FORM 10-Q
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

x Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2011

OR

 

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                      to                     

 

Commission
File Number

 

Exact name of registrant as specified in its charter

and principal office address and telephone number

  

State of
Incorporation

  

I.R.S. Employer
ID. Number

1-14514   Consolidated Edison, Inc.    New York    13-3965100
  4 Irving Place, New York, New York 10003      
  (212) 460-4600      
1-1217   Consolidated Edison Company of New York, Inc.    New York    13-5009340
  4 Irving Place, New York, New York 10003      
  (212) 460-4600      

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Consolidated Edison, Inc. (Con Edison)        Yes x           No ¨   
Consolidated Edison of New York, Inc. (CECONY)        Yes x           No ¨   

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Con Edison        Yes x           No ¨   
CECONY        Yes x           No ¨   

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Con Edison      
Large accelerated filer x   Accelerated filer ¨   Non-accelerated filer ¨   Smaller reporting company ¨
CECONY      
Large accelerated filer ¨   Accelerated filer ¨   Non-accelerated filer x   Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Con Edison        Yes ¨           No x   
CECONY        Yes ¨           No x   

As of July 29, 2011, Con Edison had outstanding 292,875,896 Common Shares ($.10 par value). All of the outstanding common equity of CECONY is held by Con Edison.

Filing Format

This Quarterly Report on Form 10-Q is a combined report being filed separately by two different registrants: Consolidated Edison, Inc. (Con Edison) and Consolidated Edison Company of New York, Inc. (CECONY). CECONY is a subsidiary of Con Edison and, as such, the information in this report about CECONY also applies to Con Edison. As used in this report, the term the “Companies” refers to Con Edison and CECONY. However, CECONY makes no representation as to the information contained in this report relating to Con Edison or the subsidiaries of Con Edison other than itself.


Table of Contents

Glossary of Terms

 

The following is a glossary of frequently used abbreviations or acronyms that are used in the Companies’ SEC reports:

 

Con Edison Companies
Con Edison    Consolidated Edison, Inc.
CECONY    Consolidated Edison Company of New York, Inc.
Con Edison Development    Consolidated Edison Development, Inc.
Con Edison Energy    Consolidated Edison Energy, Inc.
Con Edison Solutions    Consolidated Edison Solutions, Inc.
O&R    Orange and Rockland Utilities, Inc.
Pike    Pike County Light & Power Company
RECO    Rockland Electric Company
The Companies    Con Edison and CECONY
The Utilities    CECONY and O&R
Regulatory Agencies, Government Agencies, and Quasi-governmental Not-for-Profits
EPA    U. S. Environmental Protection Agency
FERC    Federal Energy Regulatory Commission
IRS    Internal Revenue Service
ISO-NE    ISO New England Inc.
NJBPU    New Jersey Board of Public Utilities
NJDEP    New Jersey Department of Environmental Protection
NYAG    New York State Attorney General
NYISO    New York Independent System Operator
NYPA    New York Power Authority
NYSDEC    New York State Department of Environmental Conservation
NYSERDA    New York State Energy Research and Development Authority
NYSPSC    New York State Public Service Commission
NYSRC    New York State Reliability Council, LLC
PAPUC    Pennsylvania Public Utility Commission
PJM    PJM Interconnection LLC
SEC    U.S. Securities and Exchange Commission
Accounting
ABO    Accumulated Benefit Obligation
ASU    Accounting Standards Update
FASB    Financial Accounting Standards Board
LILO    Lease In/Lease Out
OCI    Other Comprehensive Income
SFAS    Statement of Financial Accounting Standards
SSCM    Simplified service cost method
VIE    Variable interest entity
Environmental
CO2    Carbon dioxide
GHG    Greenhouse gases
MGP Sites    Manufactured gas plant sites
PCBs    Polychlorinated biphenyls
PRP    Potentially responsible party
SO2    Sulfur dioxide
Superfund    Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 and similar state statutes

 

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Table of Contents
Units of Measure
dths    Dekatherms
kV    Kilovolts
kWh    Kilowatt-hour
mdths    Thousand dekatherms
MMlbs    Million pounds
MVA    Megavolt amperes
MW    Megawatts or thousand kilowatts
MWH    Megawatt hour
Other
AFDC    Allowance for funds used during construction
COSO    Committee of Sponsoring Organizations of the Treadway Commission
EMF    Electric and magnetic fields
ERRP    East River Repowering Project
Fitch    Fitch Ratings
First Quarter Form 10-Q    The Companies’ combined Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011
Form 10-K    The Companies’ combined Annual Report on Form 10-K for the year ended December 31, 2010
LTIP    Long Term Incentive Plan
Moody’s    Moody’s Investors Service
S&P    Standard & Poor’s Rating Services
Second Quarter Form 10-Q    The Companies’ combined Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011
VaR    Value-at-Risk

 

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Table of Contents

TABLE OF CONTENTS

 

          PAGE  
PART I—Financial Information  
ITEM 1  

Financial Statements (Unaudited)

 
 

Con Edison

 
 

Consolidated Income Statement

    6   
 

Consolidated Statement of Cash Flows

    7   
 

Consolidated Balance Sheet

    8   
 

Consolidated Statement of Comprehensive Income

    10   
 

Consolidated Statement of Common Shareholders’ Equity

    11   
 

CECONY

 
 

Consolidated Income Statement

    12   
 

Consolidated Statement of Cash Flows

    13   
 

Consolidated Balance Sheet

    14   
 

Consolidated Statement of Common Shareholder’s Equity

    16   
 

Notes to Financial Statements (Unaudited)

    17   
ITEM  2  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

    36   
ITEM  3  

Quantitative and Qualitative Disclosures About Market Risk

    58   
ITEM  4  

Controls and Procedures

    58   
PART II—Other Information  
ITEM  1  

Legal Proceedings

    59   
ITEM 1A  

Risk Factors

    59   
ITEM  2  

Unregistered Sales of Equity Securities and Use of Proceeds

    59   
ITEM  6  

Exhibits

    60   
  Signatures     61   

 

4     


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FORWARD-LOOKING STATEMENTS

 

This report includes forward-looking statements intended to qualify for the safe-harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements of future expectation and not facts. Words such as “expects,” “estimates,” “anticipates,” “intends,” “believes,” “plans,” “will” and similar expressions identify forward-looking statements. Forward-looking statements are based on information available at the time the statements are made, and accordingly speak only as of that time. Actual results or developments might differ materially from those included in the forward-looking statements because of various factors such as those discussed under “Risk Factors” in Item 1A of the Form 10-K.

 

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Consolidated Edison, Inc.   

CONSOLIDATED INCOME STATEMENT (UNAUDITED)

 

     For the Three Months
Ended June 30,
    For the Six Months
Ended June 30,
 
     2011     2010     2011     2010  
    (Millions of Dollars/Except Share Data)  

OPERATING REVENUES

       

Electric

  $ 2,153      $ 2,256      $ 4,022      $ 4,145   

Gas

    333        274        1,088        1,047   

Steam

    107        89        432        396   

Non-utility

    400        398        800        890   

TOTAL OPERATING REVENUES

    2,993        3,017        6,342        6,478   

OPERATING EXPENSES

       

Purchased power

    1,020        1,140        1,886        2,283   

Fuel

    68        87        244        237   

Gas purchased for resale

    111        67        418        410   

Other operations and maintenance

    732        678        1,429        1,379   

Depreciation and amortization

    219        211        437        415   

Taxes, other than income taxes

    445        405        904        833   

TOTAL OPERATING EXPENSES

    2,595        2,588        5,318        5,557   

OPERATING INCOME

    398        429        1,024        921   

OTHER INCOME (DEDUCTIONS)

       

Investment and other income

    10        14        19        21   

Allowance for equity funds used during construction

    2        4        6        9   

Other deductions

    (7     (6     (10     (9

TOTAL OTHER INCOME (DEDUCTIONS)

    5        12        15        21   

INCOME BEFORE INTEREST AND INCOME TAX EXPENSE

    403        441        1,039        942   

INTEREST EXPENSE

       

Interest on long-term debt

    146        148        293        298   

Other interest

    7        4        14        6   

Allowance for borrowed funds used during construction

    (1     (3     (3     (5

NET INTEREST EXPENSE

    152        149        304        299   

INCOME BEFORE INCOME TAX EXPENSE

    251        292        735        643   

INCOME TAX EXPENSE

    83        106        252        228   

NET INCOME

    168        186        483        415   

Preferred stock dividend requirements of subsidiary

    (3     (3     (6     (6

NET INCOME FOR COMMON STOCK

  $ 165      $ 183      $ 477      $ 409   

Net income for common stock per common share – basic

  $ 0.57      $ 0.65      $ 1.63      $ 1.45   

Net income for common stock per common share – diluted

  $ 0.56      $ 0.64      $ 1.62      $ 1.44   

DIVIDENDS DECLARED PER SHARE OF COMMON STOCK

  $ 0.600      $ 0.595      $ 1.200      $ 1.190   

AVERAGE NUMBER OF SHARES OUTSTANDING – BASIC (IN MILLIONS)

    292.7        282.0        292.3        281.7   

AVERAGE NUMBER OF SHARES OUTSTANDING – DILUTED (IN MILLIONS)

    294.3        283.5        293.9        283.2   

The accompanying notes are an integral part of these financial statements.

