UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2015
OR
For the transition period from to
CommissionFile Number
Exact name of registrant as specified in its charter
and principal office address and telephone number
State ofIncorporation
I.R.S. EmployerID. Number
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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of April 30, 2015, Con Edison had outstanding 292,877,149 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.
Glossary of Terms
The following is a glossary of abbreviations or acronyms that are used in the Companies’ SEC reports:
TABLE OF CONTENTS
Financial Statements (Unaudited)
Con Edison
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Statement of Cash Flows
Consolidated Balance Sheet
Consolidated Statement of Equity
CECONY
Consolidated Statement of Shareholder’s Equity
Notes to the Financial Statements (Unaudited)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Controls and Procedures
Legal Proceedings
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Exhibits
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:
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;
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.
Consolidated Edison, Inc.
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
OPERATING REVENUES
Electric
Gas
Steam
Non-utility
TOTAL OPERATING REVENUES
OPERATING EXPENSES
Purchased power
Fuel
Gas purchased for resale
Other operations and maintenance
Depreciation and amortization
Taxes, other than income taxes
TOTAL OPERATING EXPENSES
OPERATING INCOME
OTHER INCOME (DEDUCTIONS)
Investment and other income
Allowance for equity funds used during construction
Other deductions
TOTAL OTHER INCOME
INCOME BEFORE INTEREST AND INCOME TAX EXPENSE
INTEREST EXPENSE
Interest on long-term debt
Other interest
Allowance for borrowed funds used during construction
NET INTEREST EXPENSE
INCOME BEFORE INCOME TAX EXPENSE
INCOME TAX EXPENSE
NET INCOME FOR COMMON STOCK
Net income for common stock per common share—basic
Net income for common stock per common share—diluted
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK
AVERAGE NUMBER OF SHARES OUTSTANDING—BASIC (IN MILLIONS)
AVERAGE NUMBER OF SHARES OUTSTANDING—DILUTED (IN MILLIONS)
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
NET INCOME
OTHER COMPREHENSIVE INCOME, NET OF TAXES
Pension and other postretirement benefit plan liability adjustments, net of taxes
TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAXES
COMPREHENSIVE INCOME FOR COMMON STOCK
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
OPERATING ACTIVITIES
Net income
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME
Deferred income taxes
Rate case amortization and accruals
Common equity component of allowance for funds used during construction
Net derivative gains
Other non-cash items (net)
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable – customers, less allowance for uncollectibles
Special deposits
Materials and supplies, including fuel oil and gas in storage
Other receivables and other current assets
Income taxes receivable
Prepayments
Accounts payable
Pensions and retiree benefits obligations (net)
Pensions and retiree benefits contributions
Accrued taxes
Accrued interest
Superfund and environmental remediation costs (net)
Distributions from equity investments related to renewable electric production projects
Deferred charges, noncurrent assets and other regulatory assets
Deferred credits and other regulatory liabilities
Other current and noncurrent liabilities
NET CASH FLOWS FROM OPERATING ACTIVITIES
INVESTING ACTIVITIES
Utility construction expenditures
Cost of removal less salvage
Non-utility construction expenditures
Investments in renewable electric production projects
Proceeds from grants related to solar electric production projects
Return of equity investments related to renewable electric production projects
Restricted cash
NET CASH FLOWS USED IN INVESTING ACTIVITIES
FINANCING ACTIVITIES
Net payment of short-term debt
Issuance of long-term debt
Retirement of long-term debt
Debt issuance costs
Common stock dividends
Issuance of common shares for stock plans, net of repurchases
NET CASH FLOWS USED IN FINANCING ACTIVITIES
CASH AND TEMPORARY CASH INVESTMENTS:
NET CHANGE FOR THE PERIOD
BALANCE AT BEGINNING OF PERIOD
BALANCE AT END OF PERIOD
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION
Cash paid/(received) during the period for:
Interest
Income taxes
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION
Construction expenditures in accounts payable
CONSOLIDATED BALANCE SHEET (UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and temporary cash investments
Accounts receivable – customers, less allowance for uncollectible accounts of $96 in 2015 and 2014
Other receivables, less allowance for uncollectible accounts of $11 and $10 in 2015 and 2014, respectively
Accrued unbilled revenue
Fuel oil, gas in storage, materials and supplies, at average cost
Regulatory assets
Deferred tax assets
Other current assets
TOTAL CURRENT ASSETS
INVESTMENTS
UTILITY PLANT, AT ORIGINAL COST
General
TOTAL
Less: Accumulated depreciation
Net
Construction work in progress
NET UTILITY PLANT
NON-UTILITY PLANT
Non-utility property, less accumulated depreciation of $95 and $91 in 2015 and 2014, respectively
NET PLANT
OTHER NONCURRENT ASSETS
Goodwill
Intangible assets, less accumulated amortization of $4 in 2015 and 2014
Other deferred charges and noncurrent assets
TOTAL OTHER NONCURRENT ASSETS
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Long-term debt due within one year
Notes payable
Customer deposits
Accrued wages
Fair value of derivative liabilities
Regulatory liabilities
Other current liabilities
TOTAL CURRENT LIABILITIES
NONCURRENT LIABILITIES
Provision for injuries and damages
Pensions and retiree benefits
Superfund and other environmental costs
Asset retirement obligations
Deferred income taxes and investment tax credits
Other deferred credits and noncurrent liabilities
TOTAL NONCURRENT LIABILITIES
LONG-TERM DEBT
EQUITY
Common shareholders’ equity
Noncontrolling interest
TOTAL EQUITY (See Statement of Equity)
TOTAL LIABILITIES AND EQUITY
CONSOLIDATED STATEMENT OF EQUITY (UNAUDITED)
(Millions of Dollars/Except Share Data)
Retained
Earnings
CapitalStock
Expense
AccumulatedOtherComprehensive
Income/(Loss)
Noncontrolling
Total
BALANCE AS OF DECEMBER 31, 2013
Net income for common stock
Other comprehensive income
BALANCE AS OF MARCH 31, 2014
BALANCE AS OF DECEMBER 31, 2014
BALANCE AS OF MARCH 31, 2015
COMPREHENSIVE INCOME
Accounts receivable from affiliated companies
Accrued taxes to affiliated companies
Dividend to parent
Supplemental disclosure of cash flow information
Accounts receivable – customers, less allowance for uncollectible accounts of $90 in 2015 and 2014
Other receivables, less allowance for uncollectible accounts of $9 and $8 in 2015 and 2014, respectively
UTILITY PLANT AT ORIGINAL COST
NON-UTILITY PROPERTY
Non-utility property, less accumulated depreciation of $25 in 2015 and 2014
LIABILITIES AND SHAREHOLDER’S EQUITY
Accounts payable to affiliated companies
COMMON SHAREHOLDER’S EQUITY (See Statement of Shareholder’s Equity)
TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY
CONSOLIDATED STATEMENT OF SHAREHOLDER’S EQUITY (UNAUDITED)
RepurchasedCon Edison
Stock
Common stock dividend to parent
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
These combined notes accompany and form an integral part of the separate consolidated financial statements of each of the two separate registrants: Consolidated Edison, Inc. and its subsidiaries (Con Edison) and Consolidated Edison Company of New York, Inc. and its subsidiaries (CECONY). CECONY is a subsidiary of Con Edison and as such its financial condition and results of operations and cash flows, which are presented separately in the CECONY consolidated financial statements, are also consolidated, along with those of Con Edison’s other utility subsidiary, Orange and Rockland Utilities, Inc. (O&R) and Con Edison’s competitive energy businesses (discussed below) in Con Edison’s consolidated financial statements. The term “Utilities” is used in these notes to refer to CECONY and O&R.
