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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, 2017
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 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
 
 
  
 
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 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, 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 ¨
 

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




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As of July 31, 2017, Con Edison had outstanding 305,674,488 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
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
EGWP
 
Employer Group Waiver Plan
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
Second Quarter Form 10-Q
 
The Companies' combined Quarterly Report on Form 10-Q for the quarterly period ended June 30 of the current year
Form 10-K
 
The Companies’ combined Annual Report on Form 10-K for the year ended December 31, 2016
LTIP
 
Long Term Incentive Plan
Moody’s
 
Moody’s Investors Service
REV
 
Reforming the Energy Vision
S&P
 
S&P Global Ratings
VaR
 
Value-at-Risk



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TABLE OF CONTENTS
 
  
  
PAGE
 
ITEM 1
Financial Statements (Unaudited)
 
 
Con Edison
 
 
 
 
 
 
 
CECONY
 
 
 
 
 
 
 
ITEM 2
ITEM 3
ITEM 4
ITEM 1
ITEM 1A
ITEM 6
 
 


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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 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.




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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,
  
2017
2016

2017
2016

 
(Millions of Dollars/ Except Per Share Data)
OPERATING REVENUES
 
 
 
 
Electric
$1,965
$2,035
$3,899
$3,947
Gas
435
336
1,297
1,012
Steam
88
85
385
343
Non-utility
145
338
280
648
TOTAL OPERATING REVENUES
2,633
2,794
5,861
5,950
OPERATING EXPENSES
 
 
 
 
Purchased power
408
558
793
1,249
Fuel
38
33
139
104
Gas purchased for resale
149
81
470
239
Other operations and maintenance
773
820
1,553
1,607
Depreciation and amortization
332
302
662
599
Taxes, other than income taxes
511
485
1,052
995
TOTAL OPERATING EXPENSES
2,211
2,279
4,669
4,793
Gain on sale of solar electric production project
1

1

OPERATING INCOME
423
515
1,193
1,157
OTHER INCOME (DEDUCTIONS)
 
 
 
 
Investment income
20
7
39
7
Other income
17
8
23
12
Allowance for equity funds used during construction
2
2
5
4
Other deductions
(5)
(6)
(7)
(11)
TOTAL OTHER INCOME
34
11
60
12
INCOME BEFORE INTEREST AND INCOME TAX EXPENSE
457
526
1,253
1,169
INTEREST EXPENSE
 
 
 
 
Interest on long-term debt
179
167
356
330
Other interest
3
5
7
12
Allowance for borrowed funds used during construction
(2)
(2)
(3)
(3)
NET INTEREST EXPENSE
180
170
360
339
INCOME BEFORE INCOME TAX EXPENSE
277
356
893
830
INCOME TAX EXPENSE
102
124
330
288
NET INCOME
$175
$232
$563
$542
Net income per common share—basic
$0.57
$0.78
$1.84
$1.83
Net income per common share—diluted
$0.57
$0.77
$1.84
$1.82
DIVIDENDS DECLARED PER COMMON SHARE
$0.69
$0.67
$1.38
$1.34
AVERAGE NUMBER OF SHARES OUTSTANDING—BASIC (IN MILLIONS)
305.4
299.1
305.3
296.7
AVERAGE NUMBER OF SHARES OUTSTANDING—DILUTED (IN MILLIONS)
306.8
300.4
306.7
298.0
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,
  
2017
2016
2017

2016
 
(Millions of Dollars)
NET INCOME
$175
$232
$563
$542
OTHER COMPREHENSIVE INCOME, NET OF TAXES
 
 
 
 
Pension and other postretirement benefit plan liability adjustments, net of taxes
1
1

1
TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAXES
1
1

1
COMPREHENSIVE INCOME
$176
$233
$563
$543
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,
  
2017

2016

 
(Millions of Dollars)
OPERATING ACTIVITIES
 
 
Net income
$563
$542
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME
 
 
Depreciation and amortization
662
599
Deferred income taxes
359
268
Rate case amortization and accruals
(62)
(112)
Common equity component of allowance for funds used during construction
(5)
(4)
Net derivative (gains)/losses
2
(33)
(Gain)/Loss on sale of solar electric production project
(1)

Other non-cash items, net
(43)
42
CHANGES IN ASSETS AND LIABILITIES
 
 
Accounts receivable – customers
128
101
Materials and supplies, including fuel oil and gas in storage
(18)
29
Other receivables and other current assets
12
(38)
Income taxes receivable
29
151
Prepayments
(36)
(15)
Accounts payable
(94)
(21)
Pensions and retiree benefits obligations, net
213
302
Pensions and retiree benefits contributions
(283)
(307)
Accrued taxes
(22)
(16)
Accrued interest
(18)
3
Superfund and environmental remediation costs, net
(6)
60
Distributions from equity investments
52
24
System benefit charge
132
151
Deferred charges, noncurrent assets and other regulatory assets
(45)
(98)
Deferred credits and other regulatory liabilities
(17)
75
Other current and noncurrent liabilities
72
(72)
NET CASH FLOWS FROM OPERATING ACTIVITIES
1,574
1,631
INVESTING ACTIVITIES
 
 
Utility construction expenditures
(1,425)
(1,344)
Cost of removal less salvage
(122)
(95)
Non-utility construction expenditures
(225)
(331)
Investments in electric and gas transmission projects
(16)
(79)
Investments in/acquisitions of renewable electric production projects
(1)
(1,171)
Proceeds from the transfer of assets to NY Transco

122
Proceeds from sale of assets
34

Restricted cash
28
(6)
Other investing activities
24
(82)
NET CASH FLOWS USED IN INVESTING ACTIVITIES
(1,703)
(2,986)
FINANCING ACTIVITIES
 
 
Net payment of short-term debt
(18)
(821)
Issuance of long-term debt
997
1,765
Retirement of long-term debt
(426)
(6)
Debt issuance costs
(11)
(15)
Common stock dividends
(398)
(378)
Issuance of common shares - public offering

702
Issuance of common shares for stock plans
25
27
Distribution to noncontrolling interest

(1)
NET CASH FLOWS FROM FINANCING ACTIVITIES
169
1,273
CASH AND TEMPORARY CASH INVESTMENTS:
 
 
NET CHANGE FOR THE PERIOD
40
(82)
BALANCE AT BEGINNING OF PERIOD
776
944
BALANCE AT END OF PERIOD
$816
$862
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION
 
 
Cash paid/(received) during the period for:
 
 
Interest
$372
$318
Income taxes
$(35)
$(142)
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION
 
 
Construction expenditures in accounts payable
$308
$254
Issuance of common shares for dividend reinvestment
$23
$23
The accompanying notes are an integral part of these financial statements. 


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Consolidated Edison, Inc.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
 
June 30,
2017
December 31,
2016
 
(Millions of Dollars)
ASSETS
 
 
CURRENT ASSETS
 
 
Cash and temporary cash investments
$816
$776
Accounts receivable – customers, less allowance for uncollectible accounts of $63 and $69 in 2017 and 2016, respectively
984
1,106
Other receivables, less allowance for uncollectible accounts of $8 and $14 in 2017 and 2016, respectively
165
195
Income taxes receivable
50
79
Accrued unbilled revenue
436
447
Fuel oil, gas in storage, materials and supplies, at average cost
357
339
Prepayments
195
159
Regulatory assets
77
100
Restricted cash
26
54
Other current assets
174
151
TOTAL CURRENT ASSETS
3,280
3,406
INVESTMENTS
1,961
1,921
UTILITY PLANT, AT ORIGINAL COST
 
 
Electric
28,339
27,747
Gas
7,828
7,524
Steam
2,452
2,421
General
2,844
2,719
TOTAL
41,463
40,411
Less: Accumulated depreciation
8,738
8,541
Net
32,725
31,870
Construction work in progress
1,212
1,175
NET UTILITY PLANT
33,937
33,045
NON-UTILITY PLANT
 
 
Non-utility property, less accumulated depreciation of $170 and $140 in 2017 and 2016, respectively
1,535
1,482
Construction work in progress
779
689
NET PLANT
36,251
35,216
OTHER NONCURRENT ASSETS
 
 
Goodwill
428
428
Intangible assets, less accumulated amortization of $10 and $6 in 2017 and 2016, respectively
116
124
Regulatory assets
6,935
7,024
Other deferred charges and noncurrent assets
128
136
TOTAL OTHER NONCURRENT ASSETS
7,607
7,712
TOTAL ASSETS
$49,099
$48,255
The accompanying notes are an integral part of these financial statements.
 


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Consolidated Edison, Inc.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
 
 
 
June 30,
2017
December 31,
2016
 
(Millions of Dollars)
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
CURRENT LIABILITIES
 
 
Long-term debt due within one year
$637
$39
Notes payable
1,036
1,054
Accounts payable
973
1,147
Customer deposits
345
352
Accrued taxes
42
64
Accrued interest
132
150
Accrued wages
103
101
Fair value of derivative liabilities
64
77
Regulatory liabilities
64
128
System benefit charge
566
434
Other current liabilities
367
297
TOTAL CURRENT LIABILITIES
4,329
3,843
NONCURRENT LIABILITIES
 
 
Provision for injuries and damages
171
160
Pensions and retiree benefits
1,652
1,847
Superfund and other environmental costs
745
753
Asset retirement obligations
252
246
Fair value of derivative liabilities
74
40
Deferred income taxes and unamortized investment tax credits
10,549
10,205
Regulatory liabilities
1,886
1,905
Other deferred credits and noncurrent liabilities
240
215
TOTAL NONCURRENT LIABILITIES
15,569
15,371
LONG-TERM DEBT
14,703
14,735
EQUITY
 
 
Common shareholders’ equity
14,490
14,298
Noncontrolling interest
8
8
TOTAL EQUITY (See Statement of Equity)
14,498
14,306
TOTAL LIABILITIES AND EQUITY
$49,099
$48,255
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)
Noncontrolling
Interest
Total
Shares
Amount
Shares
Amount
BALANCE AS OF
DECEMBER 31, 2015
293
$32
$5,030
$9,123
23
$(1,038)
$(61)
$(34)
$9
$13,061
Net income
 
 
 
310
 
 
 
 
 
310
Common stock dividends
 
 
 
(197)
 
 
 
 
 
(197)
Issuance of common shares for stock plans
1
 
28
 
 
 
 
 
 
28
Other comprehensive income
 
 
 
 
 
 
 

 

Noncontrolling interest
 
 
 
 
 
 
 
 
(1)
(1)
BALANCE AS OF
MARCH 31, 2016
294
$32
$5,058
$9,236
23
$(1,038)
$(61)
$(34)
$8
$13,201
Net income
 
 
 
232
 
 
 
 
 
232
Common stock dividends
 
 
 
(204)
 
 
 
 
 
(204)
Issuance of common shares - public offering
10
1
723
 
 
 
(22)
 
 
702
Issuance of common shares for stock plans

 
26
 
 
 
 
 
 
26
Other comprehensive income
 
 
 
 
 
 
 
1
 
1
Noncontrolling interest










BALANCE AS OF
JUNE 30, 2016
304
$33
$5,807
$9,264
23
$(1,038)
$(83)
$(33)
$8
$13,958
 
 
 
 
 
 
 
 
 
 
 
BALANCE AS OF DECEMBER 31, 2016
305
$33
$5,854
$9,559
23
$(1,038)
$(83)
$(27)
$8
$14,306
Net income
 
 
 
388
 
 
 
 
 
388
Common stock dividends
 
 
 
(211)
 
 
 
 
 
(211)
Issuance of common shares for stock plans
 
 
24
 
 
 
 
 
 
24
Other comprehensive loss
 
 
 
 
 
 
 
(1)
 
(1)
Noncontrolling interest
 
 
 
 
 
 
 
 


BALANCE AS OF
MARCH 31, 2017
305
$33
$5,878
$9,736
23
$(1,038)
$(83)
$(28)
$8
$14,506
Net income
 
 
 
175
 
 
 
 
 
175
Common stock dividends
 
 
 
(210)
 
 
 
 
 
(210)
Issuance of common shares for stock plans
1
 
26
 
 
 
 
 
 
26
Other comprehensive income
 
 
 
 
 
 
 
1
 
1
Noncontrolling interest
 
 
 
 
 
 
 
 


BALANCE AS OF
JUNE 30, 2017
306
$33
$5,904
$9,701
23
$(1,038)
$(83)
$(27)
$8
$14,498
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,
  
2017
2016
2017
2016

 
(Millions of Dollars)
OPERATING REVENUES
 
 
 
 
Electric
$1,817
$1,892
$3,610
$3,665
Gas
388
304
1,153
905
Steam
88
85
386
343
TOTAL OPERATING REVENUES
2,293
2,281
5,149
4,913
OPERATING EXPENSES
 
 
 
 
Purchased power
363
369
710
721
Fuel
38
33
139
104
Gas purchased for resale
84
51
314
183
Other operations and maintenance
638
701
1,301
1,381
Depreciation and amortization
296
275
591
547
Taxes, other than income taxes
487
460
1,003
944
TOTAL OPERATING EXPENSES
1,906
1,889
4,058
3,880
OPERATING INCOME
387
392
1,091
1,033
OTHER INCOME (DEDUCTIONS)
 
 
 
 
Investment and other income
3
1
7
2
Allowance for equity funds used during construction
2
2
5
4
Other deductions
(4)
(1)
(6)
(6)
TOTAL OTHER INCOME
1
2
6

INCOME BEFORE INTEREST AND INCOME TAX EXPENSE
388
394
1,097
1,033
INTEREST EXPENSE
 
 
 
 
Interest on long-term debt
151
146
301
290
Other interest
4
4
8
9
Allowance for borrowed funds used during construction
(1)
(1)
(3)
(2)
NET INTEREST EXPENSE
154
149
306
297
INCOME BEFORE INCOME TAX EXPENSE
234
245
791
736
INCOME TAX EXPENSE
91
84
309
264
NET INCOME
$143
$161
$482
$472
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 June 30,
For the Six Months Ended June 30,
  
2017

2016
2017

2016
 
(Millions of Dollars)
NET INCOME
$143
$161
$482
$472
OTHER COMPREHENSIVE INCOME, NET OF TAXES
 
 
 
 
Pension and other postretirement benefit plan liability adjustments, net of taxes

1

1
TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAXES

1

1
COMPREHENSIVE INCOME
$143
$162
$482
$473
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,
  
2017

2016
 
(Millions of Dollars)
OPERATING ACTIVITIES
 
 
Net income
$482
$472
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME
 
 
Depreciation and amortization
591
547
Deferred income taxes
326
283
Rate case amortization and accruals
(72)
(120)
Common equity component of allowance for funds used during construction
(5)
(4)
Other non-cash items, net
(18)
15
CHANGES IN ASSETS AND LIABILITIES
 
 
Accounts receivable – customers
125
102
Materials and supplies, including fuel oil and gas in storage
(4)
18
Other receivables and other current assets
56
(64)
Accounts receivable from affiliated companies
17
92
Prepayments
(20)
3
Accounts payable
(60)
(54)
Accounts payable to affiliated companies
3
5
Pensions and retiree benefits obligations, net
191
287
Pensions and retiree benefits contributions
(281)
(306)
Superfund and environmental remediation costs, net
(4)
67
Accrued taxes
(17)
(15)
Accrued taxes to affiliated companies
(119)
(2)
Accrued interest

(3)
System benefit charge
120
138
Deferred charges, noncurrent assets and other regulatory assets
(72)
(100)
Deferred credits and other regulatory liabilities
11
89
Other current and noncurrent liabilities
(16)
(51)
NET CASH FLOWS FROM OPERATING ACTIVITIES
1,234
1,399
INVESTING ACTIVITIES
 
 
Utility construction expenditures
(1,341)
(1,268)
Cost of removal less salvage
(119)
(92)
Proceeds from the transfer of assets to NY Transco

122
Restricted cash

13
NET CASH FLOWS USED IN INVESTING ACTIVITIES
(1,460)
(1,225)
FINANCING ACTIVITIES
 
 
Net issuance/(payment) of short-term debt
150
(425)
Issuance of long-term debt
500
550
Debt issuance costs
(6)
(6)
Capital contribution by parent
45
51
Dividend to parent
(398)
(372)
NET CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES
291
(202)
CASH AND TEMPORARY CASH INVESTMENTS:
 
 
NET CHANGE FOR THE PERIOD
65
(28)
BALANCE AT BEGINNING OF PERIOD
702
843
BALANCE AT END OF PERIOD
$767
$815
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION
 
 
Cash paid/(received) during the period for:
 
 
Interest
$296
$285
Income taxes
$86
$(117)
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION
 
 
Construction expenditures in accounts payable
$234
$196
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,
2017
December 31,
2016
 
(Millions of Dollars)
ASSETS
 
 
CURRENT ASSETS
 
 
Cash and temporary cash investments
$767
$702
Accounts receivable – customers, less allowance for uncollectible accounts of $58 and $65 in 2017 and 2016, respectively
914
1,032
Other receivables, less allowance for uncollectible accounts of $7 and $13 in 2017 and 2016, respectively
78
81
Accrued unbilled revenue
400
399
Accounts receivable from affiliated companies
92
109
Fuel oil, gas in storage, materials and supplies, at average cost
274
270
Prepayments
120
100
Regulatory assets
68
90
Restricted cash
2
2
Other current assets
46
95
TOTAL CURRENT ASSETS
2,761
2,880
INVESTMENTS
361
315
UTILITY PLANT, AT ORIGINAL COST
 
 
Electric
26,687
26,122
Gas
7,095
6,814
Steam
2,452
2,421
General
2,597
2,490
TOTAL
38,831
37,847
Less: Accumulated depreciation
8,017
7,836
Net
30,814
30,011
Construction work in progress
1,140
1,104
NET UTILITY PLANT
31,954
31,115
NON-UTILITY PROPERTY
 
 
Non-utility property, less accumulated depreciation of $25 in 2017 and 2016
4
4
NET PLANT
31,958
31,119
OTHER NONCURRENT ASSETS
 
 
Regulatory assets
6,404
6,473
Other deferred charges and noncurrent assets
64
69
TOTAL OTHER NONCURRENT ASSETS
6,468
6,542
TOTAL ASSETS
$41,548
$40,856
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,
2017
December 31,
2016
 
(Millions of Dollars)
LIABILITIES AND SHAREHOLDER’S EQUITY
 
 
CURRENT LIABILITIES
 
 
Long-term debt due within one year
$600

$—

Notes payable
750
600
Accounts payable
756
876
Accounts payable to affiliated companies
13
10
Customer deposits
333
336
Accrued taxes
33
50
Accrued taxes to affiliated companies

119
Accrued interest
111
111
Accrued wages
94
91
Fair value of derivative liabilities
49
66
Regulatory liabilities
42
90
System benefit charge
518
398
Other current liabilities
206
242
TOTAL CURRENT LIABILITIES
3,505
2,989
NONCURRENT LIABILITIES
 