 

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Consolidated Edison, Inc.   

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

 

    

For the Six Months

Ended June 30,

 
       2011         2010    
    (Millions of Dollars)  

OPERATING ACTIVITIES

   

Net Income

  $ 483      $ 415   

PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME

   

Depreciation and amortization

    437        415   

Deferred income taxes

    181        46   

Common equity component of allowance for funds used during construction

    (6     (9

Net derivative (gains)/losses

    (35     (2

Other non-cash items (net)

    (9     41   

CHANGES IN ASSETS AND LIABILITIES

   

Accounts receivable – customers, less allowance for uncollectibles

    72        (28

Materials and supplies, including fuel oil and gas in storage

    38        27   

Other receivables and other current assets

    69        79   

Prepayments

    194          

Accounts payable

    (76     (79

Pensions and retiree benefits

    (72     49   

Accrued taxes

    66        (7

Accrued interest

           (3

Deferred charges, deferred derivative losses, noncurrent assets and other regulatory assets

    125        (319

Deferred credits and other regulatory liabilities

    140        111   

Other assets

           (7

Other liabilities

    (18     66   

NET CASH FLOWS FROM OPERATING ACTIVITIES

    1,589        795   

INVESTING ACTIVITIES

   

Utility construction expenditures

    (958     (946

Cost of removal less salvage

    (81     (66

Non-utility construction expenditures

    (50     (4

Proceeds from investment tax credits and grants related to renewable energy investments

    4          

Loan to Pilesgrove solar project

    (50       

Common equity component of allowance for funds used during construction

    6        9   

NET CASH FLOWS USED IN INVESTING ACTIVITIES

    (1,129     (1,007

FINANCING ACTIVITIES

   

Net proceeds from short-term debt

           153   

Retirement of long-term debt

    (3     (426

Issuance of long-term debt

           700   

Issuance of common stock

    58        25   

Repurchase of common stock

    (9       

Debt issuance costs

           (5

Common stock dividends

    (346     (311

Preferred stock dividends

    (6     (6

NET CASH FLOWS (USED IN)/FROM FINANCING ACTIVITIES

    (306     130   

CASH AND TEMPORARY CASH INVESTMENTS:

   

NET CHANGE FOR THE PERIOD

    154        (82

BALANCE AT BEGINNING OF PERIOD

    338        260   

BALANCE AT END OF PERIOD

  $ 492      $ 178   

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

   

Cash paid/(refunded) during the period for:

   

Interest

  $ 282      $ 295   

Income taxes

  $ (155   $ 157   

The accompanying notes are an integral part of these financial statements.

 

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Consolidated Edison, Inc.   

CONSOLIDATED BALANCE SHEET (UNAUDITED)

 

     June 30,
2011
    December 31,
2010
 
    (Millions of Dollars)  

ASSETS

   

CURRENT ASSETS

   

Cash and temporary cash investments

  $ 492      $ 338   

Accounts receivable – customers, less allowance for uncollectible accounts of $84 and $76 in 2011 and 2010, respectively

    1,101        1,173   

Accrued unbilled revenue

    515        633   

Other receivables, less allowance for uncollectible accounts of $9 and $8 in 2011 and 2010, respectively

    254        261   

Loan receivable from Pilesgrove solar project

    84        32   

Fuel oil, gas in storage, materials and supplies, at average cost

    310        348   

Prepayments

    147        341   

Regulatory assets

    130        203   

Other current assets

    176        178   

TOTAL CURRENT ASSETS

    3,209        3,507   

INVESTMENTS

    426        403   

UTILITY PLANT, AT ORIGINAL COST

   

Electric

    20,506        19,851   

Gas

    4,506        4,344   

Steam

    1,946        2,038   

General

    1,917        1,911   

TOTAL

    28,875        28,144   

Less: Accumulated depreciation

    5,870        5,808   

Net

    23,005        22,336   

Construction work in progress

    1,299        1,458   

NET UTILITY PLANT

    24,304        23,794   

NON-UTILITY PLANT

   

Non-utility property, less accumulated depreciation of $55 and $51 in 2011 and 2010, respectively

    56        46   

Construction work in progress

    54        23   

NET PLANT

    24,414        23,863   

OTHER NONCURRENT ASSETS

   

Goodwill

    429        429   

Intangible assets, less accumulated amortization of $3 in 2011 and 2010

    3        3   

Regulatory assets

    7,261        7,683   

Other deferred charges and noncurrent assets

    277        298   

TOTAL OTHER NONCURRENT ASSETS

    7,970        8,413   

TOTAL ASSETS

  $ 36,019      $ 36,186   

The accompanying notes are an integral part of these financial statements.

 

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Consolidated Edison, Inc.   

CONSOLIDATED BALANCE SHEET (UNAUDITED)

 

     June 30,
2011
    December 31,
2010
 
    (Millions of Dollars)  

LIABILITIES AND SHAREHOLDERS’ EQUITY

   

CURRENT LIABILITIES

   

Long-term debt due within one year

  $ 5      $ 5   

Accounts payable

    1,033        1,151   

Customer deposits

    299        289   

Accrued taxes

    156        90   

Accrued interest

    155        155   

Accrued wages

    94        102   

Fair value of derivative liabilities

    109        125   

Other current liabilities

    622        703   

TOTAL CURRENT LIABILITIES

    2,473        2,620   

NONCURRENT LIABILITIES

   

Obligations under capital leases

    4        7   

Provision for injuries and damages

    182        165   

Pensions and retiree benefits

    2,666        3,287   

Superfund and other environmental costs

    502        512   

Asset retirement obligations

    112        109   

Fair value of derivative liabilities

    35        77   

Other noncurrent liabilities

    124        126   

TOTAL NONCURRENT LIABILITIES

    3,625        4,283   

DEFERRED CREDITS AND REGULATORY LIABILITIES

   

Deferred income taxes and investment tax credits

    6,853        6,602   

Regulatory liabilities

    866        690   

Other deferred credits

    69        46   

TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES

    7,788        7,338   

LONG-TERM DEBT

    10,669        10,671   

SHAREHOLDERS’ EQUITY

   

Common shareholders’ equity (See Statement of Shareholders’ Equity)

    11,251        11,061   

Preferred stock of subsidiary

    213        213   

TOTAL SHAREHOLDERS’ EQUITY

    11,464        11,274   

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

  $ 36,019      $ 36,186   

The accompanying notes are an integral part of these financial statements.

 

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Consolidated Edison, Inc.   

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

 

     For the Three
Months Ended
June 30,
    For the Six
Months Ended
June 30,
 
     2011     2010     2011     2010  
    (Millions of Dollars)  

NET INCOME

  $ 168      $ 186      $ 483      $ 415   

OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES

       

Pension plan liability adjustments, net of taxes of $1 and $3 in 2011 and $1 and $3 in 2010, respectively

    2        1        5        4   

TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAXES

    2        1        5        4   

COMPREHENSIVE INCOME

  $ 170      $ 187      $ 488      $ 419   

Preferred stock dividend requirements of subsidiary

    (3     (3     (6     (6

COMPREHENSIVE INCOME FOR COMMON STOCK

  $ 167      $ 184      $ 482      $ 413   

The accompanying notes are an integral part of these financial statements.

 

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Consolidated Edison, Inc.   

CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS’ EQUITY (UNAUDITED)

 

    Common Stock     Additional
Paid-In
Capital
   

Retained

Earnings

    Treasury Stock    

Capital
Stock

Expense

    Accumulated
Other
Comprehensive
Income/(Loss)
   

Total

 
(Millions of Dollars/Except Share Data)   Shares     Amount         Shares     Amount        

BALANCE AS OF DECEMBER 31, 2009

    281,123,741      $ 30      $ 4,420      $ 6,904        23,210,700      $ (1,001   $ (62   $ (42   $ 10,249   

Net income for common stock

          226                226   

Common stock dividends

          (167             (167

Issuance of common shares – dividend reinvestment and employee stock plans

    647,731          28                  28   

Other comprehensive income

                                                            3        3   

BALANCE AS OF MARCH 31, 2010

    281,771,472      $ 30      $ 4,448      $ 6,963        23,210,700      $ (1,001   $ (62   $ (39   $ 10,339   

Net income for common stock

          183                183   

Common stock dividends

          (168             (168

Issuance of common shares – dividend reinvestment and employee stock plans

    555,964          25                  25   

Other comprehensive income

                                                            1        1   

BALANCE AS OF JUNE 30, 2010

    282,327,436      $ 30      $ 4,473      $ 6,978        23,210,700      $ (1,001   $ (62   $ (38   $ 10,380   

BALANCE AS OF DECEMBER 31, 2010

    291,616,334      $ 31      $ 4,915      $ 7,220        23,210,700      $ (1,001   $ (64   $ (40   $ 11,061   

Net income for common stock

          311                311   

Common stock dividends

          (175             (175

Issuance of common shares – dividend reinvestment and employee stock plans

    656,049        1        30                  31   

Other comprehensive income

                                                            3        3   

BALANCE AS OF MARCH 31, 2011

    292,272,383      $ 32      $ 4,945      $ 7,356        23,210,700      $ (1,001   $ (64   $ (37   $ 11,231   

Net income for common stock

          165                165   

Common stock dividends

          (175             (175

Issuance of common shares – dividend reinvestment and employee stock plans

    603,513          32          (182,942     5            37   

Common stock repurchases

            178,942        (9         (9

Other comprehensive income

                                                            2        2   

BALANCE AS OF JUNE 30, 2011

    292,875,896      $ 32      $ 4,977      $ 7,346        23,206,700      $ (1,005   $ (64   $ (35   $ 11,251   

The accompanying notes are an integral part of these financial statements.