As used in these notes, the term “Companies” refers to Con Edison and CECONY and, except as otherwise noted, the information in these combined notes relates to each of the Companies. However, CECONY makes no representation as to information relating to Con Edison or the subsidiaries of Con Edison other than itself.
The separate interim consolidated financial statements of each of the Companies are unaudited but, in the opinion of their respective managements, reflect all adjustments (which include only normally recurring adjustments) necessary for a fair presentation of the results for the interim periods presented. The Companies’ separate interim consolidated financial statements should be read together with their separate audited financial statements (including the combined notes thereto) included in Item 8 of their combined Annual Report on Form 10-K for the year ended December 31, 2014.
Con Edison has two regulated utility subsidiaries: CECONY and O&R. CECONY provides electric service and gas service in New York City and Westchester County. The company also provides steam service in parts of Manhattan. O&R, along with its regulated utility subsidiaries, provides electric service in southeastern New York and adjacent areas of northern New Jersey and eastern Pennsylvania and gas service in southeastern New York and adjacent areas of eastern Pennsylvania. Con Edison has the following competitive energy businesses: Consolidated Edison Solutions, Inc. (Con Edison Solutions), a company which sells to retail customers electricity purchased in wholesale markets, enters into related hedging transactions and also provides energy-related products and services to retail customers; Consolidated Edison Energy, Inc. (Con Edison Energy), a company that provides energy-related products and services to wholesale customers; and Consolidated Edison Development, Inc. (Con Edison Development), a company that develops, owns and operates renewable and energy infrastructure projects. In addition, in 2014 Con Edison formed Consolidated Edison Transmission LLC (Con Edison Transmission) to invest in a transmission company. See information about Con Edison Transmission under “Guarantees” in Note H.
Note A – Summary of Significant Accounting Policies
Earnings Per Common Share
For the three months ended March 31, 2015 and 2014, basic and diluted earnings per share (EPS) for Con Edison are calculated as follows:
Weighted average common shares outstanding – basic
Add: Incremental shares attributable to effect of potentially dilutive securities
Adjusted weighted average common shares outstanding – diluted
Net Income for common stock per common share – basic
Net Income for common stock per common share – diluted
The computation of diluted EPS for the three months ended March 31, 2015 and 2014 exclude 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 months ended March 31, 2015 and 2014, changes to accumulated other comprehensive income/(loss) (OCI) for Con Edison and CECONY are as follows:
Beginning balance, accumulated OCI, net of taxes (b)
OCI before reclassifications, net of tax of $(2) and $(1) in 2015 and 2014, respectively, for Con Edison
Amounts reclassified from accumulated OCI related to pension plan liabilities, net of tax of $(1) and $(1) in 2015 and 2014, respectively, for Con Edison (a)(b)
Current Period OCI, net of taxes
Ending balance, accumulated OCI, net of taxes
Note B — Regulatory Matters
Rate Plans
CECONY — Electric
On April 20, 2015, CECONY entered into a Joint Proposal with the staff of the New York State Public Service Commission (NYSPSC) and other parties for the extension of CECONY’s current electric rate plan for an additional year through 2016. Under the Joint Proposal, which is subject to NYSPSC approval, the rate plan for 2016 does not include a rate increase or decrease. The rate plan for 2016 includes additional revenues from the amortization to income of net regulatory liabilities. The following table contains a summary of the rate plan for 2016:
Effective period
Base rate changes
Amortizations to income of net regulatory (assets) liabilities
Other revenue sources
Revenue decoupling mechanism
Recoverable energy costs
Negative revenue adjustments
Cost reconciliations
Net utility plant reconciliations
Target levels reflected in rates are as follows:
Transmission and distribution: $17,929 million
Storm hardening: $268 million
Other: $2,069 million
Average rate base
Weighted average cost of capital (after-tax)
Authorized return on common equity
Earnings sharing
Cost of long-term debt
Common equity ratio
O&R New York – Electric and Gas
In March 2015, in O&R’s electric and gas rate proceedings, NYSPSC staff recommended a $0.6 million decrease in O&R’s electric rates and a $14.7 million increase in its gas rates (reflecting an authorized return on common equity of 8.5 percent). In April 2015, O&R submitted updated requests to the NYSPSC for increases in its electric and gas rates of $34 million and $44.2 million, respectively (reflecting an authorized return on common equity of 9.75 percent).
Other Regulatory Matters
In February 2009, the NYSPSC commenced a proceeding to examine the prudence of certain CECONY expenditures following the arrests of employees for accepting illegal payments from a construction contractor. Subsequently, additional employees were arrested for accepting illegal payments from materials suppliers and an engineering firm. The arrested employees were terminated by the company and have pled guilty or been convicted. Pursuant to NYSPSC orders, a portion of the company’s revenues
(currently, $249 million, $32 million and $6 million on an annual basis for electric, gas and steam service, respectively) is being collected subject to potential refund to customers. The amount of electric revenues collected subject to refund, which was established in a different proceeding, and the amount of gas and steam revenues collected subject to refund were not established as indicative of the company’s potential liability in this proceeding. At March 31, 2015, the company had collected an estimated $1,747 million from customers subject to potential refund in connection with this proceeding. In January 2013, a NYSPSC consultant reported its estimate, with which the company does not agree, of $208 million of overcharges with respect to a substantial portion of the company’s construction expenditures from January 2000 to January 2009. The company is disputing the consultant’s estimate, including its determinations as to overcharges regarding specific construction expenditures it selected to review and its methodology of extrapolating such determinations over a substantial portion of the construction expenditures during this period. The NYSPSC’s consultant has not reviewed the company’s other expenditures. The company and NYSPSC staff are exploring a settlement in this proceeding. In May 2014, the NYSPSC’s Chief Administrative Law Judge appointed a settlement judge to assist the parties. There is no assurance that there will be a settlement, and any settlement would be subject to NYSPSC approval. At March 31, 2015, the company had a $104 million regulatory liability relating to this matter. The company currently estimates that any additional amount the NYSPSC requires the company to refund to customers in excess of the regulatory liability accrued could range up to an amount based on the NYSPSC consultant’s $208 million estimate of overcharges.
