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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x
Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2016
OR
¨
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                      to                     
Commission
File Number
 
Exact name of registrant as specified in its charter
and principal executive office address and telephone number
 
State of
Incorporation
  
I.R.S. Employer
ID. Number
1-14514
 
Consolidated Edison, Inc.
 
New York
  
13-3965100
 
 
4 Irving Place, New York, New York 10003
 
 
  
 
 
 
(212) 460-4600
 
 
  
 
1-1217
 
Consolidated Edison Company of New York, Inc.
New York
  
13-5009340
 
 
4 Irving Place, New York, New York 10003
 
 
  
 
 
 
(212) 460-4600
 
 
  
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Consolidated Edison, Inc. (Con Edison)
Yes x
No ¨
Consolidated Edison Company of New York, Inc. (CECONY)
Yes x
No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Con Edison
Yes x
No ¨
CECONY
Yes x
No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Con Edison
Large accelerated filer x
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ¨
 
 
 
 
CECONY
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer x
Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Con Edison
Yes ¨
No x
CECONY
Yes ¨
No x
As of July 29, 2016, Con Edison had outstanding 304,414,974 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.


Table of Contents

Glossary of Terms
 
The following is a glossary of abbreviations or acronyms that are used in the Companies’ SEC reports:
 
Con Edison Companies
Con Edison
 
Consolidated Edison, Inc.
CECONY
 
Consolidated Edison Company of New York, Inc.
Con Edison Development
 
Consolidated Edison Development, Inc.
Con Edison Energy
 
Consolidated Edison Energy, Inc.
Con Edison Solutions
 
Consolidated Edison Solutions, Inc.
Con Edison Transmission
 
Con Edison Transmission, Inc.
CET Electric
 
Consolidated Edison Transmission, LLC
CET Gas
 
Con Edison Gas Pipeline and Storage, LLC
O&R
 
Orange and Rockland Utilities, Inc.
Pike
 
Pike County Light & Power Company
RECO
 
Rockland Electric Company
The Companies
 
Con Edison and CECONY
The Utilities
 
CECONY and O&R
 
Regulatory Agencies, Government Agencies and Other Organizations
EPA
 
U. S. Environmental Protection Agency
FASB
 
Financial Accounting Standards Board
FERC
 
Federal Energy Regulatory Commission
IASB
 
International Accounting Standards Board
IRS
 
Internal Revenue Service
NJBPU
 
New Jersey Board of Public Utilities
NJDEP
 
New Jersey Department of Environmental Protection
NYISO
 
New York Independent System Operator
NYPA
 
New York Power Authority
NYSDEC
 
New York State Department of Environmental Conservation
NYSERDA
 
New York State Energy Research and Development Authority
NYSPSC
 
New York State Public Service Commission
NYSRC
 
New York State Reliability Council, LLC
PAPUC
 
Pennsylvania Public Utility Commission
PJM
 
PJM Interconnection LLC
SEC
 
U.S. Securities and Exchange Commission
 
 
Accounting
 
 
ASU
 
Accounting Standards Update
GAAP
 
Generally Accepted Accounting Principles in the United States of America
OCI
 
Other Comprehensive Income
VIE
 
Variable interest entity


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Environmental
 
 
CO2
 
Carbon dioxide
GHG
 
Greenhouse gases
MGP Sites
 
Manufactured gas plant sites
PCBs
 
Polychlorinated biphenyls
PRP
 
Potentially responsible party
RGGI
 
Regional Greenhouse Gas Initiative
Superfund
 
Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 and similar state statutes
 
 
 
Units of Measure
 
 
AC
 
Alternating current
Dt
 
Dekatherms
kV
 
Kilovolt
kWh
 
Kilowatt-hour
MDt
 
Thousand dekatherms
MMlb
 
Million pounds
MVA
 
Megavolt ampere
MW
 
Megawatt or thousand kilowatts
MWh
 
Megawatt hour
 
 
 
Other
 
 
AFUDC
 
Allowance for funds used during construction
AMI
 
Advanced metering infrastructure
COSO
 
Committee of Sponsoring Organizations of the Treadway Commission
DER
 
Distributed energy resources
EGWP
 
Employer Group Waiver Plan
Fitch
 
Fitch Ratings
First Quarter Form 10-Q
 
The Companies' combined Quarterly Report on Form 10-Q for the quarterly period ended March 31 of the current year
Second Quarter Form 10-Q
 
The Companies' combined Quarterly Report on Form 10-Q for the quarterly period ended June 30 of the current year
Form 10-K
 
The Companies’ combined Annual Report on Form 10-K for the year ended December 31, 2015
LTIP
 
Long Term Incentive Plan
Moody’s
 
Moody’s Investors Service
REV
 
Reforming the Energy Vision
S&P
 
Standard & Poor’s Financial Services LLC
VaR
 
Value-at-Risk




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


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





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Consolidated Edison, Inc.
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
  
For the Three Months Ended June 30,
For the Six Months Ended June 30,
  
2016
2015
2016
2015
 
(Millions of Dollars/ Except Share Data)
OPERATING REVENUES
 
 
 
 
Electric
$2,035
$2,040
$3,947
$4,175
Gas
336
324
1,012
1,056
Steam
85
96
343
471
Non-utility
338
328
648
702
TOTAL OPERATING REVENUES
2,794
2,788
5,950
6,404
OPERATING EXPENSES
 
 
 
 
Purchased power
558
660
1,249
1,544
Fuel
33
31
104
185
Gas purchased for resale
81
89
239
351
Other operations and maintenance
820
802
1,607
1,616
Depreciation and amortization
302
276
599
555
Taxes, other than income taxes
485
458
995
955
TOTAL OPERATING EXPENSES
2,279
2,316
4,793
5,206
OPERATING INCOME
515
472
1,157
1,198
OTHER INCOME (DEDUCTIONS)
 
 
 
 
Investment and other income
15
14
19
19
Allowance for equity funds used during construction
2
1
4
2
Other deductions
(6)
(5)
(11)
(7)
TOTAL OTHER INCOME
11
10
12
14
INCOME BEFORE INTEREST AND INCOME TAX EXPENSE
526
482
1,169
1,212
INTEREST EXPENSE
 
 
 
 
Interest on long-term debt
167
156
330
311
Other interest
5
7
12
13
Allowance for borrowed funds used during construction
(2)
(1)
(3)
(1)
NET INTEREST EXPENSE
170
162
339
323
INCOME BEFORE INCOME TAX EXPENSE
356
320
830
889
INCOME TAX EXPENSE
124
101
288
300
NET INCOME
$232
$219
$542
$589
Net income per common share—basic
$0.78
$0.75
$1.83
$2.01
Net income per common share—diluted
$0.77
$0.74
$1.82
$2.01
DIVIDENDS DECLARED PER COMMON SHARE
$0.67
$0.65
$1.34
$1.30
AVERAGE NUMBER OF SHARES OUTSTANDING—BASIC (IN MILLIONS)
299.1
292.9
296.7
292.9
AVERAGE NUMBER OF SHARES OUTSTANDING—DILUTED (IN MILLIONS)
300.4
294.0
298.0
293.9
The accompanying notes are an integral part of these financial statements.


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Consolidated Edison, Inc.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
  
For the Three Months Ended June 30,
For the Six Months Ended June 30,
  
2016
2015
2016
2015
 
(Millions of Dollars)
NET INCOME
$232
$219
$542
$589
OTHER COMPREHENSIVE INCOME, NET OF TAXES
 
 
 
 
Pension and other postretirement benefit plan liability adjustments, net of taxes
1
1
1
6
TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAXES
1
1
1
6
COMPREHENSIVE INCOME
$233
$220
$543
$595
The accompanying notes are an integral part of these financial statements.



