Leases

12 Months Ended

Dec. 31, 2014

Leases

Note J – Leases

Con Edison’s subsidiaries lease electric transmission facilities, gas distribution facilities, land, office buildings and equipment. In accordance with the accounting rules for leases, these leases are classified as either capital leases or operating leases. Most of the operating leases provide the option to renew at the fair rental value for future periods. Generally, it is expected that leases will be renewed or replaced in the normal course of business.

Capital leases: For ratemaking purposes capital leases are treated as operating leases; therefore, in accordance with the accounting rules for regulated operations, the amortization of the leased asset is based on the rental payments recovered from customers. The following assets under capital leases are included in the Companies’ consolidated balance sheets at December 31, 2014 and 2013:

	Con Edison				CECONY
(Millions of Dollars)	2014		2013		2014		2013
UTILITY PLANT
Common	$	3	$	3	$	1	$	2

The accumulated amortization of the capital leases for Con Edison and CECONY was $1.8 million and $0.8 million, respectively at December 31, 2014, and $1.0 million and $0.6 million, respectively at December 31, 2013.

The future minimum lease commitments for the above assets are as follows:

(Millions of Dollars)	Con Edison		CECONY
2015	$	1	$	1
2016		1		1
2017		-		-
2018		-		-
2019		-		-
All years thereafter		-		-
Total		2		2
Less: amount representing interest		1		1
Present value of net minimum lease payment	$	1	$	1

Operating leases: The future minimum lease commitments under the Companies’ non-cancelable operating lease agreements are as follows:

(Millions of Dollars)	Con Edison		CECONY
2015	$	18	$	14
2016		17		13
2017		16		12
2018		16		12
2019		14		10
All years thereafter		72		51
Total	$	153	$	112

Lease In/Lease Out Transactions

In each of 1997 and 1999, Con Edison Development entered into transactions in which it leased property and then immediately subleased the properties back to the lessor (termed “Lease In/Lease Out,” or LILO transactions). The transactions respectively involved electric generating and gas distribution facilities in the Netherlands, with a total investment of $259 million. The transactions were financed with $93 million of equity and $166 million of non-recourse, long-term debt secured by the underlying assets. In accordance with the accounting rules for leases, Con Edison accounted for the two LILO transactions as leveraged leases. Accordingly, the company’s investment in these leases, net of non-recourse debt, was carried as a single amount in Con Edison’s consolidated balance sheet and income was recognized pursuant to a method that incorporated a level rate of return for those years when net investment in the lease was positive. At December 31, 2012, the company’s net investment in the LILO transactions was $(76) million, comprised of a $228 million gross investment less $304 million of deferred tax liabilities. During 2013, as discussed below, the company terminated its LILO transactions and at December 31, 2013 no longer had an investment recorded for these leases in its consolidated balance sheet.

On audit of Con Edison’s tax returns, the Internal Revenue Service (IRS) disallowed tax losses in connection with the 1997 LILO transactions. In October 2009, the United States Court of Federal Claims issued a decision in favor of the company which, among other things, concluded that the tax losses claimed by the company were allowable. In January 2013, the United States Court of Appeals for the Federal Circuit reversed the October 2009 trial court decision. In June 2013, Con Edison entered into a closing agreement with the IRS regarding the 1997 and 1999 LILO transactions.

As a result of the January 2013 Court of Appeals decision, in 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 the 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 for the LILO transactions. Also, in 2013, the LILO transactions were terminated, as a result of which the company realized a $55 million gain (after-tax). In 2014, adjustments were made to the interest accrued on the liability and the related taxes resulting in a decrease to net income of $1 million.

The effect on Con Edison’s consolidated income statement for the twelve months ended as of December 31, 2014 and 2013 was as follows:

	For the Years Ended December 31,
(Millions of Dollars)	2014		2013
Increase/(decrease) to non-utility operating revenues	$	-	$	(27	)
(Increase)/decrease to other interest expense		13		(131	)
Income tax benefit/(expense)		(14)		63
Total increase/(decrease) in net income		$(1)		$(95)

The transactions did not impact earnings in 2012.

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 IRS at the company’s 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 prior 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, for other tax years.