In late October 2012, Superstorm Sandy caused extensive damage to the Utilities’ electric distribution system and interrupted service to approximately 1.4 million customers. Superstorm Sandy also damaged CECONY’s steam system and interrupted service to many of its steam customers. As of March 31, 2015, CECONY and O&R incurred response and restoration costs for Superstorm Sandy of $506 million and $91 million, respectively (including capital expenditures of $148 million and $15 million, respectively). Most of the costs that were not capitalized were deferred for recovery as a regulatory asset under the Utilities’ electric rate plans. See “Regulatory Assets and Liabilities” below. CECONY’s current electric rate plan includes collection from customers of deferred storm costs (including for Superstorm Sandy), subject to refund following NYSPSC review of the costs. Pursuant to the April 2015 Joint Proposal with respect to CECONY’s electric rates, which is subject to NYSPSC approval, the deferred storm costs recoverable from customers will be reduced by $4 million, the costs will no longer be subject to NYSPSC staff review and recovery of the costs will no longer be subject to refund. As part of its rate filing, in November 2014 O&R requested recovery of deferred storm costs for its New York electric operations, which are subject to NYSPSC review. RECO’s current electric rate plan includes collection from customers of deferred storm costs.
In June 2014, the NYSPSC initiated a proceeding to investigate the practices of qualifying persons to perform plastic fusions on gas facilities. New York State regulations require gas utilities to qualify and, except in certain circumstances, annually requalify workers that perform fusion to join plastic pipe. The NYSPSC directed the New York gas utilities to provide information in this proceeding about their compliance with the qualification and requalification requirements and related matters; their procedures for compliance with all gas safety regulations; and their annual chief executive officer certifications regarding these and other procedures. CECONY’s qualification and requalification procedures had not included certain required testing to evaluate specimen fuses. In addition, CECONY and O&R had not timely requalified certain workers that had been qualified under their respective procedures to perform fusion to join plastic pipe. CECONY and O&R have requalified their workers who perform plastic pipe fusions. In April 2015, the NYSPSC issued a notice seeking the sampling plans CECONY, O&R and other gas utilities intend to use to inspect and test plastic pipe fusions. The notice also included NYSPSC staff proposals to require these utilities to perform remediation plans, additional leakage surveying and reporting; to require CECONY to hire an independent statistician to develop a risk assessment and remediation plan; and for certain new plastic fusion requirements for gas utilities.
Regulatory Assets and Liabilities
Regulatory assets and liabilities at March 31, 2015 and December 31, 2014 were comprised of the following items:
Unrecognized pension and other postretirement costs
Future income tax
Environmental remediation costs
Deferred storm costs
Revenue taxes
Surcharge for New York State assessment
Pension and other postretirement benefits deferrals
Net electric deferrals
Unamortized loss on reacquired debt
Deferred derivative losses – noncurrent
Recoverable energy costs – noncurrent
O&R property tax reconciliation
O&R transition bond charges
Preferred stock redemption
Workers’ compensation
Other
Regulatory assets – noncurrent
Deferred derivative losses – current
Future income tax – current
Recoverable energy costs – current
Regulatory assets – current
Total Regulatory Assets
Allowance for cost of removal less salvage
Property tax reconciliation
Base rate change deferrals
Prudence proceeding
Pension and other postretirement benefit deferrals
Property tax refunds
Variable-rate tax-exempt debt – cost rate reconciliation
Net unbilled revenue deferrals
New York State income tax rate change
Carrying charges on repair allowance and bonus depreciation
World Trade Center settlement proceeds
Earnings sharing – electric
Unrecognized other postretirement costs
Regulatory liabilities – noncurrent
Refundable energy costs – current
Deferred derivative gains – current
Regulatory liabilities – current
Total Regulatory Liabilities
Note C — Capitalization
The carrying amounts and fair values of long-term debt at March 31, 2015 and December 31, 2014 are:
Carrying
Amount
Fair values of long-term debt have been estimated primarily using available market information. For Con Edison, $13,588 million and $636 million of the fair value of long-term debt at March 31, 2015 are classified as Level 2 and Level 3, respectively. For CECONY, $12,430 million and $636 million of the fair value of long-term debt at March 31, 2015 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 March 31, 2015, Con Edison had $519 million of commercial paper outstanding of which $268 million was outstanding under CECONY’s program. The weighted average interest rate at March 31, 2015 was 0.5 percent for both Con Edison and CECONY. At December 31, 2014, Con Edison had $800 million of commercial paper outstanding of which $450 million was outstanding under CECONY’s program. The weighted average interest rate at December 31, 2014 was 0.4 percent for both Con Edison and CECONY.
At March 31, 2015 and December 31, 2014, no loans were outstanding under the credit agreement (Credit Agreement) and $61 million (including $11 million for CECONY) and $11 million (including $11 million for CECONY), respectively, of letters of credit were outstanding under the Credit Agreement.
Note E — Pension Benefits
Total Periodic Benefit Cost
The components of the Companies’ total periodic benefit costs for the three months ended March 31, 2015 and 2014 were as follows:
Service cost – including administrative expenses
Interest cost on projected benefit obligation
Expected return on plan assets
Recognition of net actuarial loss
Recognition of prior service costs
TOTAL PERIODIC BENEFIT COST
Cost capitalized
Reconciliation to rate level
Cost charged to operating expenses
Expected Contributions
Based on estimates as of March 31, 2015, the Companies expect to make contributions to the pension plans during 2015 of $750 million (of which $697 million is to be contributed by CECONY) and $16 million to the CECONY external trust for supplemental retirement plans. 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 plans. During the first quarter of 2015, the Companies contributed $204 million to the pension plans, nearly all of which was contributed by CECONY.
Note F — Other Postretirement Benefits
The components of the Companies’ total periodic other postretirement benefit costs for the three months ended March 31, 2015 and 2014 were as follows:
Service cost
Interest cost on accumulated other postretirement benefit obligation
Recognition of prior service cost
TOTAL PERIODIC OTHER POSTRETIREMENT BENEFIT COST
Based on estimates as of March 31, 2015, Con Edison expects to make a contribution of $6 million, nearly all of which is for CECONY, to the other postretirement benefit plans in 2015.
Note G — Environmental Matters
Superfund Sites
Hazardous substances, such as asbestos, polychlorinated biphenyls (PCBs) and coal tar, have been used or generated in the course of operations of the Utilities and their predecessors and are present at sites and in facilities and equipment they currently or previously owned, including sites at which gas was manufactured or stored.
The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 and similar state statutes (Superfund) impose joint and several liability, regardless of fault, upon generators of hazardous substances for investigation and remediation costs (which include costs of demolition, removal, disposal, storage, replacement, containment and monitoring) and natural resource damages. Liability under these laws can be material and may be imposed for contamination from past acts, even though such past acts may have been lawful at the time they occurred. The sites at which the Utilities have been asserted to have liability under these laws, including their manufactured gas plant sites and any neighboring areas to which contamination may have migrated, are referred to herein as “Superfund Sites.”
For Superfund Sites where there are other potentially responsible parties and the Utilities are not managing the site investigation and remediation, the accrued liability represents an estimate of the amount the Utilities will need to pay to investigate and, where determinable, discharge their related obligations. For Superfund Sites (including the manufactured gas plant sites) for which one of the Utilities is managing the investigation and remediation, the accrued liability represents an estimate of the company’s share of the undiscounted cost to investigate the sites and, for sites that have been investigated in whole or in part, the cost to remediate the sites, if remediation is necessary and if a reasonable estimate of such cost can be made. Remediation costs are estimated in light of the information available, applicable remediation standards and experience with similar sites.