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Consolidated Edison, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
  
For the Six Months Ended June 30,
  
2016
2015
 
(Millions of Dollars)
OPERATING ACTIVITIES
 
 
Net income
$542
$589
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME
 
 
Depreciation and amortization
599
555
Deferred income taxes
268
202
Rate case amortization and accruals
(112)
(20)
Common equity component of allowance for funds used during construction
(4)
(2)
Net derivative (gains)/losses
(33)
8
Other non-cash items, net
42
18
CHANGES IN ASSETS AND LIABILITIES
 
 
Accounts receivable – customers
101
35
Materials and supplies, including fuel oil and gas in storage
29
48
Other receivables and other current assets
(38)
(17)
Income taxes receivable
151
224
Prepayments
(15)
(144)
Accounts payable
(21)
(158)
Pensions and retiree benefits obligations, net
302
379
Pensions and retiree benefits contributions
(307)
(407)
Accrued taxes
(16)
(20)
Accrued interest
3
(1)
Superfund and environmental remediation costs, net
60
15
Distributions from equity investments
24
18
Deferred charges, noncurrent assets and other regulatory assets
(98)
(3)
Deferred credits and other regulatory liabilities
75
136
Other current and noncurrent liabilities
79
31
NET CASH FLOWS FROM OPERATING ACTIVITIES
1,631
1,486
INVESTING ACTIVITIES
 
 
Utility construction expenditures
(1,344)
(1,174)
Cost of removal less salvage
(95)
(105)
Non-utility construction expenditures
(331)
(178)
Investments in/acquisitions of renewable electric production and electric and gas transmission projects
(1,250)
(252)
Proceeds from the transfer of assets to NY Transco
122

Restricted cash
(6)
(22)
Other investing activities
(82)
6
NET CASH FLOWS USED IN INVESTING ACTIVITIES
(2,986)
(1,725)
FINANCING ACTIVITIES
 
 
Net (payment)/issuance of short-term debt
(821)
445
Issuance of long-term debt
1,765
238
Retirement of long-term debt
(6)
(45)
Debt issuance costs
(15)
(2)
Common stock dividends
(378)
(380)
Issuance of common shares - public offering
702

Issuance of common shares for stock plans, net of repurchases
27
(7)
Distribution to noncontrolling interest
(1)

NET CASH FLOWS FROM FINANCING ACTIVITIES
1,273
249
CASH AND TEMPORARY CASH INVESTMENTS:
 
 
NET CHANGE FOR THE PERIOD
(82)
10
BALANCE AT BEGINNING OF PERIOD
944
699
BALANCE AT END OF PERIOD EXCLUDING HELD FOR SALE
$862
$709
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION
 
 
Cash paid/(received) during the period for:
 
 
Interest
$318
$305
Income taxes
$(142)
$(9)
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION
 
 
Construction expenditures in accounts payable
$254
$213
Issuance of common shares for dividend reinvestment
$23
$5
The accompanying notes are an integral part of these financial statements. 


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Consolidated Edison, Inc.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
 
June 30,
2016
December 31,
2015
 
(Millions of Dollars)
ASSETS
 
 
CURRENT ASSETS
 
 
Cash and temporary cash investments
$862
$944
Special deposits
10
3
Accounts receivable – customers, less allowance for uncollectible accounts of $80 and $85 in 2016 and 2015, respectively
951
1,052
Other receivables, less allowance for uncollectible accounts of $15 and $11 in 2016 and 2015, respectively
247
304
Income taxes receivable
15
166
Accrued unbilled revenue
365
360
Fuel oil, gas in storage, materials and supplies, at average cost
321
350
Prepayments
192
177
Regulatory assets
84
132
Assets held for sale
183
157
Other current assets
269
191
TOTAL CURRENT ASSETS
3,499
3,836
INVESTMENTS
1,913
884
UTILITY PLANT, AT ORIGINAL COST
 
 
Electric
26,961
26,358
Gas
7,102
6,858
Steam
2,368
2,336
General
2,614
2,622
TOTAL
39,045
38,174
Less: Accumulated depreciation
8,305
8,044
Net
30,740
30,130
Construction work in progress
1,148
1,003
NET UTILITY PLANT
31,888
31,133
NON-UTILITY PLANT
 
 
Non-utility property, less accumulated depreciation of $114 and $95 in 2016 and 2015, respectively
859
832
Construction work in progress
712
244
NET PLANT
33,459
32,209
OTHER NONCURRENT ASSETS
 
 
Goodwill
429
429
Intangible assets, less accumulated amortization of $5 and $4 in 2016 and 2015, respectively
2
2
Regulatory assets
7,680
8,096
Other deferred charges and noncurrent assets
288
186
TOTAL OTHER NONCURRENT ASSETS
8,399
8,713
TOTAL ASSETS
$47,270
$45,642
The accompanying notes are an integral part of these financial statements.
 



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Consolidated Edison, Inc.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
 
 
 
June 30,
2016
December 31,
2015
 
(Millions of Dollars)
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
CURRENT LIABILITIES
 
 
Long-term debt due within one year
$746
$739
Notes payable
708
1,529
Accounts payable
969
1,008
Customer deposits
358
354
Accrued taxes
46
62
Accrued interest
139
136
Accrued wages
99
97
Fair value of derivative liabilities
62
66
Regulatory liabilities
122
115
Liabilities held for sale
60
89
Other current liabilities
594
525
TOTAL CURRENT LIABILITIES
3,903
4,720
NONCURRENT LIABILITIES
 
 
Provision for injuries and damages
188
185
Pensions and retiree benefits
2,423
2,911
Superfund and other environmental costs
758
765
Asset retirement obligations
249
242
Fair value of derivative liabilities
33
39
Deferred income taxes and unamortized investment tax credits
9,878
9,537
Regulatory liabilities
1,932
1,977
Other deferred credits and noncurrent liabilities
201
199
TOTAL NONCURRENT LIABILITIES
15,662
15,855
LONG-TERM DEBT
13,747
12,006
EQUITY
 
 
Common shareholders’ equity
13,950
13,052
Noncontrolling interest
8
9
TOTAL EQUITY (See Statement of Equity)
13,958
13,061
TOTAL LIABILITIES AND EQUITY
$47,270
$45,642
The accompanying notes are an integral part of these financial statements.



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Consolidated Edison, Inc.
CONSOLIDATED STATEMENT OF EQUITY (UNAUDITED)
 
(In Millions)
Common Stock
Additional
Paid-In
Capital
Retained
Earnings
Treasury Stock
Capital
Stock
Expense
Accumulated
Other
Comprehensive
Income/(Loss)
Noncontrolling
Interest
Total
Shares
Amount
Shares
Amount
BALANCE AS OF
DECEMBER 31, 2014
293
$32
$4,991
$8,691
23
$(1,032)
$(61)
$(45)
$9
$12,585
Net income
 
 
 
370
 
 
 
 
 
370
Common stock dividends
 
 
 
(190)
 
 
 
 
 
(190)
Issuance of common shares for stock plans, net of repurchases


2
 

(2)

 
 

Other comprehensive income
 
 
 
 
 
 
 
5
 
5
BALANCE AS OF
MARCH 31, 2015
293
$32
$4,993
$8,871
23
$(1,034)
$(61)
$(40)
$9
$12,770
Net income
 
 
 
219
 
 
 
 
 
219
Common stock dividends
 
 
 
(190)
 
 
 
 
 
(190)
Issuance of common shares for stock plans, net of repurchases



 

(3)
 
 
 
(3)
Other comprehensive income
 
 
 
 
 
 
 
1
 
1
BALANCE AS OF
JUNE 30, 2015
293
$32
$4,993
$8,900
23
$(1,037)
$(61)
$(39)
$9
$12,797
 
 
 
 
 
 
 
 
 
 
 
BALANCE AS OF DECEMBER 31, 2015
293
$32
$5,030
$9,123
23
$(1,038)
$(61)
$(34)
$9
$13,061
Net income
 
 
 
310
 
 
 
 
 
310
Common stock dividends
 
 
 
(197)
 
 
 
 
 
(197)
Issuance of common shares for stock plans
1

28





 
 
28
Other comprehensive income
 
 
 
 
 
 
 

 

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




(22)


702
Issuance of common shares for stock plans


26





 
 
26
Other comprehensive income
 
 
 
 
 
 
 
1
 
1
BALANCE AS OF
JUNE 30, 2016
304
$33
$5,807
$9,264
23
$(1,038)
$(83)
$(33)
$8
$13,958
The accompanying notes are an integral part of these financial statements.
 



