Variable Interest Entities

12 Months Ended

Dec. 31, 2014

Variable Interest Entities

Note Q – Variable Interest Entities

The accounting rules for consolidation address the consolidation of a variable interest entity (VIE) by a business enterprise that is the primary beneficiary. A VIE is an entity that does not have a sufficient equity investment at risk to permit it to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest. The primary beneficiary is the business enterprise that has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and either absorbs a significant amount of the VIE’s losses or has the right to receive benefits that could be significant to the VIE.

Con Edison enters into arrangements including leases, partnerships and electricity purchase agreements, with various entities. As a result of these arrangements, Con Edison retains or may retain a variable interest in these entities.

CECONY

CECONY has a variable interest in a non-consolidated VIE, Astoria Energy, LLC (Astoria Energy), with which CECONY has entered into a long-term electricity purchase agreement. CECONY is not the primary beneficiary of this VIE since CECONY does not have the power to direct activities that CECONY believes most significantly impact the economic performance of Astoria Energy. In particular, CECONY has not invested in, or guaranteed the indebtedness of, Astoria Energy and CECONY does not operate or maintain Astoria Energy’s generating facilities. CECONY also has long-term electricity purchase agreements with the following three potential VIEs: Cogen Technologies Linden Venture, LP, Brooklyn Navy Yard Cogeneration Partners, LP and Indeck Energy Services of Corinth, Inc. In 2014, requests were made of these three counterparties for information necessary to determine whether the entity was a VIE and whether CECONY is the primary beneficiary; however, the information was not made available. See Note I for information on these electricity purchase agreements, the payments pursuant to which constitute CECONY’s maximum exposure to loss with respect to the potential VIEs.

Con Edison Development

Con Edison has a variable interest in Copper Mountain Solar 3 Holdings, LLC (Copper Mountain Solar 3), which is a non-consolidated entity in which Con Edison Development purchased a 50 percent membership interest in 2014. Copper Mountain Solar 3 owns a project company that is developing a 250 MW (AC) solar electric production 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. In addition, Con Edison and Con Edison Development have issued certain guarantees to third parties in connection with Copper Mountain Solar 3. See “Guarantees” in Note H.

Con Edison has a variable interest in CED California Holdings Financing I, LLC (California Solar), which is no longer a consolidated entity. Con Edison Development sold 50 percent of its membership interest in California Solar which was previously a wholly-owned subsidiary in 2014. California Solar owns project companies that operate 110 MW (AC) of solar electric production projects in California. Electricity generated by the projects is sold to Pacific Gas and Electric Company pursuant to long-term power purchase agreements. Subsequent to the sale, Con Edison Development’s remaining 50 percent interest in California Solar is 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 electric production projects		(45	)
Equity method investment upon deconsolidation	$	(83	)

Con Edison has a variable interest in OCI Solar San Antonio 4 LLC (Texas Solar 4), which is a consolidated entity in which Con Edison Development purchased an 80 percent membership interest in 2014 for $49 million. Texas Solar 4 owns a project company that developed a 40 MW (AC) solar electric production project in Texas. Electricity generated by the project is sold to the City of San Antonio pursuant to a long-term power purchase agreement. At December 31, 2014, Con Edison’s 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 4. Earnings for the twelve months ended December 31, 2014 were immaterial.

(Millions of Dollars)
Restricted cash	$	13
Non-utility property, less accumulated depreciation		108
Other assets		14
Total assets(a)	$	135
Long-term debt due within one year	$	66
Other liabilities		11
Total liabilities(b)	$	77

(a) The assets of Texas Solar 4 represent assets of a consolidated VIE that can be used only to settle obligations of the consolidated VIE.

(b) The liabilities of Texas Solar 4 represent liabilities of a consolidated VIE for which creditors do not have recourse to the general credit of the primary beneficiary.

Con Edison has a variable interest in Broken Bow II Wind Holdings, LLC (Broken Bow II), which is a non-consolidated entity in which Con Edison Development purchased a 50 percent membership interest in 2014. Broken Bow II owns a project company that developed a 75 MW (AC) wind electric production project in Nebraska. Electricity generated by the project is sold to Nebraska Public Power District pursuant to a long-term power purchase agreement.

The following table summarizes the VIEs in which Con Edison Development has entered into as of December 31, 2014:

Project Name(a)	Generating Capacity Owned		Power Purchase Agreement Term in Years			Year of Initial Investment		Location		Maximum Exposure to Loss (In Millions)(c)
Pilesgrove		9		n/a	(b)		2010		New Jersey	$	26
Mesquite Solar 1		83		20			2013		Arizona		111
Copper Mountain Solar 2		75		25			2013		Nevada		80
Copper Mountain Solar 3		128		20			2014		Nevada		175
California Solar		55		25			2012		California		81
Texas Solar 4		32		25			2014		Texas		58
Broken Bow II		37		25			2014		Nebraska		57

(a) With the exception of Texas Solar 4, Con Edison’s ownership interest is 50 percent and these projects are accounted for using the equity method of accounting. Con Edison is not the primary beneficiary since the power to direct the activities that most significantly impact the economics of the entities are shared equally between Con Edison Development and third parties. Con Edison’s ownership interest in Texas Solar 4 is 80 percent and is consolidated in the financial statements. Con Edison is the primary beneficiary since the power to direct the activities that most significantly impact the economics of Texas Solar 4 is held by Con Edison Development.

(b) Pilesgrove has 3-5 year Solar Renewable Energy Credit (SREC) hedges in place.

(c) For investments accounted for under the equity method, maximum exposure is equal to the carrying value of the investment on the balance sheet. For consolidated investments, maximum exposure is equal to the net assets of the investment on the balance sheet. Con Edison did not provide any financial or other support during the year that was not previously contractually required.