 

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Consolidated Edison Company of New York, Inc.   

CONSOLIDATED INCOME STATEMENT (UNAUDITED)

 

     For the Three Months
Ended June 30,
    For the Six Months
Ended June 30,
 
     2011     2010     2011     2010  
    (Millions of Dollars)  

OPERATING REVENUES

       

Electric

  $ 2,013      $ 2,104      $ 3,734      $ 3,832   

Gas

    296        239        959        922   

Steam

    107        89        432        396   

TOTAL OPERATING REVENUES

    2,416        2,432        5,125        5,150   

OPERATING EXPENSES

       

Purchased power

    621        787        1,104        1,339   

Fuel

    68        87        244        237   

Gas purchased for resale

    92        51        355        345   

Other operations and maintenance

    631        588        1,227        1,195   

Depreciation and amortization

    205        196        410        388   

Taxes, other than income taxes

    429        389        868        800   

TOTAL OPERATING EXPENSES

    2,046        2,098        4,208        4,304   

OPERATING INCOME

    370        334        917        846   

OTHER INCOME (DEDUCTIONS)

       

Investment and other income

    4        14        9        18   

Allowance for equity funds used during construction

    2        4        5        8   

Other deductions

    (6     (6     (9     (9

TOTAL OTHER INCOME (DEDUCTIONS)

           12        5        17   

INCOME BEFORE INTEREST AND INCOME TAX EXPENSE

    370        346        922        863   

INTEREST EXPENSE

       

Interest on long-term debt

    131        133        263        268   

Other interest

    5        5        10        8   

Allowance for borrowed funds used during construction

    (1     (2     (3     (4

NET INTEREST EXPENSE

    135        136        270        272   

INCOME BEFORE INCOME TAX EXPENSE

    235        210        652        591   

INCOME TAX EXPENSE

    75        72        220        207   

NET INCOME

    160        138        432        384   

Preferred stock dividend requirements

    (3     (3     (6     (6

NET INCOME FOR COMMON STOCK

  $ 157      $ 135      $ 426      $ 378   

The accompanying notes are an integral part of these financial statements.

 

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Consolidated Edison Company of New York, Inc.   

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

 

     For the Six Months
Ended June 30,
 
     2011     2010  
    (Millions of Dollars)  

OPERATING ACTIVITIES

   

Net income

  $ 432      $   384   

PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME

   

Depreciation and amortization

    410        388   

Deferred income taxes

    146        56   

Common equity component of allowance for funds used during construction

    (5     (8

Other non-cash items (net)

    66        16   

CHANGES IN ASSETS AND LIABILITIES

   

Accounts receivable – customers, less allowance for uncollectibles

    74        (21

Materials and supplies, including fuel oil and gas in storage

    36        14   

Other receivables and other current assets

    207        58   

Prepayments

    9        2   

Accounts payable

    (56     (75

Pensions and retiree benefits

    (109     22   

Accrued taxes

    21        2   

Accrued interest

           (4

Deferred charges, deferred derivative losses, noncurrent assets and other regulatory assets

    65        (271

Deferred credits and other regulatory liabilities

    138        97   

Other liabilities

    (9     77   

NET CASH FLOWS FROM OPERATING ACTIVITIES

    1,425        737   

INVESTING ACTIVITIES

   

Utility construction expenditures

    (910     (895

Cost of removal less salvage

    (78     (65

Common equity component of allowance for funds used during construction

    5        8   

NET CASH FLOWS USED IN INVESTING ACTIVITIES

    (983     (952

FINANCING ACTIVITIES

   

Net proceeds from short-term debt

           66   

Issuance of long-term debt

           700   

Retirement of long-term debt

           (325

Debt issuance costs

           (5

Capital contribution by parent

           24   

Dividend to parent

    (340     (335

Preferred stock dividends

    (6     (6

NET CASH FLOWS (USED IN)/FROM FINANCING ACTIVITIES

    (346     119   

CASH AND TEMPORARY CASH INVESTMENTS:

   

NET CHANGE FOR THE PERIOD

    96        (96

BALANCE AT BEGINNING OF PERIOD

    78        131   

BALANCE AT END OF PERIOD

  $ 174      $ 35   

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

   

Cash paid/(refunded) during the period for:

   

Interest

  $ 253      $ 265   

Income taxes

  $ (128   $ 137   

The accompanying notes are an integral part of these financial statements.

 

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Consolidated Edison Company of New York, Inc.   

CONSOLIDATED BALANCE SHEET (UNAUDITED)

 

     June 30,
2011
    December 31,
2010
 
    (Millions of Dollars)  

ASSETS

   

CURRENT ASSETS

   

Cash and temporary cash investments

  $ 174      $ 78   

Accounts receivable – customers, less allowance for uncollectible accounts of $75 and $68 in 2011 and 2010, respectively

    951        1,025   

Other receivables, less allowance for uncollectible accounts of $8 and $7 in 2011 and 2010, respectively

    88        73   

Accrued unbilled revenue

    388        473   

Accounts receivable from affiliated companies

    60        273   

Fuel oil, gas in storage, materials and supplies, at average cost

    270        306   

Prepayments

    73        82   

Regulatory assets

    98        151   

Other current assets

    91        104   

TOTAL CURRENT ASSETS

    2,193        2,565   

INVESTMENTS

    190        167   

UTILITY PLANT, AT ORIGINAL COST

   

Electric

    19,311        18,735   

Gas

    3,999        3,844   

Steam

    1,946        2,038   

General

    1,747        1,746   

TOTAL

    27,003        26,363   

Less: Accumulated depreciation

    5,360        5,314   

Net

    21,643        21,049   

Construction work in progress

    1,232        1,345   

NET UTILITY PLANT

    22,875        22,394   

NON-UTILITY PLANT

   

Non-utility property, less accumulated depreciation of $23 and $22 in 2011 and 2010, respectively

    7        7   

NET PLANT

    22,882        22,401   

OTHER NONCURRENT ASSETS

   

Regulatory assets

    6,727        7,097   

Other deferred charges and noncurrent assets

    234        244   

TOTAL OTHER NONCURRENT ASSETS

    6,961        7,341   

TOTAL ASSETS

  $ 32,226      $ 32,474   

The accompanying notes are an integral part of these financial statements.

 

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Consolidated Edison Company of New York, Inc.   

CONSOLIDATED BALANCE SHEET (UNAUDITED)

 

     June 30,
2011
    December 31,
2010
 
    (Millions of Dollars)  

LIABILITIES AND SHAREHOLDER’S EQUITY

   

CURRENT LIABILITIES

   

Accounts payable

  $ 820      $ 924   

Accounts payable to affiliated companies

    17        13   

Customer deposits

    285        276   

Accrued taxes

    59        34   

Accrued taxes to affiliated companies

    25        29   

Accrued interest

    130        130   

Accrued wages

    89        93   

Other current liabilities

    590        686   

TOTAL CURRENT LIABILITIES

    2,015        2,185   

NONCURRENT LIABILITIES

   

Obligations under capital leases

    4        7   

Provision for injuries and damages

    175        159   

Pensions and retiree benefits

    2,283        2,900   

Superfund and other environmental costs

    384        392   

Asset retirement obligations

    112        109   

Fair value of derivative liabilities

    13        29   

Other noncurrent liabilities

    117        116   

TOTAL NONCURRENT LIABILITIES

    3,088        3,712   

DEFERRED CREDITS AND REGULATORY LIABILITIES

   

Deferred income taxes and investment tax credits

    6,342        6,071   

Regulatory liabilities

    751        585   

Other deferred credits

    65        42   

TOTAL DEFERRED CREDITS AND REGULATORY LIABILITIES

    7,158        6,698   

LONG-TERM DEBT

    9,744        9,743   

SHAREHOLDER’S EQUITY

   

Common shareholder’s equity (See Statement of Shareholder’s Equity)

    10,008        9,923   

Preferred stock

    213        213   

TOTAL SHAREHOLDER’S EQUITY

    10,221        10,136   

TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY

  $ 32,226      $ 32,474   

The accompanying notes are an integral part of these financial statements.

 

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Consolidated Edison Company of New York, Inc.   