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Consolidated Edison Company of New York, Inc.
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
  
For the Three Months Ended June 30,
For the Six Months Ended June 30,
  
2016
2015
2016
2015
 
(Millions of Dollars)
OPERATING REVENUES
 
 
 
 
Electric
$1,892
$1,879
$3,665
$3,858
Gas
304
308
905
963
Steam
85
96
343
471
TOTAL OPERATING REVENUES
2,281
2,283
4,913
5,292
OPERATING EXPENSES
 
 
 
 
Purchased power
369
358
721
897
Fuel
33
31
104
185
Gas purchased for resale
51
54
183
252
Other operations and maintenance
701
687
1,381
1,390
Depreciation and amortization
275
254
547
511
Taxes, other than income taxes
460
439
944
914
TOTAL OPERATING EXPENSES
1,889
1,823
3,880
4,149
OPERATING INCOME
392
460
1,033
1,143
OTHER INCOME (DEDUCTIONS)
 
 
 
 
Investment and other income
1
2
2
3
Allowance for equity funds used during construction
2
1
4
2
Other deductions
(1)
(5)
(6)
(6)
TOTAL OTHER INCOME (DEDUCTIONS)
2
(2)

(1)
INCOME BEFORE INTEREST AND INCOME TAX EXPENSE
394
458
1,033
1,142
INTEREST EXPENSE
 
 
 
 
Interest on long-term debt
146
141
290
282
Other interest
4
5
9
9
Allowance for borrowed funds used during construction
(1)

(2)
(1)
NET INTEREST EXPENSE
149
146
297
290
INCOME BEFORE INCOME TAX EXPENSE
245
312
736
852
INCOME TAX EXPENSE
84
101
264
293
NET INCOME
$161
$211
$472
$559
The accompanying notes are an integral part of these financial statements.
 



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Consolidated Edison Company of New York, Inc.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
 
  
For the Three Months Ended June 30,
For the Six Months Ended June 30,
  
2016
2015
2016
2015
 
(Millions of Dollars)
NET INCOME
$161
$211
$472
$559
OTHER COMPREHENSIVE INCOME, NET OF TAXES
 
 
 
 
Pension and other postretirement benefit plan liability adjustments, net of taxes
1
1
1
1
TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAXES
1
1
1
1
COMPREHENSIVE INCOME
$162
$212
$473
$560
The accompanying notes are an integral part of these financial statements.
 



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Consolidated Edison Company of New York, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
 
  
For the Six Months Ended June 30,
  
2016
2015
 
(Millions of Dollars)
OPERATING ACTIVITIES
 
 
Net income
$472
$559
PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME
 
 
Depreciation and amortization
547
511
Deferred income taxes
283
135
Rate case amortization and accruals
(120)
(32)
Common equity component of allowance for funds used during construction
(4)
(2)
Other non-cash items, net
15
(10)
CHANGES IN ASSETS AND LIABILITIES
 
 
Accounts receivable – customers
102
53
Materials and supplies, including fuel oil and gas in storage
18
42
Other receivables and other current assets
(64)
11
Accounts receivable from affiliated companies
92
(4)
Prepayments
3
18
Accounts payable
(54)
(106)
Accounts payable to affiliated companies
5
5
Pensions and retiree benefits obligations, net
287
360
Pensions and retiree benefits contributions
(306)
(406)
Superfund and environmental remediation costs, net
67
14
Accrued taxes
(15)
(1)
Accrued taxes to affiliated companies
(2)
(10)
Accrued interest
(3)
(1)
Deferred charges, noncurrent assets and other regulatory assets
(100)
(22)
Deferred credits and other regulatory liabilities
89
119
Other current and noncurrent liabilities
87
(31)
NET CASH FLOWS FROM OPERATING ACTIVITIES
1,399
1,202
INVESTING ACTIVITIES
 
 
Utility construction expenditures
(1,268)
(1,108)
Cost of removal less salvage
(92)
(101)
Proceeds from the transfer of assets to NY Transco
122

Restricted cash
13

NET CASH FLOWS USED IN INVESTING ACTIVITIES
(1,225)
(1,209)
FINANCING ACTIVITIES
 
 
Net (payment)/issuance of short-term debt
(425)
545
Issuance of long-term debt
550

Debt issuance costs
(6)
(1)
Capital contribution by parent
51

Dividend to parent
(372)
(516)
NET CASH FLOWS (USED IN)/FROM FINANCING ACTIVITIES
(202)
28
CASH AND TEMPORARY CASH INVESTMENTS:
 
 
NET CHANGE FOR THE PERIOD
(28)
21
BALANCE AT BEGINNING OF PERIOD
843
645
BALANCE AT END OF PERIOD
$815
$666
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION
 
 
Cash paid/(received) during the period for:
 
 
Interest
$285
$277
Income taxes
$(117)
$160
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION
 
 
Construction expenditures in accounts payable
$196
$151
The accompanying notes are an integral part of these financial statements. 


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Consolidated Edison Company of New York, Inc.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
 
 
June 30,
2016
December 31,
2015
 
(Millions of Dollars)
ASSETS
 
 
CURRENT ASSETS
 
 
Cash and temporary cash investments
$815
$843
Special deposits
2
2
Accounts receivable – customers, less allowance for uncollectible accounts of $75 and $80 in 2016 and 2015, respectively
890
987
Other receivables, less allowance for uncollectible accounts of $14 and $11 in 2016 and 2015, respectively
76
70
Accrued unbilled revenue
328
327
Accounts receivable from affiliated companies
98
190
Fuel oil, gas in storage, materials and supplies, at average cost
270
288
Prepayments
110
113
Regulatory assets
77
121
Other current assets
165
131
TOTAL CURRENT ASSETS
2,831
3,072
INVESTMENTS
307
286
UTILITY PLANT, AT ORIGINAL COST
 
 
Electric
25,398
24,828
Gas
6,421
6,191
Steam
2,368
2,336
General
2,399
2,411
TOTAL
36,586
35,766
Less: Accumulated depreciation
7,615
7,378
Net
28,971
28,388
Construction work in progress
1,055
922
NET UTILITY PLANT
30,026
29,310
NON-UTILITY PROPERTY
 
 
Non-utility property, less accumulated depreciation of $25 in 2016 and 2015
4
5
NET PLANT
30,030
29,315
OTHER NONCURRENT ASSETS
 
 
Regulatory assets
7,109
7,482
Other deferred charges and noncurrent assets
76
75
TOTAL OTHER NONCURRENT ASSETS
7,185
7,557
TOTAL ASSETS
$40,353
$40,230
The accompanying notes are an integral part of these financial statements.
 



