Edgar Filing: CONSOLIDATED EDISON INC

(Millions of Dollars)

Con Edison

Operating lease cost

Operating lease cash flows

Document

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 MARCH 31, 2019



¨	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 executive 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

Securities Registered Pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
Consolidated Edison, Inc.,	ED	New York Stock Exchange
Common Shares ($.10 par value)

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 Company of New York, Inc. (CECONY)	Yes x	No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



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

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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 April 30, 2019, Con Edison had outstanding 327,053,801 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 wholly-owned 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.

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Glossary of Terms

The following is a glossary of 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.
Clean Energy Businesses		Con Edison Clean Energy Businesses, Inc., together with its subsidiaries
Con Edison Development		Consolidated Edison Development, Inc.
Con Edison Energy		Consolidated Edison Energy, Inc.
Con Edison Solutions		Consolidated Edison Solutions, Inc.
Con Edison Transmission		Con Edison Transmission, Inc., together with its subsidiaries
CET Electric		Consolidated Edison Transmission, LLC
CET Gas		Con Edison Gas Pipeline and Storage, LLC
O&R		Orange and Rockland Utilities, Inc.
RECO		Rockland Electric Company
The Companies		Con Edison and CECONY
The Utilities		CECONY and O&R

Regulatory Agencies, Government Agencies and Other Organizations
EPA		U.S. Environmental Protection Agency
FASB		Financial Accounting Standards Board
FERC		Federal Energy Regulatory Commission
IASB		International Accounting Standards Board
IRS		Internal Revenue Service
NJBPU		New Jersey Board of Public Utilities
NJDEP		New Jersey Department of Environmental Protection
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
PJM		PJM Interconnection LLC
SEC		U.S. Securities and Exchange Commission

Accounting
AFUDC		Allowance for funds used during construction
ASU		Accounting Standards Update
GAAP		Generally Accepted Accounting Principles in the United States of America
HLBV		Hypothetical liquidation at book value
OCI		Other Comprehensive Income
VIE		Variable Interest Entity

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Environmental
CO2		Carbon dioxide
GHG		Greenhouse gases
MGP Sites		Manufactured gas plant sites
PCBs		Polychlorinated biphenyls
PRP		Potentially responsible party
RGGI		Regional Greenhouse Gas Initiative
Superfund		Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 and similar state statutes

Units of Measure
AC		Alternating current
Bcf		Billion cubic feet
Dt		Dekatherms
kV		Kilovolt
kWh		Kilowatt-hour
MDt		Thousand dekatherms
MMlb		Million pounds
MVA		Megavolt ampere
MW		Megawatt or thousand kilowatts
MWh		Megawatt hour

Other
AMI		Advanced metering infrastructure
COSO		Committee of Sponsoring Organizations of the Treadway Commission
DER		Distributed energy resources
Fitch		Fitch Ratings
First Quarter Form 10-Q		The Companies' combined Quarterly Report on Form 10-Q for the quarterly period ended March 31 of the current year
Form 10-K		The Companies’ combined Annual Report on Form 10-K for the year ended December 31, 2018
LTIP		Long Term Incentive Plan
Moody’s		Moody’s Investors Service
REV		Reforming the Energy Vision
S&P		S&P Global Ratings
TCJA		The federal Tax Cuts and Jobs Act of 2017, as enacted on December 22, 2017
VaR		Value-at-Risk

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TABLE OF CONTENTS



		PAGE
PART I—Financial Information
ITEM 1	Financial Statements (Unaudited)
	Con Edison
	Consolidated Income Statement	7
	Consolidated Statement of Comprehensive Income	8
	Consolidated Statement of Cash Flows	9
	Consolidated Balance Sheet	10
	Consolidated Statement of Equity	12
	CECONY
	Consolidated Income Statement	13
	Consolidated Statement of Comprehensive Income	14
	Consolidated Statement of Cash Flows	15
	Consolidated Balance Sheet	16
	Consolidated Statement of Shareholder’s Equity	18
	Notes to the Financial Statements (Unaudited)	19
ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
ITEM 3	Quantitative and Qualitative Disclosures About Market Risk	64
ITEM 4	Controls and Procedures	64
PART II—Other Information		65
ITEM 1	Legal Proceedings	65
ITEM 1A	Risk Factors	65
ITEM 6	Exhibits	65
	Signatures	66

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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 “forecasts,” “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 including, but not limited to:


•	the Companies are extensively regulated and are subject to penalties;


•	the Utilities’ rate plans may not provide a reasonable return;


•	the Companies may be adversely affected by changes to the Utilities’ rate plans;


•	the intentional misconduct of employees or contractors could adversely affect the Companies;


•	the failure of, or damage to, the Companies’ facilities could adversely affect the Companies;


•	a cyber attack could adversely affect the Companies;


•	the Companies are exposed to risks from the environmental consequences of their operations;


•	a disruption in the wholesale energy markets or failure by an energy supplier or customer could adversely affect the Companies;


•	the Companies have substantial unfunded pension and other postretirement benefit liabilities;


•	Con Edison’s ability to pay dividends or interest depends on dividends from its subsidiaries;


•	the Companies require access to capital markets to satisfy funding requirements;


•	changes to tax laws could adversely affect the Companies;


•	the Companies’ strategies may not be effective to address changes in the external business environment; and


•	the Companies also face other risks that are beyond their control.

The Companies assume no obligation to update forward-looking statements.

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Consolidated Edison, Inc.

CONSOLIDATED INCOME STATEMENT (UNAUDITED)



	For the Three Months Ended March 31,
(Millions of Dollars/Except Share Data)	2019	2018
OPERATING REVENUES
Electric	$1,941	$1,877
Gas	1,034	939
Steam	321	314
Non-utility	218	234
TOTAL OPERATING REVENUES	3,514	3,364
OPERATING EXPENSES
Purchased power	368	353
Fuel	106	124
Gas purchased for resale	442	378
Other operations and maintenance	794	836
Depreciation and amortization	413	348
Taxes, other than income taxes	605	570
TOTAL OPERATING EXPENSES	2,728	2,609
OPERATING INCOME	786	755
OTHER INCOME (DEDUCTIONS)
Investment income	24	20
Other income	11	6
Allowance for equity funds used during construction	3	4
Other deductions	(24)	(45)
TOTAL OTHER INCOME (DEDUCTIONS)	14	(15)
INCOME BEFORE INTEREST AND INCOME TAX EXPENSE	800	740
INTEREST EXPENSE
Interest on long-term debt	221	190
Other interest	29	7
Allowance for borrowed funds used during construction	(3)	(2)
NET INTEREST EXPENSE	247	195
INCOME BEFORE INCOME TAX EXPENSE	553	545
INCOME TAX EXPENSE	108	117
NET INCOME	$445	$428
Income attributable to non-controlling interest	21	—
Net income for common stock	$424	$428
Net income per common share—basic	$1.31	$1.38
Net income per common share—diluted	$1.31	$1.37
AVERAGE NUMBER OF SHARES OUTSTANDING—BASIC (IN MILLIONS)	322.5	310.4
AVERAGE NUMBER OF SHARES OUTSTANDING—DILUTED (IN MILLIONS)	323.4	311.6

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

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Consolidated Edison, Inc.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)



	Three Months Ended March 31,
(Millions of Dollars)	2019		2018
NET INCOME	$445		$428
INCOME ATTRIBUTABLE TO NON-CONTROLLING INTEREST	(21	)	—
OTHER COMPREHENSIVE INCOME, NET OF TAXES
Pension and other postretirement benefit plan liability adjustments, net of taxes	4		4
TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAXES	4		4
COMPREHENSIVE INCOME	$428		$432

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 Three Months Ended March 31,
(Millions of Dollars)	2019		2018
OPERATING ACTIVITIES
Net income	$445		$428
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME
Depreciation and amortization	413		348
Deferred income taxes	108		101
Rate case amortization and accruals	(29)		(28)
Common equity component of allowance for funds used during construction	(3)		(4)
Net derivative gains	10		(1)
Unbilled revenue and net unbilled revenue deferrals	11		48
Gain on sale of assets	(5)		—
Other non-cash items, net	(4	)	(23		)
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable – customers	(43)		(147)
Materials and supplies, including fuel oil and gas in storage	31		33
Other receivables and other current assets	(36)		26
Taxes receivable	—		18
Prepayments	(448)		(422)
Accounts payable	(108)		30
Pensions and retiree benefits obligations, net	93		84
Pensions and retiree benefits contributions	(4)		(184)
Accrued taxes	(19)		(61)
Accrued interest	97		68
Superfund and environmental remediation costs, net	(1)		(2)
Distributions from equity investments	14		35
System benefit charge	6		63
Deferred charges, noncurrent assets and other regulatory assets	(34)		(246)
Deferred credits and other regulatory liabilities	94		179
Other current and noncurrent liabilities	(124)		(200)
NET CASH FLOWS FROM OPERATING ACTIVITIES	464		143
INVESTING ACTIVITIES
Utility construction expenditures	(783)		(790)
Cost of removal less salvage	(72)		(63)
Non-utility construction expenditures	(48)		(35)
Investments in electric and gas transmission projects	(38)		(32)
Proceeds from sale of assets	48		—
Other investing activities	5		11
NET CASH FLOWS USED IN INVESTING ACTIVITIES	(888)		(909)
FINANCING ACTIVITIES
Net issuance/(payment) of short-term debt	(1,131)		812
Issuance of long-term debt	825		—
Retirement of long-term debt	(11)		(10)
Debt issuance costs	(1)		(1)
Common stock dividends	(226)		(209)
Issuance of common shares - public offering	425		—
Issuance of common shares for stock plans	13		13
Distribution to noncontrolling interest	(2	)	—
NET CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES	(108)		605
CASH, TEMPORARY CASH INVESTMENTS, AND RESTRICTED CASH:
NET CHANGE FOR THE PERIOD	(532)		(161)
BALANCE AT BEGINNING OF PERIOD	1,006		844
BALANCE AT END OF PERIOD	$474		$683
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION
Cash paid/(received) during the period for:
Interest	$130		$124
Income taxes	$3		$(13)
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION
Construction expenditures in accounts payable	$300		$352
Issuance of common shares for dividend reinvestment	$12		$12
Software licenses acquired but unpaid as of end of period	$100			$—

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

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Consolidated Edison, Inc.