CONSOLIDATED STATEMENT OF COMMON SHAREHOLDER’S EQUITY (UNAUDITED)

 

    Common Stock     Additional
Paid-In
Capital
   

Retained

Earnings

   

Repurchased

Con Edison

Stock

   

Capital
Stock

Expense

    Accumulated
Other
Comprehensive
Income/(Loss)
    Total  
(Millions of Dollars/Except Share Data)   Shares     Amount              

BALANCE AS OF DECEMBER 31, 2009

    235,488,094      $ 589      $ 3,877      $ 5,909      $ (962   $ (62   $ (4   $ 9,347   

Net income

          246              246   

Capital contribution from parent

        12                12   

Common stock dividend to parent

          (167           (167

Cumulative preferred dividends

                            (3                             (3

BALANCE AS OF MARCH 31, 2010

    235,488,094      $ 589      $ 3,889      $ 5,985      $ (962   $ (62   $ (4   $ 9,435   

Net income

          138              138   

Capital contribution from parent

        12                12   

Common stock dividend to parent

          (168           (168

Cumulative preferred dividends

                            (3                             (3

BALANCE AS OF JUNE 30, 2010

    235,488,094      $ 589      $ 3,901      $ 5,952      $ (962   $ (62   $ (4   $ 9,414   

BALANCE AS OF DECEMBER 31, 2010

    235,488,094      $ 589      $ 4,234      $ 6,132      $ (962   $ (64   $ (6   $ 9,923   

Net income

          271              271   

Common stock dividend to parent

          (170           (170

Cumulative preferred dividends

                            (3                             (3

BALANCE AS OF MARCH 31, 2011

    235,488,094      $ 589      $ 4,234      $ 6,230      $ (962   $ (64   $ (6   $ 10,021   

Net income

          160              160   

Common stock dividend to parent

          (170           (170

Cumulative preferred dividends

                            (3                             (3

BALANCE AS OF JUNE 30, 2011

    235,488,094      $ 589      $ 4,234      $ 6,217      $ (962   $ (64   $ (6   $ 10,008   

The accompanying notes are an integral part of these financial statements.

 

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NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)

 

General

These combined notes accompany and form an integral part of the separate consolidated financial statements of each of the two separate registrants: Consolidated Edison, Inc. and its subsidiaries (Con Edison) and Consolidated Edison Company of New York, Inc. and its subsidiaries (CECONY). CECONY is a subsidiary of Con Edison and as such its financial condition and results of operations and cash flows, which are presented separately in the CECONY consolidated financial statements, are also consolidated, along with those of Con Edison’s other utility subsidiary, Orange and Rockland Utilities, Inc. (O&R), and Con Edison’s competitive energy businesses (discussed below) in Con Edison’s consolidated financial statements. The term “Utilities” is used in these notes to refer to CECONY and O&R.

As used in these notes, the term “Companies” refers to Con Edison and CECONY and, except as otherwise noted, the information in these combined notes relates to each of the Companies. However, CECONY makes no representation as to information relating to Con Edison or the subsidiaries of Con Edison other than itself.

The separate interim consolidated financial statements of each of the Companies are unaudited but, in the opinion of their respective managements, reflect all adjustments (which include only normally recurring adjustments) necessary for a fair presentation of the results for the interim periods presented. The Companies’ separate interim consolidated financial statements should be read together with their separate audited financial statements (including the combined notes thereto) included in Item 8 of their combined Annual Report on Form 10-K for the year ended December 31, 2010 (the Form 10-K) and their separate unaudited financial statements (including the combined notes thereto) included in Part I, Item 1 of their combined Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011 (the First Quarter Form 10-Q). Information in the notes to the consolidated financial statements in the Form 10-K and the First Quarter Form 10-Q referred to in these notes is incorporated by reference herein. The use of terms such as “see” or “refer to” shall be deemed to incorporate by reference into these notes the information to which reference is made. Certain prior period amounts have been reclassified to conform to the current period presentation.

Con Edison has two regulated utility subsidiaries: CECONY and O&R. CECONY provides electric service and gas service in New York City and Westchester County. The company also provides steam service in parts of Manhattan. O&R, along with its regulated utility subsidiaries, provides electric service in southeastern New York and adjacent areas of northern New Jersey and eastern Pennsylvania and gas service in southeastern New York and adjacent areas of eastern Pennsylvania. Con Edison has the following competitive energy businesses: Consolidated Edison Solutions, Inc. (Con Edison Solutions), a retail energy services company that sells electricity and also offers energy-related services; Consolidated Edison Energy, Inc. (Con Edison Energy), a wholesale energy supply and services company; and Consolidated Edison Development, Inc. (Con Edison Development), a company that develops and participates in infrastructure projects.

 

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Note A — Summary of Significant Accounting Policies

Earnings Per Common Share

Reference is made to “Earnings Per Common Share” in Note A to the financial statements included in Item 8 of the Form 10-K. For the three and six months ended June 30, 2011 and 2010, Con Edison’s basic and diluted EPS for Con Edison are calculated as follows:

 

     For the Three Months
Ended June 30,
    For the Six Months
Ended June 30,
 
(Millions of Dollars, except per share amounts/Shares in Millions)   2011     2010     2011     2010  

Net income for common stock

  $ 165      $ 183      $ 477      $ 409   

Weighted average common shares outstanding – Basic

    292.7        282.0        292.3        281.7   

Add: Incremental shares attributable to effect of potentially dilutive securities

    1.6        1.5        1.6        1.5   

Adjusted weighted average common shares outstanding – Diluted

    294.3        283.5        293.9        283.2   

Net income for common stock per common share – basic

  $ 0.57      $ 0.65      $ 1.63      $ 1.45   

Net income for common stock per common share – diluted

  $ 0.56      $ 0.64      $ 1.62      $ 1.44   

 

Note B — Regulatory Matters

Reference is made to “Accounting Policies” in Note A and “Rate Agreements” in Note B to the financial statements included in Item 8 of the Form 10-K and Note B to the financial statements in Part I, Item 1 of the First Quarter Form 10-Q.

Rate Agreements

O&R — Electric

In June 2011, the NYSPSC adopted an order granting O&R an electric rate increase, effective July 1, 2011, of $26.6 million. The NYSPSC ruling reflects the following major items:

 

   

a weighted average cost of capital of 7.22 percent, reflecting:

 

   

a return on common equity of 9.2 percent, assuming achievement by the company of $825,000 of austerity measures;

 

   

cost of long-term debt of 5.50 percent; and

 

   

common equity ratio of 48 percent.

 

   

continuation of a revenue decoupling mechanism;

 

   

a provision for reconciliation of certain differences in actual average net utility plant to the amount reflected in rates ($718 million) and continuation of rate provisions under which pension and other post-retirement benefit expenses, environmental remediation expenses, tax-exempt debt costs and certain other expenses are reconciled to amounts for those expenses reflected in rates;

 

   

continuation of the rate provisions pursuant to which the company recovers its purchased power costs from customers;

 

   

discontinuation of the provisions under which property taxes were reconciled to amounts reflected in rates;

 

   

discontinuation of the inclusion in rates of funding for the company’s annual incentive plan for non-officer management employees;

 

   

continuation of provisions for potential operations penalties of up to $3 million annually if certain customer service and system reliability performance targets are not met; and

 

   

O&R is directed to produce a report detailing its implementation plans for the recommendations made in connection with the NYSPSC’s management audit of CECONY, with a forecast of costs to achieve and expected savings. (See “Rate Agreements – Other Regulatory Matters” in Note B to the financial statements in Item 8 of the Form 10-K.)

On July 29, 2011, O&R filed a request with the NYSPSC for an increase in the rates it charges for electric service rendered in New York, effective July 1, 2012, of $17.7 million. The filing reflects a return on common equity of 10.75 percent and a common equity ratio of 49.4 percent. Among other things, the filing proposes continuation of the current provisions with respect to recovery from customers of the cost of purchased power and with respect to the deferral of

 

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differences between actual expenses allocable to the electric business for pensions and other postretirement benefits, environmental, and research and developmental costs to the amounts for such costs reflected in electric rates. The filing also includes an alternative proposal for a three-year electric rate plan with annual rate increases of $17.6 million effective July 2012, 2013 and 2014. The multi-year filing reflects a return on common equity of 11.25 percent.

Other Regulatory Matters

In February 2009, the NYSPSC commenced a proceeding to examine the prudence of certain CECONY expenditures (see “Investigations of Vendor Payments” in Note G). 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. At June 30, 2011, the company had collected an estimated $681 million from customers subject to potential refund in connection with this proceeding. In October 2010, a NYSPSC consultant reported its $21 million provisional assessment, which the company has disputed, of potential overcharges for construction work. The potential overcharges related to transactions that involved certain employees who were arrested and a contractor that performed work for the company. The NYSPSC’s consultant is expected to continue to review the company’s expenditures. At June 30, 2011, the company had a $10.5 million regulatory liability relating to this matter. The company is unable to estimate the amount, if any, by which any refund required by the NYSPSC may exceed this regulatory liability.

In February 2011, the NYSPSC initiated a proceeding to examine the existing mechanisms pursuant to which utilities recover site investigation and remediation costs and possible alternatives. See Note G to the financial statements in Item 8 of the Form 10-K and Note F to the Second Quarter Financial Statements.