 
Provision for injuries and damages
165
154
Pensions and retiree benefits
1,318
1,544
Superfund and other environmental costs
651
655
Asset retirement obligations
231
227
Fair value of derivative liabilities
66
33
Deferred income taxes and unamortized investment tax credits
9,793
9,450
Regulatory liabilities
1,686
1,712
Other deferred credits and noncurrent liabilities
205
190
TOTAL NONCURRENT LIABILITIES
14,115
13,965
LONG-TERM DEBT
11,970
12,073
SHAREHOLDER’S EQUITY (See Statement of Shareholder’s Equity)
11,958
11,829
TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY
$41,548
$40,856
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
BALANCE AS OF DECEMBER 31, 2015
235
$589
$4,247
$7,611
$(962)
$(61)
$(9)
$11,415
Net income
 
 
 
310
 
 
 
310
Common stock dividend to parent
 
 
 
(186)
 
 
 
(186)
Capital contribution by parent
 
 
23
 
 
 
 
23
Other comprehensive income
 
 
 
 
 
 


BALANCE AS OF MARCH 31, 2016
235
$589
$4,270
$7,735
$(962)
$(61)
$(9)
$11,562
Net income
 
 
 
161
 
 
 
161
Common stock dividend to parent
 
 
 
(186)
 
 
 
(186)
Capital contribution by parent
 
 
28
 
 
 
 
28
Other comprehensive income
 
 
 
 
 
 
1
1
BALANCE AS OF JUNE 30, 2016
235
$589
$4,298
$7,710
$(962)
$(61)
$(8)
$11,566
 
 
 
 
 
 
 
 
 
BALANCE AS OF DECEMBER 31, 2016
235
$589
$4,347
$7,923
$(962)
$(61)
$(7)
$11,829
Net income
 
 
 
339
 
 
 
339
Common stock dividend to parent
 
 
 
(199)
 
 
 
(199)
Capital contribution by parent
 
 
22
 
 
 
 
22
Other comprehensive income
 
 
 
 
 
 



BALANCE AS OF MARCH 31, 2017
235
$589
$4,369
$8,063
$(962)
$(61)
$(7)
$11,991
Net income
 
 
 
143
 
 
 
143
Common stock dividend to parent
 
 
 
(199)
 
 
 
(199)
Capital contribution by parent
 
 
23
 
 
 
 
23
Other comprehensive income
 
 
 
 
 
 



BALANCE AS OF JUNE 30, 2017
235
$589
$4,392
$8,007
$(962)
$(61)
$(7)
$11,958
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, 2016 and their separate unaudited financial statements (including the combined notes thereto) included in Part 1, Item 1 of their combined Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017. 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
Earnings Per Common Share
Con Edison presents basic and diluted earnings per share on the face of its consolidated income statement. Basic earnings per share (EPS) are calculated by dividing earnings available to common shareholders (“Net income” 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, deferred stock units and stock options for which the average market price of the common shares for the period was greater than the exercise price.

For the three and six months ended June 30, 2017 and 2016, basic and diluted EPS for Con Edison are calculated as follows:
 


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For the Three Months Ended June 30,
For the Six Months Ended June 30,
(Millions of Dollars, except per share amounts/Shares in Millions)
2017
2016
2017
2016
Net income
$175
$232
$563
$542
Weighted average common shares outstanding – basic
305.4
299.1
305.3
296.7
Add: Incremental shares attributable to effect of potentially dilutive securities
1.4
1.3
1.4
1.3
Adjusted weighted average common shares outstanding – diluted
306.8
300.4
306.7
298.0
Net Income per common share – basic
$0.57
$0.78
$1.84
$1.83
Net Income per common share – diluted
$0.57
$0.77
$1.84
$1.82

The computation of diluted EPS for the six months ended June 30, 2016 excludes immaterial amounts of performance share awards that were not included because of their anti-dilutive effect.

Changes in Accumulated Other Comprehensive Income/(Loss) by Component
For the three and six months ended June 30, 2017 and 2016, changes to accumulated other comprehensive income/(loss) (OCI) for Con Edison and CECONY are as follows:
 
 
For the Three Months Ended June 30,
 
        Con Edison
        CECONY
(Millions of Dollars)
2017
2016
2017

2016
Beginning balance, accumulated OCI, net of taxes (a)
$(28)
$(34)
$(7)
$(9)
Amounts reclassified from accumulated OCI related to pension plan liabilities, net of tax of $(1) for Con Edison in 2017 and 2016 (a)(b)
1
1

1
Current period OCI, net of taxes
1
1

1
Ending balance, accumulated OCI, net of taxes
$(27)
$(33)
$(7)
$(8)

 
For the Six Months Ended June 30,
 
        Con Edison
        CECONY
(Millions of Dollars)
2017

2016
2017

2016

Beginning balance, accumulated OCI, net of taxes (a)
$(27)
$(34)
$(7)
$(9)
OCI before reclassifications, net of tax of $1 for Con Edison in 2017 and 2016
(2)
(1)


Amounts reclassified from accumulated OCI related to pension plan liabilities, net of tax of $(2) for Con Edison in 2017 and 2016 (a)(b)
2
2

1
Current period OCI, net of taxes

1

1
Ending balance, accumulated OCI, net of taxes
$(27)
$(33)
$(7)
$(8)
(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.


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Note B — Regulatory Matters
Rate Plans
Rockland Electric Company (RECO)
In February 2017, the New Jersey Board of Public Utilities (NJBPU) approved a stipulation of settlement for a RECO electric rate plan commencing March 2017. The following table contains a summary of the electric rate plan.

RECO
 
 
Effective period
 
March 2017 (a)
Base rate changes
 
Yr. 1 - $1.7 million
Amortization to income of net regulatory (assets) and liabilities
 
$0.2 million over three years and continuation of $(25.6) million of deferred storm costs over four years expiring July 31, 2018 (b)
Recoverable energy costs
 
Current rate recovery of purchased power costs.
Cost reconciliations
 
None
Average rate base
 
Yr. 1 - $178.7 million
Weighted average cost of capital (after-tax)
 
7.47 percent
Authorized return on common equity
 
9.6 percent
Cost of long-term debt
 
5.37 percent
Common equity ratio
 
49.7 percent
(a)
Effective until a new rate plan approved by the NJBPU goes into effect.
(b)
In January 2016, the NJBPU approved RECO’s plan to spend $15.7 million in capital over three years to harden its electric system against storms, the costs of which RECO, beginning in 2017, is collecting through a customer surcharge.

In January 2017, RECO filed a request with FERC for an increase to its annual transmission revenue requirement from $11.8 million to $19.7 million. The filing reflects a return on common equity of 10.7 percent and a common equity ratio of 48 percent.

Other Regulatory Matters
At its August 2, 2017 meeting, the New York State Public Service Commission (NYSPSC) voted to issue an order in its proceeding investigating an April 21, 2017 Metropolitan Transportation Authority (MTA) subway power outage. The NYSPSC indicated that the outage resulted from a failure of CECONY’s electricity supply to a subway station and led to a loss of the subway signals. The NYSPSC also indicated that the company’s failure to document the rerouting of secondary services to the MTA facility significantly delayed repair. The company anticipates that, pursuant to the NYSPSC order, it will be required to take certain actions, including performing inspections of electrical equipment that serves the MTA system, analyzing power supply and power quality events affecting the MTA’s signaling services, providing new monitoring and other equipment and filing monthly reports with the NYSPSC on all of the company's activities related to the MTA system. In July 2017, the Chairman of the NYSPSC notified the company that the April 21, 2017 subway power outage incident will likely result in a prudence review of the reasonableness of CECONY’s actions and conduct. The company does not anticipate that the NYSPSC order will commence a prudence review or address cost recovery. The company is unable to estimate the amount or range of its possible costs related to this matter.



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Table of Contents

Regulatory Assets and Liabilities
Regulatory assets and liabilities at June 30, 2017 and December 31, 2016 were comprised of the following items:
 
  
         Con Edison
 
        CECONY
(Millions of Dollars)
2017
2016
 
2017

2016

Regulatory assets
 
 
 
 
 
Unrecognized pension and other postretirement costs
$2,768
$2,874

$2,612
$2,730
Future income tax
2,413
2,439

2,302
2,325
Environmental remediation costs
807
823

697
711
Revenue taxes
327
295

311
280
Deferred derivative losses
77
48
 
70
42
Pension and other postretirement benefits deferrals
59
38
 
32
7
Municipal infrastructure support costs
54
44
 
54
44
Deferred storm costs
44
56


3
Unamortized loss on reacquired debt
40
43

38
41
Indian Point Energy Center program costs
40
50
 
40
50
Surcharge for New York State assessment
32
28
 
30
26
O&R property tax reconciliation
32
37



Brooklyn Queens demand management program
26
29
 
26
29
Preferred stock redemption
25
25
 
25
25
Net electric deferrals
17
24

17
24
Recoverable energy costs
15
42
 
15
38
Workers’ compensation
14
13
 
14
13
O&R transition bond charges
12
15



Other
133
101

121
85
Regulatory assets – noncurrent
6,935
7,024

6,404
6,473
Deferred derivative losses
71
91

65
86
Recoverable energy costs
6
9

3
4
Regulatory assets – current
77
100

68
90
Total Regulatory Assets
$7,012
$7,124

$6,472
$6,563
Regulatory liabilities





Allowance for cost of removal less salvage
$786
$755

$661
$641
Pension and other postretirement benefit deferrals
206
193
 
177
162
Net unbilled revenue deferrals
164
145

164
145
Property tax reconciliation
148
178

148
178
Unrecognized other postretirement costs
88
60
 
88
60
Settlement of prudence proceeding
80
95

80
95
Carrying charges on repair allowance and bonus depreciation
55
68
 
54
67
New York State income tax rate change
53
61

52
60
Variable-rate tax-exempt debt – cost rate reconciliation
43
55
 
38
48
Base rate change deferrals
31
40

31
40
Settlement of gas proceedings
27
27
 
27
27
Earnings sharing - electric, gas and steam
22
39

13
28
Net utility plant reconciliations
12
16

10
15
Other
171
173

143
146
Regulatory liabilities – noncurrent
1,886
1,905

1,686
1,712
Refundable energy costs
29
29
 
10
5
Revenue decoupling mechanism
29
71

27
61
Deferred derivative gains
6
28

5
24
Regulatory liabilities – current
64
128

42
90
Total Regulatory Liabilities
$1,950
$2,033

$1,728
$1,802
 

Note C — Capitalization
In March 2017, Con Edison issued $400 million aggregate principal amount of 2.00 percent debentures, due 2020, and prepaid the $400 million variable rate term loan that was to mature in 2018. Also, in March 2017, a Con Edison Development subsidiary issued $97 million aggregate principal amount of 4.45 percent senior notes, due 2042,

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secured by the company’s Upton County Solar project. In June 2017, CECONY issued $500 million aggregate principal amount of 3.875 percent debentures, due 2047.
 
The carrying amounts and fair values of long-term debt at June 30, 2017 and December 31, 2016 were:
 
(Millions of Dollars)
2017
2016
Long-Term Debt (including current portion) (a)
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Con Edison
$15,340
$17,052
$14,774
$16,093
CECONY
$12,570
$14,104
$12,073
$13,268
(a)
Amounts shown are net of unamortized debt expense and unamortized debt discount of $139 million and $116 million for Con Edison and CECONY, respectively, as of June 30, 2017 and $134 million and $113 million for Con Edison and CECONY, respectively, as of December 31, 2016.

Fair values of long-term debt have been estimated primarily using available market information. For Con Edison, $16,416 million and $636 million of the fair value of long-term debt at June 30, 2017 are classified as Level 2 and Level 3, respectively. For CECONY, $13,468 million and $636 million of the fair value of long-term debt at June 30, 2017 are classified as Level 2 and Level 3, respectively (see Note L). The $636 million of long-term debt classified as Level 3 is CECONY’s tax-exempt, auction-rate securities for which the market is highly illiquid and there is a lack of observable inputs.

Note D — Short-Term Borrowing
At June 30, 2017, Con Edison had $1,036 million of commercial paper outstanding of which $750 million was outstanding under CECONY’s program. The weighted average interest rate at June 30, 2017 was 1.3 percent for both Con Edison and CECONY. At December 31, 2016, Con Edison had $1,054 million of commercial paper outstanding of which $600 million was outstanding under CECONY’s program. The weighted average interest rate at December 31, 2016 was 1.0 percent for both Con Edison and CECONY.
At June 30, 2017 and December 31, 2016, no loans were outstanding under the credit agreement (Credit Agreement). An immaterial amount and $2 million (including $2 million for CECONY) of letters of credit were outstanding under the Credit Agreement as of June 30, 2017 and December 31, 2016, respectively.

Note E — Pension Benefits
Total Periodic Benefit Cost
The components of the Companies’ total periodic benefit costs for the three and six months ended June 30, 2017 and 2016 were as follows:
 
 
For the Three Months Ended June 30,
 
           Con Edison
         CECONY
(Millions of Dollars)
2017
2016
2017
2016

Service cost – including administrative expenses
$66
$69
$61
$65
Interest cost on projected benefit obligation
148
149
139
140
Expected return on plan assets
(243)
(237)
(229)
(225)
Recognition of net actuarial loss
149
149
141
141
Recognition of prior service costs
(4)
1
(5)

TOTAL PERIODIC BENEFIT COST
$116
$131
$107
$121
Cost capitalized
(51)
(53)
(48)
(50)
Reconciliation to rate level
(3)
13
(5)
14
Cost charged to operating expenses
$62
$91
$54
$85



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Table of Contents

 
For the Six Months Ended June 30,
 
           Con Edison
         CECONY
(Millions of Dollars)
2017
2016
2017
2016
Service cost – including administrative expenses
$132
$138
$123
$129
Interest cost on projected benefit obligation
296
298
277
280
Expected return on plan assets
(484)
(474)
(459)
(449)
Recognition of net actuarial loss
297
298
282
282
Recognition of prior service costs
(9)
2
(10)
1
NET PERIODIC BENEFIT COST
$232
$262
$213
$243
Cost capitalized
(94)
(106)
(88)
(99)
Reconciliation to rate level
(14)
26
(16)
26
Cost charged to operating expenses
$124
$182
$109
$170


Expected Contributions
Based on estimates as of June 30, 2017, the Companies expect to make contributions to the pension plans during 2017 of $450 million (of which $412 million is to be contributed 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 six months of 2017, the Companies contributed $283 million to the pension plans, nearly all of which was contributed by CECONY. CECONY also contributed $14 million to its external trust supplemental plans.
 
Note F — Other Postretirement Benefits
Total Periodic Benefit Cost
The components of the Companies’ total periodic other postretirement benefit costs for the three and six months ended June 30, 2017 and 2016 were as follows:
 
 
For the Three Months Ended June 30,
  
          Con Edison
          CECONY
(Millions of Dollars)
2017
2016
2017
2016
Service cost
$5
$4
$3
$3
Interest cost on accumulated other postretirement benefit obligation
11
12
10
10
Expected return on plan assets
(17)
(19)
(15)
(17)
Recognition of net actuarial loss/(gain)
1
1
(1)
1
Recognition of prior service cost
(4)
(5)
(3)
(3)
TOTAL PERIODIC OTHER POSTRETIREMENT BENEFIT COST
$(4)
$(7)
$(6)
$(6)
Cost capitalized
2
2
3
2
Reconciliation to rate level
(1)
7
(1)
6
Cost charged to operating expenses
$(3)
$2
$(4)
$2

 
For the Six Months Ended June 30,
  
          Con Edison
          CECONY
(Millions of Dollars)
2017
2016
2017
2016
Service cost
$10
$9
$7
$7
Interest cost on accumulated other postretirement benefit obligation
23
24
19
20
Expected return on plan assets
(35)
(38)
(30)
(34)
Recognition of net actuarial loss/(gain)
1
2
(2)
1
Recognition of prior service cost
(8)
(10)
(6)
(7)
TOTAL PERIODIC OTHER POSTRETIREMENT BENEFIT COST
$(9)
$(13)
$(12)
$(13)
Cost capitalized
4
3
5
3
Reconciliation to rate level
(2)
14
(1)
14
Cost charged to operating expenses
$(7)
$4
$(8)
$4




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Expected Contributions
Based on estimates as of June 30, 2017, Con Edison expects to make a contribution of $16 million, of which $8 million is to be contributed by CECONY, to the other postretirement benefit plans in 2017. The Companies' policy is to fund the total periodic benefit cost of the plans to the extent tax deductible.

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 June 30, 2017 and December 31, 2016 were as follows:
 
        Con Edison
        CECONY
(Millions of Dollars)
2017
2016
2017
2016
Accrued Liabilities:
 
 
 
 
Manufactured gas plant sites
$659
$664
$565
$567
Other Superfund Sites
86
89
86
88
Total
$745
$753
$651
$655
Regulatory assets
$807
$823
$697
$711
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 and six months ended June 30, 2017 and 2016 were as follows: 
 
For the Three Months Ended June 30,
 
          Con Edison
     CECONY
(Millions of Dollars)
2017
2016
2017
2016
Remediation costs incurred
$7
$9
$4
$3




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For the Six Months Ended June 30,
 
          Con Edison
     CECONY
(Millions of Dollars)
2017
2016
2017
2016
Remediation costs incurred
$14
$12
$11
$5

Insurance recoveries received by Con Edison or CECONY were immaterial for the three and six months ended June 30, 2017. No insurance recoveries were received by Con Edison or CECONY for the three or six months ended June 30, 2016.
In 2016, 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.
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 June 30, 2017, 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 June 30, 2017 and December 31, 2016 were as follows:
 
 
          Con Edison
     CECONY
(Millions of Dollars)
2017
2016
2017
2016
Accrued liability – asbestos suits
$8
$8
$7
$7
Regulatory assets – asbestos suits
$8
$8
$7
$7
Accrued liability – workers’ compensation
$89
$88
$85
$83
Regulatory assets – workers’ compensation
$14
$13
$14
$13


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Note H — 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 forty-five suits are pending against the company seeking generally unspecified compensatory and, in some cases, punitive damages, for wrongful death, personal injury, property damage and business interruption. In July 2017, the company reached agreements to resolve most of these suits which, after payment by the company of agreed-upon settlement amounts, are expected to be discontinued. 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 to satisfy its liability to others in connection with the suits. In the company’s estimation, there is not a reasonable possibility that an exposure to loss exists for the suits that is materially in excess of the estimated liability accrued. At June 30, 2017, the company has accrued its estimated liability for the suits of $18 million and an insurance receivable of $18 million.
Manhattan Explosion and Fire
On March 12, 2014, two multi-use five-story tall buildings located on Park Avenue between 116th and 117th 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 will not recover from customers $126 million of costs it incurred for gas emergency response activities in 2014, 2015 and 2016 in excess of the amounts reflected in its gas rate plan and will provide $27 million of future benefits to customers (for which it has accrued a regulatory liability, see Note B). 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 June 30, 2017, the company had not accrued a liability for damages related to the incident.
Other Contingencies
See "Other Regulatory Matters" in Note B and “Uncertain Tax Positions” in Note I.
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 $2,329 million and $2,370 million at June 30, 2017 and December 31, 2016, respectively.