CONSOLIDATED BALANCE SHEET (UNAUDITED)



(Millions of Dollars)	March 31, 2019	December 31, 2018
ASSETS
CURRENT ASSETS
Cash and temporary cash investments	$406	$895
Accounts receivable – customers, less allowance for uncollectible accounts of $63 and $62 in 2019 and 2018, respectively	1,309	1,267
Other receivables, less allowance for uncollectible accounts of $7 and $5 in 2019 and 2018, respectively	267	285
Taxes receivable	49	49
Accrued unbilled revenue	500	514
Fuel oil, gas in storage, materials and supplies, at average cost	327	358
Prepayments	635	187
Regulatory assets	43	76
Restricted cash	68	111
Other current assets	177	122
TOTAL CURRENT ASSETS	3,781	3,864
INVESTMENTS	1,832	1,766
UTILITY PLANT, AT ORIGINAL COST
Electric	30,704	30,378
Gas	9,329	9,100
Steam	2,574	2,562
General	3,384	3,331
TOTAL	45,991	45,371
Less: Accumulated depreciation	9,953	9,769
Net	36,038	35,602
Construction work in progress	2,014	1,978
NET UTILITY PLANT	38,052	37,580
NON-UTILITY PLANT
Non-utility property, less accumulated depreciation of $296 and $275 in 2019 and 2018, respectively	3,976	4,000
Construction work in progress	124	169
NET PLANT	42,152	41,749
OTHER NONCURRENT ASSETS
Goodwill	440	440
Intangible assets, less accumulated amortization of $53 and $29 in 2019 and 2018, respectively	1,630	1,654
Regulatory assets	4,245	4,294
Operating lease right-of-use asset	852	—
Other deferred charges and noncurrent assets	134	153
TOTAL OTHER NONCURRENT ASSETS	7,301	6,541
TOTAL ASSETS	$55,066	$53,920

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

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Consolidated Edison, Inc.

CONSOLIDATED BALANCE SHEET (UNAUDITED)



(Millions of Dollars)	March 31, 2019	December 31, 2018
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Long-term debt due within one year	$2,029	$650
Term loan	—	825
Notes payable	1,435	1,741
Accounts payable	1,010	1,187
Customer deposits	351	351
Accrued taxes	43	61
Accrued interest	226	129
Accrued wages	109	109
Fair value of derivative liabilities	46	50
Regulatory liabilities	152	114
System benefit charge	633	627
Operating lease liabilities	50	—
Other current liabilities	264	363
TOTAL CURRENT LIABILITIES	6,348	6,207
NONCURRENT LIABILITIES
Provision for injuries and damages	143	146
Pensions and retiree benefits	1,231	1,228
Superfund and other environmental costs	776	779
Asset retirement obligations	419	450
Fair value of derivative liabilities	51	16
Deferred income taxes and unamortized investment tax credits	5,951	5,820
Operating lease liabilities	825	—
Regulatory liabilities	4,613	4,641
Other deferred credits and noncurrent liabilities	275	299
TOTAL NONCURRENT LIABILITIES	14,284	13,379
LONG-TERM DEBT	16,933	17,495
EQUITY
Common shareholders’ equity	17,369	16,726
Noncontrolling interest	132	113
TOTAL EQUITY (See Statement of Equity)	17,501	16,839
TOTAL LIABILITIES AND EQUITY	$55,066	$53,920

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

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Consolidated Edison, Inc.

CONSOLIDATED STATEMENT OF EQUITY (UNAUDITED)



(In Millions)	Common Stock		Additional Paid-In Capital	Retained Earnings	Treasury Stock		Capital Stock Expense	Accumulated Other Comprehensive Income/(Loss)	Non- controlling Interest	Total
(In Millions)	Shares	Amount	Additional Paid-In Capital	Retained Earnings	Shares	Amount	Capital Stock Expense	Accumulated Other Comprehensive Income/(Loss)	Non- controlling Interest	Total
BALANCE AS OF DECEMBER 31, 2017	310	$34	$6,298	$10,235	23	$(1,038)	$(85)	$(26)	$7	$15,425
Net income				428						428
Common stock dividends ($0.72 per share)				(221)						(221)
Issuance of common shares for stock plans	1		25							25
Other comprehensive income								4		4
Noncontrolling interest										—
BALANCE AS OF MARCH 31, 2018	311	$34	$6,323	$10,442	23	$(1,038)	$(85)	$(22)	$7	$15,661

BALANCE AS OF DECEMBER 31, 2018	321	$34	$7,117	$10,728	23	$(1,038)	$(99)	$(16)	$113	$16,839
Net income				424					21	445
Common stock dividends ($0.74 per share)				(237)						(237)
Issuance of common shares – public offering	6		433				(8)			425
Issuance of common shares for stock plans			27							27
Other comprehensive income								4		4
Distributions to noncontrolling interest									(2)	(2)
BALANCE AS OF MARCH 31, 2019	327	$34	$7,577	$10,915	23	$(1,038)	$(107)	$(12)	$132	$17,501

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 March 31,
(Millions of Dollars)	2019	2018
OPERATING REVENUES
Electric	$1,797	$1,729
Gas	921	841
Steam	321	314
TOTAL OPERATING REVENUES	3,039	2,884
OPERATING EXPENSES
Purchased power	322	303
Fuel	106	124
Gas purchased for resale	317	273
Other operations and maintenance	659	630
Depreciation and amortization	334	310
Taxes, other than income taxes	575	539
TOTAL OPERATING EXPENSES	2,313	2,179
OPERATING INCOME	726	705
OTHER INCOME (DEDUCTIONS)
Investment and other income	9	5
Allowance for equity funds used during construction	3	3
Other deductions	(19)	(39)
TOTAL OTHER INCOME (DEDUCTIONS)	(7)	(31)
INCOME BEFORE INTEREST AND INCOME TAX EXPENSE	719	674
INTEREST EXPENSE
Interest on long-term debt	169	163
Other interest	17	5
Allowance for borrowed funds used during construction	(3)	(2)
NET INTEREST EXPENSE	183	166
INCOME BEFORE INCOME TAX EXPENSE	536	508
INCOME TAX EXPENSE	124	119
NET INCOME	$412	$389

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 COMPREHENSIVE INCOME (UNAUDITED)



	For the Three Months Ended March 31,
(Millions of Dollars)	2019	2018
NET INCOME	$412	$389
OTHER COMPREHENSIVE INCOME, NET OF TAXES	—	—
COMPREHENSIVE INCOME	$412	$389

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 Three Months Ended March 31,
(Millions of Dollars)	2019	2018
OPERATING ACTIVITIES
Net income	$412	$389
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME
Depreciation and amortization	334	310
Deferred income taxes	122	108
Rate case amortization and accruals	(29)	(33)
Common equity component of allowance for funds used during construction	(3)	(3)
Unbilled revenue and net unbilled revenue deferrals	19	13
Gain on sale of assets	(5)	—
Other non-cash items, net	(11)	(10)
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable – customers	(36)	(126)
Materials and supplies, including fuel oil and gas in storage	24	24
Other receivables and other current assets	(24)	(8)
Accounts receivable from affiliated companies	(6)	(19)
Prepayments	(438)	(417)
Accounts payable	(75)	37
Accounts payable to affiliated companies	—	7
Pensions and retiree benefits obligations, net	87	80
Pensions and retiree benefits contributions	(3)	(183)
Superfund and environmental remediation costs, net	(2)	(3)
Accrued taxes	(18)	(68)
Accrued taxes to affiliated companies	—	3
Accrued interest	72	68
System benefit charge	7	59
Deferred charges, noncurrent assets and other regulatory assets	(47)	(202)
Deferred credits and other regulatory liabilities	92	161
Other current and noncurrent liabilities	(77)	(131)
NET CASH FLOWS FROM OPERATING ACTIVITIES	395	56
INVESTING ACTIVITIES
Utility construction expenditures	(728)	(747)
Cost of removal less salvage	(70)	(61)
Proceeds from sale of assets	48	—
NET CASH FLOWS USED IN INVESTING ACTIVITIES	(750)	(808)
FINANCING ACTIVITIES
Net issuance/(payment) of short-term debt	(107)	763
Debt issuance costs	(1)	(1)
Capital contribution by parent	225	45
Dividend to parent	(228)	(211)
NET CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES	(111)	596
CASH, TEMPORARY CASH INVESTMENTS, AND RESTRICTED CASH:
NET CHANGE FOR THE PERIOD	(466)	(156)
BALANCE AT BEGINNING OF PERIOD	818	730
BALANCE AT END OF PERIOD	$352	$574
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION
Cash paid/(received) during the period for:
Interest	$101	$93
Income taxes	$8	$18
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION
Construction expenditures in accounts payable	$267	$272
Software licenses acquired but unpaid as of end of period	$95		$—

