’s 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 consultant’s $208 million estimate of overcharges.

In late October 2012, Superstorm Sandy caused extensive damage to the Utilities’ electric distribution system and interrupted service to approximately 1.4 million customers. Superstorm Sandy also damaged CECONY’s steam system and interrupted service to many of its steam customers. As of 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 asset under the Utilities’ electric rate plans. See “Regulatory Assets and Liabilities” below. CECONY’s 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. RECO’s 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. CECONY’s 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.

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