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A summary, by type and term, of Con Edison’s total guarantees at June 30, 2017 is as follows:
 
Guarantee Type
0 – 3 years
4 – 10 years

> 10 years

Total
 
(Millions of Dollars)
Con Edison Transmission
$643
$404

$—

$1,047
Energy transactions
497
31
215
743
Renewable electric production projects
392

19
411
Other
128


128
Total
$1,660
$435
$234
$2,329
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 is a guarantee for $25 million from Con Edison on behalf of CET Gas in relation to 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. Guarantee amounts shown above include $21 million of guarantees provided by Con Edison on behalf of Con Edison Solutions that may continue in effect during the period in which Con Edison Solutions provides transition services in connection with the retail electric supply business it sold in September 2016. As part of the sale agreement, the purchaser has agreed to pay Con Edison Solutions for draws on such guarantees.
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. Other guarantees also includes Con Edison's guarantee (subject to a $53 million maximum amount) of certain obligations of Con Edison Solutions under the agreement pursuant to which it sold its retail electric supply business. In addition, Con Edison issued a guarantee estimated at $5 million to the Public Utility Commission of Texas covering obligations of Con Edison Solutions as a retail electric provider. As part of the sale agreement for the retail electric supply business discussed above, the purchaser has agreed to pay Con Edison Solutions for draws on the guarantee to the Public Utility Commission of Texas.

Note I — Income Tax
Con Edison’s income tax expense decreased to $102 million for the three months ended June 30, 2017 from $124 million for the three months ended June 30, 2016. Con Edison's effective tax rate for the three months ended June 30, 2017 and 2016 was 37 percent and 35 percent, respectively. The increase in Con Edison's effective tax rate is primarily due to a decrease in tax benefits for plant-related flow through items and higher reserves for injuries and damages, offset in part by lower state income taxes and bad debt expense.

CECONY’s income tax expense increased to $91 million for the three months ended June 30, 2017 from $84 million for the three months ended June 30, 2016. CECONY's effective tax rate for the three months ended June 30, 2017 and 2016 was 39 percent and 34 percent, respectively. The increase in CECONY's effective tax rate is primarily due to a decrease in tax benefits for plant-related flow through items and higher reserves for injuries and damages, offset in part by lower state income taxes and bad debt expense.


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Con Edison’s income tax expense increased to $330 million for the six months ended June 30, 2017 from $288 million for the six months ended June 30, 2016. Con Edison's effective tax rate for the six months ended June 30, 2017 and 2016 was 37 percent and 35 percent, respectively. The increase in Con Edison's effective tax rate is primarily due to a decrease in tax benefits for plant-related flow through items and higher reserves for injuries and damages, offset in part by lower state income taxes and bad debt expense.

CECONY’s income tax expense increased to $309 million for the six months ended June 30, 2017 from $264 million for the six months ended June 30, 2016. CECONY's effective tax rate for the six months ended June 30, 2017 and 2016 was 39 percent and 36 percent, respectively. The increase in CECONY's effective tax rate is primarily due to a decrease in tax benefits for plant-related flow through items, lower research and development tax credits and higher reserve for injuries and damages, offset in part by lower state income taxes and bad debt expense.

Con Edison anticipates a federal consolidated net operating loss for 2017, primarily due to bonus depreciation. Con Edison expects to carryback a portion of its 2017 net operating loss to recover $18 million of income tax. The remaining 2017 net operating loss, as well as general business tax credits generated in 2017, will be carried forward to future tax years. A deferred tax asset for these tax attribute carryforwards was recorded, and no valuation allowance has been provided, as it is more likely than not that the deferred tax asset will be realized.

Uncertain Tax Positions
At June 30, 2017, the estimated liability for uncertain tax positions for Con Edison was $40 million ($21 million for CECONY). Con Edison reasonably expects to resolve approximately $33 million ($23 million, net of federal taxes) of its uncertain tax positions within the next twelve months, including $19 million ($13 million, net of federal taxes), which, if recognized, would reduce Con Edison’s effective tax rate. The amount related to CECONY is approximately $17 million ($12 million, net of federal taxes), including $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 $23 million ($16 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 and six months ended June 30, 2017, the Companies recognized an immaterial amount of interest expense and no penalties for uncertain tax positions in their consolidated income statements. At June 30, 2017 and December 31, 2016, the Companies recognized an immaterial amount of accrued interest on their consolidated balance sheets.



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Table of Contents

Note J — 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 and six months ended June 30, 2017 and 2016 were as follows:
 
 
For the Three Months Ended June 30,
 
Operating
revenues
Inter-segment
revenues
Depreciation and
amortization
Operating
income/(loss)
(Millions of Dollars)
2017

2016

2017

2016

2017

2016

2017

2016

CECONY
 
 
 
 
 
 
 
 
Electric
$1,817
$1,892
$4
$4
$229
$215
$330
$371
Gas
388
304
2
1
45
39
83
48
Steam
88
85
18
21
22
21
(26)
(27)
Consolidation adjustments


(24)
(26)




Total CECONY
$2,293
$2,281

$—


$—

$296
$275
$387
$392
O&R
 
 
 
 
 
 
 
 
Electric
$148
$144

$—


$—

$13
$13
$14
$14
Gas
47
31


4
4
5
(1)
Total O&R
$195
$175

$—


$—

$17
$17
$19
$13
Clean Energy Businesses
$146
$338

$—

$3
$18
$10
$18
$109
Con Edison Transmission






(2)
(1)
Other (a)
(1)


(3)
1

1
2
Total Con Edison
$2,633
$2,794

$—


$—

$332
$302
$423
$515

 
For the Six Months Ended June 30,
 
Operating
revenues
Inter-segment
revenues
Depreciation and
amortization
Operating
income/(loss)
(Millions of Dollars)
2017

2016

2017

2016

2017

2016

2017

2016

CECONY
 
 
 
 
 
 
 
 
Electric
$3,610
$3,665
$8
$9
$458
$428
$622
$645
Gas
1,153
905
3
3
90
78
374
301
Steam
386
343
37
44
43
41
95
87
Consolidation adjustments


(48)
(56)




Total CECONY
$5,149
$4,913

$—


$—

$591
$547
$1,091
$1,033
O&R
 
 
 
 
 
 
 
 
Electric
$289
$284

$—


$—

$25
$24
$27
$32
Gas
144
106


10
9
44
34
Total O&R
$433
$390

$—


$—

$35
$33
$71
$66
Clean Energy Businesses
$283
$648

$—

$9
$36
$19
$34
$58
Con Edison Transmission






(4)
(1)
Other (a)
(4)
(1)

(9)


1
1
Total Con Edison
$5,861
$5,950

$—


$—

$662
$599
$1,193
$1,157
(a)Parent company and consolidation adjustments. Other does not represent a business segment.


Note K — 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 L), 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.
 

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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 June 30, 2017 and December 31, 2016 were:
 
(Millions of Dollars)
2017
 
2016
 
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
$93
$(78)
$15
(b)
$81
$(64)
$17
(b)
Noncurrent
63
(63)

 
49
(43)
6
 
Total fair value of derivative assets
$156
$(141)
$15
 
$130
$(107)
$23
 
Fair value of derivative liabilities
 
 
 
 
 
 
 
 
Current
$(153)
$89
$(64)
 
$(138)
$61
$(77)
 
Noncurrent
(136)
62
(74)
 
(91)
52
(39)
(c)
Total fair value of derivative liabilities
$(289)
$151
$(138)
 
$(229)
$113
$(116)
 
Net fair value derivative assets/(liabilities)
$(133)
$10
$(123)
(b)
$(99)
$6
$(93)
(b) (c)
CECONY
 
 
 
 
 
 
 
 
Fair value of derivative assets
 
 
 
 
 
 
 
 
Current
$52
$(48)
$4
(b)
$52
$(45)
$7
(b)
Noncurrent
53
(53)

 
41
(35)
6
 
Total fair value of derivative assets
$105
$(101)
$4
 
$93
$(80)
$13
 
Fair value of derivative liabilities
 
 
 
 
 
 
 
 
Current
$(105)
$56
$(49)
 
$(111)
$45
$(66)
 
Noncurrent
(119)
53
(66)
 
(77)
44
(33)
 
Total fair value of derivative liabilities
$(224)
$109
$(115)
 
$(188)
$89
$(99)
 
Net fair value derivative assets/(liabilities)
$(119)
$8
$(111)
(b)
$(95)
$9
$(86)
(b)
(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 June 30, 2017 and December 31, 2016, margin deposits for Con Edison ($7 million and $7 million, respectively) and CECONY ($7 million and $7 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 $(1) million for interest rate swap.

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 and six months ended June 30, 2017 and 2016:
 
 
 
For the Three Months Ended June 30,
 
 
          Con Edison
 
          CECONY
(Millions of Dollars)
Balance Sheet Location
2017

 
2016
 
2017

2016

Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:
 
 
 
Current
Deferred derivative gains
$(21)
 
$10
 
$(17)
$9
Noncurrent
Deferred derivative gains

 
1
 


Total deferred gains/(losses)
 
$(21)
 
$11
 
$(17)
$9
Current
Deferred derivative losses
$22
 
$68
 
$20
$61
Current
Recoverable energy costs
(40)
 
(52)
 
(39)
(47)
Noncurrent
Deferred derivative losses
(9)
 
68
 
(8)
62
Total deferred gains/(losses)
 
$(27)
 
$84
 
$(27)
$76
Net deferred gains/(losses)
 
$(48)
 
$95
 
$(44)
$85
 
Income Statement Location
 
 
 
 
 
 
Pre-tax gain/(loss) recognized in income
 
 
 
 
 
 
 
Purchased power expense

$—

 
$45
(b)

$—


$—

 
Gas purchased for resale
(51)
 
(23)
 


 
Non-utility revenue
(8)
(a)
5
(b)


Total pre-tax gain/(loss) recognized in income
$(59)
 
$27
 

$—


$—

(a)
For the three months ended June 30, 2017, Con Edison recorded an unrealized pre-tax loss in non-utility operating revenue ($7 million).
(b)
For the three months ended June 30, 2016, Con Edison recorded an unrealized pre-tax gain in purchased power expense ($97 million gain).

 
 
For the Six Months Ended June 30,
 
 
          Con Edison
 
          CECONY
(Millions of Dollars)
Balance Sheet Location
2017

 
2016
 
2017

2016

Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:
 
 
 
Current
Deferred derivative gains
$(22)
 
$7
 
$(19)
$5
Noncurrent
Deferred derivative gains
(3)
 
1
 
(3)
(1)
Total deferred gains/(losses)
 
$(25)
 
$8
 
$(22)
$4
Current
Deferred derivative losses
$20
 
$38
 
$21
$33
Current
Recoverable energy costs
(85)
 
(125)
 
(78)
(113)
Noncurrent
Deferred derivative losses
(29)
 
12
 
(28)
11
Total deferred gains/(losses)
 
$(94)
 
$(75)
 
$(85)
$(69)
Net deferred gains/(losses)
 
$(119)
 
$(67)
 
$(107)
$(65)
 
Income Statement Location
 
 
 
 
 
 
Pre-tax gain/(loss) recognized in income
 
 
 
 
 
 
 
Purchased power expense

$—

 
$(70)
(b)

$—


$—

 
Gas purchased for resale
(114)
 
(33)
 


 
Non-utility revenue
6
(a)
17
(b)


Total pre-tax gain/(loss) recognized in income
$(108)
 
$(86)
 

$—


$—

(a)
For the six months ended June 30, 2017, Con Edison recorded an unrealized pre-tax loss in non-utility operating revenue ($4 million).
(b)
For the six months ended June 30, 2016, Con Edison recorded unrealized pre-tax gains and losses in non-utility operating revenue ($1 million loss) and purchased power expense ($35 million gain).



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The following table presents the hedged volume of Con Edison’s and CECONY’s derivative transactions at June 30, 2017:
 
 
Electric Energy
(MWh) (a)(b)
Capacity (MW) (a)
Natural Gas
(Dt) (a)(b)
Refined Fuels
(gallons)
Con Edison
33,854,855

9,319

99,241,963

1,680,000

CECONY
31,442,175

4,500

91,970,000

1,680,000

(a)
Volumes are reported net of long and short positions, except natural gas collars where the volumes of long positions are reported.
(b)
Excludes electric congestion and gas basis swap contracts, which are associated with electric and gas contracts and hedged volumes.

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 Clean Energy Businesses. Credit risk relates to the loss that may result from a counterparty’s nonperformance. 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. The Companies measure credit risk exposure as the replacement cost for open energy commodity and derivative positions plus amounts owed from counterparties for settled transactions. The replacement cost of open positions represents unrealized gains, net of any unrealized losses where the Companies have a legally enforceable right to offset.
At June 30, 2017, Con Edison and CECONY had $70 million and $9 million of credit exposure in connection with energy supply and hedging activities, net of collateral, respectively. Con Edison’s net credit exposure consisted of $23 million with investment-grade counterparties, $21 million with non-investment grade/non-rated counterparties$13 million with commodity exchange brokers, and $13 million with independent system operators. CECONY’s net credit exposure consisted of $7 million with commodity exchange brokers and $2 million with investment-grade counterparties.
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 a party to provide collateral on its derivative instruments that are in a net liability position. The amount of collateral to be provided will depend on the fair value of the derivative instruments and the party’s credit ratings.
 
The following table presents the aggregate fair value of the Companies’ derivative instruments with credit-risk-related contingent features that are in a net liability position, the collateral posted for such positions 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 at June 30, 2017:
 
(Millions of Dollars)
Con Edison (a)
 
CECONY (a)
 
Aggregate fair value – net liabilities
$128
 
$113
 
Collateral posted
41
 
41
 
Additional collateral (b) (downgrade one level from current ratings)
16
 
15
 
Additional collateral (b) (downgrade to below investment grade from current ratings)
99
(c)
84
(c)
(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 the Clean Energy Businesses were no longer extended unsecured credit for such purchases, the Companies would be required to post additional collateral of $12 million at June 30, 2017. 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)
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 liability 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 to offset.
(c)
Derivative instruments that are net assets have been excluded from the table. At June 30, 2017, if Con Edison had been downgraded to below investment grade, it would have been required to post additional collateral for such derivative instruments of $14 million.

Interest Rate Swap
In December 2016, the Clean Energy Businesses acquired Coram Wind project which holds an interest rate swap that terminates in June 2024, pursuant to which it pays a fixed-rate of 2.0855 percent and receives a LIBOR-based variable rate. The fair value of this interest rate swap was a liability of $1 million as of June 30, 2017 and December 31, 2016 on Con Edison’s consolidated balance sheet.


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Note L — Fair Value Measurements
The accounting rules for fair value measurements and disclosures define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in a principal or most advantageous market. Fair value is a market-based measurement that is determined based on inputs, which refer broadly to assumptions that market participants use in pricing assets or liabilities. These inputs can be readily observable, market corroborated, or generally unobservable firm inputs. The Companies often make certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, and the risks inherent in the inputs to valuation techniques. The Companies use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.
The accounting rules for fair value measurements and disclosures established a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value in three broad levels. The rules require that assets and liabilities be classified in their entirety based on the level of input that is significant to the fair value measurement. Assessing the significance of a particular input may require judgment considering factors specific to the asset or liability, and may affect the valuation of the asset or liability and their placement within the fair value hierarchy. The Companies classify fair value balances based on the fair value hierarchy defined by the accounting rules for fair value measurements and disclosures as follows:
Level 1 – Consists of assets or liabilities whose value is based on unadjusted quoted prices in active markets at the measurement date. An active market is one in which transactions for assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis. This category includes contracts traded on active exchange markets valued using unadjusted prices quoted directly from the exchange.
Level 2 – Consists of assets or liabilities valued using industry standard models and based on prices, other than quoted prices within Level 1, that are either directly or indirectly observable as of the measurement date. The industry standard models consider observable assumptions including time value, volatility factors and current market and contractual prices for the underlying commodities, in addition to other economic measures. This category includes contracts traded on active exchanges or in over-the-counter markets priced with industry standard models.
Level 3 – Consists of assets or liabilities whose fair value is estimated based on internally developed models or methodologies using inputs that are generally less readily observable and supported by little, if any, market activity at the measurement date. Unobservable inputs are developed based on the best available information and subject to cost benefit constraints. This category includes contracts priced using models that are internally developed and contracts placed in illiquid markets. It also includes contracts that expire after the period of time for which quoted prices are available and internal models are used to determine a significant portion of the value.
 

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Assets and liabilities measured at fair value on a recurring basis as of June 30, 2017 and December 31, 2016 are summarized below.
 
  
2017
2016
(Millions of Dollars)
Level 1
Level 2
Level 3
Netting
Adjustment (e)
Total
Level 1
Level 2
Level 3
Netting
Adjustment (e)
Total
Con Edison
 
 
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
 
 
Commodity (a)(b)(c)
$6
$37
$4
$(25)
$22
$14
$33
$7
$(24)
$30
Other (a)(b)(d)
264
116


380
222
111


333
Total assets
$270
$153
$4
$(25)
$402
$236
$144
$7
$(24)
$363
Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
Commodity (a)(b)(c)
$3
$162
$14
$(42)
$137
$4
$144
$6
$(38)
$116
Interest Rate Swap (a)(b)(c)

1


1

1


1
Total liabilities
$3
$163
$14
$(42)
$138
$4
$145
$6
$(38)
$117
CECONY
 
 
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
 
 
Commodity (a)(b)(c)
$3
$5
$1
$2
$11
$10
$19
$1
$(10)
$20
Other (a)(b)(d)
241
111


352
200
106


306
Total assets
$244
$116
$1
$2
$363
$210
$125
$1
$(10)
$326
Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
Commodity (a)(b)(c)
$1
$120
$7
$(13)
$115
$1
$124

$—

$(26)
$99
(a)
The Companies’ policy is to review the fair value hierarchy and recognize transfers into and transfers out of the levels at the end of each reporting period. There were no transfers between levels 1, 2 and 3 for the six months ended June 30, 2017 and for the year ended December 31, 2016.
(b)
Level 2 assets and liabilities include investments held in the deferred compensation plan and/or non-qualified retirement plans, exchange-traded contracts where there is insufficient market liquidity to warrant inclusion in Level 1, certain over-the-counter derivative instruments for electricity, refined products and natural gas. Derivative instruments classified as Level 2 are valued using industry standard models that incorporate corroborated observable inputs; such as pricing services or prices from similar instruments that trade in liquid markets, time value and volatility factors.
(c)
The accounting rules for fair value measurements and disclosures require consideration of the impact of nonperformance risk (including credit risk) from a market participant perspective in the measurement of the fair value of assets and liabilities. At June 30, 2017 and December 31, 2016, the Companies determined that nonperformance risk would have no material impact on their financial position or results of operations.
(d)
Other assets are comprised of assets such as life insurance contracts within the deferred compensation plan and non-qualified retirement plans.
(e)
Amounts represent the impact of legally-enforceable master netting agreements that allow the Companies to net gain and loss positions and cash collateral held or placed with the same counterparties.