The accrued liabilities and regulatory assets related to Superfund Sites at March 31, 2015 and December 31, 2014 were as follows:
Accrued Liabilities:
Manufactured gas plant sites
Other Superfund Sites
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 Companies are unable to estimate the time period over which the remaining accrued liability will be incurred because, among other things, the required remediation has not been determined for some of the sites. Under their current rate plans, the Utilities are permitted to recover or defer as regulatory assets (for subsequent recovery through rates) certain site investigation and remediation costs.
Environmental remediation costs incurred and insurance recoveries received related to Superfund Sites for the three months ended March 31, 2015 and 2014 were as follows:
Remediation costs incurred
Insurance recoveries received*
* Reduced amount deferred for recovery from customers
In 2014, 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 $2.7 billion and $2.5 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 March 31, 2015, Con Edison and CECONY had accrued their estimated aggregate undiscounted potential liabilities for these suits and additional suits that may be brought over the next 15 years of $8 million and $7 million, respectively. The estimates were based upon a combination of modeling, historical data analysis and risk factor assessment. Trial courts have begun, and unless otherwise determined by an appellate court may continue, to apply a different standard 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. Under its current rate plans, CECONY is permitted to defer as regulatory assets (for subsequent recovery through rates) costs incurred for its asbestos lawsuits and workers’ compensation claims.
The accrued liability for asbestos suits and workers’ compensation proceedings (including those related to asbestos exposure) and the amounts deferred as regulatory assets for the Companies at March 31, 2015 and December 31, 2014 were as follows:
Accrued liability – asbestos suits
Regulatory assets – asbestos suits
Accrued liability – workers’ compensation
Regulatory assets – workers’ compensation
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 ninety suits are pending against the company seeking generally unspecified compensatory and, in some cases, punitive damages, for personal injury, property damage and business interruption. The company has 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 March 31, 2015, the company has accrued its estimated liability for the suits of $50 million and an insurance receivable in the same amount.
Manhattan Explosion and Fire
On March 12, 2014, two multi-use five-story tall buildings located on Park Avenue between 116th and 117th Street 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 48 people were injured. Additional buildings were also damaged. The National Transportation Safety Board (NTSB) is investigating. The parties to the investigation include the company, the City of New York, the Pipeline and Hazardous Materials Safety Administration and the NYSPSC (which is also conducting an investigation). In March 2015, the NTSB issued reports on: operations, emergency preparedness and emergency response of the company and certain City departments; testing of company plastic pipe and its fusion and City water main; the company’s public awareness program; and regulatory oversight. It is expected that the NTSB will be issuing a final report concerning the incident, its probable cause and safety recommendations. Approximately 35 suits are pending against the company seeking generally unspecified damages and, in one case, punitive damages, for 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 related to the incident. At March 31, 2015, the company had not accrued a liability for 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 $2,559 million and $2,547 million at March 31, 2015 and December 31, 2014, respectively.
A summary, by type and term, of Con Edison’s total guarantees at March 31, 2015 is as follows:
NY Transco
Energy transactions
Renewable electric production projects
NY Transco — Con Edison has guaranteed payment by its subsidiary, Con Edison Transmission, of the contributions it agreed to make in New York Transco LLC (NY Transco). Con Edison Transmission acquired a 45.7 percent interest in NY Transco when it was formed in 2014. NY Transco’s transmission projects are expected to be developed initially by CECONY and other New York transmission owners and then sold to NY Transco. The development of the projects would
be subject to authorizations from the NYSPSC, the Federal Energy Regulatory Commission and other federal, state and local agencies. Guarantee amount shown is for the maximum possible required amount of Con Edison Transmission’s contributions, which assumed that all the NY Transco projects proposed when NY Transco was formed receive all required regulatory approvals and are completed at 175 percent of their estimated costs and that NY Transco does not use any debt financing for the projects. Guarantee term shown is assumed as the timing of the contributions is not known.
Energy Transactions — Con Edison guarantees payments on behalf of its competitive energy businesses in order to facilitate physical and financial transactions in gas, pipeline capacity, transportation, oil, electricity, renewable energy credits and energy services. To the extent that liabilities exist under the contracts subject to these guarantees, such liabilities are included in Con Edison’s consolidated balance sheet.
Renewable Electric Production Projects — Con Edison and Con Edison Development guarantee payments associated with the investment in solar and wind energy facilities on behalf of their wholly-owned subsidiaries. In addition, Con Edison Development has entered into two guarantees ($35 million maximum and $15 million maximum, respectively) on behalf of entities (Copper Mountain Solar 2 and Copper Mountain Solar 3, respectively) in which it has a 50 percent interest in connection with the construction of solar energy facilities. Con Edison Development also provided $3 million in guarantees to Travelers Insurance Company for indemnity agreements for surety bonds in connection with the construction and operation of solar energy facilities performed by its subsidiaries.
Other — Other guarantees primarily relate to guarantees provided by Con Edison to Travelers Insurance Company for indemnity agreements for surety bonds in connection with energy service projects performed by Con Edison Solutions ($25 million). In addition, Con Edison issued a guarantee to the Public Utility Commission of Texas covering obligations of Con Edison Solutions as a retail electric provider. Con Edison’s estimate of the maximum potential obligation for this guarantee is $5 million as of March 31, 2015.
Note I — Income Tax
Con Edison’s income tax expense increased to $199 million for the three months ended March 31, 2015 from $198 million for the three months ended March 31, 2014. The effective tax rate for the three months ended March 31, 2015 and 2014 was 35 percent. CECONY’s income tax expense increased to $192 million for the three months ended March 31, 2015 from $184 million for the three months ended March 31, 2014. The effective tax rate for the three months ended March 31, 2015 and 2014 was 36 percent.
Uncertain Tax Positions
At March 31, 2015, the estimated liability for uncertain tax positions for Con Edison was $34 million ($2 million for CECONY). Con Edison reasonably expects to resolve approximately $25 million ($16 million, net of federal taxes) of its uncertain tax positions within the next twelve months, of which the entire amount, if recognized, would reduce Con Edison’s effective tax rate. The amount related to CECONY is approximately $2 million ($1 million, net of federal taxes), of which the entire amount, 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 $34 million ($22 million, net of federal taxes).
The Companies recognize interest on liabilities for uncertain tax positions in interest expense and would recognize penalties, if any, in operating expenses in the Companies’ consolidated income statements. In the three months ended March 31, 2015, Con Edison recognized an immaterial amount of interest expense and no penalties for uncertain tax positions in its consolidated income statements. At March 31, 2015 and December 31, 2014, Con Edison recognized an immaterial amount of accrued interest on its consolidated balance sheets.
Note J — Financial Information by Business Segment
The financial data for the business segments are as follows:
Operating
revenues
Consolidation adjustments
Total CECONY
O&R
Total O&R
Competitive energy businesses
Other(a)
Total Con Edison
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 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.