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)



(Millions of Dollars)	March 31, 2019	December 31, 2018
ASSETS
CURRENT ASSETS
Cash and temporary cash investments	$352	$818
Accounts receivable – customers, less allowance for uncollectible accounts of $58 and $57 in 2019 and 2018, respectively	1,198	1,163
Other receivables, less allowance for uncollectible accounts of $6 and $3 in 2019 and 2018, respectively	182	211
Taxes receivable	5	5
Accrued unbilled revenue	370	392
Accounts receivable from affiliated companies	220	214
Fuel oil, gas in storage, materials and supplies, at average cost	280	304
Prepayments	555	117
Regulatory assets	29	64
Other current assets	129	69
TOTAL CURRENT ASSETS	3,320	3,357
INVESTMENTS	407	385
UTILITY PLANT, AT ORIGINAL COST
Electric	28,903	28,595
Gas	8,493	8,295
Steam	2,574	2,562
General	3,100	3,056
TOTAL	43,070	42,508
Less: Accumulated depreciation	9,150	8,988
Net	33,920	33,520
Construction work in progress	1,894	1,850
NET UTILITY PLANT	35,814	35,370
NON-UTILITY PROPERTY
Non-utility property, less accumulated depreciation of $25 in 2019 and 2018	3	4
NET PLANT	35,817	35,374
OTHER NONCURRENT ASSETS
Regulatory assets	3,895	3,923
Operating lease right-of-use asset	627	—
Other deferred charges and noncurrent assets	56	69
TOTAL OTHER NONCURRENT ASSETS	4,578	3,992
TOTAL ASSETS	$44,122	$43,108

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)



(Millions of Dollars)	March 31, 2019	December 31, 2018
LIABILITIES AND SHAREHOLDER’S EQUITY
CURRENT LIABILITIES
Long-term debt due within one year	$475	$475
Notes payable	1,085	1,192
Accounts payable	870	977
Accounts payable to affiliated companies	17	17
Customer deposits	339	339
Accrued taxes	38	55
Accrued interest	184	112
Accrued wages	99	99
Fair value of derivative liabilities	24	25
Regulatory liabilities	105	73
System benefit charge	576	569
Operating lease liabilities	41	—
Other current liabilities	201	267
TOTAL CURRENT LIABILITIES	4,054	4,200
NONCURRENT LIABILITIES
Provision for injuries and damages	137	141
Pensions and retiree benefits	969	952
Superfund and other environmental costs	691	693
Asset retirement obligations	295	292
Fair value of derivative liabilities	32	6
Deferred income taxes and unamortized investment tax credits	5,893	5,739
Operating lease liabilities	598	—
Regulatory liabilities	4,220	4,258
Other deferred credits and noncurrent liabilities	236	241
TOTAL NONCURRENT LIABILITIES	13,071	12,322
LONG-TERM DEBT	13,678	13,676
SHAREHOLDER’S EQUITY (See Statement of Shareholder’s Equity)	13,319	12,910
TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY	$44,122	$43,108

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 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
(In Millions)	Shares	Amount	Additional Paid-In Capital	Retained Earnings	Repurchased Con Edison Stock	Capital Stock Expense	Accumulated Other Comprehensive Income/(Loss)	Total
BALANCE AS OF DECEMBER 31, 2017	235	$589	$4,649	$8,231	$(962)	$(62)	$(6)	$12,439
Net income				389				$389
Common stock dividend to parent				(211)				(211	)
Capital contribution by parent			45					45
Other comprehensive income								—
BALANCE AS OF MARCH 31, 2018	235	$589	$4,694	$8,409	$(962)	$(62)	$(6)	$12,662

BALANCE AS OF DECEMBER 31, 2018	235	$589	$4,769	$8,581	$(962)	$(62)	$(5)	$12,910
Net income				412				412
Common stock dividend to parent				(228)				(228	)
Capital contribution by parent			225					225
Other comprehensive income								—
BALANCE AS OF MARCH 31, 2019	235	$589	$4,994	$8,765	$(962)	$(62)	$(5)	$13,319

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 Orange and Rockland Utilities, Inc. (O&R), Con Edison Clean Energy Businesses, Inc. (together with its subsidiaries, the Clean Energy Businesses) and Con Edison Transmission, Inc. (together with its subsidiaries, Con Edison Transmission) 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, 2018. 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 subsidiary, provides electric service in southeastern New York and northern New Jersey and gas service in southeastern New York. Con Edison Clean Energy Businesses, Inc. has three subsidiaries: Consolidated Edison Development, Inc. (Con Edison Development), a company that develops, owns and operates renewable and energy infrastructure projects; Consolidated Edison Energy, Inc. (Con Edison Energy), a company that provides energy-related products and services to wholesale customers; and Consolidated Edison Solutions, Inc. (Con Edison Solutions), a company that provides energy-related products and services to retail customers. Con Edison Transmission, Inc. invests in electric transmission facilities through its subsidiary, Consolidated Edison Transmission, LLC (CET Electric), and invests in gas pipeline and storage facilities through its subsidiary Con Edison Gas Pipeline and Storage, LLC (CET Gas).

Note A – Summary of Significant Accounting Policies and Other Matters

Revenue Recognition

The following table presents, for the three months ended March 31, 2019, and 2018 revenue from contracts with customers as defined in Accounting Standards Codification (ASC) Topic 606, "Revenue from Contracts with Customers," as well as additional revenue from sources other than contracts with customers, disaggregated by major source.

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	For the Three Months Ended March 31, 2019				For the Three Months Ended March 31, 2018
(Millions of Dollars)	Revenues from contracts with customers		Other revenues (a)	Total operating revenues	Revenues from contracts with customers		Other revenues (a)	Total operating revenues
CECONY
Electric	$1,714		$83	$1,797	$1,771		$(42)	$1,729
Gas	910		11	921	835		6	841
Steam	317		4	321	315		(1)	314
Total CECONY	$2,941		$98	$3,039	$2,921		$(37)	$2,884
O&R
Electric	143		2	145	152		(3)	149
Gas	114		(1)	113	110		(13)	97
Total O&R	$257		$1	$258	$262		$(16)	$246
Clean Energy Businesses
Renewables	106	(b)	—	106	132	(b)	—	132
Energy services	23		—	23	17		—	17
Other	—		88	88	—		84	84
Total Clean Energy Businesses	$129		$88	$217	$149		$84	$233
Con Edison Transmission	1		—	1	1		—	1
Other (c)	—		(1)	(1)	—		—	—
Total Con Edison	$3,328		$186	$3,514	$3,333		$31	$3,364

(a) For the Utilities, this includes revenue from alternative revenue programs, such as the revenue decoupling mechanisms under their New York electric and gas rate plans.For the Clean Energy Businesses, this includes revenue from wholesale services.

(b) Included within the totals for Renewables revenue at the Clean Energy Businesses is $2 million and $89 million for the three months ended March 31, 2019 and 2018, respectively, of revenue related to engineering, procurement and construction services.


(c)	Parent company and consolidation adjustments.



	2019			2018
(Millions of Dollars)	Unbilled contract revenue (a)	Unearned revenue (b)		Unbilled contract revenue (a)	Unearned revenue (b)
Beginning balance as of January 1,	$29	$20		$58	$87
Additions (c)	24	—		36	32
Subtractions (c)	15	1	(d)	15	70	(d)
Ending balance as of March 31,	$38	$19		$79	$49

(a)

Unbilled contract revenue represents accumulated incurred costs and earned profits on contracts (revenue arrangements), which have been recorded as revenue, but have not yet been billed to customers, and which represent contract assets as defined in Topic 606. Substantially all accrued unbilled contract revenue is expected to be collected within one year. Unbilled contract revenue arises from the cost-to-cost method of revenue recognition. Unbilled contract revenue from fixed-price type contracts is converted to billed receivables when amounts are invoiced to customers according to contractual billing terms, which generally occur when deliveries or other performance milestones are completed.


(b)	Unearned revenue represents a liability for billings to customers in excess of earned revenue, which are contract liabilities as defined in Topic 606.