The employees in the Companies’ risk management group develop and maintain the Companies’ valuation policies and procedures for, and verify pricing and fair value valuation of, commodity derivatives. Under the Companies’ policies and procedures, multiple independent sources of information are obtained for forward price curves used to value commodity derivatives. Fair value and changes in fair value of commodity derivatives are reported on a monthly basis to the Companies’ risk committees, comprised of officers and employees of the Companies that oversee energy hedging at the Utilities and the Clean Energy Businesses. The risk management group reports to the Companies’ Vice President and Treasurer.
 


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Fair Value of Level 3 at June 30, 2017
Valuation
Techniques
Unobservable Inputs
Range
 
(Millions of Dollars)
Con Edison – Commodity
Electricity
$(11)
Discounted Cash Flow
Forward energy prices (a)
$15.89-$79.00 per MWh
 

Discounted Cash Flow
Forward capacity prices (a)
$2.42-$9.75 per kW-month
Transmission Congestion Contracts/Financial Transmission Rights
1
Discounted Cash Flow
Discount to adjust auction prices for inter-zonal forward price curves (b)
50.0%
 
 
 
Inter-zonal forward price curves adjusted for historical zonal losses (b)
$0.50-$9.30 per MWh
Total Con Edison—Commodity
$(10)
 
 
 
CECONY—Commodity
Electricity
$(7)
Discounted Cash Flow
Forward energy prices (a)
$22.50-$77.25 per MWh
Transmission Congestion Contracts
$1
Discounted Cash Flow
Discount to adjust auction prices for inter-zonal forward price curves (b)
50.0%
Total CECONY—Commodity
$(6)
 
 
 
(a)
Generally, increases/(decreases) in this input in isolation would result in a higher/(lower) fair value measurement.
(b)
Generally, increases/(decreases) in this input in isolation would result in a lower/(higher) fair value measurement.
The table listed below provides a reconciliation of the beginning and ending net balances for assets and liabilities measured at fair value as of June 30, 2017 and 2016 and classified as Level 3 in the fair value hierarchy:
 
 
For the Three Months Ended June 30,
  
          Con Edison
          CECONY
(Millions of Dollars)
2017

2016
2017

2016

Beginning balance as of April 1,
$3
$(4)
$1
$2
Included in earnings
2
5
1

Included in regulatory assets and liabilities
(11)
1
(7)
(1)
Purchases

1

1
Settlements
(4)
2
(1)

Ending balance as of June 30,
$(10)
$5
$(6)
$2

 
For the Six Months Ended June 30,
  
          Con Edison
          CECONY
(Millions of Dollars)
2017
2016
2017

2016
Beginning balance as of January 1,
$1
$6
$1
$8
Included in earnings
1
(2)

(1)
Included in regulatory assets and liabilities
(9)
(2)
(7)
(5)
Purchases
1
1
1
1
Settlements
(4)
2
(1)
(1)
Ending balance as of June 30,
$(10)
$5
$(6)
$2


For the Utilities, realized gains and losses on Level 3 commodity derivative assets and liabilities are reported as part of purchased power, gas and fuel costs. The Utilities generally recover these costs in accordance with rate provisions approved by the applicable state public utilities regulators. Unrealized gains and losses for commodity derivatives are generally deferred on the consolidated balance sheet in accordance with the accounting rules for regulated operations.
For the Clean Energy Businesses, realized and unrealized gains and losses on Level 3 commodity derivative assets and liabilities are reported in non-utility revenues (immaterial for both periods) and purchased power costs ($1 million loss and $5 million gain) on the consolidated income statement for the three months ended June 30, 2017 and 2016, respectively. Realized and unrealized gains and losses on Level 3 commodity derivative assets and liabilities are reported in non-utility revenues (immaterial for both periods) and purchased power costs ($1 million loss and $2 million loss) on the consolidated income statement for the six months ended June 30, 2017 and 2016, respectively. The change in fair value relating to Level 3 commodity derivative assets and liabilities held at June 30, 2017 and 2016 is included in non-utility revenues (immaterial for both periods) and purchased power costs ($2 million loss and $7 million gain) on the consolidated income statement for the three months ended June 30, 2017 and 2016, respectively. For the six months ended June 30, 2017 and 2016, the change in fair value relating to Level 3

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commodity derivative assets and liabilities is included in non-utility revenues (immaterial for both periods) and purchased power costs ($2 million loss and $3 million gain) on the consolidated income statement, respectively.
 
Note M — Variable Interest Entities
Con Edison enters into arrangements including leases, partnerships and electricity purchase agreements, with various entities. As a result of these arrangements, Con Edison retains or may retain a variable interest in these entities.
CECONY has an ongoing long-term electricity purchase agreement with Brooklyn Navy Yard Cogeneration Partners, LP, a potential variable interest entity (VIE). In April 2017, CECONY's long-term electricity purchase agreement with Cogen Technologies Linden Venture, LP, another potential VIE, expired. In 2016, requests were made of these counterparties for information necessary to determine whether the entity was a VIE and whether CECONY is the primary beneficiary; however, the information was not made available. The payments for these contracts constitute CECONY’s maximum exposure to loss with respect to the potential VIEs.

 
The following table summarizes the VIEs in which Con Edison Development has entered into as of June 30, 2017:
 
Project Name (a)
Generating
Capacity (b)
(MW AC)
Power Purchase Agreement Term (in Years)
Year of
Initial
Investment
Location
Maximum
Exposure to Loss
(Millions of Dollars) (c)
Copper Mountain Solar 3
128
20
2014
Nevada
$176
Mesquite Solar 1
83
20
2013
Arizona
102
Copper Mountain Solar 2
75
25
2013
Nevada
83
California Solar
55
25
2012
California
62
Broken Bow II
38
25
2014
Nebraska
46
Texas Solar 4
32
25
2014
Texas
47
(a) With the exception of Texas Solar 4, Con Edison’s ownership interest is 50 percent and these projects are accounted for using the equity method of accounting. With the exception of Texas Solar 4, Con Edison is not the primary beneficiary since the power to direct the activities that most significantly impact the economics of the entities are shared equally between Con Edison Development and third parties. Con Edison’s ownership interest in Texas Solar 4 is 80 percent and is consolidated in the financial statements. Con Edison is the primary beneficiary since the power to direct the activities that most significantly impact the economics of Texas Solar 4 is held by Con Edison Development.
(b) Represents Con Edison Development’s ownership interest in the project.
(c) For investments accounted for under the equity method, maximum exposure is equal to the carrying value of the investment on the consolidated balance sheet. For consolidated investments, such as Texas Solar 4, maximum exposure is equal to the net assets of the project on the consolidated balance sheet less any applicable noncontrolling interest ($7 million for Texas Solar 4). Con Edison did not provide any financial or other support during the three and six months ended June 30, 2017 that was not previously contractually required.


Note N — New Financial Accounting Standards
In May 2014, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board jointly issued a revenue recognition standard that will supersede the revenue recognition requirements within Accounting Standards Codification Topic 605, “Revenue Recognition,” and most industry-specific guidance under the Codification through Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” The purpose of the new guidance is to create a consistent framework for revenue recognition. The guidance clarifies how to measure and recognize revenue arising from customer contracts to depict the transfer of goods or services in an amount that reflects the consideration the entity expects to receive. Amendments were issued subsequently to clarify key areas including principal/agent considerations, performance obligations, licensing, sales taxes, noncash consideration, and contracts. The new standard is effective for reporting periods beginning after December 15, 2017. Early adoption is permitted for reporting periods beginning after December 15, 2016, however, the Companies plan to adopt the new standard for reporting periods beginning after December 15, 2017.

Under the new standard, companies may use either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a modified retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Companies anticipate using the modified retrospective approach.


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The Companies are currently in the process of evaluating the impact of the new standard on their various revenue streams. The majority of the Companies’ sales are derived from tariffs to provide electric, gas, and steam service to customers. For such tariffs, the Companies expect that the revenue from contracts with the customer under ASU 2014-09 will be equivalent to the electricity, gas, or steam supplied in that period which is consistent with current practice. Consequently, the Companies do not anticipate that the new standard will materially impact the amount and/or timing of such revenues. The Companies continue to review the potential impacts of other revenue at the Utilities and the Clean Energy Businesses on the Companies' financial position, results of operations and liquidity as well as the additional disclosures required under the new standard.

In February 2016, the FASB issued amendments on financial reporting of leasing transactions through ASU No. 2016-02, “Leases (Topic 842)." The amendments require lessees to recognize assets and liabilities on the balance sheet and disclose key information about leasing arrangements. Lessees will need to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model. For income statement purposes, the pattern of expense recognition will be dependent on whether transactions are designated as operating leases or finance leases. The amendments are effective for reporting periods beginning after December 15, 2018. Early adoption is permitted. The amendments must be adopted using a modified retrospective transition and provide for certain practical expedients. Based on the existing portfolio of leases at implementation, for leases currently classified as operating leases, the Companies expect to recognize on the statements of financial position right-of-use assets and lease liabilities. The Companies are in the process of evaluating the potential impact of the new guidance on the Companies’ results of operations and liquidity.

In January 2017, the FASB issued amendments to the guidance for Business Combinations through ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” The amendments in this update clarify the definition of a business and provide guidance on evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. For public entities, the amendments are effective for reporting periods beginning after December 15, 2017. Early adoption is permitted. The application of this guidance is not expected to have a material impact on the Companies’ financial position, results of operations and liquidity.

In January 2017, the FASB issued amendments to the guidance for the subsequent measurement of goodwill through ASU 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The amendments in this update simplify goodwill impairment testing by eliminating Step 2 of the goodwill impairment test wherein an entity has to compute the implied fair value of goodwill by performing procedures to determine the fair value of its assets and liabilities. Under the new guidance, an entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value up to the total amount of goodwill allocated to that reporting unit. For public entities, the amendments are effective for reporting periods beginning after December 15, 2019. Early adoption is permitted. The application of this guidance is not expected to have a material impact on the Companies’ financial position, results of operations and liquidity.

In February 2017, the FASB issued amendments to the guidance for other income through ASU 2017-05, “Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.” The amendments in this update clarify the scope of assets within Subtopic 610-20 and add guidance for partial sales of nonfinancial assets. The amendments are effective upon the adoption of ASU 2014-09, and therefore will be effective for reporting periods beginning after December 15, 2017. The Company is in the process of evaluating the potential impact of the new guidance on the Company’s financial position, results of operations and liquidity.

In March 2017, the FASB issued amendments to the guidance for retirement benefits through ASU 2017-07, “Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The amendments in this update modify the presentation of net benefit cost, where the service component must be disaggregated from the other components of net benefit cost and be presented in the same line item as current employee compensation costs. The remaining components of the net benefit cost should be presented outside of income from operations. Additionally, the update allows only the service cost component to be eligible for capitalization. For public entities, the amendments are effective for reporting periods beginning after December 15, 2017. Early adoption is permitted. The Companies are in the process of

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evaluating the potential impact of the new guidance on the Companies’ financial position, results of operations and liquidity.

In March 2017, the FASB issued amendments to the guidance for debt securities through ASU 2017-08, “Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” The amendments in this update shorten the amortization period for certain callable debt securities held at a premium. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public entities, the amendments are effective for reporting periods beginning after December 15, 2018. Early adoption is permitted. The application of this guidance is not expected to have a material impact on the Companies’ financial position, results of operations and liquidity.

In May 2017, the FASB issued amendments to the guidance for stock compensation through ASU 2017-09, “Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting.” The amendments in this update specify that changes to value, vesting conditions, or classification of an existing share-based payment award require application of modification accounting in Topic 718. For public entities, the amendments are effective for reporting periods beginning after December 15, 2017. Early adoption is permitted. The application of this guidance is not expected to have a material impact on the Companies’ financial position, results of operations and liquidity.


Note O — Dispositions
Upton 2
In May 2017, Con Edison Development sold Upton 2, a development stage solar electric production project, for $11 million to Vistra Asset Co. and recorded a $1 million gain on sale ($0.7 million, net of taxes). In addition, Con Edison Development agreed to perform the engineering, procurement and construction for the 180 MW (AC) project, which is expected to be substantially completed in 2018.



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Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations 
 
This combined management’s discussion and analysis of financial condition and results of operations (MD&A) relates to the consolidated financial statements (the Second Quarter Financial Statements) included in this report of two separate registrants: Consolidated Edison, Inc. (Con Edison) and Consolidated Edison Company of New York, Inc. (CECONY). As used in this report, the term the “Companies” refers to Con Edison and CECONY. CECONY is a subsidiary of Con Edison and, as such, information in this management’s discussion and analysis about CECONY applies to Con Edison.

This MD&A should be read in conjunction with the Second Quarter Financial Statements and the notes thereto, the MD&A in Item 7 of the Companies’ combined Annual Report on Form 10-K for the year ended December 31, 2016 (File Nos. 1-14514 and 1-1217, the Form 10-K) and the MD&A in Part 1, Item 2 of the Companies' combined Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017 (File Nos. 1-14514 and 1-1217).

Information in any item of this report referred to in this discussion and analysis is incorporated by reference herein. The use of terms such as “see” or “refer to” shall be deemed to incorporate by reference into this discussion and analysis the information to which reference is made.

Con Edison, incorporated in New York State in 1997, is a holding company that owns all of the outstanding common stock of CECONY, Orange and Rockland Utilities, Inc. (O&R), Con Edison Clean Energy Businesses, Inc. and Con Edison Transmission, Inc. As used in this report, the term the “Utilities” refers to CECONY and O&R.
 ceiorgchartvfa05.jpg
 
Con Edison’s principal business operations are those of CECONY, O&R, the Clean Energy Businesses and Con Edison Transmission. CECONY’s principal business operations are its regulated electric, gas and steam delivery businesses. O&R’s principal business operations are its regulated electric and gas delivery businesses. The Clean Energy Businesses develop, own and operate renewable and energy infrastructure projects and provide energy-related products and services to wholesale and retail customers. Con Edison Transmission invests in electric transmission facilities and gas pipeline and storage facilities.

Con Edison seeks to provide shareholder value through continued dividend growth, supported by earnings growth in regulated utilities and contracted assets. The company invests to provide reliable, resilient, safe and clean energy critical for New York City’s growing economy. The company is an industry leading owner and operator of contracted, large-scale solar generation in the United States. Con Edison is a responsible neighbor, helping the communities it serves become more sustainable.





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CECONY
Electric
CECONY provides electric service to approximately 3.4 million customers in all of New York City (except a part of Queens) and most of Westchester County, an approximately 660 square mile service area with a population of more than nine million.

CECONY's 2016 service area peak demand was 12,652 MW, including an estimated 4,541 MW for CECONY's full-service customers, 6,114 MW for customers participating in its electric retail choice program and 1,997 MW for NYPA's electric commodity customers and municipal electric agency customers. The company estimates that, under design weather conditions, the 2017 service area peak demand will be 13,470 MW, including an estimated 4,912 MW for its full-service customers, 6,402 MW for its electric retail choice customers and 2,156 MW for NYPA's customers and municipal electric agency customers.

Gas
CECONY delivers gas to approximately 1.1 million customers in Manhattan, the Bronx, parts of Queens and most of Westchester County.

In May 2017, the company decreased its five-year forecast of average annual growth of the peak gas demand in its service area at design conditions from approximately 2.3 percent (for 2017 to 2021) to 1.6 percent (for 2018 to 2022). The decrease reflects, among other things, that in rolling the forecast forward a year, another year of oil-to-gas conversions has been completed and fewer opportunities to convert remain.

Steam
CECONY operates the largest steam distribution system in the United States by producing and delivering approximately 20,000 MMlb of steam annually to approximately 1,650 customers in parts of Manhattan.

O&R
Electric
O&R and its utility subsidiary, Rockland Electric Company (RECO) (together referred to herein as O&R) provide electric service to approximately 0.3 million customers in southeastern New York and northern New Jersey, an approximately 1,300 square mile service area.

Gas
O&R delivers gas to over 0.1 million customers in southeastern New York.

Clean Energy Businesses
Con Edison Clean Energy Businesses, Inc. has three wholly-owned subsidiaries: Consolidated Edison Development, Inc. (Con Edison Development), Consolidated Edison Energy, Inc. (Con Edison Energy) and Consolidated Edison Solutions, Inc. (Con Edison Solutions). Con Edison Clean Energy Businesses, Inc., together with these subsidiaries (which were formerly referred to as the competitive energy businesses), are referred to in this report as the Clean Energy Businesses.

In September 2016, Con Edison sold the retail electric supply business of its Clean Energy Businesses to a subsidiary of Exelon Corporation for cash consideration of $235 million. In addition, Con Edison received $23 million in cash as a working capital adjustment in February 2017.

In May 2017, Con Edison Development sold a development-stage solar electric production project for $11 million and agreed to perform engineering, procurement and construction for the project. See Note O to the Second Quarter Financial Statements.







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Con Edison Transmission
Con Edison Transmission, Inc. invests in electric and gas transmission projects through its wholly-owned subsidiaries, Consolidated Edison Transmission, LLC (CET Electric) and Con Edison Gas Pipeline and Storage, LLC (CET Gas). CET Electric owns a 45.7 percent interest in New York Transco LLC, which owns and is proposing to build additional electric transmission assets in New York. CET Gas owns, through subsidiaries, a 50 percent interest in a joint venture that owns, operates and will further develop an existing gas pipeline and storage business located in northern Pennsylvania and southern New York and a 71.2 percent interest in Honeoye Storage Corporation which operates a gas storage business in upstate New York. In addition, CET Gas owns a 12.5 percent interest in a company developing a proposed gas transmission project in West Virginia and Virginia. Con Edison Transmission, Inc., together with CET Electric and CET Gas, are referred to in this report as Con Edison Transmission.