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Consolidated Edison Company of New York, Inc.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
 

 
June 30,
2016
December 31,
2015
 
(Millions of Dollars)
LIABILITIES AND SHAREHOLDER’S EQUITY
 
 
CURRENT LIABILITIES
 
 
Long-term debt due within one year
$650
$650
Notes payable
608
1,033
Accounts payable
703
771
Accounts payable to affiliated companies
17
12
Customer deposits
343
339
Accrued taxes
34
49
Accrued taxes to affiliated companies

2
Accrued interest
115
118
Accrued wages
90
88
Fair value of derivative liabilities
44
50
Regulatory liabilities
98
84
Other current liabilities
516
443
TOTAL CURRENT LIABILITIES
3,218
3,639
NONCURRENT LIABILITIES
 
 
Provision for injuries and damages
181
178
Pensions and retiree benefits
2,085
2,565
Superfund and other environmental costs
664
665
Asset retirement obligations
238
234
Fair value of derivative liabilities
30
36
Deferred income taxes and unamortized investment tax credits
9,121
8,755
Regulatory liabilities
1,743
1,789
Other deferred credits and noncurrent liabilities
174
167
TOTAL NONCURRENT LIABILITIES
14,236
14,389
LONG-TERM DEBT
11,333
10,787
COMMON SHAREHOLDER’S EQUITY (See Statement of Shareholder’s Equity)
11,566
11,415
TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY
$40,353
$40,230
The accompanying notes are an integral part of these financial statements.
 


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Consolidated Edison Company of New York, Inc.
CONSOLIDATED STATEMENT OF SHAREHOLDER’S EQUITY (UNAUDITED)
 
Common Stock
Additional
Paid-In
Capital
Retained
Earnings
Repurchased
Con Edison
Stock
Capital
Stock
Expense
Accumulated
Other
Comprehensive
Income/(Loss)
Total
(In Millions)
Shares
Amount
BALANCE AS OF
DECEMBER 31, 2014
235
$589
$4,234
$7,399
$(962)
$(61)
$(11)
$11,188
Net income
 
 
 
348
 
 
 
348
Common stock dividend to parent
 
 
 
(338)
 
 
 
(338)
Other comprehensive income
 
 
 
 
 
 


BALANCE AS OF MARCH 31, 2015
235
$589
$4,234
$7,409
$(962)
$(61)
$(11)
$11,198
Net income
 
 
 
211
 
 
 
211
Common stock dividend to parent
 
 
 
(178)
 
 
 
(178)
Other comprehensive income
 
 
 
 
 
 
1
1
BALANCE AS OF JUNE 30, 2015
235
$589
$4,234
$7,442
$(962)
$(61)
$(10)
$11,232
 
 
 
 
 
 
 
 
 
BALANCE AS OF
DECEMBER 31, 2015
235
$589
$4,247
$7,611
$(962)
$(61)
$(9)
$11,415
Net income
 
 
 
310
 
 
 
310
Common stock dividend to parent
 
 
 
(186)
 
 
 
(186)
Capital contribution by parent
 
 
23
 
 
 
 
23
Other comprehensive income
 
 
 
 
 
 


BALANCE AS OF MARCH 31, 2016
235
$589
$4,270
$7,735
$(962)
$(61)
$(9)
$11,562
Net income
 
 
 
161
 
 
 
161
Common stock dividend to parent
 
 
 
(186)
 
 
 
(186)
Capital contribution by parent
 
 
28

 
 
 
28
Other comprehensive income
 
 
 
 
 
 
1
1
BALANCE AS OF JUNE 30, 2016
235
$589
$4,298
$7,710
$(962)
$(61)
$(8)
$11,566
The accompanying notes are an integral part of these financial statements.


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NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
 
General
These combined notes accompany and form an integral part of the separate consolidated financial statements of each of the two separate registrants: Consolidated Edison, Inc. and its subsidiaries (Con Edison) and Consolidated Edison Company of New York, Inc. and its subsidiaries (CECONY). CECONY is a subsidiary of Con Edison and as such its financial condition and results of operations and cash flows, which are presented separately in the CECONY consolidated financial statements, are also consolidated, along with those of Con Edison’s other utility subsidiary, Orange and Rockland Utilities, Inc. (O&R), Con Edison Transmission, Inc. (Con Edison Transmission) and Con Edison’s competitive energy businesses 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, 2015 and their separate unaudited financial statements (including the combined notes thereto) included in Part I, Item 1 of their combined Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016. Certain prior period amounts have been reclassified to conform to the current period presentation.
Con Edison has two regulated utility subsidiaries: CECONY and O&R. CECONY provides electric service and gas service in New York City and Westchester County. The company also provides steam service in parts of Manhattan. O&R, along with its regulated utility subsidiaries, provides electric service in southeastern New York and adjacent areas of northern New Jersey and eastern Pennsylvania (see Note P) 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 (see Note P), 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, Con Edison has a subsidiary, Con Edison Transmission, that invests in electric transmission facilities through its subsidiary, Consolidated Edison Transmission, LLC (CET Electric), and invests in gas pipeline and storage facilities through its subsidiary Con Edison Gas Pipeline and Storage, LLC (CET Gas).

Note A – Summary of Significant Accounting Policies
Earnings Per Common Share
For the three and six months ended June 30, 2016 and 2015, basic and diluted earnings per share (EPS) for Con Edison are calculated as follows:
 
 
For the Three Months Ended June 30,
For the Six Months Ended June 30,
(Millions of Dollars, except per share amounts/Shares in Millions)
2016
2015
2016
2015
Net income
$232
$219
$542
$589
Weighted average common shares outstanding – basic
299.1
292.9
296.7
292.9
Add: Incremental shares attributable to effect of potentially dilutive securities
1.3
1.1
1.3
1.0
Adjusted weighted average common shares outstanding – diluted
300.4
294.0
298.0
293.9
Net income per common share – basic
$0.78
$0.75
$1.83
$2.01
Net income per common share – diluted
$0.77
$0.74
$1.82
$2.01
The computation of diluted EPS for the six months ended June 30, 2016 and three and six months ended June 30, 2015 excludes immaterial amounts of stock-based compensation awards that were not included because of their anti-dilutive effect.



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Changes in Accumulated Other Comprehensive Income/(Loss) by Component
For the three and six months ended June 30, 2016 and 2015, changes to accumulated other comprehensive income/(loss) (OCI) for Con Edison and CECONY are as follows:
 
 
For the Three Months Ended June 30,
 
        Con Edison
        CECONY
(Millions of Dollars)
2016
2015
2016
2015
Beginning balance, accumulated OCI, net of taxes (a)
$(34)
$(40)
$(9)
$(11)
Amounts reclassified from accumulated OCI related to pension plan liabilities, net of tax of $(1) for Con Edison in 2016 and 2015 (a)(b)
1
1
1
1
Current period OCI, net of taxes
1
1
1
1
Ending balance, accumulated OCI, net of taxes
$(33)
$(39)
$(8)
$(10)

 
For the Six Months Ended June 30,
 
        Con Edison
        CECONY
(Millions of Dollars)
2016
2015
2016

2015

Beginning balance, accumulated OCI, net of taxes (a)
$(34)
$(45)
$(9)
$(11)
OCI before reclassifications, net of tax of $1 and $(2) for Con Edison in 2016 and 2015, respectively
(1)
3


Amounts reclassified from accumulated OCI related to pension plan liabilities, net of tax of $(2) for Con Edison in 2016 and 2015 (a)(b)
2
3
1
1
Current period OCI, net of taxes
1
6
1
1
Ending balance, accumulated OCI, net of taxes
$(33)
$(39)
$(8)
$(10)
(a)
Tax reclassified from accumulated OCI is reported in the income tax expense line item of the consolidated income statement.
(b)
For the portion of unrecognized pension and other postretirement benefit costs relating to the Utilities, costs are recorded into, and amortized out of, regulatory assets instead of OCI. The net actuarial losses and prior service costs recognized during the period are included in the computation of total periodic pension and other postretirement benefit cost. See Notes E and F.

Note B — Regulatory Matters
Rate Plans
CECONY - Electric
In May 2016, the New York State Public Service Commission (NYSPSC) staff submitted testimony in the NYSPSC January 2016 proceeding in which CECONY requested an electric rate increase, effective January 2017. The NYSPSC staff testimony supports an electric rate increase of $45 million reflecting, among other things, an 8.6 percent return on common equity. In June 2016, CECONY filed an update to its January 2016 request. The company increased its requested January 2017 rate increase by $16 million to $498 million, decreased its illustrated January 2018 rate increase by $11 million to $169 million and increased its illustrated January 2019 rate increase by $45 million to $186 million. This updated filing reflects a 9.75 percent return on common equity.