 

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Regulatory Assets and Liabilities

Regulatory assets and liabilities at June 30, 2011 and December 31, 2010 were comprised of the following items:

 

     Con Edison     CECONY  
(Millions of Dollars)   2011     2010     2011     2010  

Regulatory assets

         

Unrecognized pension and other postretirement costs

  $ 3,921      $ 4,371      $ 3,728      $ 4,152   

Future federal income tax

    1,730        1,593        1,659        1,515   

Environmental remediation costs

    684        695        566        574   

Pension and other post retirement benefits deferrals

    183        138        140        90   

Revenue taxes

    155        145        150        140   

Net electric deferrals

    130        156        129        156   

Surcharge for New York State Assessment

    98        121        91        112   

Deferred storm costs

    53        57        41        43   

O&R transition bond charges

    47        48                 

Deferred derivative losses – long-term

    44        74        28        48   

Property tax reconciliation

    31        34        19        27   

Workers’ compensation

    28        31        28        31   

World Trade Center restoration costs

    13        45        13        45   

Recoverable energy

           42               42   

Other

    144        133        135        122   

Regulatory assets – long-term

    7,261        7,683        6,727        7,097   

Deferred derivative losses – current

    121        190        98        151   

Recoverable energy costs – current

    9        13                 

Regulatory assets – current

    130        203        98        151   

Total Regulatory Assets

  $ 7,391      $ 7,886      $ 6,825      $ 7,248   

Regulatory liabilities

         

Allowance for cost of removal less salvage

  $ 430      $ 422      $ 356      $ 350   

Revenue decoupling mechanism

    81        38        81        38   

World Trade Center settlement proceeds

    62               62          

Carrying charges on T&D net plant

    40        28        11        5   

Energy efficiency programs

    28        19        27        18   

New York State tax refund

    20        30        20        30   

Gain on sale of properties

    15        31        15        31   

Bonus depreciation

    13        1        12        1   

Expenditure prudence proceeding

    11               11          

Other

    166        121        156        112   

Regulatory liabilities

    866        690        751        585   

Net unbilled revenue deferrals – current

    117        136        117        136   

Refundable energy cost – current

    75        117        50        90   

Deferred derivative gains – current

    6        4        4        3   

Regulatory liabilities – current

    198        257        171        229   

Total Regulatory Liabilities

  $ 1,064      $ 947      $ 922      $ 814   

 

Note C — Short-Term Borrowing

Reference is made to Note D to the financial statements in Item 8 of the Form 10-K and Note C to the financial statements in Part I, Item 1 of the First Quarter Form 10-Q.

At June 30, 2011 and December 31, 2010 Con Edison and CECONY had no commercial paper outstanding.

At June 30, 2011 and December 31, 2010, no loans were outstanding under the Companies’ Credit Agreement and $188 million (including $135 million for CECONY) and $197 million (including $145 million for CECONY) of letters of credit were outstanding under the Credit Agreement, respectively.

Note D — Pension Benefits

Reference is made to Note E to the financial statements in Item 8 of the Form 10-K and Note D to the financial statement in Part I, Item 1 of the First Quarter Form 10-Q.

 

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Net Periodic Benefit Cost

The components of the Companies’ net periodic benefit costs for the three and six months ended June 30, 2011 and 2010 were as follows:

 

     For the Three Months Ended June 30,  
     Con Edison     CECONY  
(Millions of Dollars)   2011     2010     2011     2010  

Service cost – including administrative expenses

  $ 47      $ 42      $ 44      $ 39   

Interest cost on projected benefit obligation

    140        139        131        130   

Expected return on plan assets

    (183     (176     (175     (167

Amortization of net actuarial loss

    132        106        125        100   

Amortization of prior service costs

    2        2        2        2   

NET PERIODIC BENEFIT COST

  $ 138      $ 113      $ 127      $ 104   

Amortization of regulatory asset

    1        1        1        1   

TOTAL PERIODIC BENEFIT COST

  $ 139      $ 114      $ 128      $ 105   

Cost capitalized

    (48     (37     (45     (34

Cost deferred

    (6     (33     (7     (32

Cost charged to operating expenses

  $ 85      $ 44      $ 76      $ 39   

 

     For the Six Months Ended June 30,  
     Con Edison     CECONY  
(Millions of Dollars)   2011     2010     2011     2010  

Service cost – including administrative expenses

  $ 94      $ 84      $ 88      $ 78   

Interest cost on projected benefit obligation

    280        278        262        260   

Expected return on plan assets

    (366     (352     (350     (334

Amortization of net actuarial loss

    264        212        250        200   

Amortization of prior service costs

    4        4        4        4   

NET PERIODIC BENEFIT COST

  $ 276      $ 226      $ 254      $ 208   

Amortization of regulatory asset

    1        1        1        1   

TOTAL PERIODIC BENEFIT COST

  $ 277      $ 227      $ 255      $ 209   

Cost capitalized

    (96     (78     (89     (73

Cost deferred

    (57     (56     (59     (53

Cost charged to operating expenses

  $ 124      $ 93      $ 107      $ 83   

 

Expected Contributions

Based on estimates as of March 31, 2011, the Companies are not required under funding regulations and laws to make any contributions to the pension plan during 2011. The Companies’ policy is to fund their accounting cost to the extent tax deductible. In 2011, Con Edison expects to make discretionary contributions to the pension plan of $533 million, of which CECONY contributed $491 million during the first six months of 2011. During the first six months of 2010, CECONY contributed $279 million to the pension plan. During the first six months of 2011, the Companies funded $11 million for the non-qualified supplemental pension plans.

Note E — Other Postretirement Benefits

Reference is made to Note F to the financial statements in Item 8 of the Form 10-K and Note E to the financial statement in Part I, Item 1 of the First Quarter Form 10-Q.

 

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Net Periodic Benefit Cost

The components of the Companies’ net periodic postretirement benefit costs for the three and six months ended June 30, 2011 and 2010 were as follows:

 

     For the Three Months Ended June 30,  
     Con Edison     CECONY  
(Millions of Dollars)   2011     2010     2011     2010  

Service cost

  $ 6      $ 6      $ 5      $ 5   

Interest cost on accumulated other postretirement benefit obligation

    21        23        18        20   

Expected return on plan assets

    (22     (22     (19     (19

Amortization of net actuarial loss

    22        23        20        21   

Amortization of prior service cost

    (2     (3     (3     (4

Amortization of transition obligation

    1        1        1        1   

NET PERIODIC POSTRETIREMENT BENEFIT COST

  $ 26      $ 28      $ 22      $ 24   

Cost capitalized

    (9     (10     (8     (8

Cost deferred

    4        1        4          

Cost charged to operating expenses

  $ 21      $ 19      $ 18      $ 16   

 

     For the Six Months Ended June 30,  
     Con Edison     CECONY  
(Millions of Dollars)   2011     2010     2011     2010  

Service cost

  $ 12      $ 12      $ 10      $ 10   

Interest cost on accumulated other postretirement benefit obligation

    42        46        36        40   

Expected return on plan assets

    (44     (44     (38     (38

Amortization of net actuarial loss

    44        46        40        42   

Amortization of prior service cost

    (4     (6     (6     (8

Amortization of transition obligation

    2        2        2        2   

NET PERIODIC POSTRETIREMENT BENEFIT COST

  $ 52      $ 56      $ 44      $ 48   

Cost capitalized

    (18     (20     (15     (17

Cost deferred

    9               7        (2

Cost charged to operating expenses

  $ 43      $ 36      $ 36      $ 29   

 

Expected Contributions

Based on estimates as of March 31, 2011, Con Edison expects to make a contribution of $84 million, including $74 million for CECONY, to the other postretirement benefit plans in 2011.

Note F — Environmental Matters

Superfund Sites

Hazardous substances, such as asbestos, polychlorinated biphenyls (PCBs) and coal tar, have been used or generated in the course of operations of the Utilities and their predecessors and are present at sites and in facilities and equipment they currently or previously owned, including sites at which gas was manufactured or stored.

The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 and similar state statutes (Superfund) impose joint and several liability, regardless of fault, upon generators of hazardous substances for investigation and remediation costs (which include costs of demolition, removal, disposal, storage, replacement, containment, and monitoring) and natural resource damages. Liability under these laws can be material and may be imposed for contamination from past acts, even though such past acts may have been lawful at the time they occurred. The sites at which the Utilities have been asserted to have liability under these laws, including their manufactured gas plant sites and any neighboring areas to which contamination may have migrated, are referred to herein as “Superfund Sites.”

For Superfund Sites where there are other potentially responsible parties and the Utilities are not managing the site investigation and remediation, the accrued liability represents an estimate of the amount the Utilities will need to pay to investigate and, where determinable, discharge their related obligations. For Superfund Sites (including the manufactured gas plant sites) for which one of the Utilities is managing the investigation and remediation, the accrued liability represents an estimate of the company’s share of undiscounted cost to investigate the sites and, for sites

 

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that have been investigated in whole or in part, the cost to remediate the sites, if remediation is necessary and if a reasonable estimate of such cost can be made. Remediation costs are estimated in light of the information available, applicable remediation standards, and experience with similar sites.