Certain financial data of Con Edison’s businesses are presented below:

  
For the Three Months Ended
June 30, 2017
For the Six Months Ended
June 30, 2017
At June 30, 2017
(Millions of Dollars, except percentages)
Operating
Revenues
Net Income
Operating
Revenues
Net Income
Assets
CECONY
$2,293
87
%
$143
82
%
$5,149
88
%
$482
86
%
$41,548
85
%
O&R
195
7

5
3

433
7

31
5

2,770
6

Total Utilities
2,488
94

148
85

5,582
95

513
91

44,318
91

Clean Energy Businesses (a)
146
6

21
12

283
5

28
5

2,773
6

Con Edison Transmission


9
5



16
3

1,170
2

Other (b)
(1)

(3)
(2
)
(4)

6
1

838
1

Total Con Edison
$2,633
100
%
$175
100
%
$5,861
100
%
$563
100
%
$49,099
100
%
(a)
Net income from the Clean Energy Businesses includes for the three and six months ended June 30, 2017 $1 million net after-tax gain related to the sale of a development stage solar electric production project (see Note O to the Second Quarter Financial Statements). Also includes for the three and six months ended June 30, 2017 $4 million and $3 million of net after-tax mark-to-market losses, respectively.
(b)
Other includes parent company and consolidation adjustments.

Results of Operations
Net income and earnings per share for the three and six months ended June 30, 2017 and 2016 were as follows:

  
For the Three Months Ended June 30,
For the Six Months Ended June 30,
 
2017
2016
2017

2016

2017
2016
2017

2016

(Millions of Dollars, except per share amounts)
Net Income
Earnings
per Share
Net Income
Earnings
per Share
CECONY
$143
$161

$0.47


$0.54

$482
$472

$1.58


$1.59

O&R
5
2
0.01

0.01

31
28
0.10

0.10

Clean Energy Businesses (a)
21
72
0.07

0.24

28
42
0.09

0.14

Con Edison Transmission
9
1
0.03


16
1
0.05


Other (b)
(3)
(4)
(0.01
)
(0.01
)
6
(1)
0.02


Con Edison (c)
$175
$232

$0.57


$0.78

$563
$542

$1.84


$1.83

(a)
Includes $(4) million or $(0.01) a share and $58 million or $0.20 a share of net after-tax mark-to-market gains/(losses) for the three months ended June 30, 2017 and 2016, respectively, and $(3) million or $(0.01) a share and $20 million or $0.07 a share of net after-tax mark-to-market gains/(losses) for the six months ended June 30, 2017 and 2016, respectively. Substantially all the mark-to-market effects in the 2016 periods related to the retail electric supply business sold in September 2016.  Also includes a $1 million or $0.00 a share net after-tax gain on the sale of a solar electric production project for the three and six months ended June 30, 2017 (see Note O to the Second Quarter Financial Statements) and a $5 million or $0.02 a share net after-tax loss related to the impairment of a solar electric production investment for the three and six months ended June 30, 2016.
(b)
Other includes parent company and consolidation adjustments.
(c)
Earnings per share on a diluted basis were $0.57 a share and $0.77 a share for the three months ended June 30, 2017 and 2016, respectively, and $1.84 a share and $1.82 a share for the six months ended June 30, 2017 and 2016, respectively.


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The Companies’ results of operations for the three and six months ended June 30, 2017, as compared with the 2016 periods, reflect changes in the Utilities' rate plans and regulatory charges and the impact of weather on steam revenues. The new electric rate plan of CECONY includes changes in the timing of recognition of annual revenues between quarters. Other operations and maintenance expenses for CECONY reflect lower costs for pensions and other postretirement benefits and lower regulatory assessments and fees that are collected in revenues from customers, offset in part by higher costs for municipal infrastructure support. The rate plans provide for revenues to cover expected changes in certain operating costs including depreciation, property taxes and other tax matters. The results of operations also include the impact of the net mark-to-market effects of the Clean Energy Businesses.



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The following table presents the estimated effect on earnings per share and net income for the three and six months ended June 30, 2017 period as compared with 2016 period, resulting from these and other major factors:
 
Three Months Variation
Six Months Variation
(Millions of Dollars, except per share amounts)
Earnings
per Share
Variation
Net Income 
Variation
Earnings
per Share
Variation
Net Income 
Variation
CECONY (a)
 
 
 
 
Changes in rate plans and regulatory charges (b)
$(0.04)
$(11)
$0.16
$48
Weather impact on steam revenues

(1)
0.02
5
Other operations and maintenance expenses (c)
0.13
38
0.16
48
Depreciation, property taxes and other tax matters (d)
(0.12)
(38)
(0.26)
(78)
Other (e)
(0.04)
(6)
(0.09)
(13)
Total CECONY
(0.07)
(18)
(0.01)
10
O&R (a)
 
 
 
 
Changes in rate plans and regulatory charges
0.03
7
0.04
11
Other operations and maintenance expenses (f)
(0.02)
(4)
(0.03)
(7)
Depreciation and property taxes


(0.01)
(2)
Other (e)
(0.01)


1
Total O&R

3

3
Clean Energy Businesses
 
 
 
 
Operating revenues less energy costs (g)
(0.15)
(46)

(1)
Other operations and maintenance expenses
(0.02)
(5)
(0.02)
(6)
Depreciation
(0.02)
(5)
(0.04)
(10)
Net interest expense

(2)
(0.01)
(4)
Other (e) (h)
0.02
7
0.02
7
Total Clean Energy Businesses
(0.17)
(51)
(0.05)
(14)
Con Edison Transmission (e) (i)
0.03
8
0.05
15
Other, including parent company expenses (e) (j)

1
0.02
7
Total variations
$(0.21)
$(57)
$0.01
$21
(a)
Under the revenue decoupling mechanisms in the Utilities’ New York electric and gas rate plans and the weather-normalization clause applicable to their gas businesses, revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved. In general, the Utilities recover on a current basis the fuel, gas purchased for resale and purchased power costs they incur in supplying energy to their full-service customers. Accordingly, such costs do not generally affect the Companies' results of operations.
(b)
For the three months ended June 30, 2017 as compared to the 2016 period, reflects lower electric net base revenues of $(0.05) a share, resulting from the timing of recognition of annual revenues between quarters under the company's new electric rate plan which reflected decreased assumed delivery volumes that offset increased base rates. For the six months ended June 30, 2017 as compared with the 2016 period, reflects higher electric net base revenues of $0.02 a share, as over the six month period increased base rates offset decreased assumed delivery volumes. Also, for the three and six months ended June 30, 2017 as compared with the 2016 periods, reflects higher gas net base revenues ($0.05 a share and $0.15 a share, respectively) and lower surcharges for assessments and fees that are collected in revenues from customers ($(0.03) a share and $(0.02) a share, respectively). For the six months ended June 30, 2017 as compared with the 2016 period, reflects growth in the number of gas customers of $0.02 a share.
(c)
Reflects lower pension and other postretirement benefits costs of $0.07 a share and $0.15 a share as well as lower regulatory assessments and fees that are collected in revenues from customers of $0.03 a share and $0.02 a share for the three and six months ended June 30, 2017 as compared with the 2016 periods, offset, in part, by higher municipal infrastructure costs of $(0.01) a share and $(0.02) a share for the three and six months ended June 30, 2017 as compared with the 2016 periods.
(d)
Reflects higher depreciation and amortization expense of $(0.04) a share and $(0.09) a share, property taxes of $(0.04) a share and $(0.09) a share, and income taxes of $(0.04) a share and $(0.08) a share for the three and six months ended June 30, 2017 as compared with the 2016 periods.
(e)
Includes the impact of the dilutive effect of Con Edison's stock issuances.
(f)
Reflects higher pension costs of $(0.01) a share and $(0.01) a share for the three and six months ended June 30, 2017 as compared with the 2016 periods. Also, for the six months ended June 30, 2017 as compared with the 2016 period, reflects higher regulatory assessments and fees that are collected from customers of $(0.01) a share.
(g)
Reflects higher revenues from renewable electric production projects, offset by lower revenues from the retail electric supply business which was sold in September 2016. Includes $(0.01) a share and $0.20 a share of net after-tax mark-to-market gains/(losses) for the three months ended June 30, 2017 and 2016, respectively, and $(0.01) a share and $0.07 a share of net after-tax mark-to-market gains/(losses) for the six months ended June 30, 2017 and 2016, respectively. Substantially all the mark-to-market effects in the 2016 periods related to the retail electric supply business sold in September 2016.  
(h)
Includes $0.02 a share of net after-tax loss related to the impairment of a solar electric production investment for the three and six months ended June 30, 2016.
(i)
Reflects income from equity investments.
(j)
Reflects higher state income tax benefits.

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The Companies’ other operations and maintenance expenses for the three and six months ended June 30, 2017 and 2016 were as follows:

 
For the Three Months Ended June 30,
For the Six Months Ended June 30,
(Millions of Dollars)
2017
2016
2017
2016
CECONY
 
 
 
 
Operations
$377
$369
$761
$728
Pensions and other postretirement benefits
51
87
101
174
Health care and other benefits
42
44
82
78
Regulatory fees and assessments (a)
102
116
213
226
Other
66
85
144
175
Total CECONY
638
701
1,301
1,381
O&R
79
73
155
143
Clean Energy Businesses
56
47
94
84
Con Edison Transmission
2
1
4
1
Other (b)
(2)
(2)
(1)
(2)
Total other operations and maintenance expenses
$773
$820
$1,553
$1,607
(a)
Includes Demand Side Management, System Benefit Charges and Public Service Law 18A assessments which are collected in revenues.
(b)
Includes parent company and consolidation adjustments.

A discussion of the results of operations by principal business segment for the three and six months ended June 30, 2017 and 2016 follows. For additional business segment financial information, see Note J to the Second Quarter Financial Statements.




45

Table of Contents

Three Months Ended June 30, 2017 Compared with Three Months Ended June 30, 2016
The Companies’ results of operations in 2017 compared with 2016 were:

  
CECONY
O&R
Clean Energy Businesses
Con Edison
Transmission
Other (a)
Con Edison (b)
(Millions of Dollars)
Increases
(Decreases)
Amount
Increases
(Decreases)
Percent
Increases
(Decreases)
Amount
Increases
(Decreases)
Percent
Increases
(Decreases)
Amount
Increases
(Decreases)
Percent
Increases
(Decreases)
Amount
Increases
(Decreases)
Percent
Increases
(Decreases)
Amount
Increases
(Decreases)
Percent
Increases
(Decreases)
Amount
Increases
(Decreases)
Percent
Operating revenues
$12
0.5
%
$20
11.4
%
$(192)
(56.8
)%

$—

%
$(1)
%
$(161)
(5.8
)%
Purchased power
(6)
(1.6
)
1
2.2

(144)
Large



(1)

(150)
(26.9
)
Fuel
5
15.2









5
15.2

Gas purchased for resale
33
64.7

6
75.0

28
Large



1
Large

68
84.0

Other operations and maintenance
(63)
(9.0
)
6
8.2

9
19.1

1
Large



(47)
(5.7
)
Depreciation and amortization
21
7.6



8
80.0



1

30
9.9

Taxes, other than income taxes
27
5.9

1
5.3

(1)
(20.0
)


(1)
Large

26
5.4

Gain on sale of solar electric production project





1





1

Operating income
(5)
(1.3
)
6
46.2

(91)
(83.5
)
(1)
Large

(1)
(50.0
)
(92)
(17.9
)
Other income less deductions
(1)
(50.0
)


7
Large

17
Large



23
Large

Net interest expense
5
3.4



2
25.0

3
Large



10
5.9

Income before income tax expense
(11)
(4.5
)
6
Large

(86)
(79.6
)
13
Large

(1)
(50.0
)
(79)
(22.2
)
Income tax expense
7
8.3

3
Large

(35)
(97.2
)
5

(2)
Large

(22)
(17.7
)
Net income
$(18)
(11.2
)%
$3
Large

$(51)
(70.8
)%
$8
Large

$1
25.0
 %
$(57)
(24.6
)%
(a)
Includes parent company and consolidation adjustments.
(b)
Represents the consolidated results of operations of Con Edison and its businesses.


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CECONY

  
For the Three Months Ended
June 30, 2017
  
For the Three Months Ended
June 30, 2016
  
  
(Millions of Dollars)
Electric

Gas

Steam

2017 Total
Electric

Gas

Steam

2016 Total
2017-2016
Variation
Operating revenues
$1,817
$388
$88
$2,293
$1,892
$304
$85
$2,281
$12
Purchased power
358

5
363
364

5
369
(6)
Fuel
27

11
38
22

11
33
5
Gas purchased for resale

84

84

51

51
33
Other operations and maintenance
485
107
46
638
552
101
48
701
(63)
Depreciation and amortization
229
45
22
296
215
39
21
275
21
Taxes, other than income taxes
388
69
30
487
368
65
27
460
27
Operating income
$330
$83
$(26)
$387
$371
$48
$(27)
$392
$(5)

Electric
CECONY’s results of electric operations for the three months ended June 30, 2017 compared with the 2016 period is as follows:
 
  
For the Three Months Ended
  
(Millions of Dollars)
June 30, 2017
June 30, 2016
Variation
Operating revenues
$1,817
$1,892
$(75)
Purchased power
358
364
(6)
Fuel
27
22
5
Other operations and maintenance
485
552
(67)
Depreciation and amortization
229
215
14
Taxes, other than income taxes
388
368
20
Electric operating income
$330
$371
$(41)

CECONY’s electric sales and deliveries for the three months ended June 30, 2017 compared with the 2016 period were:

  
Millions of kWh Delivered
 
Revenues in Millions (a)
  
For the Three Months Ended
  
 
For the Three Months Ended
  
Description
June 30, 2017

June 30, 2016

Variation

Percent
Variation

 
June 30, 2017
June 30, 2016
Variation
Percent
Variation

Residential/Religious (b)
2,062

2,141

(79
)
(3.7
)%
 
$546
$549
$(3)
(0.5
)%
Commercial/Industrial
2,090

2,180

(90
)
(4.1
)
 
429
415
14
3.4

Retail choice customers
5,934

6,056

(122
)
(2.0
)
 
593
601
(8)
(1.3
)
NYPA, Municipal Agency and other sales
2,330

2,377

(47
)
(2.0
)
 
146
139
7
5.0

Other operating revenues (c)




 
103
188
(85)
(45.2
)
Total
12,416

12,754

(338
)
(2.7
%)
(d)
$1,817
$1,892
$(75)
(4.0
%)
(a)
Revenues from electric sales are subject to a revenue decoupling mechanism, as a result of which delivery revenues generally are not affected by changes in delivery volumes from levels assumed when rates were approved.
(b)
“Residential/Religious” generally includes single-family dwellings, individual apartments in multi-family dwellings, religious organizations and certain other not-for-profit organizations.
(c)
Other electric operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the revenue decoupling mechanism and other provisions of the company’s rate plans.
(d)
After adjusting for variations, primarily weather and billing days, electric delivery volumes in CECONY’s service area decreased 0.9 percent in the three months ended June 30, 2017 compared with the 2016 period.



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Table of Contents

Operating revenues decreased $75 million in the three months ended June 30, 2017 compared with the 2016 period due primarily to lower revenues from the electric rate plan ($55 million) and lower purchased power expenses ($6 million), offset in part by higher fuel expenses ($5 million). The lower revenues included the timing of recognition of annual revenues between quarters under the new electric rate plan ($23 million) and the decline in surcharges for assessments and fees that were collected in revenues from customers ($15 million).

Purchased power expenses decreased $6 million in the three months ended June 30, 2017 compared with the 2016 period due to lower purchased volumes ($9 million), offset by higher unit costs ($3 million).

Fuel expenses increased $5 million in the three months ended June 30, 2017 compared with the 2016 period due to higher purchased volumes from the company's electric generating facilities ($3 million) and higher unit costs ($2 million).

Other operations and maintenance expenses decreased $67 million in the three months ended June 30, 2017 compared with the 2016 period due primarily to lower pension and other post employment benefits costs ($38 million), surcharges for assessments and fees that are collected in revenues from customers ($15 million) and uncollectible expense ($6 million).

Depreciation and amortization increased $14 million in the three months ended June 30, 2017 compared with the 2016 period due primarily to higher electric utility plant balances.

Taxes, other than income taxes increased $20 million in the three months ended June 30, 2017 compared with the 2016 period due primarily to higher property taxes ($16 million) and the absence in 2017 of a favorable state audit settlement in 2016 ($5 million).

Gas
CECONY’s results of gas operations for the three months ended June 30, 2017 compared with the 2016 period is as follows:

  
For the Three Months Ended
  
(Millions of Dollars)
June 30, 2017
June 30, 2016
Variation
Operating revenues
$388
$304
$84
Gas purchased for resale
84
51
33
Other operations and maintenance
107
101
6
Depreciation and amortization
45
39
6
Taxes, other than income taxes
69
65
4
Gas operating income
$83
$48
$35

CECONY’s gas sales and deliveries, excluding off-system sales, for the three months ended June 30, 2017 compared with the 2016 period were:


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Thousands of Dt Delivered
 
Revenues in Millions (a)
  
For the Three Months Ended
  
 
For the Three Months Ended
  
Description
June 30, 2017

June 30, 2016

Variation

Percent
Variation

 
June 30, 2017
June 30, 2016

Variation

Percent
Variation

Residential
10,303

9,692

611

6.3
%
 
$171
$140
$31
22.1
%
General
6,503

6,014

489

8.1

 
74
56
18
32.1

Firm transportation
14,771

14,409

362

2.5

 
102
88
14
15.9

Total firm sales and transportation
31,577

30,115

1,462

4.9

(b)
347
284
63
22.2

Interruptible sales (c)
2,109

1,815

294

16.2

 
9
5
4
80.0

NYPA
10,493

11,062

(569
)
(5.1
)
 
1
1


Generation plants
14,476

22,879

(8,403
)
(36.7
)
 
6
6


Other
4,073

4,682

(609
)
(13.0
)
 
7
8
(1)
(12.5
)
Other operating revenues (d)




 
18

18

Total
62,728

70,553

(7,825
)
(11.1
%)
 
$388
$304
$84
27.6
 %
(a)
Revenues from gas sales are subject to a weather normalization clause and a revenue decoupling mechanism, as a result of which delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved.
(b)
After adjusting for variations, primarily billing days, firm gas sales and transportation volumes in the company’s service area increased 2.2 percent in the three months ended June 30, 2017 compared with the 2016 period, reflecting primarily increased volumes attributable to the growth in the number of gas customers.
(c)
Includes 1,217 thousands and 915 thousands of Dt for the 2017 and 2016 periods, respectively, which are also reflected in firm transportation and other.
(d)
Other gas operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s rate plans.

Operating revenues increased $84 million in the three months ended June 30, 2017 compared with the 2016 period due primarily to higher revenues from the gas rate plan and growth in the number of customers ($35 million) and higher gas purchased for resale expense ($33 million).

Gas purchased for resale increased $33 million in the three months ended June 30, 2017 compared with the 2016 period due to higher unit costs ($42 million), offset by lower purchased volumes ($9 million).

Other operations and maintenance expenses increased $6 million in the three months ended June 30, 2017 compared with the 2016 period due primarily to higher pension and other post employment benefits costs ($4 million) and costs for maintenance of gas mains ($1 million).