The fair values of the Companies’ commodity derivatives including the offsetting of assets and liabilities on the consolidated balance sheet at March 31, 2015 and December 31, 2014 were:
Gross
Amounts
Offset
Net Amounts
of Assets/(Liabilities)(a)
Fair value of derivative assets
Current
Noncurrent
Total fair value of derivative assets
Total fair value of derivative liabilities
Net fair value derivative assets/(liabilities)
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. Con Edison’s competitive 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.
The following table presents the realized and unrealized gains or losses on commodity derivatives that have been deferred or recognized in earnings for the three months ended March 31, 2015 and 2014:
Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:
Total deferred gains/(losses)
Net deferred gains/(losses)
Pre-tax gain/(loss) recognized in income
Total pre-tax gain/(loss) recognized in income
The following table presents the hedged volume of Con Edison’s and CECONY’s derivative transactions at March 31, 2015:
The Companies are exposed to credit risk related to transactions entered into primarily for the various energy supply and hedging activities by the Utilities and the competitive energy businesses. 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 March 31, 2015, Con Edison and CECONY had $212 million and $35 million of credit exposure in connection with energy supply and hedging activities, net of collateral, respectively. Con Edison’s net credit exposure consisted of $108 million with commodity exchange brokers, $92 million with independent system operators, $8 million with investment-grade counterparties and $4 million with non-investment grade/non-rated counterparties. CECONY’s net credit exposure was with commodity exchange brokers.
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 March 31, 2015:
Aggregate fair value – net liabilities
Collateral posted
Additional collateral(b) (downgrade one level from current ratings)
Additional collateral(b) (downgrade to below investment grade from current ratings)
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.
Assets and liabilities measured at fair value on a recurring basis as of March 31, 2015 and December 31, 2014 are summarized below.
Derivative assets:
Commodity(a)(b)(c)
Other(a)(b)(d)
Total assets
Derivative liabilities:
Derivative assets
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 competitive energy businesses. The risk management group reports to the Companies’ Vice President and Treasurer.
Fair Value ofLevel 3 atMarch 31, 2015
(Millions of Dollars)
Valuation
Techniques
Con Edison – Commodity
Electricity
Transmission Congestion Contracts/Financial Transmission Rights
Total Con Edison—Commodity
CECONY—Commodity
Transmission Congestion Contracts
The table listed below provides a reconciliation of the beginning and ending net balances for assets and liabilities measured at fair value as of March 31, 2015 and 2014 and classified as Level 3 in the fair value hierarchy:
Beginning balance as of January 1,
Included in earnings
Included in regulatory assets and liabilities
Purchases
Settlements
Ending balance as of March 31,
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 competitive 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 ($8 million loss and $39 million gain) on the consolidated income statement for the three months ended March 31, 2015 and 2014, respectively. The change in fair value relating to Level 3 commodity derivative assets and liabilities held at
March 31, 2015 and 2014 is included in non-utility revenues (immaterial for both periods) and purchased power costs ($5 million loss and $8 million gain) on the consolidated income statement for the three months ended March 31, 2015 and 2014, 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 a variable interest in a non-consolidated variable interest entity (VIE), Astoria Energy, LLC (Astoria Energy), with which CECONY has entered into a long-term electricity purchase agreement. CECONY is not the primary beneficiary of this VIE since CECONY does not have the power to direct activities that CECONY believes most significantly impact the economic performance of Astoria Energy. In particular, CECONY has not invested in, or guaranteed the indebtedness of, Astoria Energy and CECONY does not operate or maintain Astoria Energy’s generating facilities. CECONY also has long-term electricity purchase agreements with the following three potential VIEs: Cogen Technologies Linden Venture, LP, Brooklyn Navy Yard Cogeneration Partners, LP and Indeck Energy Services of Corinth, Inc. In 2014, requests were made of these three counterparties for information necessary to determine whether the entity was a VIE and whether CECONY is the primary beneficiary; however, the information was not made available. The payments pursuant to these agreements, which constitute CECONY’s maximum exposure to loss with respect to the potential VIEs, for the first quarter of 2015 were $105 million for Cogen Technologies Linden Venture, LP, $30 million for Brooklyn Navy Yard Cogeneration Partners, LP and $15 million for Indeck Energy Services of Corinth, Inc.
During the first quarter of 2015, there were no new investments entered into that qualified for VIE status. The following table summarizes the VIEs in which Con Edison Development has entered into as of March 31, 2015:
Pilesgrove
Mesquite Solar 1
Copper Mountain Solar 2
Copper Mountain Solar 3
California Solar
Texas Solar 4
Broken Bow II
Note N — New Financial Accounting Standards
In January 2015, the Financial Accounting Standards Board (FASB) issued amendments on income statement guidance through Accounting Standards Update (ASU) No. 2015-01, “Income Statement—Extraordinary and Unusual Items (Subtopic 225-20).” The amendments reduce the complexity of accounting standards related to the income statement by eliminating the requirement to report extraordinary items separately. The amendments are effective for reporting periods beginning on or after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. 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 2015, the FASB issued amendments on consolidation guidance through ASU No. 2015-02, “Consolidation (Topic 810).” The amendments provide additional guidance for VIE accounting of limited partnerships and similar legal entities, fees paid to decision makers of a VIE, the effect of fee arrangements on primary beneficiary determination, the effect of related parties on primary beneficiary determination. For public entities, the amendments are effective prospectively for reporting periods beginning on or after December 15, 2015. Early adoption is permitted. The Companies are evaluating the application and impact of the new guidance on the Companies’ financial position, results of operations and liquidity.
In April 2015, the FASB issued amendments on debt issuance costs guidance through ASU No. 2015-03, “Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” The amendments provide additional guidance requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability rather than as a deferred cost (i.e. an asset) as required by current guidance. For public entities, the amendments are effective for reporting periods beginning after December 15, 2015. Early adoption is permitted. The Companies are in the process of evaluating the application and impact of the new guidance on the Companies’ financial position, results of operations and liquidity.
In April 2015, the FASB issued amendments on internal-use software guidance through ASU No. 2015-05, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” The amendments provide guidance to customers about whether a cloud computing arrangement would be accounted for as a license of internal use software. If the arrangement is not deemed to contain a software license, it would be accounted for as a service contract. For public entities, the amendments are effective for reporting periods beginning after December 15, 2015. Early adoption is permitted. The Companies are in the process of evaluating the application and impact of the new guidance on the Companies’ financial position, results of operations and liquidity.
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 First 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) and should be read in conjunction with the financial statements and the notes thereto. 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 First Quarter Financial Statements and the notes thereto and the MD&A in Item 7 of the Companies’ combined Annual Report on Form 10-K for the year ended December 31, 2014 (File Nos. 1-14514 and 1-1217, the Form 10-K).
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) and the competitive energy businesses. In addition, in 2014 Con Edison formed Consolidated Edison Transmission, LLC (Con Edison Transmission) to invest in a transmission company. As used in this report, the term the “Companies” refers to Con Edison and CECONY.
Con Edison’s principal business operations are those of CECONY, O&R and the competitive energy businesses. 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 competitive energy businesses sell electricity to retail customers, provide energy-related products and services, and develop, own and operate renewable and energy infrastructure projects.