In April 2016, the Federal Energy Regulatory Commission (FERC) rejected CECONY’s challenge to FERC’s approval of substantially increased charges allocated to CECONY for transmission service provided pursuant to the open access tariff of PJM Interconnection LLC (PJM). CECONY will continue to challenge FERC’s approval of the increased charges that will be incurred over the remaining contract term, and in May 2016 filed an appeal of FERC's decision with the U.S. Court of Appeals. In April 2016, CECONY notified PJM that it will not be exercising its option to continue the service beyond April 2017.

CECONY - Gas
In May 2016, the NYSPSC staff submitted testimony in the NYSPSC January 2016 proceeding in which CECONY requested a gas rate increase, effective January 2017. The NYSPSC staff testimony supports a gas rate decrease of $25 million reflecting, among other things, an 8.6 percent return on common equity. In June 2016, CECONY filed an update to its January 2016 request. The company decreased its requested January 2017 rate increase by $29 million to $125 million, increased its illustrated January 2018 rate increase by $13 million to $110 million and decreased its illustrated January 2019 rate increase by $9 million to $100 million. This updated filing reflects a 9.75 percent return on common equity.

Rockland Electric Company (RECO)
In April 2016, RECO filed a request with the New Jersey Board of Public Utilities for an electric rate increase of $10 million, effective March 2017. The filing reflected a return on common equity of 10.20 percent and a common equity


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ratio of 49.81 percent. In July 2016, RECO filed an update to its April 2016 request. The company decreased its requested March 2017 rate increase by $1 million to $9 million. The updated filing reflects a return on common equity of 10.20 percent and a common equity ratio of 49.71 percent. The filing reflects continuation of provisions pursuant to which the company recovers its purchased power and fuel costs from customers.    

Other Regulatory Matters
In April 2016, the NYSPSC approved the September 2015 Joint Proposal among CECONY, the NYSPSC staff and others with respect to the prudence proceeding the NYSPSC commenced in February 2009 and related matters. Pursuant to the Joint Proposal, the company is required to credit $116 million to customers and, for the period 2017 through 2044, to not seek to recover from customers an aggregate $55 million relating to return on its capital expenditures. In addition, the company’s revenues that were made subject to potential refund in this proceeding are no longer subject to refund. At June 30, 2016, the company had a $97 million regulatory liability for the remaining amount to be credited to customers related to this matter.
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 May 2015, the NYSPSC, which indicated that it would address enforcement at a later date, ordered CECONY, O&R and other gas utilities to perform risk assessment and remediation plans, additional leakage surveying and reporting; CECONY to hire an independent statistician to develop a risk assessment and remediation plan; and the gas utilities to implement certain new plastic fusion requirements. In December 2015, the NYSPSC staff informed O&R that the company had satisfactorily completed its risk assessment and remediation plan. CECONY expects to submit its risk assessment and remediation plan to the NYSPSC staff in 2016.
In November 2015, the NYSPSC ordered CECONY to show cause why the NYSPSC should not commence proceedings to penalize the company for alleged violations of gas safety regulations identified by the NYSPSC staff in its investigation of a March 2014 explosion and fire and to review the prudence of the company's conduct associated with the incident. See "Manhattan Explosion and Fire" in Note H. In December 2015, the company responded that the NYSPSC should not institute the proceedings and disputed the alleged violations.
At June 30, 2016, CECONY had an $18 million regulatory liability related to the June 2014 plastic fusion proceeding and the November 2015 order to show cause. The company is unable to estimate the amount or range of its possible loss related to these matters in excess of this regulatory liability.
 



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Regulatory Assets and Liabilities
Regulatory assets and liabilities at June 30, 2016 and December 31, 2015 were comprised of the following items:
 
  
         Con Edison
 
        CECONY
(Millions of Dollars)
2016

2015
 
2016

2015

Regulatory assets
 
 
 
 
 
Unrecognized pension and other postretirement costs
$3,516
$3,876

$3,361
$3,697
Future income tax
2,379
2,350

2,262
2,232
Environmental remediation costs
837
904

732
800
Revenue taxes
295
253

281
240
Deferred storm costs
122
185

57
110
Unamortized loss on reacquired debt
47
50

44
48
O&R property tax reconciliation
42
46



Deferred derivative losses
38
50

35
46
Pension and other postretirement benefits deferrals
35
45

6
16
Net electric deferrals
34
44

34
44
Surcharge for New York State assessment
32
44

29
40
Preferred stock redemption
26
26

26
26
O&R transition bond charges
18
21



Workers’ compensation
16
11

16
11
Recoverable energy costs

16


15
Other
243
175

226
157
Regulatory assets – noncurrent
7,680
8,096

7,109
7,482
Deferred derivative losses
75
113

70
103
Recoverable energy costs
9
19

7
18
Regulatory assets – current
84
132

77
121
Total Regulatory Assets
$7,764
$8,228

$7,186
$7,603
Regulatory liabilities





Allowance for cost of removal less salvage
$708
$676

$599
$570
Property tax reconciliation
230
303

230
303
Pension and other postretirement benefit deferrals
125
76

96
46
Net unbilled revenue deferrals
117
109

117
109
Prudence proceeding
97
99

97
99
Unrecognized other postretirement costs
93
28

93
28
Base rate change deferrals
77
128

77
128
New York State income tax rate change
69
75

66
72
Variable-rate tax-exempt debt – cost rate reconciliation
64
70

56
60
Carrying charges on repair allowance and bonus depreciation
51
49

50
48
Earnings sharing - electric, gas and steam
34
80

30
80
Net utility plant reconciliations
28
32

28
31
Property tax refunds
22
44

22
44
World Trade Center settlement proceeds
10
21

10
21
Other
207
187

172
150
Regulatory liabilities – noncurrent
1,932
1,977

1,743
1,789
Revenue decoupling mechanism
79
45

78
45
Refundable energy costs
30
64

9
33
Deferred derivative gains
13
6

11
6
Regulatory liabilities – current
122
115

98
84
Total Regulatory Liabilities
$2,054
$2,092

$1,841
$1,873
 



21

Table of Contents

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

In May 2016, Con Edison issued approximately 10 million common shares resulting in net proceeds, after issuance expenses, of $702 million, and $500 million aggregate principal amount of 2.00 percent debentures, due 2021. Also, in May 2016, a Con Edison Development subsidiary issued $95 million aggregate principal amount of 4.07 percent senior notes, due 2036, secured by the company's California Holding 3 solar projects. In June 2016, Con Edison borrowed $400 million pursuant to a credit agreement with a syndicate of banks. The borrowing matures in 2018 and bears interest at a LIBOR plus margin of 1.00 percent. In June 2016, CECONY issued $550 million aggregate principal amount of 3.85 percent debentures, due 2046. Also, in June 2016, a Con Edison Solutions subsidiary borrowed $2 million pursuant to a loan agreement with a New Jersey utility. The borrowing matures in 2026, bears interest of 11.18 percent and may be repaid in cash or project Solar Renewable Energy Certificates.

The carrying amounts and fair values of long-term debt at June 30, 2016 and December 31, 2015 were:
 
(Millions of Dollars)
2016
2015
Long-Term Debt (including current portion)
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Con Edison
$14,493
$16,681
$12,745
$13,856
CECONY
$11,983
$13,917
$11,437
$12,427
 
Fair values of long-term debt have been estimated primarily using available market information. For Con Edison, $16,045 million and $636 million of the fair value of long-term debt at June 30, 2016 are classified as Level 2 and Level 3, respectively. For CECONY, $13,281 million and $636 million of the fair value of long-term debt at June 30, 2016 are classified as Level 2 and Level 3, respectively (see Note L). The $636 million of long-term debt classified as Level 3 is CECONY’s tax-exempt, auction-rate securities for which the market is highly illiquid and there is a lack of observable inputs.