Depreciation and amortization increased $6 million in the three months ended June 30, 2017 compared with the 2016 period due primarily to higher gas utility plant balances.

Taxes, other than income taxes increased $4 million in the three months ended June 30, 2017 compared with the 2016 period due primarily to higher property taxes ($3 million) and payroll taxes ($1 million).

Steam
CECONY’s results of steam operations for the three months ended June 30, 2017 compared with the 2016 period is as follows:

  
For the Three Months Ended
  
(Millions of Dollars)
June 30, 2017
June 30, 2016
Variation

Operating revenues
$88
$85
$3
Purchased power
5
5

Fuel
11
11

Other operations and maintenance
46
48
(2)
Depreciation and amortization
22
21
1
Taxes, other than income taxes
30
27
3
Steam operating income
$(26)
$(27)
$1



49

Table of Contents

CECONY’s steam sales and deliveries for the three months ended June 30, 2017 compared with the 2016 period were:

  
Millions of Pounds Delivered
 
Revenues in Millions
  
For the Three Months Ended
  
 
For the Three Months Ended
  
Description
June 30, 2017

June 30, 2016

Variation

Percent
Variation

 
June 30, 2017
June 30, 2016
Variation

Percent
Variation

General
58

68

(10
)
(14.7
)%
 
$4
$4

$—

%
Apartment house
1,032

1,094

(62
)
(5.7
)
 
26
26


Annual power
2,335

2,511

(176
)
(7.0
)
 
61
62
(1)
(1.6
)
Other operating revenues (a)




 
(3)
(7)
4
(57.1
)
Total
3,425

3,673

(248
)
(6.8
)%
(b)
$88
$85
$3
3.5
%
(a)
Other steam operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s rate plan.
(b)
After adjusting for variations, primarily weather and billing days, steam sales and deliveries decreased 2.6 percent in the three months ended June 30, 2017 compared with the 2016 period.

Operating revenues increased $3 million in the three months ended June 30, 2017 compared with the 2016 period due primarily to higher revenues from the steam rate plan.

Other operations and maintenance expenses decreased $2 million in the three months ended June 30, 2017 compared with the 2016 period due primarily to lower municipal infrastructure support costs.

Depreciation and amortization increased $1 million in the three months ended June 30, 2017 compared with the 2016 period due primarily to higher steam utility plant balances.

Taxes, other than income taxes increased $3 million in the three months ended June 30, 2017 compared with the 2016 period due primarily to higher property taxes.

Other Income (Deductions)
Other income (deductions) decreased $1 million in the three months ended June 30, 2017 compared with the 2016 period due primarily to an increase in other income deductions ($3 million), offset by an increase in investment and other income ($2 million).

Net Interest Expense
Net interest expense increased $5 million in the three months ended June 30, 2017 compared with the 2016 period due primarily to higher long-term debt balances in the 2017 period.

Income Tax Expense
Income taxes increased $7 million in the three months ended June 30, 2017 compared with the 2016 period due primarily to plant-related flow through items ($11 million) and a higher reserve for injuries and damages ($5 million), offset in part by lower income before income tax expense ($4 million), a decrease in bad debt expense ($3 million) and lower state income taxes ($2 million).


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O&R

  
For the Three Months Ended
June 30, 2017
 
For the Three Months Ended
June 30, 2016
 
  
(Millions of Dollars)
Electric

Gas

2017 Total
Electric

Gas

2016 Total
2017-2016
Variation

Operating revenues
$148
$47
$195
$144
$31
$175
$20
Purchased power
46

46
45

45
1
Gas purchased for resale

14
14

8
8
6
Other operations and maintenance
62
17
79
60
13
73
6
Depreciation and amortization
13
4
17
13
4
17

Taxes, other than income taxes
13
7
20
12
7
19
1
Operating income
$14
$5
$19
$14
$(1)
$13

$6


Electric
O&R’s results of electric operations for the three months ended June 30, 2017 compared with the 2016 period is as follows:

  
For the Three Months Ended
  
(Millions of Dollars)
June 30, 2017
June 30, 2016
Variation

Operating revenues
$148
$144
$4
Purchased power
46
45
1
Other operations and maintenance
62
60
2
Depreciation and amortization
13
13

Taxes, other than income taxes
13
12
1
Electric operating income
$14
$14

$—


O&R’s electric sales and deliveries for the three months ended June 30, 2017 compared with the 2016 period were:

  
Millions of kWh Delivered
 
Revenues in Millions (a)
  
For the Three Months Ended
  
 
For the Three Months Ended
  
Description
June 30, 2017

June 30, 2016

Variation

Percent
Variation

 
June 30, 2017
June 30, 2016
Variation

Percent
Variation

Residential/Religious (b)
359

366

(7
)
(1.9
)%
 
$69
$66
$3
4.5
%
Commercial/Industrial
177

197

(20
)
(10.2
)
 
27
28
(1)
(3.6
)
Retail choice customers
730

768

(38
)
(4.9
)
 
48
50
(2)
(4.0
)
Public authorities
24

23

1

4.3

 
2
2


Other operating revenues (c)




 
2
(2)
4
Large

Total
1,290

1,354

(64
)
(4.7
)%
(d)
$148
$144
$4
2.8
%
(a)
O&R’s New York electric delivery revenues are subject to a revenue decoupling mechanism, as a result of which delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved. O&R’s electric sales in New Jersey are not subject to a decoupling mechanism, and as a result, changes in such volumes do impact revenues.
(b)
“Residential/Religious” generally includes single-family dwellings, individual apartments in multi-family dwellings, religious organizations and certain other not-for-profit organizations.
(c)
Other electric operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s electric rate plan.
(d)
After adjusting for weather and other variations, electric delivery volumes in O&R’s service area decreased 2.3 percent in the three months ended June 30, 2017 compared with the 2016 period.

Operating revenues increased $4 million in the three months ended June 30, 2017 compared with the 2016 period due primarily to higher revenues from the New York electric rate plan ($3 million) and higher purchased power expenses ($1 million).

Purchased power expenses increased $1 million in the three months ended June 30, 2017 compared with the 2016 period due to higher purchased volumes ($3 million), offset by lower unit costs ($2 million).



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Other operations and maintenance expenses increased $2 million in the three months ended June 30, 2017 compared with the 2016 period due primarily to a higher reserve for injuries and damages, higher surcharges for assessments and fees that are collected in revenues from customers, and operating costs related to weather events in 2017.

Taxes, other than income taxes increased $1 million in the three months ended June 30, 2017 compared with the 2016 period due primarily to higher property taxes.

Gas
O&R’s results of gas operations for the three months ended June 30, 2017 compared with the 2016 period is as follows:

  
For the Three Months Ended
  
(Millions of Dollars)
June 30, 2017
June 30, 2016
Variation

Operating revenues
$47
$31
$16
Gas purchased for resale
14
8
6
Other operations and maintenance
17
13
4
Depreciation and amortization
4
4

Taxes, other than income taxes
7
7

Gas operating income
$5
$(1)
$6

O&R’s gas sales and deliveries, excluding off-system sales, for the three months ended June 30, 2017 compared with the 2016 period were:

  
Thousands of Dt Delivered
 
Revenues in Millions (a)
  
For the Three Months Ended
  
 
For the Three Months Ended
  
Description
June 30, 2017

June 30, 2016

Variation

Percent
Variation

 
June 30, 2017

June 30, 2016

Variation

Percent
Variation

Residential
1,092

1,150

(58
)
(5.0
)%
 
$19
$12
$7
58.3
%
General
292

281

11

3.9

 
4
1
3
Large

Firm transportation
1,457

1,722

(265
)
(15.4
)
 
13
12
1
8.3

Total firm sales and transportation
2,841

3,153

(312
)
(9.9
)
(b)
36
25
11
44.0

Interruptible sales
959

946

13

1.4

 
1
1


Generation plants
1

11

(10
)
(90.9
)
 




Other
118

132

(14
)
(10.6
)
 
1

1

Other gas revenues




 
9
5
4
80.0

Total
3,919

4,242

(323
)
(7.6
)%
 
$47
$31
$16
51.6
%
(a)
Revenues from New York gas sales are subject to a weather normalization clause and a revenue decoupling mechanism as a result of which delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved.
(b)
After adjusting for weather and other variations, total firm sales and transportation volumes decreased 0.5 percent in the three months ended June 30, 2017 compared with 2016 period.

Operating revenues increased $16 million in the three months ended June 30, 2017 compared with the 2016 period due primarily to higher revenues from the New York gas rate plan ($9 million) and increased gas purchased for resale ($6 million).

Gas purchased for resale increased $6 million in the three months ended June 30, 2017 compared with the 2016 period due to higher purchased volumes ($9 million), offset by lower unit costs ($3 million).

Other operations and maintenance expenses increased $4 million in the three months ended June 30, 2017 compared with the 2016 period due primarily to higher pension costs.

Income Tax Expense
Income taxes increased $3 million in the three months ended June 30, 2017 compared with the 2016 period due primarily to higher income before income tax expense.

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Clean Energy Businesses
The Clean Energy Businesses’ results of operations for the three months ended June 30, 2017 compared with the 2016 period is as follows:

  
For the Three Months Ended
  
(Millions of Dollars)
June 30, 2017

June 30, 2016

Variation
Operating revenues
$146
$338
$(192)
Purchased power

144
(144)
Gas purchased for resale
51
23
28
Other operations and maintenance
56
47
9
Depreciation and amortization
18
10
8
Taxes, other than income taxes
4
5
(1)
Gain on sale of solar electric production project (a)
1

1
Operating income
$18
$109
$(91)
(a)     See Note O to the Second Quarter Financial Statements.

Operating revenues decreased $192 million in the three months ended June 30, 2017 compared with the 2016 period, due primarily to lower electric retail revenues of $263 million from the sale of the retail electric supply business in September 2016. Renewable revenues increased $36 million due primarily to an increase in renewable electric production projects in operation. See "Con Edison Development," below. Energy services revenues increased $7 million. Wholesale revenues increased $35 million due to higher sales volumes. Net mark-to-market values decreased $104 million, due primarily to the sale of the retail electric supply business, of which $97 million in losses are reflected in purchased power costs and $7 million in losses are reflected in revenues.

Purchased power expenses decreased $144 million in the three months ended June 30, 2017 compared with the 2016 period due primarily to lower electric costs due to the sale of the retail electric supply business in September 2016 ($240 million), offset by changes in mark-to-market values ($96 million).

Gas purchased for resale increased $28 million in the three months ended June 30, 2017 compared with the 2016 period due to higher purchased volumes.

Other operations and maintenance expenses increased $9 million in the three months ended June 30, 2017 compared with the 2016 period due primarily to an increase in energy services costs.

Depreciation and amortization increased $8 million in the three months ended June 30, 2017 compared with the 2016 period due to an increase in solar electric production projects in operation during 2017.

Taxes, other than income taxes decreased $1 million in the three months ended June 30, 2017 compared with the 2016 period primarily due to lower gross receipts tax from the sale of the retail electric supply business.

Other Income (Deductions)
Other income (deductions) increased $7 million in the three months ended June 30, 2017 compared with the 2016 period due primarily to the impairment of a solar electric production investment in 2016 of $8 million.

Net Interest Expense
Net interest expense increased $2 million in the three months ended June 30, 2017 compared with the 2016 period due primarily to increased debt on solar electric production projects.

Income Tax Expense
Income taxes decreased $35 million in the three months ended June 30, 2017 compared with the 2016 period due primarily to lower income before income tax expense.




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Con Edison Transmission
Net Interest Expense
Net interest expense increased $3 million in the three months ended June 30, 2017 compared with the 2016 period due primarily to a new debt issuance in 2016.

Other Income (Deductions)
Other income (deductions) increased $17 million in the three months ended June 30, 2017 compared with the 2016 period due primarily to earnings from equity investments in Stagecoach Gas Services, LLC, substantially all of which were made in June 2016.

Income Tax Expense
Income taxes increased $5 million in the three months ended June 30, 2017 compared with the 2016 period due primarily to higher income before income tax expense.

Other
For Con Edison, “Other” includes parent company and consolidation adjustments.



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Six Months Ended June 30, 2017 Compared with Six Months Ended June 30, 2016
The Companies’ results of operations in 2017 compared with 2016 were:

  
CECONY
O&R
Clean Energy Businesses

Con Edison
Transmission
Other (a)
Con Edison (b)
(Millions of Dollars)
Increases
(Decreases)
Amount
Increases
(Decreases)
Percent
Increases
(Decreases)
Amount
Increases
(Decreases)
Percent
Increases
(Decreases)
Amount
Increases
(Decreases)
Percent
Increases
(Decreases)
Amount
Increases
(Decreases)
Percent
Increases
(Decreases)
Amount
Increases
(Decreases)
Percent
Increases
(Decreases)
Amount
Increases
(Decreases)
Percent
Operating revenues
$236
4.8
 %
$43
11.0
 %
$(365)
(56.3
)%

$—

%
$(3)
Large
$(89)
(1.5
)%
Purchased power
(11)
(1.5
)
3
3.5

(445)
Large



(3)
(456)
(36.5
)
Fuel
35
33.7








35
33.7

Gas purchased for resale
131
71.6

19
82.6

81
Large




231
96.7

Other operations and maintenance
(80)
(5.8
)
12
8.4

10
11.9

3
Large

1
50.0
(54)
(3.4
)
Depreciation and amortization
44
8.0

2
6.1

17
89.5




63
10.5

Taxes, other than income taxes
59
6.3

2
5.0

(3)
(27.3
)


(1)
57
5.7

Gain on sale of solar electric production project





1




1

Operating income
58
5.6

5
7.6

(24)
(41.4
)
(3)
Large


36
3.1

Other income less deductions
6



6
66.7

36
Large


48
Large

Net interest expense
9
3.0

(1)
(5.3
)
6
37.5

7
Large


21
6.2

Income before income tax expense
55
7.5

6
12.8

(24)
(47.1
)
26
Large


63
7.6

Income tax expense
45
17.0

3
15.8

(10)
Large

11

(7)
Large
42
14.6

Net income
$10
2.1
 %
$3
10.7
%
$(14)
(33.3
%)
$15
Large

$7
Large
$21
3.9
%
(a)
Includes parent company and consolidation adjustments.
(b)
Represents the consolidated results of operations of Con Edison and its businesses.



55

Table of Contents

CECONY

  
For the Six Months Ended
June 30, 2017
  
For the Six Months Ended
June 30, 2016
  
  
(Millions of Dollars)
Electric

Gas

Steam

2017 Total
Electric

Gas

Steam

2016 Total
2017-2016
Variation
Operating revenues
$3,610
$1,153
$386
$5,149
$3,665
$905
$343
$4,913
$236
Purchased power
691

19
710
705

16
721
(11)
Fuel
70

69
139
60

44
104
35
Gas purchased for resale

314

314

183

183
131
Other operations and maintenance
982
225
94
1,301
1,081
204
96
1,381
(80)
Depreciation and amortization
458
90
43
591
428
78
41
547
44
Taxes, other than income taxes
787
150
66
1,003
746
139
59
944
59
Operating income
$622
$374
$95
$1,091
$645
$301
$87
$1,033
$58

Electric
CECONY’s results of electric operations for the six months ended June 30, 2017 compared with the 2016 period is as follows:
 
  
For the Six Months Ended
  
(Millions of Dollars)
June 30, 2017
June 30, 2016
Variation
Operating revenues
$3,610
$3,665
$(55)
Purchased power
691
705
(14)
Fuel
70
60
10
Other operations and maintenance
982
1,081
(99)
Depreciation and amortization
458
428
30
Taxes, other than income taxes
787
746
41
Electric operating income
$622
$645
$(23)

CECONY’s electric sales and deliveries for the six months ended June 30, 2017 compared with the 2016 period were:

  
Millions of kWh Delivered
 
Revenues in Millions (a)
  
For the Six Months Ended
  
 
For the Six Months Ended
  
Description
June 30, 2017

June 30, 2016

Variation
Percent
Variation
 
June 30, 2017
June 30, 2016
Variation
Percent
Variation
Residential/Religious (b)
4,339

4,476

(137
)
(3.1
)%
 
$1,120
$1,134
$(14)
(1.2
)%
Commercial/Industrial
4,395

4,471

(76
)
(1.7
)
 
859
830
29
3.5

Retail choice customers
12,238

12,269

(31
)
(0.3
)
 
1,225
1,196
29
2.4

NYPA, Municipal Agency and other sales
4,843

4,877

(34
)
(0.7
)
 
275
270
5
1.9

Other operating revenues (c)




 
131
235
(104)
(44.3
)
Total
25,815

26,093

(278
)
(1.1
)%
(d)
$3,610
$3,665
$(55)
(1.5
)%
(a)
Revenues from electric sales are subject to a revenue decoupling mechanism, as a result of which delivery revenues generally are not affected by changes in delivery volumes from levels assumed when rates were approved.
(b)
“Residential/Religious” generally includes single-family dwellings, individual apartments in multi-family dwellings, religious organizations and certain other not-for-profit organizations.
(c)
Other electric operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the revenue decoupling mechanism and other provisions of the company’s rate plans.
(d)
After adjusting for variations, primarily weather and billing days, electric delivery volumes in CECONY’s service area decreased 0.6 percent in the six months ended June 30, 2017 compared with the 2016 period.


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Operating revenues decreased $55 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to lower revenues from the electric rate plan ($23 million) and lower purchased power costs ($14 million), offset in part by higher fuel expenses ($10 million). The lower revenues reflected the decline in surcharges for assessments and fees that were collected in revenues from customers ($19 million).

Purchased power expenses decreased $14 million in the six months ended June 30, 2017 compared with the 2016 period due to lower purchased volumes ($24 million), offset by higher unit costs ($10 million).

Fuel expenses increased $10 million in the six months ended June 30, 2017 compared with the 2016 period due to higher unit costs ($5 million) and purchased volumes from the company’s electric generating facilities ($5 million).

Other operations and maintenance expenses decreased $99 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to lower pension and other post employment benefits costs ($73 million) and surcharges for assessments and fees that are collected in revenues from customers ($19 million).

Depreciation and amortization increased $30 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to higher electric utility plant balances.

Taxes, other than income taxes increased $41 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to higher property taxes ($32 million), the absence in 2017 of a favorable state audit settlement in 2016 ($5 million) and higher state and local taxes ($1 million).