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.
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 delivers gas to approximately 1.1 million customers in Manhattan, the Bronx, parts of Queens and most of Westchester County.
CECONY operates the largest steam distribution system in the United States by producing and delivering approximately 23,000 MMlb of steam annually to approximately 1,700 customers in parts of Manhattan.
O&R and its utility subsidiaries, Rockland Electric Company (RECO) and Pike County Light & Power Company (Pike) (together referred to herein as O&R) provide electric service to approximately 0.3 million customers in southeastern New York and in adjacent areas of northern New Jersey and northeastern Pennsylvania, an approximately 1,350 square mile service area.
O&R delivers gas to over 0.1 million customers in southeastern New York and adjacent areas of northeastern Pennsylvania.
Competitive Energy Businesses
Con Edison pursues competitive energy opportunities through three wholly-owned subsidiaries: Con Edison Solutions, Con Edison Energy and Con Edison Development. These businesses sell to retail customers electricity purchased in wholesale markets and enter into related hedging transactions, provide energy-related products and services to wholesale and retail customers, and develop, own and operate renewable and energy infrastructure projects. Con Edison is considering strategic alternatives with respect to the retail electric supply business of its competitive energy businesses. At March 31, 2015, Con Edison’s equity investment in its competitive energy businesses was $464 million and their assets were $1,168 million.
Certain financial data of Con Edison’s businesses are presented below:
(Millions of Dollars, except
percentages)
Revenues
Total Utilities
Con Edison Solutions (a)
Con Edison Energy (a)
Con Edison Development
Other (b)
Results of Operations
Net income for common stock and earnings per share for the three months ended March 31, 2015 and 2014 were as follows:
Net Income forCommon Stock
Per Share
Competitive energy businesses (a)
Con Edison (c)
The Companies’ results of operations for the three months ended March 31, 2015, as compared with the 2014 period, reflect primarily changes in the Utilities’ rate plans including growth in its gas delivery service related to oil-to-gas conversions, and lower other operations and maintenance expenses. The rate plans provide for revenues to cover expected increases in certain other operations and maintenance expenses and depreciation, reflecting primarily the impact of higher utility plant balances. The results of operations also include the impact of LILO transactions in 2014 and the net mark-to-market effects of the competitive energy businesses.
The following table presents the estimated effect on earnings per share and net income for common stock for the 2015 period as compared with 2014 period, resulting from these and other major factors:
Earningsper Share
Variation
Net Income for Common
Stock Variation(Millions of Dollars)
CECONY (a)
Changes in rate plans
Other operations and maintenance expenses
Net interest expense
O&R (a)
Total competitive energy businesses (b)
Other, including parent company expenses
Total variations
The Companies’ other operations and maintenance expenses for the three months ended March 31, 2015 and 2014 were as follows:
Operations
Pensions and other postretirement benefits
Health care and other benefits
Regulatory fees and assessments (a)
Total other operations and maintenance expenses
Con Edison’s principal business segments are CECONY’s regulated utility activities, O&R’s regulated utility activities and Con Edison’s competitive energy businesses. CECONY’s principal business segments are its regulated electric, gas and steam utility activities. A discussion of the results of operations by principal business segment for the three months ended March 31, 2015 and 2014 follows. For additional business segment financial information, see Note J to the First Quarter Financial Statements.
Three Months Ended March 31, 2015 Compared with Three Months Ended March 31, 2014
The Companies’ results of operations in 2015 compared with 2014 were:
Operating revenues
Operating income
Other income less deductions
Income before income tax expense
Income tax expense
Three Months Ended
March 31, 2015
March 31, 2014
CECONY’s results of electric operations for the three months ended March 31, 2015 compared with the 2014 period is as follows:
Electric operating income
CECONY’s electric sales and deliveries for the three months ended March 31, 2015 compared with the 2014 period were:
Residential/Religious (b)
Commercial/Industrial
Energy choice customers
NYPA, Municipal Agency and other sales
Other operating revenues (c)
Operating revenues decreased $94 million in the three months ended March 31, 2015 compared with the 2014 period due primarily to lower purchased power ($72 million) and fuel expenses ($35 million), offset in part by higher revenues from the electric rate plan ($13 million).
Purchased power expenses decreased $72 million in the three months ended March 31, 2015 compared with the 2014 period due to a decrease in unit costs ($84 million), offset by higher purchased volumes ($12 million).
Fuel expenses decreased $35 million in the three months ended March 31, 2015 compared with the 2014 period due to lower unit costs ($24 million) and lower sendout volumes from the company’s electric generating facilities ($11 million).
Other operations and maintenance expenses decreased $24 million due primarily to lower electric operating costs ($28 million), lower pension costs ($21 million) and lower costs for the support and protection of company underground facilities to accommodate New York City municipal projects ($5 million), offset in part by an increase in the surcharges for assessments and fees that are collected in revenues from customers ($32 million).
Depreciation and amortization increased $13 million due primarily to higher electric utility plant balances.
Taxes, other than income taxes increased $2 million principally due to higher payroll taxes, offset in part by lower property taxes. In April 2015, New York State enacted legislation that eliminated, retroactive to January 1, 2015, a New York City subsidiary capital tax. In 2014, CECONY’s taxes, other than income taxes, included a subsidiary capital tax of $7 million.
CECONY’s results of gas operations for the three months ended March 31, 2015 compared with the 2014 period is as follows:
Gas operating income
CECONY’s gas sales and deliveries, excluding off-system sales, for the three months ended March 31, 2015 compared with the 2014 period were:
Residential
Firm transportation
Total firm sales and transportation
Interruptible sales (c)
NYPA
Generation plants
Other operating revenues (d)
Operating revenues decreased $134 million in the three months ended March 31, 2015 compared with the 2014 period due primarily to a decrease in gas purchased for resale expenses ($148 million), offset in part by higher revenues from the gas rate plan ($19 million) reflecting primarily higher delivery volumes attributable to oil-to-gas conversions.
Gas purchased for resale decreased $148 million in the three months ended March 31, 2015 compared with the 2014 period due to lower unit costs ($167 million), offset by higher sendout volumes ($18 million).
Other operations and maintenance expenses increased $5 million due primarily to higher operating costs
attributable to emergency response ($13 million), offset in part by lower costs for the support and protection of company underground facilities to accommodate New York City municipal projects ($4 million) and lower pension costs ($3 million).
Depreciation and amortization increased $3 million due primarily to higher gas utility plant balances.
Taxes, other than income taxes decreased $2 million principally due to lower state and local revenue taxes.
CECONY’s results of steam operations for the three months ended March 31, 2015 compared with the 2014 period is as follows:
Steam operating income
CECONY’s steam sales and deliveries for the three months ended March 31, 2015 compared with the 2014 period were:
Apartment house
Annual power
Other operating revenues (a)
Operating revenues increased $34 million in the three months ended March 31, 2015 compared with the 2014 period due primarily to higher fuel expenses ($33 million) and the weather impact on revenues ($7 million), offset in part by lower purchased power costs ($6 million) and lower revenues from the steam rate plan ($3 million).