The accrued liabilities and regulatory assets related to Superfund Sites at June 30, 2011 and December 31, 2010 were as follows:

 

     Con Edison     CECONY  
(Millions of Dollars)   2011     2010     2011     2010  

Accrued Liabilities:

       

Manufactured gas plant sites

  $ 434      $ 446      $ 317      $ 327   

Other Superfund Sites

    68        66        67        65   

Total

  $ 502      $ 512      $ 384      $ 392   

Regulatory assets

  $ 683      $ 692      $ 564      $ 571   

Most of the accrued Superfund Site liability relates to sites that have been investigated, in whole or in part. However, for some of the sites, the extent and associated cost of the required remediation has not yet been determined. As investigations progress and information pertaining to the required remediation becomes available, the Utilities expect that additional liability may be accrued, the amount of which is not presently determinable, but may be material. Under their current rate agreements, the Utilities are permitted to recover or defer as regulatory assets (for subsequent recovery through rates) certain site investigation and remediation costs. In February 2011, the NYSPSC initiated a proceeding to examine the existing mechanisms pursuant to which utilities recover such costs and possible alternatives.

Environmental remediation costs incurred related to Superfund Sites for the three and six months ended June 30, 2011 and 2010, were as follows:

 

     For the Three Months Ended June 30,  
     Con Edison     CECONY  
(Millions of Dollars)   2011     2010     2011     2010  

Remediation costs incurred

  $ 10      $ 14      $ 8      $ 13   

 

     For the Six Months Ended June 30,  
     Con Edison     CECONY  
(Millions of Dollars)   2011     2010     2011     2010  

Remediation costs incurred

  $ 16      $ 23      $ 14      $ 21   

Insurance recoveries related to Superfund Sites for the three and six months ended June 30, 2011 and 2010 were immaterial.

In 2010, CECONY estimated that for its manufactured gas plant sites, its aggregate undiscounted potential liability for the investigation and remediation of coal tar and/or other manufactured gas plant-related environmental contaminants could range up to $1.9 billion. In 2010, O&R estimated that for its manufactured gas plant sites, each of which has been investigated, the aggregate undiscounted potential liability for the remediation of such contaminants could range up to $200 million. These estimates were based on the assumption that there is contamination at all sites, including those that have not yet been fully investigated and additional assumptions about the extent of the contamination and the type and extent of the remediation that may be required. Actual experience may be materially different.

Asbestos Proceedings

Suits have been brought in New York State and federal courts against the Utilities and many other defendants, wherein a large number of plaintiffs sought large amounts of compensatory and punitive damages for deaths and injuries allegedly caused by exposure to asbestos at various premises of the Utilities. The suits that have been resolved, which are many, have been resolved without any payment by the Utilities, or for amounts that were not, in the aggregate, material to them. The amounts specified in all the remaining thousands of suits total billions of dollars; however, the Utilities believe that these amounts are greatly exaggerated, based on the disposition of previous

 

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claims. In 2010, CECONY estimated that its aggregate undiscounted potential liability for these suits and additional suits that may be brought over the next 15 years is $10 million. The estimate was based upon a combination of modeling, historical data analysis and risk factor assessment. Actual experience may be materially different. In addition, certain current and former employees have claimed or are claiming workers’ compensation benefits based on alleged disability from exposure to asbestos. Under its current rate agreements, CECONY is permitted to defer as regulatory assets (for subsequent recovery through rates) costs incurred for its asbestos lawsuits and workers’ compensation claims. The accrued liability for asbestos suits and workers’ compensation proceedings (including those related to asbestos exposure) and the amounts deferred as regulatory assets for the Companies at June 30, 2011 and December 31, 2010 were as follows:

 

     Con Edison     CECONY  
(Millions of Dollars)   2011     2010     2011     2010  

Accrued liability – asbestos suits

  $ 10      $ 10      $ 10      $ 10   

Regulatory assets – asbestos suits

  $ 10      $ 10      $ 10      $ 10   

Accrued liability –
workers’ compensation

  $ 103      $ 106      $ 98      $ 101   

Regulatory assets – workers’ compensation

  $ 28      $ 31      $ 28      $ 31   

Note G — Other Material Contingencies

Manhattan Steam Main Rupture

In July 2007, a CECONY steam main located in midtown Manhattan ruptured. It has been reported that one person died and others were injured as a result of the incident. Several buildings in the area were damaged. Debris from the incident included dirt and mud containing asbestos. The response to the incident required the closing of several buildings and streets for various periods. Approximately 100 suits are pending against the company seeking generally unspecified compensatory and, in some cases, punitive damages, for personal injury, property damage and business interruption. The company has not accrued a liability for the suits. The company has notified its insurers of the incident and believes that the policies in force at the time of the incident will cover most of the company’s costs, which the company is unable to estimate, but which could be substantial, to satisfy its liability to others in connection with the incident.

Investigations of Vendor Payments

In January 2009, CECONY commenced an internal investigation relating to the arrests of certain employees

and retired employees (all of whom have since pleaded guilty) for accepting kickbacks from contractors that performed construction work for the company. The company has retained a law firm, which has retained an accounting firm, to assist in the company’s investigation. The company is providing information to governmental authorities, which consider the company to be a victim of unlawful conduct, in connection with their investigation of the arrested employees and contractors. The company has terminated its employment of the arrested employees and its contracts with the contractors. In February 2009, the NYSPSC commenced a proceeding that, among other things, will examine the prudence of certain of the company’s expenditures relating to the arrests and consider whether additional expenditures should also be examined (see “Other Regulatory Matters” in Note B).

CECONY is also investigating the September 2010 arrest of a retired employee (who has since pleaded guilty to participating in a bribery scheme in which the employee received payments from two companies that supplied materials to the company) and the January 2011 arrest of an employee (for accepting kickbacks from an engineering firm that performed work for the company). CECONY has provided information to governmental authorities in connection with their ongoing investigations of these matters.

The company, based upon its evaluation of its internal controls for 2010 and previous years, believes that the controls were effective to provide reasonable assurance that its financial statements have been fairly presented, in all material respects, in conformity with generally accepted accounting principles. Because the company’s investigations are ongoing, the company is unable to predict the impact of any of the employees’ unlawful

 

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conduct on the company’s internal controls, business, results of operations or financial position.

Lease In/Lease Out Transactions

In each of 1997 and 1999, Con Edison Development entered into a transaction in which it leased property and then immediately subleased it back to the lessor (termed “Lease In/Lease Out,” or LILO transactions). The transactions respectively involve 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 is accounting for the two LILO transactions as leveraged leases. Accordingly, the company’s investment in these leases, net of non-recourse debt, is carried as a single amount in Con Edison’s consolidated balance sheet and income is recognized pursuant to a method that incorporates a level rate of return for those years when net investment in the lease is positive, based upon the after-tax cash flows projected at the inception of the leveraged leases. The company’s investment in these leveraged leases was $(48) million at June 30, 2011 and $(41) million at December 31, 2010 and is comprised of a $234 million gross investment less $282 million deferred tax liabilities at June 30, 2011 and $235 million gross investment less $276 million of deferred tax liabilities at December 31, 2010.

On audit of Con Edison’s tax return for 1997, the IRS disallowed the tax losses in connection with the 1997 LILO transaction. In December 2005, Con Edison paid a $0.3 million income tax deficiency asserted by the IRS for the tax year 1997 with respect to the 1997 LILO transaction. In April 2006, the company paid interest of $0.2 million associated with the deficiency and commenced an action in the United States Court of Federal Claims, entitled Consolidated Edison Company of New York, Inc. v. United States, to obtain a refund of this tax payment and interest. A trial was completed in November 2007. In October 2009, the court issued a decision in favor of the company concluding that the 1997 LILO transaction was, in substance, a true lease that possessed economic substance, the loans relating to the lease constituted bona fide indebtedness, and the deductions for the 1997 LILO transactions claimed by the company in its 1997 federal income tax return are allowable. The IRS is entitled to appeal the decision.

In connection with its audit of Con Edison’s federal income tax returns for 1998 through 2007, the IRS disallowed $416 million of net tax deductions taken with respect to both of the LILO transactions for the tax years. Con Edison is pursuing administrative appeals of these audit level disallowances. In connection with its audit of Con Edison’s federal income tax returns for 2009 and 2008, the IRS has disallowed $41 million and $42 million, respectively, of net tax deductions taken with respect to both of the LILO transactions. When these audit level disallowances become appealable, Con Edison intends to file an appeal of the disallowances.

Con Edison believes that its LILO transactions have been correctly reported, and has not recorded any reserve with respect to the disallowance of tax losses, or related interest, in connection with its LILO transactions. Con Edison’s estimated tax savings, reflected in its financial statements, from the two LILO transactions through June 30, 2011, in the aggregate, was $229 million. If Con Edison were required to repay all or a portion of these amounts, it would also be required to pay interest of up to $82 million net of tax at June 30, 2011.