Note D — Short-Term Borrowing
At June 30, 2016, Con Edison had $708 million of commercial paper outstanding of which $608 million was outstanding under CECONY’s program. The weighted average interest rate at June 30, 2016 was 0.7 percent for both Con Edison and CECONY. At December 31, 2015, Con Edison had $1,529 million of commercial paper outstanding of which $1,033 million was outstanding under CECONY’s program. The weighted average interest rate at December 31, 2015 was 0.7 percent for both Con Edison and CECONY.
At June 30, 2016 and December 31, 2015, no loans were outstanding under the credit agreement (Credit Agreement) and $2 million (including $2 million for CECONY) and $15 million of letters of credit were outstanding under the Credit Agreement, respectively.

Note E — Pension Benefits
Total Periodic Benefit Cost
The components of the Companies’ total periodic benefit costs for the three and six months ended June 30, 2016 and 2015 were as follows:
 


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

2015
2016

2015

Service cost – including administrative expenses
$69
$74
$65
$70
Interest cost on projected benefit obligation
149
144
140
135
Expected return on plan assets
(237)
(222)
(225)
(210)
Recognition of net actuarial loss
149
194
141
183
Recognition of prior service costs
1
1


NET PERIODIC BENEFIT COST
$131
$191
$121
$178
Amortization of regulatory asset

1

1
TOTAL PERIODIC BENEFIT COST
$131
$192
$121
$179
Cost capitalized
(53)
(76)
(50)
(72)
Reconciliation to rate level
13
(17)
14
(18)
Cost charged to operating expenses
$91
$99
$85
$89

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

2015
2016

2015
Service cost – including administrative expenses
$138
$149
$129
$139
Interest cost on projected benefit obligation
298
287
280
269
Expected return on plan assets
(474)
(443)
(449)
(420)
Recognition of net actuarial loss
298
388
282
367
Recognition of prior service costs
2
2
1
1
NET PERIODIC BENEFIT COST
$262
$383
$243
$356
Amortization of regulatory asset

1

1
TOTAL PERIODIC BENEFIT COST
$262
$384
$243
$357
Cost capitalized
(106)
(144)
(99)
(137)
Reconciliation to rate level
26
(42)
26
(42)
Cost charged to operating expenses
$182
$198
$170
$178

Expected Contributions
Based on estimates as of June 30, 2016, the Companies expect to make contributions to the pension plans during 2016 of $508 million (of which $469 million is to be contributed by CECONY). The Companies’ policy is to fund the total periodic benefit cost of the qualified plan to the extent tax deductible and to also contribute to the non-qualified supplemental plans. During the first six months of 2016, the Companies contributed $307 million to the pension plans, nearly all of which was contributed by CECONY. CECONY also contributed $17 million to its external trust for supplemental plans.
 
Note F — Other Postretirement Benefits
Total Periodic Benefit Cost
The components of the Companies’ total periodic other postretirement benefit costs for the three and six months ended June 30, 2016 and 2015 were as follows:
 
 
For the Three Months Ended June 30,
  
          Con Edison
          CECONY
(Millions of Dollars)
2016
2015
2016
2015
Service cost
$4
$5
$3
$4
Interest cost on accumulated other postretirement benefit obligation
12
13
10
11
Expected return on plan assets
(19)
(20)
(17)
(17)
Recognition of net actuarial loss
1
8
1
7
Recognition of prior service cost
(5)
(5)
(3)
(4)
TOTAL PERIODIC OTHER POSTRETIREMENT BENEFIT COST
$(7)
$1
$(6)
$1
Cost capitalized
2
(1)
2
(1)
Reconciliation to rate level
7
4
6
2
Cost charged to operating expenses
$2
$4
$2
$2



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For the Six Months Ended June 30,
 
          Con Edison
          CECONY
(Millions of Dollars)
2016
2015
2016
2015
Service cost
$9
$10
$7
$7
Interest cost on accumulated other postretirement benefit obligation
24
25
20
22
Expected return on plan assets
(38)
(39)
(34)
(34)
Recognition of net actuarial loss
2
16
1
14
Recognition of prior service cost
(10)
(10)
(7)
(7)
TOTAL PERIODIC OTHER POSTRETIREMENT BENEFIT COST
$(13)
$2
$(13)
$2
Cost capitalized
3
(1)
3
(1)
Reconciliation to rate level
14
8
14
3
Cost charged to operating expenses
$4
$9
$4
$4

Expected Contributions
Based on estimates as of June 30, 2016, Con Edison expects to make a contribution of $6 million, nearly all of which is for CECONY, to the other postretirement benefit plans in 2016. The Companies' policy is to fund the total periodic benefit cost of the plans to the extent tax deductible.

Note G — Environmental Matters
Superfund Sites
Hazardous substances, such as asbestos, polychlorinated biphenyls (PCBs) and coal tar, have been used or generated in the course of operations of the Utilities and their predecessors and are present at sites and in facilities and equipment they currently or previously owned, including sites at which gas was manufactured or stored.
The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 and similar state statutes (Superfund) impose joint and several liability, regardless of fault, upon generators of hazardous substances for investigation and remediation costs (which include costs of demolition, removal, disposal, storage, replacement, containment and monitoring) and natural resource damages. Liability under these laws can be material and may be imposed for contamination from past acts, even though such past acts may have been lawful at the time they occurred. The sites at which the Utilities have been asserted to have liability under these laws, including their manufactured gas plant sites and any neighboring areas to which contamination may have migrated, are referred to herein as “Superfund Sites.”
For Superfund Sites where there are other potentially responsible parties and the Utilities are not managing the site investigation and remediation, the accrued liability represents an estimate of the amount the Utilities will need to pay to investigate and, where determinable, discharge their related obligations. For Superfund Sites (including the manufactured gas plant sites) for which one of the Utilities is managing the investigation and remediation, the accrued liability represents an estimate of the company’s share of the undiscounted cost to investigate the sites and, for sites that have been investigated in whole or in part, the cost to remediate the sites, if remediation is necessary and if a reasonable estimate of such cost can be made. Remediation costs are estimated in light of the information available, applicable remediation standards and experience with similar sites.
The accrued liabilities and regulatory assets related to Superfund Sites at June 30, 2016 and December 31, 2015 were as follows:
 
        Con Edison
        CECONY
(Millions of Dollars)
2016
2015
2016
2015
Accrued Liabilities:
 
 
 
 
Manufactured gas plant sites
$670
$679
$576
$579
Other Superfund Sites
88
86
88
86
Total
$758
$765
$664
$665
Regulatory assets
$837
$904
$732
$800
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,


24

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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 related to Superfund Sites for the three and six months ended June 30, 2016 and 2015 were as follows: 
 
For the Three Months Ended June 30,
 
          Con Edison
     CECONY
(Millions of Dollars)
2016
2015
2016
2015
Remediation costs incurred
$9
$8
$3
$7


 
For the Six Months Ended June 30,
 
          Con Edison
     CECONY
(Millions of Dollars)
2016
2015
2016
2015
Remediation costs incurred
$12
$15
$5
$12

No insurance recoveries were received by Con Edison or CECONY for the three or six months ended June 30, 2016 and 2015.
In 2015, Con Edison and CECONY estimated that for their manufactured gas plant sites (including CECONY’s Astoria site), the aggregate undiscounted potential liability for the investigation and remediation of coal tar and/or other environmental contaminants could range up to $2.8 billion and $2.7 billion, respectively. These estimates were based on the assumption that there is contamination at all sites, including those that have not yet been fully investigated and additional assumptions about the extent of the contamination and the type and extent of the remediation that may be required. Actual experience may be materially different.
Asbestos Proceedings
Suits have been brought in New York State and federal courts against the Utilities and many other defendants, wherein a large number of plaintiffs sought large amounts of compensatory and punitive damages for deaths and injuries allegedly caused by exposure to asbestos at various premises of the Utilities. The suits that have been resolved, which are many, have been resolved without any payment by the Utilities, or for amounts that were not, in the aggregate, material to them. The amounts specified in all the remaining thousands of suits total billions of dollars; however, the Utilities believe that these amounts are greatly exaggerated, based on the disposition of previous claims. At June 30, 2016, 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 as shown in the following table. 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 June 30, 2016 and December 31, 2015 were as follows:


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Table of Contents

 
 
          Con Edison
     CECONY
(Millions of Dollars)
2016
2015
2016
2015
Accrued liability – asbestos suits
$8
$8
$7
$7
Regulatory assets – asbestos suits
$8
$8
$7
$7
Accrued liability – workers’ compensation
$91
$86
$86
$81
Regulatory assets – workers’ compensation
$16
$11
$16
$11

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 eighty suits are pending against the company seeking generally unspecified compensatory and, in some cases, punitive damages, for wrongful death, personal injury, property damage and business interruption. The company has notified its insurers of the incident and believes that the policies in force at the time of the incident will cover the company’s costs to satisfy its liability to others in connection with the suits. In the company’s estimation, there is not a reasonable possibility that an exposure to loss exists for the suits that is materially in excess of the estimated liability accrued. At June 30, 2016, 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 50 people were injured. Additional buildings were also damaged. The National Transportation Safety Board (NTSB) investigated. The parties to the investigation included the company, the City of New York, the Pipeline and Hazardous Materials Safety Administration and the NYSPSC (which also conducted an investigation). In June 2015, the NTSB issued a final report concerning the incident, its probable cause and safety recommendations. The NTSB determined that the probable cause of the incident was (1) the failure of a defective fusion joint at a service tee (which joined a plastic service line to a plastic distribution main) installed by the company that allowed gas to leak from the distribution main and migrate into a building where it ignited and (2) a breach in a City sewer line that allowed groundwater and soil to flow into the sewer, resulting in a loss of support for the distribution main, which caused it to sag and overstressed the defective fusion joint. The NTSB also made safety recommendations, including recommendations to the company that addressed its procedures for the preparation and examination of plastic fusions, training of its staff on conditions for notifications to the City’s Fire Department and extension of its gas main isolation valve installation program. Approximately 70 suits are pending against the company seeking generally unspecified damages and, in some cases, punitive damages, for wrongful death, personal injury, property damage and business interruption. The company has notified its insurers of the incident and believes that the policies in force at the time of the incident will cover the company’s costs, in excess of a required retention (the amount of which is not material), to satisfy any liability it may have for damages in connection with the incident. The company is unable to estimate the amount or range of its possible loss for damages related to the incident. At June 30, 2016, the company had not accrued a liability for damages related to the incident.
Other Contingencies
See “Other Regulatory Matters” in Note B and “Uncertain Tax Positions” in Note I.
Guarantees
Con Edison and its subsidiaries enter into various agreements providing financial or performance assurance primarily to third parties on behalf of their subsidiaries. Maximum amounts guaranteed by Con Edison totaled $2,544 million and $2,856 million at June 30, 2016 and December 31, 2015, respectively.
A summary, by type and term, of Con Edison’s total guarantees at June 30, 2016 is as follows:
 


26

Table of Contents

Guarantee Type
0 – 3 years
4 – 10 years

> 10 years

Total
 
(Millions of Dollars)
Con Edison Transmission
$619
$583

$—

$1,202
Energy transactions
672
41
91
804
Renewable electric production projects
443

20
463
Other
75


75
Total
$1,809
$624
$111
$2,544
Con Edison Transmission — Con Edison has guaranteed payment by CET Electric of the contributions CET Electric agreed to make to New York Transco LLC (NY Transco). CET Electric acquired a 45.7 percent interest in NY Transco when it was formed in 2014. NY Transco’s transmission projects are expected to be initially developed by CECONY and other New York transmission owners and then transferred to NY Transco. In May 2016, the transmission owners transferred certain projects to NY Transco, as to which CET Electric made its required contributions. See Note Q. The other projects that were proposed when NY Transco was formed remain subject to certain authorizations from the NYSPSC, the FERC and, as applicable, other federal, state and local agencies. Guarantee amount shown is for the maximum possible required amount of CET Electric’s contributions for these other projects as calculated based on the assumptions that the projects are completed at 175 percent of their estimated costs and NY Transco does not use any debt financing for the projects. Guarantee term shown is assumed as the timing of the contributions is not certain. Also included within the table above is a guarantee for $25 million from Con Edison on behalf of CET Gas in relation to a proposed gas transmission project in West Virginia and Virginia (see Note Q).
Energy Transactions — Con Edison guarantees payments on behalf of its competitive energy businesses in order to facilitate physical and financial transactions in electricity, gas, pipeline capacity, transportation, oil, renewable energy credits and energy services. To the extent that liabilities exist under the contracts subject to these guarantees, such liabilities are included in Con Edison’s consolidated balance sheet.
Renewable Electric Production Projects — Con Edison, Con Edison Development, and Con Edison Solutions guarantee payments associated with the investment in solar and wind energy facilities on behalf of their wholly-owned subsidiaries.
Other — Other guarantees primarily relate to $70 million in guarantees provided by Con Edison to Travelers Insurance Company for indemnity agreements for surety bonds in connection with energy service projects and operation of solar energy facilities of Con Edison Solutions and Con Edison Development, respectively. In addition, Con Edison issued a guarantee estimated at $5 million to the Public Utility Commission of Texas covering obligations of Con Edison Solutions as a retail electric provider.
In addition to the guarantees included in the table above, in July 2016, Con Edison guaranteed (subject to a $53 million maximum amount) certain obligations of Con Edison Solutions under its agreement to sell the assets of its retail electric supply business to a subsidiary of Exelon CorporationSee Note P.

Note I — Income Tax
Con Edison’s income tax expense increased to $124 million for the three months ended June 30, 2016 from $101 million for the three months ended June 30, 2015. Con Edison's effective tax rate for the three months ended June 30, 2016 and 2015 was 35 percent and 32 percent, respectively. For the three months ended June 30, 2016, Con Edison recorded lower tax benefits for plant-related flow through items, partially offset by increased tax benefits as a result of higher injuries and damages payments and higher renewable energy tax credits.

CECONY’s income tax expense decreased to $84 million for the three months ended June 30, 2016 from $101 million for the three months ended June 30, 2015. CECONY's effective tax rate for the three months ended June 30, 2016 and 2015 was 34 percent and 32 percent, respectively. The increase in CECONY's effective tax rate is primarily related to a decrease in tax benefits for plant-related flow through items, partially offset by increased tax benefits as a result of higher injuries and damages payments.

Con Edison’s income tax expense decreased to $288 million for the six months ended June 30, 2016 from $300 million for the six months ended June 30, 2015. Con Edison's effective tax rate for the six months ended June 30, 2016 and 2015 was 35 percent and 34 percent, respectively. For the six months ended June 30, 2016, Con Edison recorded income tax benefits for research and development tax credits and higher renewable energy tax credits, which were primarily offset by a decrease in tax benefits for plant-related flow through items.



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CECONY’s income tax expense decreased to $264 million for the six months ended June 30, 2016 from $293 million for the six months ended June 30, 2015. CECONY's effective tax rate for the six months ended June 30, 2016 and 2015 was 36 percent and 34 percent, respectively. The increase in CECONY's effective tax rate is primarily related to a decrease in tax benefits for plant-related flow through items, partially offset by research and development tax credits.

Con Edison anticipates a federal consolidated net operating loss for 2016, primarily due to bonus depreciation. Con Edison expects to carryback a portion of its 2016 net operating loss and recover $10 million of income tax. General business tax credits that became available as a result of the net operating loss carryback, as well as the remaining 2016 net operating loss will be carried forward to future tax years. A deferred tax asset for these tax attribute carryforwards was recorded, and no valuation allowance has been provided, as it is more likely than not that the deferred tax asset will be realized.