Gas
CECONY’s results of gas operations for the six months ended June 30, 2017 compared with the 2016 period is as follows:

  
For the Six Months Ended
  
(Millions of Dollars)
June 30, 2017
June 30, 2016
Variation
Operating revenues
$1,153
$905
$248
Gas purchased for resale
314
183
131
Other operations and maintenance
225
204
21
Depreciation and amortization
90
78
12
Taxes, other than income taxes
150
139
11
Gas operating income
$374
$301
$73

CECONY’s gas sales and deliveries, excluding off-system sales, for the six months ended June 30, 2017 compared with the 2016 period were:

  
Thousands of Dt Delivered
 
Revenues in Millions (a)
  
For the Six Months Ended
  
 
For the Six Months Ended
  
Description
June 30, 2017

June 30, 2016

Variation
Percent
Variation
 
June 30, 2017
June 30, 2016
Variation
Percent
Variation
Residential
34,910

31,231

3,679

11.8
 %
 
$509
$417
$92
22.1
 %
General
19,306

16,997

2,309

13.6

 
206
160
46
28.8

Firm transportation
45,186

43,028

2,158

5.0

 
325
279
46
16.5

Total firm sales and transportation
99,402

91,256

8,146

8.9

(b)
1,040
856
184
21.5

Interruptible sales (c)
4,417

5,923

(1,506
)
(25.4
)
 
22
25
(3)
(12.0
)
NYPA
20,085

19,171

914

4.8

 
1
1


Generation plants
24,921

35,150

(10,229
)
(29.1
)
 
11
12
(1)
(8.3
)
Other
12,269

11,467

802

7.0

 
18
19
(1)
(5.3
)
Other operating revenues (d)




 
61
(8)
69
Large

Total
161,094

162,967

(1,873
)
(1.1
)%
 
$1,153
$905
$248
27.4
 %
(a)
Revenues from gas sales are subject to a weather normalization clause and a revenue decoupling mechanism as a result of which delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved.


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Table of Contents

(b)
After adjusting for variations, primarily billing days, firm gas sales and transportation volumes in the company’s service area increased 6.4 percent in the six months ended June 30, 2017 compared with the 2016 period, reflecting primarily increased volumes attributable to the growth in the number of gas customers.
(c)
Includes 2,027 thousands and 3,376 thousands of Dt for the 2017 and 2016 periods, respectively, which are also reflected in firm transportation and other.
(d)
Other gas operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s rate plans.

Operating revenues increased $248 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to higher gas purchased for resale expense ($131 million) and higher revenues from the gas rate plan and growth in the number of customers ($101 million).

Gas purchased for resale increased $131 million in the six months ended June 30, 2017 compared with the 2016 period due to higher unit costs.

Other operations and maintenance expenses increased $21 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to higher costs for maintenance of gas mains ($5 million), pension and other post employment benefits costs ($4 million), health and life expenses ($4 million), and municipal infrastructure support ($2 million).

Depreciation and amortization increased $12 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to higher gas utility plant balances.

Taxes, other than income taxes increased $11 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to higher property taxes ($6 million), payroll taxes ($2 million), and state and local taxes ($2 million).

Steam
CECONY’s results of steam operations for the six months ended June 30, 2017 compared with the 2016 period is as follows:

  
For the Six Months Ended
  
(Millions of Dollars)
June 30, 2017
June 30, 2016
Variation
Operating revenues
$386
$343
$43
Purchased power
19
16
3
Fuel
69
44
25
Other operations and maintenance
94
96
(2)
Depreciation and amortization
43
41
2
Taxes, other than income taxes
66
59
7
Steam operating income
$95
$87
$8

CECONY’s steam sales and deliveries for the six months ended June 30, 2017 compared with the 2016 period were:

  
Millions of Pounds Delivered
 
Revenues in Millions
  
For the Six Months Ended
  
 
For the Six Months Ended
  
Description
June 30, 2017

June 30, 2016

Variation
Percent
Variation
 
June 30, 2017
June 30, 2016

Variation
Percent
Variation
General
351

334

17

5.1
 %
 
$18
$16
$2
12.5
%
Apartment house
3,500

3,475

25

0.7

 
103
92
11
12.0

Annual power
7,634

7,691

(57
)
(0.7
)
 
258
235
23
9.8

Other operating revenues (a)




 
7

7

Total
11,485

11,500

(15
)
(0.1
)%
(b)
$386
$343
$43
12.5
%
(a)
Other steam operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s rate plan.
(b)
After adjusting for variations, primarily weather and billing days, steam sales and deliveries decreased 2.1 percent in the six months ended June 30, 2017 compared with the 2016 period.


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Operating revenues increased $43 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to higher fuel expenses ($25 million), the weather impact on revenues ($8 million), higher purchased power costs ($3 million), and higher revenues from the steam rate plan ($2 million).

Purchased power expenses increased $3 million in the six months ended June 30, 2017 compared with the 2016 period due to higher unit costs ($6 million), offset by lower purchased volumes ($3 million).

Fuel expenses increased $25 million in the six months ended June 30, 2017 compared with the 2016 period due to higher unit costs ($24 million) and purchased volumes from the company’s steam generating facilities ($1 million).

Other operations and maintenance expenses decreased $2 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to lower surcharges for assessments and fees that are collected in revenues from customers.

Depreciation and amortization increased $2 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to higher steam utility plant balances.

Taxes, other than income taxes increased $7 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to higher property taxes ($5 million) and state and local taxes ($1 million).

Net Interest Expense
Net interest expense increased $9 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to higher long-term debt balances in the 2017 period.

Income Tax Expense
Income taxes increased $45 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to higher income before income tax expense ($22 million), a decrease in tax benefits for plant-related flow through items ($21 million), lower research and development tax credits ($8 million) and a higher reserve for injuries and damages ($6 million), offset in part by lower state income taxes ($6 million) and a decrease in bad debt expense ($4 million).

O&R

  
For the Six Months Ended
June 30, 2017
 
For the Six Months Ended
June 30, 2016
 
  
(Millions of Dollars)
Electric

Gas

2017 Total
Electric

Gas

2016 Total
2017-2016
Variation
Operating revenues
$289
$144
$433
$284
$106
$390
$43
Purchased power
88

88
85

85
3
Gas purchased for resale

42
42

23
23
19
Other operations and maintenance
122
33
155
117
26
143
12
Depreciation and amortization
25
10
35
24
9
33
2
Taxes, other than income taxes
27
15
42
26
14
40
2
Operating income
$27
$44
$71
$32
$34
$66
$5

Electric
O&R’s results of electric operations for the six months ended June 30, 2017 compared with the 2016 period is as follows:



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Table of Contents

  
For the Six Months Ended
  
(Millions of Dollars)
June 30, 2017
June 30, 2016
Variation
Operating revenues
$289
$284
$5
Purchased power
88
85
3
Other operations and maintenance
122
117
5
Depreciation and amortization
25
24
1
Taxes, other than income taxes
27
26
1
Electric operating income
$27
$32
$(5)

O&R’s electric sales and deliveries for the six months ended June 30, 2017 compared with the 2016 period were:

  
Millions of kWh Delivered
 
Revenues in Millions (a)
  
For the Six Months Ended
  
 
For the Six Months Ended
  
Description
June 30, 2017

June 30, 2016

Variation

Percent
Variation
 
June 30, 2017
June 30, 2016
Variation

Percent
Variation
Residential/Religious (b)
708

722

(14
)
(1.9
%)
 
$137
$131
$6
4.6
 %
Commercial/Industrial
368

391

(23
)
(5.9
)
 
54
54


Retail choice customers
1,437

1,509

(72
)
(4.8
)
 
91
96
(5)
(5.2
)
Public authorities
48

45

3

6.7

 
4
4


Other operating revenues (c)




 
3
(1)
4
Large

Total
2,561

2,667

(106
)
(4.0
)%
(d)
$289
$284
$5
1.8
 %
(a)
O&R’s New York electric delivery revenues are subject to a revenue decoupling mechanism, as a result of which delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved. O&R’s electric sales in New Jersey are not subject to a decoupling mechanism, and as a result, changes in such volumes do impact revenues.
(b)
“Residential/Religious” generally includes single-family dwellings, individual apartments in multi-family dwellings, religious organizations and certain other not-for-profit organizations.
(c)
Other electric operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s electric rate plan.
(d)
After adjusting for weather and other variations, electric delivery volumes in O&R’s service area decreased 1.4 percent in the six months ended June 30, 2017 compared with the 2016 period.

Operating revenues increased $5 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to higher revenues from the New York electric rate plan ($4 million) and higher purchased power expense ($3 million).

Purchased power expenses increased $3 million in the six months ended June 30, 2017 compared with the 2016 period due to higher purchased volumes ($4 million), offset by lower unit costs ($1 million).

Other operations and maintenance expenses increased $5 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to higher surcharges for assessments and fees that are collected in revenues from customers ($2 million), operating costs related to weather events in 2017 ($2 million), and a higher reserve for injuries and damages ($1 million).

Depreciation and amortization increased $1 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to higher electric utility plant balances.

Taxes, other than income taxes increased $1 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to higher property taxes.

Gas
O&R’s results of gas operations for the six months ended June 30, 2017 compared with the 2016 period is as follows:


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For the Six Months Ended
  
(Millions of Dollars)
June 30, 2017
June 30, 2016
Variation
Operating revenues
$144
$106
$38
Gas purchased for resale
42
23
19
Other operations and maintenance
33
26
7
Depreciation and amortization
10
9
1
Taxes, other than income taxes
15
14
1
Gas operating income
$44
$34
$10

O&R’s gas sales and deliveries, excluding off-system sales, for the six months ended June 30, 2017 compared with the 2016 period were:

  
Thousands of Dt Delivered
 
Revenues in Millions (a)
  
For the Six Months Ended
  
 
For the Six Months Ended
  
Description
June 30, 2017

June 30, 2016

Variation
Percent
Variation
 
June 30, 2017

June 30, 2016

Variation
Percent
Variation
Residential
4,977

4,712

265

5.6
 %
 
$68
$46
$22
47.8
%
General
1,250

1,046

204

19.5

 
14
8
6
75.0

Firm transportation
5,645

6,297

(652
)
(10.4
)
 
42
41
1
2.4

Total firm sales and transportation
11,872

12,055

(183
)
(1.5
)
(b)
124
95
29
30.5

Interruptible sales
2,147

2,125

22

1.0

 
4
2
2
Large

Generation plants
2

12

(10
)
(83.3
)
 




Other
515

512

3

0.6

 
1

1

Other gas revenues




 
15
9
6
66.7
%
Total
14,536

14,704

(168
)
(1.1
)%
 
$144
$106
$38
35.8
%
(a)
Revenues from New York gas sales are subject to a weather normalization clause and a revenue decoupling mechanism as a result of which delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved.
(b)
After adjusting for weather and other variations, total firm sales and transportation volumes decreased 0.2 percent in the six months ended June 30, 2017 compared with 2016 period.

Operating revenues increased $38 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to an increase in gas purchased for resale ($19 million) and higher revenues from the New York gas rate plan ($16 million).

Gas purchased for resale increased $19 million in the six months ended June 30, 2017 compared with the 2016 period due to higher unit costs ($10 million) and higher purchased volumes ($9 million).

Other operations and maintenance expenses increased $7 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to higher pension costs.

Depreciation and amortization increased $1 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to higher gas utility plant balances.

Taxes, other than income taxes increased $1 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to higher state and local taxes.

Income Tax Expense
Income taxes increased $3 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to higher income before income tax expense.



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Clean Energy Businesses
The Clean Energy Businesses’ results of operations for the six months ended June 30, 2017 compared with the 2016 period is as follows:

  
For the Six Months Ended
  
(Millions of Dollars)
June 30, 2017
June 30, 2016

Variation
Operating revenues
$283
$648
$(365)
Purchased power
(2)
443
(445)
Gas purchased for resale
114
33
81
Other operations and maintenance
94
84
10
Depreciation and amortization
36
19
17
Taxes, other than income taxes
8
11
(3)
Gain on sale of solar electric production project (a)
1

1
Operating income
$34
$58
$(24)
(a)     See Note O to the Second Quarter Financial Statements.

Operating revenues decreased $365 million in the six months ended June 30, 2017 compared with the 2016 period, due primarily to lower electric retail revenues of $525 million from the sale of the retail electric supply business in September 2016. Renewable revenues increased $56 million due primarily to an increase in renewable electric production projects in operation. See "Con Edison Development," below. Energy services revenues increased $12 million. Wholesale revenues increased $95 million due to higher sales volumes. Net mark-to-market values increased $38 million, due primarily to the sale of the retail electric supply business, of which $35 million in losses are reflected in purchased power costs and $3 million in losses are reflected in revenues.

Purchased power expenses decreased $445 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to lower electric costs due to the sale of the retail electric supply business in September 2016 ($480 million) offset by changes in mark-to-market values ($35 million).

Gas purchased for resale increased $81 million in the six months ended June 30, 2017 compared with the 2016 period due to higher purchased volumes.

Other operations and maintenance expenses increased $10 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to an increase in energy services costs.

Depreciation and amortization increased $17 million in the six months ended June 30, 2017 compared with the 2016 period due to an increase in solar electric production projects in operation during 2017.

Taxes, other than income taxes decreased $3 million in the six months ended June 30, 2017 compared with the 2016 period due to lower gross receipts tax from the sale of the retail electric supply business in September 2016.

Other Income (Deductions)
Other income (deductions) increased $6 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to the impairment of a solar electric production investment in 2016 of $8 million.

Net Interest Expense
Net interest expense increased $6 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to increased debt on solar electric production projects.

Income Tax Expense
Income taxes decreased $10 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to lower income before income tax expense.


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Con Edison Transmission
Other Operations and Maintenance
Other operations and maintenance increased $3 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to CET having no employees or other direct costs until January 1, 2017.

Net Interest Expense
Net interest expense increased $7 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to a new debt issuance in 2016.

Other Income (Deductions)
Other income (deductions) increased $36 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to earnings from equity investments in Stagecoach Gas Services, LLC, substantially all of which were made in June 2016.

Income Tax Expense
Income taxes increased $11 million in the six months ended June 30, 2017 compared with the 2016 period due primarily to higher income before income tax expense.

Other
For Con Edison, “Other” includes parent company and consolidation adjustments.

Liquidity and Capital Resources
The Companies’ liquidity reflects cash flows from operating, investing and financing activities, as shown on their respective consolidated statement of cash flows and as discussed below.

Changes in the Companies’ cash and temporary cash investments resulting from operating, investing and financing activities for the six months ended June 30, 2017 and 2016 are summarized as follows:

 
For the Six Months Ended June 30,
  
Con Edison
CECONY
(Millions of Dollars)
2017
2016
Variation
2017
2016
Variation
Operating activities
$1,574
$1,631
$(57)
$1,234
$1,399
$(165)
Investing activities
(1,703)
(2,986)
1,283
(1,460)
(1,225)
(235)
Financing activities
169
1,273
(1,104)
291
(202)
493
Net change for the period
40
(82)
122
65
(28)
93
Balance at beginning of period
776
944
(168)
702
843
(141)
Balance at end of period
$816
$862
$(46)
$767
$815
$(48)
 
Cash Flows from Operating Activities
The Utilities’ cash flows from operating activities reflect primarily their energy sales and deliveries and cost of operations. The volume of energy sales and deliveries is affected primarily by factors external to the Utilities, such as growth of customer demand, weather, market prices for energy and economic conditions. Measures that promote distributed energy resources, such as distributed generation, demand reduction and energy efficiency, also affect the volume of energy sales and deliveries. Under the revenue decoupling mechanisms in the Utilities’ New York electric and gas rate plans, changes in delivery volumes from levels assumed when rates were approved may affect the timing of cash flows but generally not net income. The prices at which the Utilities provide energy to their customers are determined in accordance with their rate plans. In general, changes in the Utilities’ cost of purchased power, fuel and gas may affect the timing of cash flows but not net income because the costs are recovered in accordance with rate plans.

Net income is the result of cash and non-cash (or accrual) transactions. Only cash transactions affect the Companies’ cash flows from operating activities. Principal non-cash charges or credits include depreciation, deferred income tax expense and amortizations of certain regulatory assets and liabilities. Non-cash charges or credits may also be accrued under the revenue decoupling and cost reconciliation mechanisms in the Utilities’ New York electric and gas rate plans.



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Net cash flows from operating activities for the six months ended June 30, 2017 for Con Edison and CECONY were $57 million and $165 million lower, respectively, than in the 2016 period. The change in net cash flows for Con Edison and CECONY reflects primarily lower cash paid, net of refunds received, for income taxes in the 2017 period as compared with the 2016 period of $107 million and $203 million, respectively. The income tax refund received in 2016 reflected the extension of bonus depreciation in late 2015, resulting in a refund of the 2015 estimated federal tax payments. This was offset in part by a change in the other current assets balance associated with the revenue decoupling mechanism in the 2017 period as compared with the 2016 period of $65 million and $69 million for Con Edison and CECONY, respectively.

The change in net cash flows also reflects the timing of payments for and recovery of energy costs. This timing is reflected within changes to accounts receivable – customers, recoverable and refundable energy costs within other regulatory assets and liabilities and accounts payable balances.

The changes in regulatory assets primarily reflect changes in deferred pension costs in accordance with the accounting rules for retirement benefits.

Cash Flows Used in Investing Activities
Net cash flows used in investing activities for Con Edison and CECONY were $1,283 million lower and $235 million higher, respectively, for the six months ended June 30, 2017 compared with the 2016 period. The change for Con Edison reflects primarily no new investments in renewable electric production projects ($1,170 million), a decrease in non-utility construction expenditures ($106 million) and investments in electric and gas transmission projects ($63 million), offset in part by increased utility construction expenditures in 2017 ($81 million). The change for CECONY reflects primarily increased utility construction expenditures ($73 million) and absence of proceeds from the transfer of assets to NY Transco in 2016 ($122 million).

Cash Flows From Financing Activities
Net cash flows from financing activities for Con Edison and CECONY were $1,104 million lower and $493 million higher, respectively, in the six months ended June 30, 2017 compared with the 2016 period.

In June 2017, CECONY issued $500 million aggregate principal amount of 3.875 percent debentures, due 2047, the net proceeds from the sale of which were used to repay short-term borrowings and for other general corporate purposes.

In March 2017, Con Edison issued $400 million aggregate principal amount of 2.00 percent debentures, due 2020, and prepaid the June 2016 $400 million variable rate term loan that was to mature in 2018.

Also, in March 2017, a Con Edison Development subsidiary issued $97 million aggregate principal amount of 4.45 percent senior notes, due 2042, secured by the company’s Upton County Solar project.
 
In May 2016, Con Edison issued approximately 10 million common shares resulting in net proceeds, after issuance expenses, of $702 million and $500 million aggregate principal amount of 2.00 percent debentures, due 2021, the net proceeds from the sale of which were used in connection with the acquisition by a CET Gas subsidiary of a 50 percent equity interest in a gas pipeline and storage joint venture (see Con Edison Transmission, below) and for general corporate purposes.

In June 2016, CECONY issued $550 million aggregate principal amount of 3.85 percent debentures, due 2046, the net proceeds from the sale of which were used to repay short-term borrowings and for other general corporate purposes.