(c)	Additions for unbilled contract revenue and subtractions for unearned revenue represent additional revenue earned. Additions for unearned revenue and subtractions for unbilled contract revenue represent billings. Activity also includes appropriate balance sheet classification for the period.


(d)	Of the subtractions from unearned revenue, $1 million and $48 million were included in the balance as of January 1, 2019 and 2018, respectively.

As of March 31, 2019, the aggregate amount of the remaining fixed performance obligations is $79 million, of which $43 million will be recognized within the next two years, and the remaining $36 million will be recognized pursuant to long-term service and maintenance agreements.

Utility Plant

General utility plant of Con Edison and CECONY included $98 million and $93 million, respectively, at March 31, 2019 and $100 million and $95 million, respectively, at December 31, 2018, related to a May 2018 acquisition of software licenses. The estimated aggregate annual amortization expense related to the software licenses for Con Edison and CECONY is $7 million. The accumulated amortization for Con Edison and CECONY was $5 million at March 31, 2019 and was $3 million at December 31, 2018.

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Long-Lived and Intangible Assets

In January 2019, Pacific Gas and Electric Company (PG&E) filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The output of Con Edison Development renewable electric production projects with an aggregate of 680 MW (AC) of generating capacity (PG&E Projects) is sold to PG&E under long-term power purchase agreements (PG&E PPAs). Most of the PG&E PPAs have contract prices that are higher than estimated market prices. PG&E, as a debtor in possession, may assume or reject the PG&E PPAs, subject to review by the bankruptcy court or, pursuant to a January 2019 FERC order (which PG&E is challenging), the bankruptcy court and FERC. In a May 1, 2019 order, FERC denied PG&E’s request for a rehearing of the January 2019 order and reaffirmed its jurisdiction to review and approve the modification or abrogation of wholesale power contracts that are the subject of rejection in bankruptcy. The PG&E bankruptcy is an event of default under the PG&E PPAs. Unless the lenders for the related project debt otherwise agree, distributions from the related projects to Con Edison Development will not be made during the pendency of the bankruptcy. At March 31, 2019, Con Edison’s consolidated balance sheet included $859 million of net non-utility plant relating to the PG&E Projects, $1,108 million of intangible assets relating to the PG&E PPAs, $289 million of net non-utility plant of additional projects that secure the related project debt and $1,041 million of non-recourse related project debt. See "Long-term Debt" in Note C. Con Edison has tested whether its net non-utility plant relating to the PG&E Projects and intangible assets relating to the PG&E PPAs have been impaired. The projected future cash flows used in the test reflected Con Edison’s expectation that the PG&E PPAs are not likely to be rejected. Based on the test, Con Edison has determined that there was no impairment. If, in the future, one or more of the PG&E PPAs is rejected or any such rejection becomes likely, there will be an impairment of the related intangible assets and could be an impairment of the related non-utility plant. The amount of any such impairment could be material.

Earnings Per Common Share

Con Edison presents basic and diluted earnings per share (EPS) on the face of its consolidated income statement. Basic EPS is calculated by dividing earnings available to common shareholders (“Net income for common stock” on Con Edison’s consolidated income statement) by the weighted average number of Con Edison common shares outstanding during the period. In the calculation of diluted EPS, weighted average shares outstanding are increased for additional shares that would be outstanding if potentially dilutive securities were converted to common stock.

Potentially dilutive securities for Con Edison consist of restricted stock units and deferred stock units for which the average market price of the common shares for the period was greater than the exercise price.

For the three months ended March 31, 2019 and 2018, basic and diluted EPS for Con Edison are calculated as follows:



	For the Three Months Ended March 31,
(Millions of Dollars, except per share amounts/Shares in Millions)	2019	2018
Net income for common stock	$424	$428
Weighted average common shares outstanding – basic	322.5	310.4
Add: Incremental shares attributable to effect of potentially dilutive securities	0.9	1.2
Adjusted weighted average common shares outstanding – diluted	323.4	311.6
Net Income per common share – basic	$1.31	$1.38
Net Income per common share – diluted	$1.31	$1.37

The computation of diluted EPS for the three months ended March 31, 2019 and 2018 excludes immaterial amounts of performance share awards that were not included because of their anti-dilutive effect.

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Changes in Accumulated Other Comprehensive Income/(Loss) by Component

For the three months ended March 31, 2019 and 2018, changes to accumulated other comprehensive income/(loss) (OCI) for Con Edison and CECONY are as follows:



	For the Three Months Ended March 31,
	Con Edison		CECONY
(Millions of Dollars)	2019	2018	2019	2018
Beginning balance, accumulated OCI, net of taxes (a)	$(16)	$(26)	$(5)	$(6)
OCI before reclassifications, net of tax of $(1) for Con Edison in 2019 and 2018	2	3	—	—
Amounts reclassified from accumulated OCI related to pension plan liabilities, net of tax of $(1) for Con Edison in 2018 (a)(b)	2	1	—	—
Current period OCI, net of taxes	4	4	—	—
Ending balance, accumulated OCI, net of taxes	$(12)	$(22)	$(5)	$(6)


(a)	Tax reclassified from accumulated OCI is reported in the income tax expense line item of the consolidated income statement.


(b)	For the portion of unrecognized pension and other postretirement benefit costs relating to the Utilities, costs are recorded into, and amortized out of, regulatory assets instead of OCI. The net actuarial losses and prior service costs recognized during the period are included in the computation of total periodic pension and other postretirement benefit cost. See Notes E and F.

Reconciliation of Cash, Temporary Cash Investments and Restricted Cash

Cash, temporary cash investments and restricted cash are presented on a combined basis in the Companies’ consolidated statements of cash flows. At March 31, 2019 and 2018, cash, temporary cash investments and restricted cash for Con Edison and CECONY are as follows:



	At March 31,
	Con Edison		CECONY
(Millions of Dollars)	2019	2018	2019	2018
Cash and temporary cash investments	$406	$651	$352	$574
Restricted cash (a)	68	32	—	—
Total cash, temporary cash investments and restricted cash	$474	$683	$352	$574

(a)

Restricted cash included cash of Con Edison Development renewable electric production project subsidiaries ($67 million and $31 million at March 31, 2019 and 2018, respectively) that, under the related project debt agreements, is restricted until the various maturity dates of the project debt to being used for normal operating expenses and capital expenditures, debt service, and required reserves. During the pendency of the PG&E bankruptcy, unless the lenders for the related project debt otherwise agree, cash may not be distributed from the related projects to Con Edison Development. See “Long-Lived and Intangible Assets,” above, and Note C. In addition, restricted cash includes O&R's New Jersey utility subsidiary, Rockland Electric Company transition bond charge collections, net of principal, interest, trustee and service fees ($1 million at March 31, 2019 and 2018) that are restricted until the bonds mature in 2019.

Note B – Regulatory Matters

Rate Plans

CECONY – Electric

In April 2019, CECONY preliminarily updated its January 2019 request to the New York State Public Service Commission (NYSPSC) for an electric rate increase effective January 2020. The company decreased its requested January 2020 rate increase by $12 million to $473 million, increased its illustrated January 2021 rate increase by $7 million to $359 million and decreased its illustrated January 2022 rate increase by $14 million to $249 million.

CECONY – Gas

In April 2019, CECONY preliminarily updated its January 2019 request to the NYSPSC for a gas rate increase effective January 2020. The company decreased its requested January 2020 rate increase by $9 million to $201 million, decreased its illustrated January 2021 rate increase by $14 million to $124 million and decreased its illustrated January 2022 rate increase by $1 million to $154 million.

O&R New York – Electric and Gas

In March 2019, the NYSPSC approved the November 2018 joint proposal for new electric and gas rates. The joint proposal provides for electric rate increases of $13.4 million, $8.0 million and $5.8 million, effective January 1, 2019, 2020 and 2021, respectively. The joint proposal provides for a gas rate decrease of $7.5 million, effective January 1, 2019, and gas rate increases of $3.6 million and $0.7 million, effective January 1, 2020 and 2021.

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Other Regulatory Matters

In August and November 2017, the NYSPSC issued orders in its proceeding investigating an April 21, 2017 Metropolitan Transportation Authority (MTA) subway power outage. The orders indicated that the investigation determined that the outage was caused by a failure of CECONY’s electricity supply to a subway station, which led to a loss of the subway signals, and that one of the secondary services to the MTA facility had been improperly rerouted and was not properly documented by the company. The orders also indicated that the loss of power to the subway station affected multiple subway lines and caused widespread delays across the subway system. Pursuant to the orders, the company is required to take certain actions, including inspecting, repairing and installing certain electrical equipment that serves the subway system, analyzing power supply and power quality events affecting the MTA’s signaling services, and filing monthly reports with the NYSPSC on all of the company's activities related to the subway system. The company completed the required actions in 2018. Through March 31, 2019, the company incurred costs related to this matter of $270 million. Included in this amount is $31 million in capital and operating and maintenance costs reflected in the company's electric rate plan and $239 million deferred as a regulatory asset that the company is seeking to recover in its pending electric rate proceeding. The company is unable to estimate the amount or range of its possible loss related to this matter. At March 31, 2019, the company had not accrued a liability related to this matter.