CECONY [Member]

Leases

Note J – Leases

Con Edison’s subsidiaries lease electric transmission facilities, gas distribution facilities, land, office buildings and equipment. In accordance with the accounting rules for leases, these leases are classified as either capital leases or operating leases. Most of the operating leases provide the option to renew at the fair rental value for future periods. Generally, it is expected that leases will be renewed or replaced in the normal course of business.

Capital leases: For ratemaking purposes capital leases are treated as operating leases; therefore, in accordance with the accounting rules for regulated operations, the amortization of the leased asset is based on the rental payments recovered from customers. The following assets under capital leases are included in the Companies’ consolidated balance sheets at December 31, 2014 and 2013:

	Con Edison				CECONY
(Millions of Dollars)	2014		2013		2014		2013
UTILITY PLANT
Common	$	3	$	3	$	1	$	2

The accumulated amortization of the capital leases for Con Edison and CECONY was $1.8 million and $0.8 million, respectively at December 31, 2014, and $1.0 million and $0.6 million, respectively at December 31, 2013.

The future minimum lease commitments for the above assets are as follows:

(Millions of Dollars)	Con Edison		CECONY
2015	$	1	$	1
2016		1		1
2017		-		-
2018		-		-
2019		-		-
All years thereafter		-		-
Total		2		2
Less: amount representing interest		1		1
Present value of net minimum lease payment	$	1	$	1

Operating leases: The future minimum lease commitments under the Companies’ non-cancelable operating lease agreements are as follows:

(Millions of Dollars)	Con Edison		CECONY
2015	$	18	$	14
2016		17		13
2017		16		12
2018		16		12
2019		14		10
All years thereafter		72		51
Total	$	153	$	112

Lease In/Lease Out Transactions

In each of 1997 and 1999, Con Edison Development entered into transactions in which it leased property and then immediately subleased the properties back to the lessor (termed “Lease In/Lease Out,” or LILO transactions). The transactions respectively involved electric generating and gas distribution facilities in the Netherlands, with a total investment of $259 million. The transactions were financed with $93 million of equity and $166 million of non-recourse, long-term debt secured by the underlying assets. In accordance with the accounting rules for leases, Con Edison accounted for the two LILO transactions as leveraged leases. Accordingly, the company’s investment in these leases, net of non-recourse debt, was carried as a single amount in Con Edison’s consolidated balance sheet and income was recognized pursuant to a method that incorporated a level rate of return for those years when net investment in the lease was positive. At December 31, 2012, the company’s net investment in the LILO transactions was $(76) million, comprised of a $228 million gross investment less $304 million of deferred tax liabilities. During 2013, as discussed below, the company terminated its LILO transactions and at December 31, 2013 no longer had an investment recorded for these leases in its consolidated balance sheet.

On audit of Con Edison’s tax returns, the Internal Revenue Service (IRS) disallowed tax losses in connection with the 1997 LILO transactions. In October 2009, the United States Court of Federal Claims issued a decision in favor of the company which, among other things, concluded that the tax losses claimed by the company were allowable. In January 2013, the United States Court of Appeals for the Federal Circuit reversed the October 2009 trial court decision. In June 2013, Con Edison entered into a closing agreement with the IRS regarding the 1997 and 1999 LILO transactions.

As a result of the January 2013 Court of Appeals decision, in 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 the 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 for the LILO transactions. Also, in 2013, the LILO transactions were terminated, as a result of which the company realized a $55 million gain (after-tax). In 2014, adjustments were made to the interest accrued on the liability and the related taxes resulting in a decrease to net income of $1 million.

The effect on Con Edison’s consolidated income statement for the twelve months ended as of December 31, 2014 and 2013 was as follows:

	For the Years Ended December 31,
(Millions of Dollars)	2014		2013
Increase/(decrease) to non-utility operating revenues	$	-	$	(27	)
(Increase)/decrease to other interest expense		13		(131	)
Income tax benefit/(expense)		(14)		63
Total increase/(decrease) in net income		$(1)		$(95)

The transactions did not impact earnings in 2012.

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 IRS at the company’s 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 prior 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, for other tax years.