Pursuant to the accounting rules for leveraged lease transactions, the expected timing of income tax cash flows generated by Con Edison’s LILO transactions are required to be reviewed at least annually. If the expected timing of the cash flows is revised, the rate of return and the allocation of income would be recalculated from the inception of the LILO transactions, and the company would be required to recalculate the accounting effect of the LILO transactions, which would result in a charge to earnings that could have a material adverse effect on the company’s results of operations.

 

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Guarantees

Con Edison and its subsidiaries enter into various agreements providing financial or performance assurance primarily to third parties on behalf of their subsidiaries. Maximum amounts guaranteed by Con Edison totaled $834 million and $859 million at June 30, 2011 and December 31, 2010, respectively.

A summary, by type (described in Note H to the financial statements in Item 8 of the Form 10-K) and term, of Con Edison’s total guarantees at June 30, 2011 is as follows:

 

Guarantee Type   0 – 3 years     4 – 10 years     > 10 years     Total  
    (Millions of Dollars)  

Commodity transactions

  $ 616        8        140      $ 764   

Intra-company guarantees

    15               1        16   

Other guarantees

    40        14               54   

TOTAL

  $ 671      $ 22      $ 141      $ 834   

 

Note H — Financial Information by Business Segment

Reference is made to Note N to the financial statements in Item 8 of the Form 10-K.

The financial data for the business segments are as follows:

 

     For the Three Months Ended June 30,  
    

Operating

revenues

    Inter-segment
revenues
    Depreciation and
amortization
   

Operating

income

 
(Millions of Dollars)   2011     2010     2011     2010     2011     2010     2011     2010  

CECONY

               

Electric

  $ 2,013      $ 2,104      $ 3      $ 2      $ 162      $ 156      $ 350      $ 319   

Gas

    296        239        1        1        27        25        31        44   

Steam

    107        89        20        18        16        15        (11     (29

Consolidation adjustments

                  (24     (21                            

Total CECONY

  $ 2,416      $ 2,432      $      $      $ 205      $ 196      $ 370      $ 334   

O&R

               

Electric

  $ 141      $ 153      $      $      $ 8      $ 8      $ 14      $ 15   

Gas

    37        35                      4        3        1        (1

Total O&R

  $ 178      $ 188      $      $      $ 12      $ 11      $ 15      $ 14   

Competitive energy businesses

  $ 406      $ 406      $ 2      $ 2      $ 2      $ 4      $ 14      $ 81   

Other*

    (7     (9     (2     (2                   (1       

Total Con Edison

  $ 2,993      $ 3,017      $      $      $ 219      $ 211      $ 398      $ 429   

 

* Parent company expenses, primarily interest, and consolidation adjustments. Other does not represent a business segment.

 

     For the Six Months Ended June 30,  
    

Operating

revenues

    Inter-segment
revenues
    Depreciation and
amortization
   

Operating

income

 
(Millions of Dollars)   2011     2010     2011     2010     2011     2010     2011     2010  

CECONY

               

Electric

  $ 3,734      $ 3,832      $ 6      $ 6      $ 324      $ 307      $ 566      $ 514   

Gas

    959        922        2        2        54        50        237        259   

Steam

    432        396        40        36        32        31        114        73   

Consolidation adjustments

                  (48     (44                            

Total CECONY

  $ 5,125      $ 5,150      $      $      $ 410      $ 388      $ 917      $ 846   

O&R

               

Electric

  $ 289      $ 314      $      $      $ 17      $ 16      $ 25      $ 22   

Gas

    130        125                      7        6        28        21   

Total O&R

  $ 419      $ 439      $      $      $ 24      $ 22      $ 53      $ 43   

Competitive energy businesses

  $ 814      $ 906      $ 5      $ 4      $ 3      $ 5      $ 58      $ 33   

Other*

    (16     (17     (5     (4                   (4     (1

Total Con Edison

  $ 6,342      $ 6,478      $      $      $ 437      $ 415      $ 1,024      $ 921   

 

* Parent company expenses, primarily interest, and consolidation adjustments. Other does not represent a business segment.

 

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Note I — Derivative Instruments and Hedging Activities

Under the accounting rules for derivatives and hedging, derivatives are recognized on the balance sheet at fair value, unless an exception is available under the accounting rules. Certain qualifying derivative contracts have been designated as normal purchases or normal sales contracts. These contracts are not reported at fair value under the accounting rules.

Energy Price Hedging

Con Edison’s subsidiaries hedge market price fluctuations associated with physical purchases and sales of electricity, natural gas, and steam by using derivative instruments including futures, forwards, basis swaps, options, transmission congestion contracts and financial transmission rights contracts. The fair values of these hedges at June 30, 2011 and December 31, 2010 were as follows:

 

     Con Edison     CECONY  
(Millions of Dollars)   2011     2010     2011     2010  

Fair value of net derivative assets/(liabilities) - gross

  $ (121   $ (261   $ (75   $ (156

Impact of netting of cash collateral

    100        176        56        104   

Fair value of net derivative assets/(liabilities) - net

  $ (21   $ (85   $ (19   $ (52

Credit Exposure

The Companies are exposed to credit risk related to transactions entered into primarily for the various energy supply and hedging activities by the Utilities and the competitive energy businesses. The Companies use credit policies to manage this risk, including an established credit approval process, monitoring of counterparty limits, netting provisions within agreements, collateral or prepayment arrangements, credit insurance and credit default swaps.

At June 30, 2011, Con Edison and CECONY had $152 million and $31 million of credit exposure in connection with energy supply and hedging activities, net of collateral, respectively. Con Edison’s net credit exposure consisted of $58 million with investment-grade counterparties, $53 million with commodity exchange brokers, $39 million with independent system operators and $2 million with non-investment grade counterparties. CECONY’s net credit exposure consisted of $3 million with investment-grade counterparties and $28 million with commodity exchange brokers.

Economic Hedges

The Companies enter into certain derivative instruments that do not qualify or are not designated as hedges under the accounting rules for derivatives and hedging. However, management believes these instruments represent economic hedges that mitigate exposure to fluctuations in commodity prices.

 

The fair values of the Companies’ commodity derivatives at June 30, 2011 were:

 

(Millions of Dollars)   Fair Value of Commodity Derivatives(a)
Balance Sheet Location
  Con
Edison
    CECONY  
Derivative Assets  

Current

  Other current assets   $ 134      $ 38   

Long-term

  Other deferred charges and non-current assets     42        22   

Total derivative assets

    $ 176      $ 60   

Impact of netting

        (63     (14

Net derivative assets

      $ 113      $ 46   
Derivative Liabilities  

Current

  Fair value of derivative liabilities   $ 234      $   

Current

  Other current liabilities            98   

Long-term

  Fair value of derivative liabilities     63        37   

Total derivative liabilities

    $ 297      $ 135   

Impact of netting

        (163     (70

Net derivative liabilities

      $ 134      $ 65   

 

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(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.

The fair values of the Companies’ commodity derivatives at December 31, 2010 were:

 

(Millions of Dollars)   Fair Value of Commodity Derivatives(a)
Balance Sheet Location
  Con
Edison
    CECONY  
Derivative Assets  

Current

  Other current assets   $ 184      $ 29   

Long-term

  Other deferred charges and non-current assets     51        19   

Total derivative assets

    $ 235      $ 48   

Impact of netting

        (129       

Net derivative assets

      $ 106      $ 48   
Derivative Liabilities  

Current

  Fair value of derivative liabilities   $ 385      $   

Current

  Other current liabilities            148   

Long-term

  Fair value of derivative liabilities     111        56   

Total derivative liabilities

    $ 496      $ 204   

Impact of netting

        (305     (104

Net derivative liabilities

      $ 191      $ 100   

 

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.

 

The Utilities generally recover all of their prudently incurred fuel, purchased power and gas cost, including hedging gains and losses, in accordance with rate provisions approved by the applicable state utility commissions. See “Recoverable Energy Costs” in Note A to the financial statements in Item 8 of the Form 10-K. In accordance with the accounting rules for regulated operations, the Utilities record a regulatory asset or liability to defer recognition of unrealized gains and losses on their electric and gas derivatives. As gains and losses are realized in future periods, they will be recognized as purchased power, gas and fuel costs in the Companies’ consolidated income statements. Con Edison’s competitive energy businesses record realized and unrealized gains and losses on their derivative contracts in earnings in the reporting period in which they occur.

 

The following tables present the changes in the fair values of commodity derivatives that have been deferred or recognized in earnings for the three and six months ended June 30, 2011:

 

Realized and Unrealized Gains/(Losses) on Commodity Derivatives(a)

Deferred or Recognized in Income for the three months ended June 30, 2011

 
(Millions of Dollars)   Balance Sheet Location   Con
Edison
    CECONY  

Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:

  

Current

  Deferred derivative gains   $ (4   $ (4

Long-term

  Regulatory liabilities     (1       

Total deferred gains

      $ (5   $ (4

Current

  Deferred derivative losses   $ 25      $ 18   

Current

  Recoverable energy costs     (53     (39

Long-term

  Regulatory assets     12        9   

Total deferred losses

    $ (16   $ (12

Net deferred losses

      $ (21   $ (16
    Income Statement Location                

Pre-tax gain/(loss) recognized in income

  

  Purchased power expense   $ 73 (b)    $   
  Gas purchased for resale     17          
    Non-utility revenue     7 (b)        

Total pre-tax gain/(loss) recognized in income

      $ 97      $   

 

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.