In August 2018, the NYSPSC ordered CECONY to begin on January 1, 2019 to credit the company's electric and gas customers, and to begin on October 1, 2018 to credit its steam customers, with the net benefits of the federal Tax Cuts and Jobs Act of 2017 (TCJA) as measured based on amounts reflected in its rate plans prior to the enactment of the TCJA in December 2017. The net benefits include the revenue requirement impact of the reduction in the corporate federal income tax rate to 21 percent, the elimination for utilities of bonus depreciation and the amortization of excess deferred federal income taxes. CECONY estimates that its credit of net benefits of the TCJA to its electric, gas and steam customers in 2019 will amount to $259 million, $113 million and $25 million, respectively. CECONY’s net benefits prior to January 1, 2019 allocable to the company’s electric customers ($311 million) are to be deferred and addressed in its pending electric rate proceeding. CECONY’s net benefits prior to January 1, 2019 allocable to the company’s gas customers ($90 million) and net benefits prior to October 1, 2018 allocable to the company’s steam customers ($15 million) are to be amortized over a three-year period. CECONY’s net regulatory liability for future income taxes, including both the protected and unprotected portions, allocable to the company’s electric customers ($2,489 million) is to continue to be deferred and addressed in its pending electric rate proceeding and the amounts allocable to its gas and steam customers ($804 million and $185 million, respectively) are to be amortized over the remaining lives of the related assets (with the amortization period for the unprotected portion subject to review in its pending gas rate proceeding and next steam rate proceeding).

In January 2018, the NYSPSC issued an order initiating a focused operations audit of the income tax accounting of certain utilities, including CECONY and O&R. The Utilities are unable to estimate the amount or range of their possible loss related to this matter. At March 31, 2019, the Utilities had not accrued a liability related to this matter.

In March 2018, Winter Storms Riley and Quinn caused damage to the Utilities’ electric distribution systems and interrupted service to approximately 209,000 CECONY customers, 93,000 O&R customers and 44,000 RECO customers. At March 31, 2019, CECONY's costs related to March 2018 storms, including Riley and Quinn, amounted to $133 million, including operation and maintenance expenses reflected in its electric rate plan ($15 million), operation and maintenance expenses charged against a storm reserve pursuant to its electric rate plan ($84 million), capital expenditures ($29 million) and removal costs ($6 million). At March 31, 2019, O&R and RECO costs related to 2018 storms amounted to $43 million and $17 million, respectively, most of which were deferred as regulatory assets pursuant to their electric rate plans. The NYSPSC investigated the preparation and response to the storms by CECONY, O&R, and other New York electric utilities, including all aspects of their emergency response plans. In April 2019, following the issuance of a NYSPSC staff report on the investigation, the NYSPSC ordered the utilities to show cause why the NYSPSC should not commence a penalty action against them for violating their emergency response plans. The Utilities are unable to estimate the amount or range of their possible loss related to this matter. At March 31, 2019, the Utilities had not accrued a liability related to this matter.

In May 2018, FERC denied a complaint the NJBPU filed with FERC seeking the re-allocation to CECONY of certain PJM Interconnection LLC (PJM) transmission costs that had been allocated to the company prior to April 2017 when transmission service provided to the company pursuant to the PJM open access transmission tariff terminated. The transmission service terminated because the company did not exercise its option to continue the service following a series of requests PJM had submitted to FERC that substantially increased the charges for the transmission service. CECONY challenged each of these requests. FERC rejected all but one of CECONY’s protests. In June

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2015 and May 2016, CECONY filed appeals of certain FERC decisions with the U.S. Court of Appeals. In July 2018, FERC established a settlement proceeding relating to the allocation of PJM transmission costs. Under CECONY’s electric rate plan, unless and until changed by the NYSPSC, the company will recover all charges incurred associated with the transmission service.

In July 2018, the NYSPSC commenced an investigation into the rupture of a CECONY steam main (see Note H).

In March 2019, the NYSPSC ordered CECONY to show cause why the NYSPSC should not commence a penalty action and prudence proceeding against CECONY for alleged violations of gas operator qualification, performance, and inspection requirements. The company is seeking to resolve this matter through settlement negotiations with the NYSPSC staff. Any settlement would be subject to NYSPSC approval. The company is unable to estimate the amount or range of its possible loss related to this matter. At March 31, 2019, the company had not accrued a liability related to this matter.

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Regulatory Assets and Liabilities

Regulatory assets and liabilities at March 31, 2019 and December 31, 2018 were comprised of the following items:



	Con Edison		CECONY
(Millions of Dollars)	2019	2018	2019	2018
Regulatory assets
Unrecognized pension and other postretirement costs	$2,166	$2,238	$2,052	$2,111
Environmental remediation costs	798	810	706	716
Revenue taxes	299	291	286	278
MTA power reliability deferral	239	229	239	229
Property tax reconciliation	114	101	101	86
Deferred storm costs	77	76	—	—
Municipal infrastructure support costs	75	67	75	67
Pension and other postretirement benefits deferrals	63	73	45	56
System peak reduction and energy efficiency programs	60	72	59	70
Deferred derivative losses	43	17	37	11
Brooklyn Queens demand management program	37	39	37	39
Meadowlands heater odorization project	36	36	36	36
Unamortized loss on reacquired debt	34	36	32	34
Preferred stock redemption	23	23	23	23
Recoverable REV demonstration project costs	20	20	18	18
Gate station upgrade project	18	17	18	17
Indian Point Energy Center program costs	7	13	7	13
Workers’ compensation	6	5	6	5
O&R transition bond charges	1	2	—	—
Other	129	129	118	114
Regulatory assets – noncurrent	4,245	4,294	3,895	3,923
Deferred derivative losses	39	36	29	29
Recoverable energy costs	4	40	—	35
Regulatory assets – current	43	76	29	64
Total Regulatory Assets	$4,288	$4,370	$3,924	$3,987
Regulatory liabilities
Future income tax	$2,496	$2,515	$2,347	$2,363
Allowance for cost of removal less salvage	934	928	795	790
TCJA net benefits*	438	434	417	411
Energy efficiency portfolio standard unencumbered funds	124	127	119	122
Net unbilled revenue deferrals	115	117	115	117
Pension and other postretirement benefit deferrals	62	62	38	40
Net proceeds from sale of property	46	6	46	6
Property tax refunds	45	45	45	45
System benefit charge carrying charge	31	27	28	24
Settlement of prudence proceeding	29	37	29	37
Property tax reconciliation	26	36	26	36
BQDM and REV Demo reconciliations	20	18	20	18
Earnings sharing - electric, gas and steam	19	36	10	27
Carrying charges on repair allowance and bonus depreciation	15	21	14	21
Settlement of gas proceedings	15	15	15	15
New York State income tax rate change	12	17	12	17
Unrecognized other postretirement costs	11	7	6	7
Base rate change deferrals	7	10	7	10
Other	168	183	131	152
Regulatory liabilities – noncurrent	4,613	4,641	4,220	4,258
Revenue decoupling mechanism	34	53	22	36
Refundable energy costs	83	31	51	8
Deferred derivative gains	35	30	32	29
Regulatory liabilities – current	152	114	105	73
Total Regulatory Liabilities	$4,765	$4,755	$4,325	$4,331

* See "Other Regulatory Matters," above.

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Note C – Capitalization

In February 2019, Con Edison borrowed $825 million under a two-year variable-rate term loan to fund the repayment of a 6-month variable-rate term loan.

In March 2019, Con Edison issued 5,649,369 shares of its common stock for $425 million upon physical settlement of the remaining shares subject to its November 2018 forward sale agreements.

The carrying amounts and fair values of long-term debt at March 31, 2019 and December 31, 2018 were:



(Millions of Dollars)	2019		2018
Long-Term Debt (including current portion) (a)	Carrying Amount	Fair Value	Carrying Amount	Fair Value
Con Edison	$18,962	$20,304	$18,145	$18,740
CECONY	$14,153	$15,371	$14,151	$14,685


(a)	Amounts shown are net of unamortized debt expense and unamortized debt discount of $181 million and $137 million for Con Edison and CECONY, respectively, as of March 31, 2019 and $185 million and $139 million for Con Edison and CECONY, respectively, as of December 31, 2018.

The fair values of the Companies' long-term debt have been estimated primarily using available market information and at March 31, 2019 are classified as Level 2 (see Note M).

At December 31, 2018, the Clean Energy Businesses had $2,076 million of non-recourse project debt secured by the pledge of the applicable renewable energy production projects, of which $1,965 million was included in long-term debt and $111 million was included in long-term debt due within one year in Con Edison's consolidated balance sheet. As a result of the January 2019 PG&E bankruptcy (see "Long-Lived and Intangible Assets" in Note A), during the first quarter of 2019, Con Edison reclassified on its consolidated balance sheet the PG&E-related project debt that was included in long-term debt to long-term debt due within one year. At March 31, 2019, long-term debt due within one year included $1,041 million of PG&E-related project debt. The lenders for the PG&E-related project debt may, upon written notice, declare principal and interest on the PG&E-related project debt to be due and payable immediately and, if such amounts are not timely paid, foreclose on the related projects. The company is seeking to negotiate agreements with the PG&E-related project debt lenders pursuant to which the lenders would defer exercising these remedies.

