Income Tax

12 Months Ended

Dec. 31, 2014

Income Tax

Note L – Income Tax

The components of income tax are as follows:

	Con Edison									CECONY
(Millions of Dollars)	2014			2013			2012			2014			2013			2012
State
Current	$	59		$	151		$	29		$	66		$	111		$	53
Deferred		61			(70	)		97			65			(14	)		53
Federal
Current		(9	)		285			(13	)		158			187			110
Deferred		463			115			493			271			241			318
Amortization of investment tax credits		(6	)		(5	)		(6	)		(5	)		(5	)		(5	)
Total income tax expense	$	568		$	476		$	600		$	555		$	520		$	529

The tax effects of temporary differences, which gave rise to deferred tax assets and liabilities, are as follows:

	Con Edison						CECONY
(Millions of Dollars)	2014			2013			2014			2013
Deferred tax liabilities:
Property basis differences	$	7,510		$	7,012		$	6,938		$	6,424
Unrecognized pension and other postretirement costs		1,968			1,109			1,872			1,060
Regulatory asset – future income tax		910			871			863			825
Environmental remediation costs		376			381			333			337
Deferred storm costs		129			179			91			136
Equity investments Other regulatory assets		168 347			21 402			- 300			- 364
Unamortized investment tax credits		126			43			37			42
Total deferred tax liabilities and investment tax credits		11,534			10,018			10,434			9,188
Deferred tax assets:
Accrued pension and other postretirement costs Regulatory liabilities		1,306 615			458 604			1,155 574			364 569
Superfund and other environmental costs		306			301			264			256
Asset retirement obligations		77			58			75			58
Loss carryforwards		21			12			-			-
Loss carryforwards, valuation reserve		(11	)		(12	)		-			-
Other		272			253			203			209
Total deferred tax assets		2,586			1,674			2,271			1,456
Net deferred tax liabilities and investment tax credits	$	8,948		$	8,344		$	8,163		$	7,732
Deferred income taxes and investment tax credits – noncurrent	$	9,076		$	8,466		$	8,257		$	7,832
Deferred tax assets – current		(128	)		(122	)		(94	)		(100	)
Net deferred tax liabilities and investment tax credits	$	8,948		$	8,344		$	8,163		$	7,732

Reconciliation of the difference between income tax expense and the amount computed by applying the prevailing statutory income tax rate to income before income taxes is as follows:

	Con Edison									CECONY
(% of Pre-tax income)	2014			2013			2012			2014			2013			2012
STATUTORY TAX RATE
Federal		35	%		35	%		35	%		35	%		35	%		35	%
Changes in computed taxes resulting from:
State income tax		5			4			4			5			5			4
Cost of removal		(5	)		(5	)		(4	)		(5	)		(5	)		(4	)
Manufacturing deduction		-			(1	)		-			-			-			-
Other		(1	)		(2	)		(1	)		(1	)		(1	)		(1	)
Effective tax rate		34	%		31	%		34	%		34	%		34	%		34	%

Con Edison has a net operating loss carryforward available from the years 1999 through 2014 for which a deferred tax asset of $21 million has been recognized and will not expire until the years 2019 through 2034. An $11 million valuation allowance for New York City income tax purpose has been provided; as it is not more likely than not that the deferred tax asset will be realized.

In September 2013, the IRS issued final regulations, effective in 2014, that provide guidance on the appropriate tax treatment of costs incurred to acquire, produce or improve tangible property, as well as routine maintenance and repair costs. Proposed regulations were issued addressing the tax treatment of asset dispositions. The application of these regulations did not have a material impact on the Companies’ financial position, results of operations or liquidity.

In March 2014, tax legislation was enacted in the State of New York that reduced the corporate franchise tax rate from 7.1 percent to 6.5 percent, beginning January 1, 2016. The application of this legislation decreased Con Edison’s accumulated deferred tax liabilities by $74 million ($69 million for CECONY), decreased Con Edison’s regulatory asset for future income tax by $11 million ($10 million for CECONY) and increased Con Edison’s regulatory liability by $62 million ($59 million for CECONY). The impact of this tax legislation on Con Edison’s effective tax rate was not material, and there was no impact on CECONY’s effective tax rate for the year ended December 31, 2014.

Under the Taxpayer Relief Act of 2012, 50 percent bonus depreciation expired on December 31, 2013. On December 19, 2014, President Obama signed into law the Tax Increase Prevention Act of 2014, which extended bonus depreciation for another year through December 31, 2014. As a result of the extension of bonus depreciation to 2014, Con Edison filed a refund request with the IRS in January 2015 to recover $224 million ($128 million attributable to CECONY) in estimated federal tax payments.