CECONY [Member]

Variable Interest Entities

Note Q – Variable Interest Entities

The accounting rules for consolidation address the consolidation of a variable interest entity (VIE) by a business enterprise that is the primary beneficiary. A VIE is an entity that does not have a sufficient equity investment at risk to permit it to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest. The primary beneficiary is the business enterprise that has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and either absorbs a significant amount of the VIE’s losses or has the right to receive benefits that could be significant to the VIE.

Con Edison enters into arrangements including leases, partnerships and electricity purchase agreements, with various entities. As a result of these arrangements, Con Edison retains or may retain a variable interest in these entities.

CECONY

CECONY has a variable interest in a non-consolidated VIE, Astoria Energy, LLC (Astoria Energy), with which CECONY has entered into a long-term electricity purchase agreement. CECONY is not the primary beneficiary of this VIE since CECONY does not have the power to direct activities that CECONY believes most significantly impact the economic performance of Astoria Energy. In particular, CECONY has not invested in, or guaranteed the indebtedness of, Astoria Energy and CECONY does not operate or maintain Astoria Energy’s generating facilities. CECONY also has long-term electricity purchase agreements with the following three potential VIEs: Cogen Technologies Linden Venture, LP, Brooklyn Navy Yard Cogeneration Partners, LP and Indeck Energy Services of Corinth, Inc. In 2014, requests were made of these three counterparties for information necessary to determine whether the entity was a VIE and whether CECONY is the primary beneficiary; however, the information was not made available. See Note I for information on these electricity purchase agreements, the payments pursuant to which constitute CECONY’s maximum exposure to loss with respect to the potential VIEs.

Con Edison Development

Con Edison has a variable interest in Copper Mountain Solar 3 Holdings, LLC (Copper Mountain Solar 3), which is a non-consolidated entity in which Con Edison Development purchased a 50 percent membership interest in 2014. Copper Mountain Solar 3 owns a project company that is developing a 250 MW (AC) solar electric production 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. In addition, Con Edison and Con Edison Development have issued certain guarantees to third parties in connection with Copper Mountain Solar 3. See “Guarantees” in Note H.

Con Edison has a variable interest in CED California Holdings Financing I, LLC (California Solar), which is no longer a consolidated entity. Con Edison Development sold 50 percent of its membership interest in California Solar which was previously a wholly-owned subsidiary in 2014. California Solar owns project companies that operate 110 MW (AC) of solar electric production projects in California. Electricity generated by the projects is sold to Pacific Gas and Electric Company pursuant to long-term power purchase agreements. Subsequent to the sale, Con Edison Development’s remaining 50 percent interest in California Solar is 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 electric production projects		(45	)
Equity method investment upon deconsolidation	$	(83	)

Con Edison has a variable interest in OCI Solar San Antonio 4 LLC (Texas Solar 4), which is a consolidated entity in which Con Edison Development purchased an 80 percent membership interest in 2014 for $49 million. Texas Solar 4 owns a project company that developed a 40 MW (AC) solar electric production project in Texas. Electricity generated by the project is sold to the City of San Antonio pursuant to a long-term power purchase agreement. At December 31, 2014, Con Edison’s 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 4. Earnings for the twelve months ended December 31, 2014 were immaterial.

(Millions of Dollars)
Restricted cash	$	13
Non-utility property, less accumulated depreciation		108
Other assets		14
Total assets(a)	$	135
Long-term debt due within one year	$	66
Other liabilities		11
Total liabilities(b)	$	77

(a) The assets of Texas Solar 4 represent assets of a consolidated VIE that can be used only to settle obligations of the consolidated VIE.

(b) The liabilities of Texas Solar 4 represent liabilities of a consolidated VIE for which creditors do not have recourse to the general credit of the primary beneficiary.

Con Edison has a variable interest in Broken Bow II Wind Holdings, LLC (Broken Bow II), which is a non-consolidated entity in which Con Edison Development purchased a 50 percent membership interest in 2014. Broken Bow II owns a project company that developed a 75 MW (AC) wind electric production project in Nebraska. Electricity generated by the project is sold to Nebraska Public Power District pursuant to a long-term power purchase agreement.

The following table summarizes the VIEs in which Con Edison Development has entered into as of December 31, 2014:

Project Name(a)	Generating Capacity Owned		Power Purchase Agreement Term in Years			Year of Initial Investment		Location		Maximum Exposure to Loss (In Millions)(c)
Pilesgrove		9		n/a	(b)		2010		New Jersey	$	26
Mesquite Solar 1		83		20			2013		Arizona		111
Copper Mountain Solar 2		75		25			2013		Nevada		80
Copper Mountain Solar 3		128		20			2014		Nevada		175
California Solar		55		25			2012		California		81
Texas Solar 4		32		25			2014		Texas		58
Broken Bow II		37		25			2014		Nebraska		57

(a) With the exception of Texas Solar 4, Con Edison’s ownership interest is 50 percent and these projects are accounted for using the equity method of accounting. Con Edison is not the primary beneficiary since the power to direct the activities that most significantly impact the economics of the entities are shared equally between Con Edison Development and third parties. Con Edison’s ownership interest in Texas Solar 4 is 80 percent and is consolidated in the financial statements. Con Edison is the primary beneficiary since the power to direct the activities that most significantly impact the economics of Texas Solar 4 is held by Con Edison Development.

(b) Pilesgrove has 3-5 year Solar Renewable Energy Credit (SREC) hedges in place.

(c) For investments accounted for under the equity method, maximum exposure is equal to the carrying value of the investment on the balance sheet. For consolidated investments, maximum exposure is equal to the net assets of the investment on the balance sheet. Con Edison did not provide any financial or other support during the year that was not previously contractually required.