Note D – Short-Term Borrowing

At March 31, 2019, Con Edison had $1,435 million of commercial paper outstanding of which $1,085 million was outstanding under CECONY’s program. The weighted average interest rate at March 31, 2019 was 2.7 percent for both Con Edison and CECONY. At December 31, 2018, Con Edison had $1,741 million of commercial paper outstanding of which $1,192 million was outstanding under CECONY’s program. The weighted average interest rate at December 31, 2018 was 3.0 percent for both Con Edison and CECONY.

At March 31, 2019 and December 31, 2018, no loans were outstanding under the Companies' December 2016 credit agreement (Credit Agreement). An immaterial amount of letters of credit were outstanding under the Credit Agreement as of March 31, 2019 and December 31, 2018. In April 2019, the termination date of the Credit Agreement was extended from December 2022 to December 2023 with respect to banks with aggregate commitments of $2,200 million.

Note E – Pension Benefits

Total Periodic Benefit Cost

The components of the Companies’ total periodic benefit cost for the three months ended March 31, 2019 and 2018 were as follows:

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	For the Three Months Ended March 31,
	Con Edison		CECONY
(Millions of Dollars)	2019	2018	2019	2018
Service cost – including administrative expenses	$62	$72	$58	$68
Interest cost on projected benefit obligation	150	140	141	131
Expected return on plan assets	(247)	(258)	(234)	(245)
Recognition of net actuarial loss	130	172	123	163
Recognition of prior service cost/(credit)	(4)	(4)	(5)	(5)
TOTAL PERIODIC BENEFIT COST	$91	$122	$83	$112
Cost capitalized	(26)	(31)	(24)	(29)
Reconciliation to rate level	(5)	(23)	(4)	(25)
Total expense recognized	$60	$68	$55	$58

Components of net periodic benefit cost other than service cost are presented outside of operating income on the Companies' consolidated income statements, and only the service cost component is eligible for capitalization. Accordingly, the service cost component is included in the line "Other operations and maintenance" and the non-service cost components are included in the line "Other deductions" in the Companies' consolidated income statements.

Expected Contributions

Based on estimates as of March 31, 2019, the Companies expect to make contributions to the pension plans during 2019 of $350 million (of which $318 million is to be made by CECONY). The Companies’ policy is to fund the total periodic benefit cost of the qualified plan to the extent tax deductible and to also contribute to the non-qualified supplemental plans. During the first three months of 2019, the Companies contributed $4 million to the pension plans, of which $3 million was made by CECONY.

Note F – Other Postretirement Benefits

Total Periodic Benefit Cost

The components of the Companies’ total periodic other postretirement benefit cost/(credit) for the three months ended March 31, 2019 and 2018 were as follows:



	For the Three Months Ended March 31,
	Con Edison		CECONY
(Millions of Dollars)	2019	2018	2019	2018
Service cost	$4	$5	$3	$3
Interest cost on accumulated other postretirement benefit obligation	11	11	9	9
Expected return on plan assets	(16)	(18)	(14)	(16)
Recognition of net actuarial loss/(gain)	(2)	2	(2)	1
Recognition of prior service cost/(credit)	(1)	(2)	—	(1)
TOTAL PERIODIC OTHER POSTRETIREMENT BENEFIT COST/(CREDIT)	$(4)	$(2)	$(4)	$(4)
Cost capitalized	(2)	(2)	(2)	(2)
Reconciliation to rate level	3	2	2	3
Total expense/(credit) recognized	$(3)	$(2)	$(4)	$(3)

For information about the presentation of the components of other postretirement benefit costs, see Note E.

Contributions

Based on estimates as of March 31, 2019, Con Edison and CECONY expect to make contributions of $10 million (of which $7 million is to be made by CECONY) to the other postretirement benefit plans in 2019. The Companies' policy is to fund the total periodic benefit cost of the plans to the extent tax deductible.

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Note G – 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 the undiscounted cost to investigate the sites and, for sites 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 March 31, 2019 and December 31, 2018 were as follows:



	Con Edison		CECONY
(Millions of Dollars)	2019	2018	2019	2018
Accrued Liabilities:
Manufactured gas plant sites	$687	$689	$602	$603
Other Superfund Sites	89	90	89	90
Total	$776	$779	$691	$693
Regulatory assets	$798	$810	$706	$716

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. The Utilities are permitted to recover or defer as regulatory assets (for subsequent recovery through rates) prudently incurred site investigation and remediation costs.

Environmental remediation costs incurred related to Superfund Sites for the three months ended March 31, 2019 and 2018 were as follows:



	For the Three Months Ended March 31,
	Con Edison		CECONY
(Millions of Dollars)	2019	2018	2019	2018
Remediation costs incurred	$3	$3	$2	$3

Insurance and other third-party recoveries received by Con Edison or CECONY were immaterial for the three months ended March 31, 2019 and 2018.

In 2018, Con Edison and CECONY estimated that for their manufactured gas plant sites (including CECONY’s Astoria site), the aggregate undiscounted potential liability for the investigation and remediation of coal tar and/or other environmental contaminants could range up to $2.8 billion and $2.6 billion, respectively. 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.

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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 claims. At March 31, 2019, Con Edison and CECONY have accrued their estimated aggregate undiscounted potential liabilities for these suits and additional suits that may be brought over the next 15 years as shown in the following table. These estimates were based upon a combination of modeling, historical data analysis and risk factor assessment. Courts have begun, and unless otherwise determined on appeal may continue, to apply different standards for determining liability in asbestos suits than the standard that applied historically. As a result, the Companies currently believe that there is a reasonable possibility of an exposure to loss in excess of the liability accrued for the suits. The Companies are unable to estimate the amount or range of such loss. In addition, certain current and former employees have claimed or are claiming workers’ compensation benefits based on alleged disability from exposure to asbestos. 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 March 31, 2019 and December 31, 2018 were as follows:



	Con Edison		CECONY
(Millions of Dollars)	2019	2018	2019	2018
Accrued liability – asbestos suits	$8	$8	$7	$7
Regulatory assets – asbestos suits	$8	$8	$7	$7
Accrued liability – workers’ compensation	$80	$79	$76	$75
Regulatory assets – workers’ compensation	$6	$5	$6	$5

Note H – Other Material Contingencies

Manhattan Explosion and Fire

On March 12, 2014, two multi-use five-story tall buildings located on Park Avenue between 116^th and 117^th Streets in Manhattan were destroyed by an explosion and fire. CECONY had delivered gas to the buildings through service lines from a distribution main located below ground on Park Avenue. Eight people died and more than 50 people were injured. Additional buildings were also damaged. The National Transportation Safety Board (NTSB) investigated. The parties to the investigation included the company, the City of New York, the Pipeline and Hazardous Materials Safety Administration and the NYSPSC. In June 2015, the NTSB issued a final report concerning the incident, its probable cause and safety recommendations. The NTSB determined that the probable cause of the incident was (1) the failure of a defective fusion joint at a service tee (which joined a plastic service line to a plastic distribution main) installed by the company that allowed gas to leak from the distribution main and migrate into a building where it ignited and (2) a breach in a City sewer line that allowed groundwater and soil to flow into the sewer, resulting in a loss of support for the distribution main, which caused it to sag and overstressed the defective fusion joint. The NTSB also made safety recommendations, including recommendations to the company that addressed its procedures for the preparation and examination of plastic fusions, training of its staff on conditions for notifications to the City’s Fire Department and extension of its gas main isolation valve installation program. In February 2017, the NYSPSC approved a settlement agreement with the company related to the NYSPSC's investigations of the incident and the practices of qualifying persons to perform plastic fusions. Pursuant to the agreement, the company is providing $27 million of future benefits to customers (for which it has accrued a regulatory liability) and will not recover from customers $126 million of costs for gas emergency response activities that it had previously incurred and expensed. Approximately eighty suits are pending against the company seeking generally unspecified damages and, in some cases, punitive damages, for wrongful death, personal injury, property damage and business interruption. The company has notified its insurers of the incident and believes that the policies in force at the time of the incident will cover the company’s costs, in excess of a required retention (the amount of which is not material), to satisfy any liability it may have for damages in connection with the incident. The company is unable to estimate the amount or range of its possible loss for damages related to the incident. At March 31, 2019, the company had not accrued a liability for damages related to the incident.