Purchased power expenses decreased $6 million in the three months ended March 31, 2015 compared with the 2014 period due to a decrease in unit costs ($7 million), offset by higher purchased volumes ($1 million).
Fuel expenses increased $33 million in the three months ended 2015 compared with the 2014 period due to higher unit costs ($31 million) and higher sendout volumes ($2 million).
Other operations and maintenance expenses decreased $3 million due primarily to lower costs for the support and protection of company underground facilities to accommodate New York City municipal projects ($2 million) and lower pension costs ($2 million).
Depreciation and amortization increased $1 million due primarily to higher steam utility plant balances.
Taxes, other than income taxesdecreased $2 million principally due to lower property taxes.
Other Income (Deductions)
Other income (deductions) decreased $5 million in the three months ended March 31, 2015 compared with the 2014 period due primarily to the gain on sale of certain non-utility property in 2014.
Net Interest Expense
Net interest expense increased $14 million in the three months ended March 31, 2015 compared with the 2014 period due primarily to higher interest charges on long-term debt in 2015.
Income Tax Expense
Income taxes increased $8 million in the three months ended March 31, 2015 compared with the 2014 period due primarily to higher income before income tax expense.
2014
O&R’s results of electric operations for the three months ended March 31, 2015 compared with the 2014 period is as follows:
O&R’s electric sales and deliveries for the three months ended March 31, 2015 compared with the 2014 period were:
March 31,
2015
Public authorities
Operating revenuesdecreased $7 million in the three months ended March 31, 2015 compared with the 2014 period due primarily to lower purchased power expenses ($18 million), offset in part by higher revenues from the New York electric rate plan ($7 million).
Purchased power expenses decreased $18 million in the three months ended March 31, 2015 compared with the 2014 period due to a decrease in unit costs ($19 million), offset by an increase in purchased volumes ($1 million).
Other operations and maintenanceexpenses increased $3 million due primarily to an increase in surcharges for assessments and fees that are collected in revenues from customers ($1 million) and increase in storm costs ($1 million).
Depreciation and amortization increased $2 million due primarily to higher electric utility plant balances.
O&R’s results of gas operations for the three months ended March 31, 2015 compared with the 2014 period is as follows:
O&R’s gas sales and deliveries, excluding off-system sales, for the three months ended March 31, 2015 compared with the 2014 period were:
Interruptible sales
Other gas revenues
Operating revenues decreased $16 million in the three months ended March 31, 2015 compared with the 2014 period due primarily to the decrease in gas purchased for resale ($18 million), offset in part by higher revenues from the gas rate plan ($1 million).
Gas purchased for resale decreased $18 million in the three months ended March 31, 2015 compared with the 2014 period due to a decrease in unit costs ($21 million), offset by an increase in purchased volumes ($3 million).
Other operations and maintenanceexpenses increased $1 million due primarily to an increase in surcharges for assessments and fees that are collected in revenues from customers.
Depreciation and amortization increased $1 million due primarily to higher gas utility plant balances.
Income taxes increased $4 million in the three months ended March 31, 2015 compared with the 2014 period due primarily to higher income before income tax expense and higher amortization of New York State’s Metropolitan Transportation Authority business tax ($1 million).
The competitive energy businesses’ results of operations for the three months ended March 31, 2015 compared with the 2014 period is as follows:
Operating income (loss)
Operating revenues increased $45 million in the three months ended March 31, 2015 compared with the 2014 period, due primarily to higher wholesale and electric retail revenues. Wholesale revenues increased $11 million in the three months ended March 31, 2015 as compared with the 2014 period due to higher sales volume. Electric retail revenues increased $30 million, due to higher sales volumes ($40 million), offset by lower unit prices ($10 million). Solar revenues decreased $2 million in the three months ended March 31, 2015 as compared with the 2014 period primarily due to Con Edison Development’s May 2014 sale of 50 percent of its membership interest in CED California Holdings Financing I, LLC. Net mark-to-market values decreased $12 million in the three months ended March 31, 2015 as compared with the 2014 period, of which $8 million in losses are reflected in purchased power expenses and $4 million in gains are reflected in revenues. Other revenues increased $10 million in the three months ended March 31, 2015 as compared with the 2014 period, due primarily to higher energy services revenues.
Purchased power expenses increased $17 million in the three months ended March 31, 2015 compared with the 2014 period due primarily to higher volumes ($35 million) and changes in mark-to-market losses ($8 million), offset by lower unit prices ($26 million).
Gas purchased for resale increased $28 million due primarily to higher volumes.
Other operations and maintenance expenses increased $7 million due primarily to an increase in solar electric production projects in operation during 2015.
Depreciation and maintenance expense decreased $2 million due to lower non-utility plant balances.
Net interest expense increased $12 million in the three months ended March 31, 2015 compared to the 2014 period due primarily to adjustments to accrued interest on taxes relating to the LILO transactions which were terminated in 2013.
Income taxes decreased $9 million in the three months ended March 31, 2015 compared with the 2014 period due primarily to lower income before income tax expense and higher production tax credits and amortization of investment tax credits ($2 million).
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 three months ended March 31, 2015 and 2014 are summarized as follows:
Operating activities
Investing activities
Financing activities
Net change
Balance at beginning of period
Balance at end of period
Cash Flows from Operating Activities
The Utilities’ cash flows from operating activities reflect principally 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, economic conditions and measures that promote energy efficiency. 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.
Net cash flows from operating activities for the three months ended March 31, 2015 for Con Edison and CECONY were $335 million and $469 million higher, respectively, than in 2014. The increase in net cash flows for Con Edison reflects primarily the lower income taxes paid, net of refunds received in 2015 and special deposits applied against accrued taxes in 2014 related to the LILO transactions. For CECONY, the increase in net cash flows reflects primarily the lower income taxes paid, net of refunds received in 2015.
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 energy costs and accounts payable balances.
Cash Flows Used in Investing Activities
Net cash flows used in investing activities for Con Edison and CECONY were $33 million and $58 million higher, respectively, for the three months ended March 31, 2015 compared with the 2014 period. The changes for Con Edison and CECONY reflect increased utility construction expenditures in 2015. In addition, the change for Con Edison reflects primarily the absence in the 2015 period of grants related to solar electric production projects ($36 million), decreased investments in renewable electric production projects ($45 million) and decreased non-utility construction expenditures ($19 million).
Cash Flows Used in Financing Activities
Net cash flows used in financing activities for Con Edison and CECONY were $312 million and $446 million higher, respectively, in the three months ended March 31, 2015 compared with the 2014 period.
In March 2014, CECONY issued $850 million of 4.45 percent 30-year debentures, the net proceeds from the sale of which were used to repay short-term borrowings and for other general corporate purposes. In February 2014, CECONY redeemed at maturity $200 million of 4.70 percent 10-year debentures.
Cash flows from financing activities of the Companies also reflect commercial paper issuance. The commercial paper amounts outstanding at March 31, 2015 and 2014 and the average daily balances for the three months ended March 31, 2015 and 2014 for Con Edison and CECONY were as follows:
Weighted average yield
Capital Requirements and Resources
In April 2015, Con Edison increased its estimate of capital expenditures in 2015 by its competitive energy businesses from $375 million to $835 million to fund additional renewable energy project development.