In June 2016, a Con Edison Solutions subsidiary borrowed $2 million pursuant to a loan agreement with a New Jersey utility. The borrowing matures in 2026, bears interest of 11.18 percent and may be repaid in cash or project Solar Renewable Energy Certificates.

In May 2016, a Con Edison Development subsidiary issued $95 million aggregate principal amount of 4.07 percent senior notes, due 2036, secured by the company's California Holdings 3 solar project.

In February 2016, a Con Edison Development subsidiary issued $218 million aggregate principal amount of 4.21 percent senior notes, due 2041, secured by the company's Texas Solar 7 solar project.

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Con Edison’s cash flows from financing for six months ended June 30, 2017 and 2016 also reflect the proceeds, and reduction in cash used for reinvested dividends, resulting from the issuance of common shares under the company’s dividend reinvestment, stock purchase and long-term incentive plans of $50 million and $53 million, respectively.

Cash flows used in financing activities of the Companies also reflect commercial paper issuances and repayments. The commercial paper amounts outstanding at June 30, 2017 and 2016 and the average daily balances for the six months ended June 30, 2017 and 2016 for Con Edison and CECONY were as follows:

  
2017
2016
(Millions of Dollars, except Weighted Average Yield)
Outstanding at June 30,
Daily
average
Outstanding at June 30,
Daily
average
Con Edison
$1,036
$699
$708
$992
CECONY
$750
$330
$608
$418
Weighted average yield
1.3%
1.0%
0.7%
0.6%

Capital Requirements and Resources
Con Edison has decreased its estimates for capital requirements for the retirement of long-term securities for 2018 from $1,688 million to $1,288 million. The decrease reflects the $400 million prepayment of a variable rate term loan that was to mature in 2018. See Note C to the Second Quarter Financial Statements.

For each of the Companies, the ratio of earnings to fixed charges (Securities and Exchange Commission basis) for the six months ended June 30, 2017 and 2016 and the twelve months ended December 31, 2016 was:
 
  
Ratio of Earnings to Fixed Charges
  
For the Six Months Ended June 30, 2017
For the Six Months Ended June 30, 2016
For the Twelve Months Ended December 31, 2016
Con Edison
3.3
3.2
3.6
CECONY
3.4
3.3
3.6

For each of the Companies, the common equity ratio at June 30, 2017 and December 31, 2016 was:

  
Common Equity Ratio
(Percent of total capitalization)
  
June 30, 2017
December 31, 2016
Con Edison
49.6
49.3
CECONY
50.0
49.5

Other Changes in Assets and Liabilities
The following table shows changes in certain assets and liabilities at June 30, 2017, compared with December 31, 2016.

 
Con Edison
CECONY
(Millions of Dollars)
2017 vs. 2016
Variation
2017 vs. 2016
Variation
Assets
 
 
Regulatory asset - Unrecognized pension and other postretirement costs
$(106)
$(118)
Liabilities
 
 
Pension and retiree benefits
$(195)
$(226)
Deferred income taxes and unamortized investment tax credits
344
343
System benefit charge
132
120
 


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Regulatory Asset for Unrecognized Pension and Other Postretirement Costs and Liability for Pension and Retiree Benefits
The decrease in the regulatory asset for unrecognized pension and other postretirement costs and the liability for pension and retiree benefits reflects the final actuarial valuation of the pension and other retiree benefit plans as measured at December 31, 2016, in accordance with the accounting rules for retirement benefits. The change in the regulatory asset also reflects the year’s amortization of accounting costs. The change in the liability for pension and retiree benefits reflects in part contributions to the plans made by the Utilities in 2017. See Notes E and F to the Second Quarter Financial Statements.

Deferred Income Taxes and Unamortized Investment Tax Credits
The increase in the liability for deferred income taxes and unamortized investment tax credits for Con Edison and CECONY reflects primarily bonus depreciation in 2017, partially offset by the increase in deferred income tax assets associated with the federal tax attribute carryforwards related to the net operating loss and general business tax credits. See Note I to the Second Quarter Financial Statements.

System Benefit Charge
The increase in the liability for the system benefit charge reflects amounts collected by the Utilities from their customers that will be required to be paid to NYSERDA.

Off-Balance Sheet Arrangements
None of the Companies’ transactions, agreements or other contractual arrangements meets the SEC definition of off-balance sheet arrangements.

Regulatory Matters
In March 2017, the NYSPSC issued an order that changes the way distributed energy resources are compensated and begins to phase out net energy metering. In New York, net energy metering compensates kilowatt-hours exported to the electric distribution system at the full service rate (that is production plus delivery plus taxes and fees). To provide a gradual transition, the NYSPSC allowed all existing resources to keep their current rate treatment and will delay making significant changes to policies affecting new residential and small commercial rooftop solar until 2020. Larger installations, including new commercial and industrial projects and new community solar projects, will be paid for the value of their exports to the electricity distribution system. The new policy establishes a 2 percent limit on bill increases, reducing the shifting of avoided distribution costs to non-participating residential customers that would have occurred under net energy metering.

For additional information about the Utilities’ regulatory matters, see Note B to the Second Quarter Financial Statements.

Environmental Matters
In May 2017, a transformer failure at a CECONY substation discharged thousands of gallons of transformer oil into the soil. Some of the transformer oil, which contained small amounts of polychlorinated biphenyls (PCBs), leaked into the East River. The company, the U.S. Coast Guard, the New York State Department of Environmental Conservation and other agencies responded to the incident. The company has replaced the transformer, and is continuing to remediate and monitor the site, the costs of which are not expected to have a material adverse effect on its financial condition, results of operations or liquidity. In connection with the incident, the company may incur monetary sanctions of more than $0.1 million for violations of certain  provisions regulating the discharge of materials into, and for the protection of, the environment.

In June 2017, CECONY received a notice of potential liability from the U.S. Environmental Protection Agency (EPA) with respect to the Newtown Creek site that was listed in 2010 on the EPA’s National Priorities List of Superfund sites. The EPA has identified fourteen potentially responsible parties (PRPs) with respect to the site, including CECONY, and has indicated that it will notify the company as additional PRPs are identified and notified by the EPA. Newtown Creek and its tributaries (collectively, Newtown Creek) form a 3.8 mile border between Brooklyn and Queens, New York. Currently, the predominant land use around Newtown Creek includes industrial, petroleum, recycling, manufacturing and distribution facilities and warehouses. Other uses include trucking, concrete manufacture, transportation infrastructure and a wastewater treatment plant. Newtown Creek is near several residential neighborhoods. Six PRPs, not including CECONY, pursuant to an administrative settlement agreement and order on consent the EPA issued to them in 2011, have been performing a remedial investigation of the site. The EPA indicated that sampling events have shown the sediments in Newtown Creek to be contaminated with a

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wide variety of hazardous substances including PCBs, metals, pesticides, polycyclic aromatic hydrocarbons and volatile organic contaminants. The EPA also indicated that it has reason to believe that hazardous substances have come to be released from CECONY facilities into Newtown Creek. The EPA’s current schedule anticipates completion of a feasibility study for the site by late 2018 and issuance of its record of decision selecting a remedy for the site by late 2020. CECONY is unable to estimate its exposure to liability for the Newtown Creek site.

For additional information about the Companies’ environmental matters, see Note G to the Second Quarter Financial Statements. 

Con Edison Development
The following table provides information about the renewable electric production projects Con Edison Development owned at June 30, 2017:
 
Project Name
Production
Technology
Generating
Capacity (a)
(MW AC)
Purchased Power Agreement (PPA)Term (In Years) (b)
Actual/Expected
In-Service Date (c)
Location
(State)
Wholly owned projects





Pilesgrove
Solar
18
(d)
2011
New Jersey
Flemington Solar
Solar
8
(d)
2011
New Jersey
Frenchtown I, II and III
Solar
14
(d)
2011-13
New Jersey
PA Solar
Solar
10
 
2012
Pennsylvania
California Solar 2 (e)
Solar
80
20
2014-16
California
Oak Tree Wind
Wind
20
20
2014
South Dakota
Texas Solar 3
Solar
6
25
2015
Texas
Texas Solar 5 (e)
Solar
95
25
2015
Texas
Campbell County Wind
Wind
95
30
2015
South Dakota
Texas Solar 7 (e)
Solar
106
25
2016
Texas
California Solar 3 (e)
Solar
110
20
2016
California
Adams Wind (e)
Wind
23
7
2016
Minnesota
Valley View (e)
Wind
10
14
2016
Minnesota
Coram (e)
Wind
102
16
2016
California
Projects of less than 5 MW
Solar / Wind
25
Various
Various
Various
Jointly owned projects (e) (f)





California Solar
Solar
55
25
2012-13
California
Mesquite Solar 1
Solar
83
20
2013
Arizona
Copper Mountain Solar 2
Solar
75
25
2013-15
Nevada
Copper Mountain Solar 3
Solar
128
20
2014-15
Nevada
Broken Bow II
Wind
38
25
2014
Nebraska
Texas Solar 4
Solar
32
25
2014
Texas
Total MW (AC) in Operation

1,133



Upton County Solar (e)
Solar
158
25
2017
Texas
Panoche Valley
Solar
240
20
2018
California
Total MW (AC) in Construction

398



Total MW (AC), All Projects

1,531



(a) Represents Con Edison Development’s ownership interest in the project.
(b) Represents PPA contractual term or remaining term from Con Edison Development’s date of acquisition.
(c) Represents Actual/Expected In-Service Date or Con Edison Development's date of acquisition.
(d) Have Solar Renewable Energy Credit hedges in place, in lieu of PPAs, out to 2020.
(e) Project has been pledged to secure financing for the project.
(f) All of the jointly-owned projects are 50 percent owned, except for Texas Solar 4 (which is 80 percent owned). See Note M to the Second
Quarter Financial Statements.

Con Edison Development's renewable electric production volumes generated for the three and six months ended June 30, 2017 compared with the 2016 period were:


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Millions of kWh Generated
  
For the Three Months Ended
For the Six Months Ended
Description
June 30, 2017

June 30, 2016

Variation

Percent Variation

June 30, 2017

June 30, 2016

Variation

Percent Variation

Renewable electric production projects
 
 
 
 
 
 
 
 
Solar
612

438

174

39.7
%
1,011

757

254

33.6
%
Wind
279

172

107

62.2
%
517

327

190

58.1
%
Total
891

610

281

46.1
%
1,528
1,084
444

41.0
%

Financial and Commodity Market Risks
The Companies are subject to various risks and uncertainties associated with financial and commodity markets. The most significant market risks include interest rate risk, commodity price risk, credit risk and investment risk.

Interest Rate Risk
The Companies’ interest rate risk relates primarily to variable rate debt and to new debt financing needed to fund capital requirements, including the construction expenditures of the Utilities and maturing debt securities. Con Edison and its businesses manage interest rate risk through the issuance of mostly fixed-rate debt with varying maturities and through opportunistic refinancing of debt. Con Edison and CECONY estimate that at June 30, 2017, a 10 percent increase in interest rates applicable to its variable rate debt would result in an increase in annual interest expense of $3 million. Under CECONY’s current electric, gas and steam rate plans, variations in actual variable rate tax-exempt debt interest expense are reconciled to levels reflected in rates.

Commodity Price Risk
Con Edison’s commodity price risk relates primarily to the purchase and sale of electricity, gas and related derivative instruments. The Utilities and the Clean Energy Businesses apply risk management strategies to mitigate their related exposures. See Note K to the Second Quarter Financial Statements.

Con Edison estimates that, as of June 30, 2017, a 10 percent decline in market prices would result in a decline in fair value of $55 million for the derivative instruments used by the Utilities to hedge purchases of electricity and gas, of which $48 million is for CECONY and $7 million is for O&R. Con Edison expects that any such change in fair value would be largely offset by directionally opposite changes in the cost of the electricity and gas purchased. In accordance with provisions approved by state regulators, the Utilities generally recover from customers the costs they incur for energy purchased for their customers, including gains and losses on certain derivative instruments used to hedge energy purchased and related costs.

The Clean Energy Businesses use a value-at-risk (VaR) model to assess the market price risk of their portfolio of electricity and gas commodity fixed-price purchase and sales commitments, physical forward contracts, generating assets and commodity derivative instruments. VaR represents the potential change in fair value of the portfolio due to changes in market prices, for a specified time period and confidence level. These businesses estimate VaR across their portfolio using a delta-normal variance/covariance model with a 95 percent confidence level and compare the measured VaR results against performance due to actual prices and stress test the portfolio each quarter using an assumed 30 percent price change from forecast. Since the VaR calculation involves complex methodologies and estimates and assumptions that are based on past experience, it is not necessarily indicative of future results. VaR for the portfolio, assuming a one-day holding period, for the six months ended June 30, 2017 and the year ended December 31, 2016, respectively, was as follows:

95% Confidence Level, One-Day Holding Period
June 30, 2017

December 31, 2016
 
(Millions of Dollars)
Average for the period

$—

$2
High
1
4
Low

1


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Credit Risk
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 Clean Energy Businesses. See the discussion of credit exposure in Note K to the Second Quarter Financial Statements.

Investment Risk
The Companies’ investment risk relates to the investment of plan assets for their pension and other postretirement benefit plans and to the investments of the Clean Energy Businesses and Con Edison Transmission that are accounted for under the equity method.

The Companies’ current investment policy for pension plan assets includes investment targets of 53 to 63 percent equities and 35 to 49 percent fixed income and other securities. At June 30, 2017, the pension plan investments consisted of 58 percent equity and 42 percent fixed income and other securities.

For the Utilities’ pension and other postretirement benefit plans, regulatory accounting treatment is generally applied in accordance with the accounting rules for regulated operations. In accordance with the Statement of Policy issued by the NYSPSC and its current electric, gas and steam rate plans, CECONY defers for payment to or recovery from customers the difference between the pension and other postretirement benefit expenses and the amounts for such expenses reflected in rates. Generally, O&R also defers such difference pursuant to its rate plans.

Material Contingencies
For information concerning potential liabilities arising from the Companies’ material contingencies, see "Other Regulatory Matters" in Note B and Notes G and H to the Second Quarter Financial Statements.


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Item 3: Quantitative and Qualitative Disclosures About Market Risk
For information about the Companies’ primary market risks associated with activities in derivative financial instruments, other financial instruments and derivative commodity instruments, see “Financial and Commodity Market Risks,” in Part I, Item 2 of this report, which information is incorporated herein by reference.

Item 4: Controls and Procedures
The Companies maintain disclosure controls and procedures designed to provide reasonable assurance that the information required to be disclosed in the reports that they submit to the Securities and Exchange Commission (SEC) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. For each of the Companies, its management, with the participation of its principal executive officer and principal financial officer, has evaluated its disclosure controls and procedures as of the end of the period covered by this report and, based on such evaluation, has concluded that the controls and procedures are effective to provide such reasonable assurance. Reasonable assurance is not absolute assurance, however, and there can be no assurance that any design of controls or procedures would be effective under all potential future conditions, regardless of how remote.
There was no change in the Companies’ internal control over financial reporting that occurred during the Companies’ most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Companies’ internal control over financial reporting.
 

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Part II Other Information

 
Item 1: Legal Proceedings
For information about certain legal proceedings affecting the Companies, see "Other Regulatory Matters" in Note B and Notes G and H to the financial statements in Part I, Item 1 of this report and "Environmental Matters" in Part I, Item 2 of this report, which information is incorporated herein by reference.

Item 1A: Risk Factors
There were no material changes in the Companies’ risk factors compared to those disclosed in Item 1A of the Form 10-K.
 
Item 6: Exhibits
Con Edison
Exhibit 10.1  

Amendment to the Severance Program for Officers of Consolidated Edison, Inc. and its Subsidiaries. 

Exhibit 12.1
Statement of computation of Con Edison’s ratio of earnings to fixed charges for the six-month periods ended June 30, 2017 and 2016, and the 12-month period ended December 31, 2016.
Exhibit 31.1.1
Rule 13a-14(a)/15d-14(a) Certifications – Chief Executive Officer.
Exhibit 31.1.2
Rule 13a-14(a)/15d-14(a) Certifications – Chief Financial Officer.
Exhibit 32.1.1
Section 1350 Certifications – Chief Executive Officer.
Exhibit 32.1.2
Section 1350 Certifications – Chief Financial Officer.
Exhibit 101.INS
XBRL Instance Document.
Exhibit 101.SCH
XBRL Taxonomy Extension Schema.
Exhibit 101.CAL
XBRL Taxonomy Extension Calculation Linkbase.
Exhibit 101.DEF
XBRL Taxonomy Extension Definition Linkbase.
Exhibit 101.LAB
XBRL Taxonomy Extension Label Linkbase.
Exhibit 101.PRE
XBRL Taxonomy Extension Presentation Linkbase.
 

CECONY
Exhibit 4.2
Form of CECONY’s 3.875% Debentures, Series 2017 A (Designated in CECONY’s Edison's Current Report on Form 8-K, dated June 5, 2017 (File No. 1-1217) as Exhibit 4).
Exhibit 10.2
The Consolidated Edison Company of New York, Inc. 2005 Executive Incentive Plan, as amended and restated effective January 1, 2017.

Exhibit 12.2
Statement of computation of CECONY’s ratio of earnings to fixed charges for the six-month periods ended June 30, 2017 and 2016, and the 12-month period ended December 31, 2016.
Exhibit 31.2.1
Rule 13a-14(a)/15d-14(a) Certifications – Chief Executive Officer.
Exhibit 31.2.2
Rule 13a-14(a)/15d-14(a) Certifications – Chief Financial Officer.
Exhibit 32.2.1
Section 1350 Certifications – Chief Executive Officer.
Exhibit 32.2.2
Section 1350 Certifications – Chief Financial Officer.
Exhibit 101.INS
XBRL Instance Document.
Exhibit 101.SCH
XBRL Taxonomy Extension Schema.
Exhibit 101.CAL
XBRL Taxonomy Extension Calculation Linkbase.
Exhibit 101.DEF
XBRL Taxonomy Extension Definition Linkbase.
Exhibit 101.LAB
XBRL Taxonomy Extension Label Linkbase.
Exhibit 101.PRE
XBRL Taxonomy Extension Presentation Linkbase.
Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, instruments defining the rights of holders of long-term debt of Con Edison’s subsidiaries other than CECONY, the total amount of which does not exceed ten percent of the total assets of Con Edison and its subsidiaries on a consolidated basis, are not filed as exhibits to Con Edison’s Form 10-K or Form 10-Q. Con Edison agrees to furnish to the SEC upon request a copy of any such instrument.
 


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Table of Contents

Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
Consolidated Edison, Inc.
 
Consolidated Edison Company of New York, Inc.
 
 
 
Date: August 3, 2017
By 
/s/ Robert Hoglund
 
 
Robert Hoglund
Senior Vice President, Chief
Financial Officer and Duly
Authorized Officer
 


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