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Manhattan Steam Main Rupture

In July 2018, a CECONY steam main located on Fifth Avenue and 21^st Street in Manhattan ruptured. Debris from the incident included dirt and mud containing asbestos. The response to the incident required the closing of buildings and streets for various periods. The NYSPSC has commenced an investigation. As of March 31, 2019, with respect to the incident, the company incurred estimated operating costs of $16 million for property damage, clean- up and other response costs and invested $9 million in capital and retirement costs. The company has notified its insurers of the incident and believes that the policies currently in force will cover the company’s costs, in excess of a required retention (the amount of which is not material), to satisfy any liability it may have for damages to others in connection with the incident. The company is unable to estimate the amount or range of its possible loss related to the incident. At March 31, 2019, the company had not accrued a liability related to the incident.

Other Contingencies

For information about the PG&E bankruptcy, see "Long-Lived and Intangible Assets" in Note A and Note C. Also, for additional contingencies, see "Other Regulatory Matters" in Note B and “Uncertain Tax Positions” in Note J.

Guarantees

Con Edison and its subsidiaries have entered into various agreements providing financial or performance assurance primarily to third parties on behalf of their subsidiaries. Maximum amounts guaranteed by Con Edison under these agreements totaled $2,199 million and $2,439 million at March 31, 2019 and December 31, 2018, respectively.

A summary, by type and term, of Con Edison’s total guarantees under these agreements at March 31, 2019 is as follows:



Guarantee Type	0 – 3 years	4 – 10 years	> 10 years		Total
	(Millions of Dollars)
Con Edison Transmission	$539	$337		$—	$876
Energy transactions	490	19	200		709
Renewable electric production projects	142	—	402		544
Other	70	—	—		70
Total	$1,241	$356	$602		$2,199

Con Edison Transmission — Con Edison has guaranteed payment by CET Electric of the contributions CET Electric agreed to make to New York Transco LLC (NY Transco). CET Electric acquired a 45.7 percent interest in NY Transco when it was formed in 2014. In May 2016, the transmission owners transferred certain projects to NY Transco, for which CET Electric made its required contributions. NY Transco has proposed other transmission projects in the New York Independent System Operator's competitive bidding process. These other projects are subject to certain authorizations from the NYSPSC, the FERC and, as applicable, other federal, state and local agencies. Guarantee amount shown is for the maximum possible required amount of CET Electric’s contributions for these other projects as calculated based on the assumptions that the projects are completed at 175 percent of their estimated costs and NY Transco does not use any debt financing for the projects. Guarantee term shown is assumed as the selection of the projects and resulting timing of the contributions is not certain. Also included within the table above are guarantees for $124 million from Con Edison on behalf of CET Gas in relation to Mountain Valley Pipeline (MVP), LLC, a company developing a proposed gas transmission project in West Virginia and Virginia.

Energy Transactions — Con Edison guarantees payments on behalf of the Clean Energy Businesses in order to facilitate physical and financial transactions in electricity, gas, pipeline capacity, transportation, oil, renewable energy credits and energy services. To the extent that liabilities exist under the contracts subject to these guarantees, such liabilities are included in Con Edison’s consolidated balance sheet.

Renewable Electric Production Projects — Con Edison, Con Edison Development, and Con Edison Solutions guarantee payments on behalf of their wholly-owned subsidiaries associated with their investment in, or development for others of, solar and wind energy facilities.

Other — Other guarantees include $70 million in guarantees provided by Con Edison to Travelers Insurance Company for indemnity agreements for surety bonds in connection with operation of solar energy facilities and energy service projects of Con Edison Development and Con Edison Solutions, respectively.

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Note I – Leases

In January 2019, the Companies adopted Accounting Standards Update (ASU) No. 2016-02, “Leases (Topic 842),” including the amendments thereto, using a modified retrospective transition method of adoption that required no prior period adjustments or charges to retained earnings for cumulative impact. The standard supersedes the lease requirements within ASC Topic 840, “Leases.”

The Companies lease electric transmission facilities, gas distribution facilities, land, office buildings and equipment. Upon adoption of Topic 842, the Companies recognized lease right-of-use assets and lease liabilities on their consolidated balance sheets for virtually all of their leases (other than leases that meet the definition of a short-term lease, the expense for which was immaterial). A lease right-of-use asset represents a right to use an identifiable underlying asset and obtain substantially all of the economic benefits from the use of that asset for the lease term. A lease liability represents an obligation to make lease payments arising from the lease. Leases are classified as either operating leases or finance leases. Operating leases are included in operating lease right-of-use asset and operating lease liabilities on the Companies’ consolidated balance sheets. Finance leases are included in other noncurrent assets, other current liabilities and other noncurrent liabilities. The Utilities, as regulated entities, are permitted to continue to recognize expense for operating leases using the timing that conforms to the regulatory rate treatment (with the amortization of the lease asset based on the rental payments recovered from our customers) and to account the same way for finance leases. Lessor accounting is similar to the previous model, but updated to align with ASC Topic 606 “Revenue from Contracts with Customers."

The Companies elected the following practical expedients: (1) a package of practical expedients that allows the Companies to not reassess: (a) whether expired or existing contracts contained leases; (b) the lease classification for expired or existing leases and (c) the initial direct costs for existing leases; (2) for all underlying asset classes, an expedient that allows the Companies to not apply the recognition requirements to short-term leases and an expedient that will allow the Companies to account for lease and associated non-lease components as a single lease component; (3) an expedient that allows the use of hindsight to determine lease term; and (4) an expedient that allows the Companies to not evaluate under Topic 842 land easements that exist or expired before the entity’s adoption of Topic 842 and that were not previously accounted for as leases under Topic 840.

The Companies, upon adoption of Topic 842 recognized, and for new operating leases at commencement date recognize, operating lease right-of-use assets and operating lease liabilities based on the present value of the future minimum lease payments over the lease term. As most of the Companies’ leases do not provide an implicit rate, the Companies used their collateralized incremental borrowing rate based on the information available at the commencement date to determine the present value of future payments. Most of the Companies’ leases have remaining lease terms of one year to 35 years, and may include options to renew or extend the leases for up to five years at the fair rental value. The Companies' lease terms may include options to renew, extend or terminate the lease when it is reasonably certain that the Companies will exercise that option. There were no leases with material variable lease payments or residual value guarantees.

Operating lease cost and cash paid for amounts included in the measurement of lease liabilities were as follows for Con Edison and CECONY for the three months ended March 31, 2019:

As of March 31, 2019, assets recorded as finance leases for Con Edison and CECONY were $2 million and $1 million, respectively, and the accumulated depreciation associated with finance leases for Con Edison and CECONY were $4 million and $3 million, respectively. For the three months ended March 31, 2019, finance lease costs and cash flows for Con Edison and CECONY were immaterial.

Right-of-use assets obtained in exchange for lease obligations were immaterial for Con Edison and CECONY for the three months ended March 31, 2019.

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Other information related to leases for Con Edison and CECONY at March 31, 2019 was as follows:



	Con Edison	CECONY
Weighted Average Remaining Lease Term:
Operating leases	19.3 years	14.7 years
Finance leases	10.0 years	2.5 years
Weighted Average Discount Rate:
Operating leases	4.3%	3.6%
Finance leases	4.2%	5.3%

Future minimum lease payments under non-cancellable leases at March 31, 2019 were as follows:



(Millions of Dollars)	Con Edison			CECONY
Year Ending March 31,	Operating Leases	Finance Leases		Operating Leases	Finance Leases
2020	$79	$1		$58	$1
2021	74	—		58	—
2022	71	—		55	—
2023	69	—		53	—
2024	68	—		53	—
All years thereafter	973	1		553	—
Total future minimum lease payments	$1,334	$2		$830	$1
Less: imputed interest	(459)	—		(191)	—
Total	$875	$2		$639	$1
Reported as of March 31, 2019
Operating lease liabilities (current)	$50		$—	$41		$—
Operating lease liabilities (noncurrent)	825	—		598	—
Other current liabilities	—	1		—	1
Other noncurrent liabilities	—	1		—	—
Total	$875	$2		$639	$1

At March 31, 2019, the Companies do not have material obligations under operating or finance leases that have not yet commenced.

The future minimum lease commitments at December 31, 2018, accounted for under Topic 840, for the Companies’ operating lease agreements that are not cancellable by the Companies were as follows:



(Millions of Dollars)	Con Edison	CECONY
2019	$72	$56
2020	72	56
2021	71	54
2022	68	53
2023	68	53
All years thereafter	890	592
Total	$1,241	$864

The Companies are lessors under certain leases whereby the Companies own real estate and lease portions of it to others. Revenue under such leases was immaterial for Con Edison and CECONY for the three months ended March 31, 2019.

Note J – Income Tax

Con Edison’s income tax expense decreased to $108 million for the three months ended March 31, 2019 from $117 million for the three months ended March 31, 2018. The decrease in income tax expense is primarily due to lower income before income tax expense (excluding income attributable to noncontrolling interest (see Note N)), an increase in the amortization of excess deferred federal income taxes due to the TCJA and higher renewable energy credits, offset in part by higher state income taxes.

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CECONY’s income tax expense increased to $124 million for the three months ended March 31, 2019 from $119 million for the three months ended March 31, 2018. The increase in income tax expense is primarily due to higher income before income tax expense and higher state income taxes, offset in part by an increase in the amortization of excess deferred federal income taxes due to the TCJA.

