Regulatory Matters

3 Months Ended

Mar. 31, 2015

Note B — Regulatory Matters

Rate Plans

CECONY — Electric

On April 20, 2015, CECONY entered into a Joint Proposal with the staff of the New York State Public Service Commission (NYSPSC) and other parties for the extension of CECONY’s current electric rate plan for an additional year through 2016. Under the Joint Proposal, which is subject to NYSPSC approval, the rate plan for 2016 does not include a rate increase or decrease. The rate plan for 2016 includes additional revenues from the amortization to income of net regulatory liabilities. The following table contains a summary of the rate plan for 2016:


Effective period		January 2016 – December 2016
Base rate changes		None (a)
Amortizations to income of net regulatory (assets) liabilities		Additional $123 million of net regulatory liabilities (b)
Other revenue sources		Continued retention of $90 million of annual transmission congestion revenues
Revenue decoupling mechanism		Continued reconciliation of actual electric delivery revenues to those authorized in the rate plan
Recoverable energy costs		Continued current rate recovery of purchased power and fuel costs
Negative revenue adjustments		Continued potential for penalties of up to $400 million if certain performance targets are not met
Cost reconciliations		Continued reconciliation of expenses for pension and other postretirement benefits, variable-rate tax-exempt debt, major storms, property taxes (c), municipal infrastructure support, the impact of new laws and environmental remediation to amounts reflected in rates
Net utility plant reconciliations		Target levels reflected in rates are as follows: Transmission and distribution: $17,929 million Storm hardening: $268 million Other: $2,069 million
Average rate base		$18,282 million
Weighted average cost of capital (after-tax)		6.91 percent
Authorized return on common equity		9.0 percent
Earnings sharing		Most earnings above an annual earnings threshold of 9.6 percent are to be applied to reduce regulatory assets for environmental remediation and other costs
Cost of long-term debt		5.09 percent
Common equity ratio		48 percent

(a)

The impact of 2014 and 2015 base rate changes under the current electric rate plan will continue to be deferred. $249 million of annual revenues collected from electric customers will continue to be subject to potential refund following NYSPSC staff review of certain costs. Revenues will continue to include $21 million as funding for major storm reserve.

(b)

The Joint Proposal also provides for continued annual amortization of $107 million of the regulatory asset for deferred Superstorm Sandy and other major storm costs and recommends that the costs recoverable from customers be reduced by $4 million, the costs no longer be subject to NYSPSC staff review and the recovery of the costs no longer be subject to refund.

(c)	Deferrals for property taxes will continue to be limited to 90 percent of the difference from amounts reflected in rates, subject to an annual maximum for the remaining difference of not more than a 10 basis point impact on return on common equity.

O&R New York – Electric and Gas

In March 2015, in O&R’s electric and gas rate proceedings, NYSPSC staff recommended a $0.6 million decrease in O&R’s electric rates and a $14.7 million increase in its gas rates (reflecting an authorized return on common equity of 8.5 percent). In April 2015, O&R submitted updated requests to the NYSPSC for increases in its electric and gas rates of $34 million and $44.2 million, respectively (reflecting an authorized return on common equity of 9.75 percent).

Other Regulatory Matters

In February 2009, the 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 March 31, 2015, the company had collected an estimated $1,747 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 March 31, 2015, the company had a $104 million regulatory liability relating to this matter. The company currently estimates that any additional amount the NYSPSC requires the company to refund to customers in excess of the regulatory liability accrued could range 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 March 31, 2015, CECONY and O&R incurred response and restoration costs for Superstorm Sandy of $506 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. Pursuant to the April 2015 Joint Proposal with respect to CECONY’s electric rates, which is subject to NYSPSC approval, the deferred storm costs recoverable from customers will be reduced by $4 million, the costs will no longer be subject to NYSPSC staff review and recovery of the costs will no longer be subject to refund. As part of its rate filing, in November 2014 O&R requested recovery of deferred storm costs for its New York electric operations, which are subject to NYSPSC review. RECO’s current electric rate plan includes collection from customers of deferred storm costs.

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 plastic pipe fusions. In April 2015, the NYSPSC issued a notice seeking the sampling plans CECONY, O&R and other gas utilities intend to use to inspect and test plastic pipe fusions. The notice also included NYSPSC staff proposals to require these utilities to perform remediation plans, additional leakage surveying and reporting; to require CECONY to hire an independent statistician to develop a risk assessment and remediation plan; and for certain new plastic fusion requirements for gas utilities.

Regulatory Assets and Liabilities

Regulatory assets and liabilities at March 31, 2015 and December 31, 2014 were comprised of the following items:


	Con Edison				CECONY
*(Millions of Dollars)*	2015		2014		2015		2014
Regulatory assets
Unrecognized pension and other postretirement costs	$	4,593	$	4,846	$	4,374	$	4,609
Future income tax		2,289		2,273		2,180		2,166
Environmental remediation costs		911		925		808		820
Deferred storm costs		287		319		196		224
Revenue taxes		223		219		211		208
Surcharge for New York State assessment		96		99		90		92
Pension and other postretirement benefits deferrals		61		66		35		42
Net electric deferrals		58		63		58		63
Unamortized loss on reacquired debt		56		57		53		55
Deferred derivative losses – noncurrent		44		25		40		23
Recoverable energy costs – noncurrent		42		19		42		17
O&R property tax reconciliation		40		36		—		—
O&R transition bond charges		25		27		—		—
Preferred stock redemption		27		27		27		27
Workers’ compensation		9		8		9		8
Other		145		147		128		127
Regulatory assets – noncurrent		8,906		9,156		8,251		8,481
Deferred derivative losses – current		55		97		51		92
Future income tax – current		10		10		—		—
Recoverable energy costs – current		1		41		—		40
Regulatory assets – current		66		148		51		132
Total Regulatory Assets	$	8,972	$	9,304	$	8,302	$	8,613
Regulatory liabilities
Allowance for cost of removal less salvage	$	614	$	598	$	514	$	499
Property tax reconciliation		297		295		297		295
Base rate change deferrals		153		155		153		155
Prudence proceeding		104		105		104		105
Pension and other postretirement benefit deferrals		85		46		64		37
Property tax refunds		76		87		76		87
Variable-rate tax-exempt debt – cost rate reconciliation		74		78		74		78
Net unbilled revenue deferrals		71		138		71		138
New York State income tax rate change		63		62		60		59
Carrying charges on repair allowance and bonus depreciation		52		58		50		57
World Trade Center settlement proceeds		36		41		36		41
Net utility plant reconciliations		21		21		21		20
Earnings sharing – electric		19		19		18		18
Unrecognized other postretirement costs		15		—		13		—
Other		212		290		177		248
Regulatory liabilities – noncurrent		1,892		1,993		1,728		1,837
Refundable energy costs – current		177		128		152		84
Revenue decoupling mechanism		30		30		30		30
Future income tax		25		24		24		24
Deferred derivative gains – current		8		5		6		4
Regulatory liabilities – current		240		187		212		142
Total Regulatory Liabilities	$	2,132	$	2,180	$	1,940	$	1,979

CECONY [Member]

Regulatory Matters