Uncertain Tax Positions

Under the accounting rules for income taxes, the Companies are not permitted to recognize the tax benefit attributable to a tax position unless such position is more likely than not to be sustained upon examination by taxing authorities, including resolution of any related appeals and litigation processes, based solely on the technical merits of the position.

In 2014 following the conclusion of its IRS audit, Con Edison filed amended state tax returns (primarily New York) 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 $27 million ($2 million attributable to CECONY). The amended returns contain uncertain tax positions unique to the states, and the returns remain open for examination. The federal tax returns for 2011 through 2013 remain open for examination. These changes to the Companies’ estimated liabilities for uncertain tax positions had an immaterial impact on income tax expense for the year ended December 31, 2014.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits for Con Edison and CECONY follows:

	Con Edison									CECONY
(Millions of Dollars)	2014			2013			2012			2014		2013			2012
Balance at January 1,	$	9		$	86		$	130		$	-	$	74		$	114
Additions based on tax positions related to the current year		-			5			12			-		-			11
Additions based on tax positions of prior years		27			253			-			2		-			-
Reductions for tax positions of prior years		(2	)		(86	)		(57	)		-		(74	)		(52	)
Settlements		-			(249	)		1			-		-			1
Balance at December 31,	$	34		$	9		$	86		$	2	$	-		$	74

As of December 31, 2014, Con Edison reasonably expects to resolve approximately $26 million ($17 million, net of federal taxes) of its uncertainties related to certain tax matters within the next twelve months. Favorable resolution would reduce Con Edison’s 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 CECONY’s effective tax rate.

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 2014 and 2012, the Companies recognized an immaterial amount of interest and no penalties for uncertain tax positions in their consolidated income statements. In 2013, Con Edison recognized $121 million of interest expense ($131 million related to the LILO transactions (see “Lease In/Lease Out Transactions” in Note J), less a reduction of $10 million in accrued interest expense primarily associated with repair allowance deductions and reversing other uncertain tax positions in 2013). At December 31, 2014 and 2013, the Companies recognized an immaterial amount of interest and no penalties in their consolidated balance sheets.

At December 31, 2014, the total amount of unrecognized tax benefits that, if recognized, would reduce the Companies’ effective tax rate is $34 million ($22 million, net of federal taxes) with $2 million ($1 million, net of federal taxes) attributable to CECONY.

CECONY [Member]

Income Tax

Note L – Income Tax

The components of income tax are as follows:

	Con Edison									CECONY
(Millions of Dollars)	2014			2013			2012			2014			2013			2012
State
Current	$	59		$	151		$	29		$	66		$	111		$	53
Deferred		61			(70	)		97			65			(14	)		53
Federal
Current		(9	)		285			(13	)		158			187			110
Deferred		463			115			493			271			241			318
Amortization of investment tax credits		(6	)		(5	)		(6	)		(5	)		(5	)		(5	)
Total income tax expense	$	568		$	476		$	600		$	555		$	520		$	529

The tax effects of temporary differences, which gave rise to deferred tax assets and liabilities, are as follows:

	Con Edison						CECONY
(Millions of Dollars)	2014			2013			2014			2013
Deferred tax liabilities:
Property basis differences	$	7,510		$	7,012		$	6,938		$	6,424
Unrecognized pension and other postretirement costs		1,968			1,109			1,872			1,060
Regulatory asset – future income tax		910			871			863			825
Environmental remediation costs		376			381			333			337
Deferred storm costs		129			179			91			136
Equity investments Other regulatory assets		168 347			21 402			- 300			- 364
Unamortized investment tax credits		126			43			37			42
Total deferred tax liabilities and investment tax credits		11,534			10,018			10,434			9,188
Deferred tax assets:
Accrued pension and other postretirement costs Regulatory liabilities		1,306 615			458 604			1,155 574			364 569
Superfund and other environmental costs		306			301			264			256
Asset retirement obligations		77			58			75			58
Loss carryforwards		21			12			-			-
Loss carryforwards, valuation reserve		(11	)		(12	)		-			-
Other		272			253			203			209
Total deferred tax assets		2,586			1,674			2,271			1,456
Net deferred tax liabilities and investment tax credits	$	8,948		$	8,344		$	8,163		$	7,732
Deferred income taxes and investment tax credits – noncurrent	$	9,076		$	8,466		$	8,257		$	7,832
Deferred tax assets – current		(128	)		(122	)		(94	)		(100	)
Net deferred tax liabilities and investment tax credits	$	8,948		$	8,344		$	8,163		$	7,732

Reconciliation of the difference between income tax expense and the amount computed by applying the prevailing statutory income tax rate to income before income taxes is as follows:

	Con Edison									CECONY
(% of Pre-tax income)	2014			2013			2012			2014			2013			2012
STATUTORY TAX RATE
Federal		35	%		35	%		35	%		35	%		35	%		35	%
Changes in computed taxes resulting from:
State income tax		5			4			4			5			5			4
Cost of removal		(5	)		(5	)		(4	)		(5	)		(5	)		(4	)
Manufacturing deduction		-			(1	)		-			-			-			-
Other		(1	)		(2	)		(1	)		(1	)		(1	)		(1	)
Effective tax rate		34	%		31	%		34	%		34	%		34	%		34	%

Con Edison has a net operating loss carryforward available from the years 1999 through 2014 for which a deferred tax asset of $21 million has been recognized and will not expire until the years 2019 through 2034. An $11 million valuation allowance for New York City income tax purpose has been provided; as it is not more likely than not that the deferred tax asset will be realized.

In September 2013, the IRS issued final regulations, effective in 2014, that provide guidance on the appropriate tax treatment of costs incurred to acquire, produce or improve tangible property, as well as routine maintenance and repair costs. Proposed regulations were issued addressing the tax treatment of asset dispositions. The application of these regulations did not have a material impact on the Companies’ financial position, results of operations or liquidity.

In March 2014, tax legislation was enacted in the State of New York that reduced the corporate franchise tax rate from 7.1 percent to 6.5 percent, beginning January 1, 2016. The application of this legislation decreased Con Edison’s accumulated deferred tax liabilities by $74 million ($69 million for CECONY), decreased Con Edison’s regulatory asset for future income tax by $11 million ($10 million for CECONY) and increased Con Edison’s regulatory liability by $62 million ($59 million for CECONY). The impact of this tax legislation on Con Edison’s effective tax rate was not material, and there was no impact on CECONY’s effective tax rate for the year ended December 31, 2014.

Under the Taxpayer Relief Act of 2012, 50 percent bonus depreciation expired on December 31, 2013. On December 19, 2014, President Obama signed into law the Tax Increase Prevention Act of 2014, which extended bonus depreciation for another year through December 31, 2014. As a result of the extension of bonus depreciation to 2014, Con Edison filed a refund request with the IRS in January 2015 to recover $224 million ($128 million attributable to CECONY) in estimated federal tax payments.

Uncertain Tax Positions

Under the accounting rules for income taxes, the Companies are not permitted to recognize the tax benefit attributable to a tax position unless such position is more likely than not to be sustained upon examination by taxing authorities, including resolution of any related appeals and litigation processes, based solely on the technical merits of the position.

In 2014 following the conclusion of its IRS audit, Con Edison filed amended state tax returns (primarily New York) 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 $27 million ($2 million attributable to CECONY). The amended returns contain uncertain tax positions unique to the states, and the returns remain open for examination. The federal tax returns for 2011 through 2013 remain open for examination. These changes to the Companies’ estimated liabilities for uncertain tax positions had an immaterial impact on income tax expense for the year ended December 31, 2014.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits for Con Edison and CECONY follows:

	Con Edison									CECONY
(Millions of Dollars)	2014			2013			2012			2014		2013			2012
Balance at January 1,	$	9		$	86		$	130		$	-	$	74		$	114
Additions based on tax positions related to the current year		-			5			12			-		-			11
Additions based on tax positions of prior years		27			253			-			2		-			-
Reductions for tax positions of prior years		(2	)		(86	)		(57	)		-		(74	)		(52	)
Settlements		-			(249	)		1			-		-			1
Balance at December 31,	$	34		$	9		$	86		$	2	$	-		$	74

As of December 31, 2014, Con Edison reasonably expects to resolve approximately $26 million ($17 million, net of federal taxes) of its uncertainties related to certain tax matters within the next twelve months. Favorable resolution would reduce Con Edison’s 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 CECONY’s effective tax rate.

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 2014 and 2012, the Companies recognized an immaterial amount of interest and no penalties for uncertain tax positions in their consolidated income statements. In 2013, Con Edison recognized $121 million of interest expense ($131 million related to the LILO transactions (see “Lease In/Lease Out Transactions” in Note J), less a reduction of $10 million in accrued interest expense primarily associated with repair allowance deductions and reversing other uncertain tax positions in 2013). At December 31, 2014 and 2013, the Companies recognized an immaterial amount of interest and no penalties in their consolidated balance sheets.

At December 31, 2014, the total amount of unrecognized tax benefits that, if recognized, would reduce the Companies’ effective tax rate is $34 million ($22 million, net of federal taxes) with $2 million ($1 million, net of federal taxes) attributable to CECONY.