Reconciliation of the difference between income tax expense and the amount computed by applying the prevailing statutory income tax rate to income before income taxes for the three months ended March 31, is as follows:



	Con Edison				CECONY
(% of Pre-tax income)	2019		2018		2019		2018
STATUTORY TAX RATE
Federal	21	%	21	%	21	%	21	%
Changes in computed taxes resulting from:
State income tax	5		4		6		5
Cost of removal	1		1		1		1
Other plant-related items	(1	)	—		—		(1	)
Renewable energy credits	(1	)	(1	)	—		—
Amortization of excess deferred federal income taxes	(4	)	(3	)	(4	)	(3	)
Other	(1	)	(1	)	(1	)	—
Effective tax rate	20	%	21	%	23	%	23	%

CECONY, O&R and RECO deferred as regulatory liabilities their estimated net benefits under the TCJA for the three months ended March 31, 2018. CECONY continued to defer its estimated net benefits for its electric service for the three months ended March 31, 2019. The net benefits include the revenue requirement impact of the reduction in the corporate federal income tax rate to 21 percent, the elimination for utilities of bonus depreciation and the amortization of excess deferred federal income taxes the utilities collected from customers that will not need to be paid to the Internal Revenue Service under the TCJA. See “Other Regulatory Matters” in Note B.

Uncertain Tax Positions

At March 31, 2019, the estimated liability for uncertain tax positions for Con Edison was $7 million ($4 million for CECONY). Con Edison reasonably expects to resolve within the next twelve months approximately $4 million of various federal and state uncertainties due to the expected completion of ongoing tax examinations and resolution of state refund claims, of which the entire amount, if recognized, would reduce Con Edison's effective tax rate. The amount related to CECONY is approximately $2 million, which, if recognized, would reduce CECONY’s effective tax rate. The total amount of unrecognized tax benefits, if recognized, that would reduce Con Edison’s effective tax rate is $7 million ($6 million, net of federal taxes).

The Companies recognize interest on liabilities for uncertain tax positions in interest expense and would recognize penalties, if any, in operating expenses in the Companies’ consolidated income statements. In the three months ended March 31, 2019, the Companies recognized no interest expense or penalties for uncertain tax positions in their consolidated income statements. At March 31, 2019 and December 31, 2018, the Companies recognized an immaterial amount of accrued interest on their consolidated balance sheets.

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Note K – Financial Information by Business Segment

Con Edison’s principal business segments are CECONY’s regulated utility activities, O&R’s regulated utility activities, the Clean Energy Businesses and Con Edison Transmission. CECONY’s principal business segments are its regulated electric, gas and steam utility activities. The financial data for the business segments for the three months ended March 31, 2019 and 2018 were as follows:



	For the Three Months Ended March 31,
	Operating revenues		Inter-segment revenues					Depreciation and amortization		Operating income/(loss)
(Millions of Dollars)	2019	2018	2019			2018		2019	2018	2019	2018
CECONY
Electric	$1,797	$1,729		$4		$4		$257	$240	$257	$254
Gas	921	841	2			1		55	49	344	321
Steam	321	314	18			19		22	21	125	130
Consolidation adjustments	—	—	(24		)	(24)		—	—	—	—
Total CECONY	$3,039	$2,884		$—			$—	$334	$310	$726	$705
O&R
Electric	$145	$149		$—			$—	$15	$14	$16	$8
Gas	113	97	—			—		6	5	38	36
Total O&R	$258	$246		$—			$—	$21	$19	$54	$44
Clean Energy Businesses	$217	$233		$—			$—	$58	$19	$11	$9
Con Edison Transmission	1	1	—			—		—	—	(2)	(1)
Other (a)	(1)	—	—			—		—	—	(3)	(2)
Total Con Edison	$3,514	$3,364		$—			$—	$413	$348	$786	$755

(a) Parent company and consolidation adjustments. Other does not represent a business segment.

Note L – Derivative Instruments and Hedging Activities

Con Edison’s subsidiaries hedge market price fluctuations associated with physical purchases and sales of electricity, natural gas, steam and, to a lesser extent, refined fuels by using derivative instruments including futures, forwards, basis swaps, options, transmission congestion contracts and financial transmission rights contracts. Derivatives are recognized on the consolidated balance sheet at fair value (see Note M), unless an exception is available under the accounting rules for derivatives and hedging. Qualifying derivative contracts that have been designated as normal purchases or normal sales contracts are not reported at fair value under the accounting rules.

In August 2017, the FASB issued amendments to the guidance for derivatives and hedging through ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” The amendments in this update provide greater clarification on hedge accounting for risk components, presentation and disclosure of hedging instruments, and overall targeted improvements to simplify hedge accounting. The amendment was effective for reporting periods beginning after December 15, 2018. The application of the guidance did not have a material impact on the Companies’ financial position, results of operations and liquidity because the Companies do not elect hedge accounting for their derivative instruments and hedging activities.

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The fair values of the Companies’ commodity derivatives including the offsetting of assets and liabilities on the consolidated balance sheet at March 31, 2019 and December 31, 2018 were:



(Millions of Dollars)	2019				2018
Balance Sheet Location	Gross Amounts of Recognized Assets/(Liabilities)	Gross Amounts Offset	Net Amounts of Assets/ (Liabilities) (a)		Gross Amounts of Recognized Assets/(Liabilities)	Gross Amounts Offset	Net Amounts of Assets/ (Liabilities) (a)
Con Edison
Fair value of derivative assets
Current	$72	$(37)	$35	(b)	$43	$(14)	$29	(b)
Noncurrent	6	(5)	1	(c)	14	(7)	7	(d)
Total fair value of derivative assets	$78	$(42)	$36		$57	$(21)	$36
Fair value of derivative liabilities
Current	$(78)	$32	$(46)		$(61)	$11	$(50)
Noncurrent	(44)	7	(37)	(c)	(19)	9	(10)	(d)
Total fair value of derivative liabilities	$(122)	$39	$(83)		$(80)	$20	$(60)
Net fair value derivative assets/(liabilities)	$(44)	$(3)	$(47)		$(23)	$(1)	$(24)
CECONY
Fair value of derivative assets
Current	$62	$(31)	$31	(b)	$25	$(6)	$19	(b)
Noncurrent	4	(4)	—		11	(5)	6
Total fair value of derivative assets	$66	$(35)	$31		$36	$(11)	$25
Fair value of derivative liabilities
Current	$(53)	$29	$(24)		$(31)	$6	$(25)
Noncurrent	(37)	5	(32)		(12)	6	(6)
Total fair value of derivative liabilities	$(90)	$34	$(56)		$(43)	$12	$(31)
Net fair value derivative assets/(liabilities)	$(24)	$(1)	$(25)		$(7)	$1	$(6)

(a)

Derivative instruments and collateral were offset on the consolidated balance sheet as applicable under the accounting rules. The Companies enter into master agreements for their commodity derivatives. These agreements typically provide offset in the event of contract termination. In such case, generally the non-defaulting party’s payable will be offset by the defaulting party’s payable. The non-defaulting party will customarily notify the defaulting party within a specific time period and come to an agreement on the early termination amount.

(b)

At March 31, 2019 and December 31, 2018, margin deposits for Con Edison ($4 million and $7 million, respectively) and CECONY ($4 million and $6 million, respectively) were classified as derivative assets on the consolidated balance sheet, but not included in the table. Margin is collateral, typically cash, that the holder of a derivative instrument is required to deposit in order to transact on an exchange and to cover its potential losses with its broker or the exchange.


(c)	Does not include interest rate swaps of $1 million in noncurrent assets and $(14) million in noncurrent liabilities (see below).


(d)	Does not include interest rate swaps of $2 million in noncurrent assets and $(6) million in noncurrent liabilities (see below).

The Utilities generally recover their prudently incurred fuel, purchased power and gas costs, including hedging gains and losses, in accordance with rate provisions approved by the applicable state utility regulators. 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. The Clean Energy Businesses record realized and unrealized gains and losses on their derivative contracts in purchased power, gas purchased for resale and non-utility revenue in the reporting period in which they occur. Management believes that these derivative instruments represent economic hedges that mitigate exposure to fluctuations in commodity prices.

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The following table presents the realized and unrealized gains or losses on commodity derivatives that have been deferred or recognized in earnings for the three months ended March 31, 2019 and 2018:



		For the Three Months Ended March 31,
		Con Edison		CECONY
(Millions of Dollars)	Balance Sheet Location	2019	2018	2019		2018
Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:
Current	Deferred derivative gains	$5	$(22)	$3		$(22)
Noncurrent	Deferred derivative gains	(6)	(2)	(5)		(1)
Total deferred gains/(losses)		$(1)	$(24)	$(2)		$(23)
Current	Deferred derivative losses	$(3)	$(48)		$—	$(44)
Current	Recoverable energy costs	(18)	25	(14)		25
Noncurrent	Deferred derivative losses	(26)	(51)	(26)		(49)
Total deferred gains/(losses)		$(47)	$(74)	$(40)		$(68)
Net deferred gains/(losses)		$(48)