 

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(b) For the three months ended June 30, 2011 Con Edison recorded in non-utility operating revenues and purchased power expense an unrealized pre-tax (loss)/gain of $(12) million and $10 million, respectively.

 

Realized and Unrealized Gains/(Losses) on Commodity Derivatives(a)

Deferred or Recognized in Income for the six months ended June 30, 2011

 
(Millions of Dollars)   Balance Sheet Location   Con
Edison
    CECONY  

Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:

  

Current

  Deferred derivative gains   $ 2      $ 1   

Long-term

  Regulatory liabilities     2        2   

Total deferred gains

      $ 4      $ 3   

Current

  Deferred derivative losses   $ 69      $ 53   

Current

  Recoverable energy costs     (102     (81

Long-term

  Regulatory assets     28        20   

Total deferred losses

    $ (5   $ (8

Net deferred losses

      $ (1   $ (5
    Income Statement Location                

Pre-tax gain/(loss) recognized in income

  

  Purchased power expense   $ 52 (b)    $   
  Gas purchased for resale     11          
    Non-utility revenue     17 (b)        

Total pre-tax gain/(loss) recognized in income

      $ 80      $   

 

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.
(b) For the six months ended June 30, 2011, Con Edison recorded in non-utility operating revenues and purchased power expense an unrealized pre-tax (loss)/gain of $(25) million and $60 million, respectively.

The following tables present the changes in the fair values of commodity derivatives that have been deferred or recognized in earnings for the three and six months ended June 30, 2010:

 

Realized and Unrealized Gains/(Losses) on Commodity Derivatives(a)

Deferred or Recognized in Income for the Three Months Ended June 30, 2010

 
(Millions of Dollars)   Balance Sheet Location   Con
Edison
    CECONY  

Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:

  

Current

  Other current liabilities   $ 1      $ 1   

Total deferred gains

      $ 1      $ 1   

Current

  Other current assets   $ 95      $ 78   

Current

  Recoverable energy costs   $ (80   $ (67

Long term

  Regulatory assets   $ 51      $ 38   

Total deferred losses

    $ 66      $ 49   

Net deferred losses

      $ 67      $ 50   
    Income Statement Location                

Pre-tax gain/(loss) recognized in income

  

  Purchased power expense   $ (43 )(b)    $   
  Gas purchased for resale     (11       
    Non-utility revenue     2 (b)        

Total pre-tax gain/(loss) recognized in income

      $ (52   $   

 

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.
(b) For the three months ended June 30, 2010, Con Edison recorded in non-utility operating revenues and purchased power expense an unrealized pre-tax gain/(loss) of $(45) million and $110 million, respectively.

 

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Realized and Unrealized Gains/(Losses) on Commodity Derivatives(a)

Deferred or Recognized in Income for the Six Months Ended June 30, 2010

 
(Millions of Dollars)   Balance Sheet Location   Con
Edison
    CECONY  

Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:

  

Current

  Other current liabilities   $ (5   $ (5

Total deferred gains

      $ (5   $ (5

Current

  Other current assets   $ (66   $ (60

Current

  Recoverable energy costs   $ (135   $ (109

Long term

  Regulatory assets   $ (23   $ (18

Total deferred losses

    $ (224   $ (187

Net deferred losses

      $ (229   $ (192
    Income Statement Location                

Pre-tax gain/(loss) recognized in income

  

  Purchased power expense   $ (106   $   
  Gas purchased for resale     (6       
    Non-utility revenue     17 (b)        

Total pre-tax gain/(loss) recognized in income

      $ (95   $   

 

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.
(b) For the six months ended June 30, 2010, Con Edison recorded in non-utility operating revenues an unrealized pre-tax gain/(loss) of $2 million.

As of June 30, 2011, Con Edison had 1,705 contracts, including 699 CECONY contracts, which were considered to be derivatives under the accounting rules for derivatives and hedging (excluding qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts). The following table presents the number of contracts by commodity type:

 

     Electric Derivatives    

Gas Derivatives

 
     Number of
Energy
Contracts(a)
    MWHs(b)     Number of
Capacity
Contracts(a)
    MWs(b)    

Number

of
Contracts(a)

    Dths(b)    

Total
Number

Of

Contracts(a)

 

Con Edison

    882        20,318,546        56        9,161        767        106,730,705        1,705   

CECONY

    177        4,966,000                      522        97,880,000        699   

 

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.
(b) Volumes are reported net of long and short positions.

 

The Companies also enter into electric congestion and gas basis swap contracts to hedge the congestion and transportation charges which are associated with electric and gas contracts and hedged volumes.

The collateral requirements associated with, and settlement of, derivative transactions are included in net cash flows from operating activities in the Companies’ consolidated statement of cash flows. Most derivative instrument contracts contain provisions that may require the Companies to provide collateral on derivative instruments in net liability positions. The amount of collateral to be provided will depend on the fair value of the derivative instruments and the Companies’ credit ratings.

 

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Table of Contents

The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a net liability position and collateral posted at June 30, 2011, and the additional collateral that would have been required to be posted had the lowest applicable credit rating been reduced one level and to below investment grade were:

 

(Millions of Dollars)   Con Edison(a)     CECONY(a)  

Aggregate fair value – net liabilities

  $ 140      $ 77   

Collateral posted

  $ 40      $ 31 (b) 

Additional collateral(c) (downgrade one level from current ratings(d))

  $ 29      $ 25   

Additional collateral(c) (downgrade to below investment grade from current ratings(d))

  $ 149 (e)    $ 66 (e) 

 

(a) Non-derivative transactions for the purchase and sale of electricity and gas and qualifying derivative instruments, which have been designated as normal purchases or normal sales, are excluded from the table. These transactions primarily include purchases of electricity from independent system operators. In the event the Utilities and Con Edison’s competitive energy businesses were no longer extended unsecured credit for such purchases, the Companies would be required to post collateral, which at June 30, 2011, would have amounted to an estimated $161 million for Con Edison, including $52 million for CECONY. For certain other such non-derivative transactions, the Companies could be required to post collateral under certain circumstances, including in the event counterparties had reasonable grounds for insecurity.
(b) Across the Utilities’ energy derivative positions, credit limits for the same counterparties are generally integrated. At June 30, 2011, the Utilities posted combined collateral of $39 million, including an estimated $8 million attributable to O&R.
(c) The Companies measure the collateral requirements by taking into consideration the fair value amounts of derivative instruments that contain credit-risk-related contingent features that are in a net liabilities position plus amounts owed to counterparties for settled transactions and amounts required by counterparties for minimum financial security. The fair value amounts represent unrealized losses, net of any unrealized gains where the Companies have a legally enforceable right of setoff.
(d) The current ratings are Moody’s, S&P and Fitch long-term credit rating of, as applicable, Con Edison (Baa1/BBB+/BBB+), CECONY (A3/A-/A-) or O&R (Baa1/A-/A-). Credit ratings assigned by rating agencies are expressions of opinions that are subject to revision or withdrawal at any time by the assigning rating agency.
(e) Derivative instruments that are net assets have been excluded from the table. At June 30, 2011, if Con Edison had been downgraded to below investment grade, it would have been required to post additional collateral for such derivative instruments of an estimated $24 million.

 

Interest Rate Swap

O&R has an interest rate swap pursuant to which it pays a fixed-rate of 6.09 percent and receives a LIBOR-based variable rate. The fair value of this interest rate swap at June 30, 2011 was an unrealized loss of $10 million, which has been included in Con Edison’s consolidated balance sheet as a noncurrent liability/fair value of derivative liabilities and a regulatory asset. The change in the fair value of the swap for the three and six months ended June 30, 2011 was not material. In the event O&R’s credit rating was downgraded to BBB- or lower by S&P or Baa3 or lower by Moody’s, the swap counterparty could elect to terminate the agreement and, if it did so, the parties would then be required to settle the transaction.

Note J — Fair Value Measurements

Reference is made to Note P to the financial statements in Item 8 of the Form 10-K.

 

Assets and liabilities measured at fair value on a recurring basis as of June 30, 2011 are summarized below.

 

     Level 1     Level 2     Level 3    

Netting

Adjustments(4)

    Total  
(Millions of Dollars)   Con
Edison
    CECONY     Con
Edison
    CECONY     Con
Edison
    CECONY     Con
Edison
    CECONY     Con
Edison
    CECONY  

Derivative assets:

                   

Commodity(1)

  $ 1      $      $ 56      $ 24      $ 100      $ 18      $ (42   $ 4      $ 115      $ 46   

Other assets(3)

    72        72                      106        96                      178        168   

Total

  $ 73      $ 72      $ 56      $ 24      $ 206      $ 114      $ (42   $ 4      $ 293      $ 214   

Derivative liabilities:

                   

Commodity

  $ 4      $ 1      $ 144      $ 93      $ 130      $ 23      $ (142   $ (52   $ 136      $ 65   

Transfer in(5)(6)