For each of the Companies, the ratio of earnings to fixed charges (Securities and Exchange Commission basis) for the three months ended March 31, 2015 and 2014 and the twelve months ended December 31, 2014 was:
Con Edison (a)
For each of the Companies, the common equity ratio at March 31, 2015 and December 31, 2014 was:
Common Equity Ratio
(Percent of total capitalization)
Other Changes in Assets and Liabilities
The following table shows changes in certain assets and liabilities at March 31, 2015, compared with December 31, 2014.
Assets
Regulatory asset — Unrecognized pension and other postretirement costs
Liabilities
Pension and retiree benefits
The increase in prepayments for Con Edison and CECONY reflects primarily CECONY’s January 2015 payment of its New York City semi-annual property taxes, offset by three months of amortization, while the December 2014 balance reflects the amortization of the previous semi-annual payment.
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, 2014, 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 2015. See Notes B, E and F to the First Quarter Financial Statements.
Income Taxes Receivable
The decrease in income taxes receivable for Con Edison reflects the refund received in March 2015 from the Internal Revenue Service as a result of the extension of bonus depreciation in December 2014.
Deferred Income Taxes and Investment Tax Credits
The increase in the liability for deferred income taxes and investment tax credits reflects primarily the timing of the deduction of expenditures for utility plant which resulted in amounts being collected from customers to pay income taxes in advance of when the income tax payments will be required. For Con Edison, the increase also reflects the accelerated deductions for expenditures and investment tax credits primarily related to its renewable electric production projects.
Off-Balance Sheet Arrangements
The Companies have interests in a number of non-consolidated variable interest entities (VIEs) that are accounted for under the equity method. Aside from the guarantees issued by Con Edison Development discussed below, none of the Companies’ interests in VIEs meet the SEC definition of off-balance sheet arrangements. For information regarding the Companies’ VIEs, see Note M to the First Quarter Financial Statements.
Con Edison Development issued two guarantees ($35 million maximum and $15 million maximum) on behalf of two entities in which it acquired a 50 percent interest in July 2013 and March 2014, respectively (see “Guarantees” in Note H to the First Quarter Financial Statements). The entities were formed to develop, construct and operate solar electric production facilities with a cumulative capacity of 400 MW (AC). The guarantees were issued in connection with the construction of the solar electric production facilities. Con Edison Development is not the primary beneficiary of these entities since the power to direct the activities that most significantly impact the economics of the facilities is shared equally between Con Edison Development and a third party. No payments have been made nor are any expected to be made under the guarantees.
Regulatory Matters
In February 2015, the NYSPSC issued an order in its Reforming the Energy Vision (REV) proceeding in which, among other things, the NYSPSC:
Ordered CECONY, O&R and the other electric utilities to file distributed system implementation plans pursuant to which the utilities, under the NYSPSC’s authority and supervision, would serve as distributed system platforms to optimize the use of distributed energy resources (DER);
Indicated that the utilities will be allowed to own DER only under limited circumstances, and that utility affiliate ownership of DER within the utility’s service territory will require market power protections;
Ordered the utilities to file energy efficiency plans with their program costs to be recovered through rates (instead of through the current surcharge);
Instituted a separate track in the REV proceeding to consider large-scale renewable generation; and
Indicated that the design and implementation of the reformed energy system will occur over a period of years.
For information about a Joint Proposal, which is subject to NYSPSC approval, for the extension of CECONY’s current electric rate plan through 2016 and additional regulatory matters, see Note B to the First Quarter Financial Statements.
The following table provides information about the projects Con Edison Development owned at March 31, 2015:
Production
Technology
GeneratingCapacity(a)
(MWs AC)
PPA Term
(In Years)
Actual/Expected
In-Service Date
Location
(State)
Wholly owned projects
Flemington
Frenchtown I, II and III
PA Solar
Shrewsbury
Groveland
White River 2
Oak Tree Wind
Texas Solar 3
Projects of less than 3 MW
Jointly owned projects
Copper Mountain Solar 2 (partial)
Total MW in Operation
Atwell West
Corcoran 2
Corcoran 3
Total MW in Construction
Total MW (c)
Con Edison Transmission
In April 2015, the Federal Energy Regulatory Commission (FERC) issued an order granting certain transmission incentives and setting the return on equity and the requested formula rate for hearing and settlement. FERC rejected the New York Transco LLC’s (NY Transco) proposed cost allocation and laid out alternative approaches to address cost allocation. FERC also said it did not need to provide authorization for the sale of projects to NY Transco because they are expected to be sold before assets are placed in service.
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 March 31, 2015, a 10 percent variation in interest rates applicable to its variable rate debt would not result in material changes in annual interest expense. Under CECONY’s current gas, steam and electric rate plans, variations in actual variable rate tax-exempt debt interest expense are reconciled to levels reflected in rates. Under O&R’s current New York rate plans, variations in actual tax-exempt (and under the gas rate plan, taxable) long-term debt interest expense are reconciled to the level set 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 Con Edison’s competitive energy businesses apply risk management strategies to mitigate their related exposures. See Note K to the First Quarter Financial Statements.
Con Edison estimates that, as of March 31, 2015, a 10 percent decline in market prices would result in a decline in fair value of $54 million for the derivative instruments used by the Utilities to hedge purchases of electricity and gas, of which $49 million is for CECONY and $5 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.
Con Edison’s competitive 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. 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 three months ended March 31, 2015 and the year ended December 31, 2014, respectively, was as follows:
Average for the period
High
Low
The competitive energy businesses 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. The stress test includes an assessment of the impact of volume changes on the portfolio because the businesses generally commit to sell their customers their actual requirements, an amount which is estimated when the sales commitments are made. The businesses limit the volume of commodity derivative instruments entered into relative to their estimated sale commitments to maintain net market price exposures to their estimated sale commitments within a certain percentage of maximum and minimum exposures.
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 competitive energy businesses. See Note K to the First Quarter Financial Statements.
Investment Risk
The Companies’ investment risk relates to the investment of plan assets for their pension and other postretirement benefit plans. The Companies’ current investment policy for pension plan assets includes investment targets of 58 percent equities and 42 percent fixed income and other securities. At March 31, 2015, 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 Notes B, G and H to the First Quarter Financial Statements.
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.
Part II Other Information
Item 1: Legal Proceedings
For information about certain legal proceedings affecting the Companies, see Notes B, G and H to the financial statements in Part I, Item 1 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 2: Unregistered Sales of Equity Securities and Use of Proceeds
ISSUER PURCHASES OF EQUITY SECURITIES
The following table provides information about Con Edison common shares purchased in open-market transactions for the quarter ended March 31, 2015. The number of shares purchased approximated the number of treasury shares used for the company’s employee stock plans.
January 1, 2015 to January 31, 2015
February 1, 2015 to February 28, 2015
March 1, 2015 to March 31, 2015
Item 6: Exhibits
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.
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.
Robert Hoglund
Senior Vice President, Chief
Financial Officer and Duly
Authorized Officer