Uncertain Tax Positions
At June 30, 2016, the estimated liability for uncertain tax positions for Con Edison was $36 million ($4 million for CECONY). Con Edison reasonably expects to resolve approximately $27 million ($18 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 $4 million ($3 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 $36 million ($24 million, net of federal taxes).
The Companies recognize interest on liabilities for uncertain tax positions in interest expense and would recognize penalties, if any, in operating expenses in the Companies’ consolidated income statements. In the three and six months ended June 30, 2016, the Companies recognized an immaterial amount of interest expense and no penalties for uncertain tax positions in their consolidated income statements. At June 30, 2016 and December 31, 2015, the Companies recognized an immaterial amount of accrued interest on their consolidated balance sheets.


28

Table of Contents

Note J — Financial Information by Business Segment
In 2016, Con Edison Transmission began investing, through CET Electric and CET Gas, in electric transmission and gas pipeline and storage assets (see Note Q). As a result of these investments, Con Edison has changed its business segments to add Con Edison Transmission as a separate reportable segment based on management’s reporting and decision-making, including performance evaluation and resource allocation. For comparison purposes, the previously reported financial information by business segments was reclassified to reflect the current business segment presentation.

The financial data for the business segments are as follows:
 
 
For the Three Months Ended June 30,
 
Operating
revenues
Inter-segment
revenues
Depreciation and
amortization
Operating
income
Other income (deductions)
Interest charges
Income taxes on operating income
Total assets
Construction expenditures
(Millions of Dollars)
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
CECONY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Electric
$1,892
$1,879
$4
$5
$215
$201
$371
$422
$2
$(1)
$113
$113
$88
$99
$30,632
$30,474
$338
$409
Gas
304
308
1
1
39
35
48
54

(1)
26
23
9
12
7,131
6,598
205
161
Steam
85
96
21
21
21
18
(27)
(16)


10
10
(10)
(6)
2,590
2,629
28
21
Consolidation adjustments


(26)
(27)














Total CECONY
$2,281
$2,283

$—


$—

$275
$254
$392
$460
$2
$(2)
$149
$146
$87
$105
$40,353
$39,701
$571
$591
O&R
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Electric
$144
$162

$—


$—

$13
$13
$14
$16

$—


$—

$6
$5
$3
$4
$1,928
$1,944
$25
$25
Gas
31
16


4
4
(1)
(18)


3
4
(1)
(8)
761
739
12
11
Total O&R
$175
$178

$—


$—

$17
$17
$13
$(2)

$—


$—

$9
$9
$2
$(4)
$2,689
$2,683
$37
$36
Competitive energy businesses
$338
$328
$3
$(1)
$10
$6
$109
$13
$7
$12
$8
$2
$36
$7
$2,494
$1,549
$128
$364
Con Edison Transmission






(1)

3

1



1,043
2


Other (a)

(1)
(3)
1

(1)
2
1
(1)

3
5
3

691
816


Total Con Edison
$2,794
$2,788

$—


$—

$302
$276
$515
$472
$11
$10
$170
$162
$128
$108
$47,270
$44,751
$736
$991
(a)
Parent company and consolidation adjustments. Other does not represent a business segment.




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Table of Contents

 
For the Six Months Ended June 30,
 
Operating
revenues
Inter-segment
revenues
Depreciation and
amortization
Operating
income
Other income (deductions)
Interest charges
Income taxes on operating income
Total assets
Construction expenditures
(Millions of Dollars)
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
CECONY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Electric
$3,665
$3,858
$9
$9
$428
$403
$645
$700
$1
$(1)
$225
$223
$137
$142
$30,632
$30,474
$720
$744
Gas
905
963
3
3
78
70
301
294
(1)

52
46
97
98
7,131
6,598
365
289
Steam
343
471
44
43
41
38
87
149


20
21
35
60
2,590
2,629
51
38
Consolidation adjustments


(56)
(55)














Total CECONY
$4,913
$5,292

$—


$—

$547
$511
$1,033
$1,143

$—

$(1)
$297
$290
$269
$300
$40,353
$39,701
$1,136
$1,071
O&R
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Electric
$284
$318

$—


$—

$24
$25
$32
$34

$—

$1
$12
$11
$7
$9
$1,928
$1,944
$47
$45
Gas
106
93


9
9
34
9


6
6
12
1
761
739
21
17
Total O&R
$390
$411

$—


$—

$33
$34
$66
$43

$—

$1
$18
$17
$19
$10
$2,689
$2,683
$68
$62
Competitive energy businesses
$648
$702
$9
$(4)
$19
$11
$58
$10
$9
$15
$16
$3
$9
$4
$2,494
$1,549
$556
$464
Con Edison Transmission






(1)

3

1



1,043
2


Other (a)
(1)
(1)
(9)
4

(1)
1
2

(1)
7
13
2

691
816


Total Con Edison
$5,950
$6,404

$—


$—

$599
$555
$1,157
$1,198
$12
$14
$339
$323
$299
$314
$47,270
$44,751
$1,760
$1,597
(a)
Parent company and consolidation adjustments. Other does not represent a business segment.




30

Table of Contents

Note K — Derivative Instruments and Hedging Activities
Con Edison’s subsidiaries hedge market price fluctuations associated with physical purchases and sales of electricity, natural gas, steam and, to a lesser extent, refined fuels by using derivative instruments including futures, forwards, basis swaps, options, transmission congestion contracts and financial transmission rights contracts. Derivatives are recognized on the consolidated balance sheet at fair value (see Note L), unless an exception is available under the accounting rules for derivatives and hedging. Qualifying derivative contracts that have been designated as normal purchases or normal sales contracts are not reported at fair value under the accounting rules.
 
The fair values of the Companies’ commodity derivatives including the offsetting of assets and liabilities on the consolidated balance sheet at June 30, 2016 and December 31, 2015 were:
 
(Millions of Dollars)
2016
 
2015
 
Balance Sheet Location
Gross Amounts of
Recognized
Assets/(Liabilities)
Gross
Amounts
Offset
Net Amounts
of Assets/
(Liabilities) (a)
 
Gross Amounts of
Recognized
Assets/(Liabilities)
Gross
Amounts
Offset
Net Amounts
of Assets/
(Liabilities) (a)
 
Con Edison
 
 
 
 
 
 
 
 
Fair value of derivative assets
 
 
 
 
 
 
 
 
Current
$78
$(50)
$28
(b)
$59
$(41)
$18
(b)
Current - assets held for sale (c)
45
(42)
3
 
51
(50)
1
 
Noncurrent
33
(32)
1
 
57
(54)
3
 
Noncurrent - assets held for sale (c)
13
(10)
3
 
15
(15)

 
Total fair value of derivative assets
$169
$(134)
$35
 
$182
$(160)
$22
 
Fair value of derivative liabilities
 
 
 
 
 
 
 
 
Current
$(129)
$67
$(62)
 
$(144)
$78
$(66)
 
Current - liabilities held for sale (c)
(76)
42
(34)
 
(115)
50
(65)
 
Noncurrent
(67)
34
(33)
 
(102)
63
(39)
 
Noncurrent - liabilities held for sale (c)
(24)
10
(14)
 
(28)
15
(13)
 
Total fair value of derivative liabilities
$(296)
$153
$(143)
 
$(389)
$206
$(183)
 
Net fair value derivative assets/(liabilities)
$(127)
$19
$(108)
(b)
$(207)
$46
$(161)
(b)
CECONY
 
 
 
 
 
 
 
 
Fair value of derivative assets
 
 
 
 
 
 
 
 
Current
$57
$(47)
$10
(b)
$40
$(32)
$8
(b)
Noncurrent
24
(24)

 
48
(47)
1
 
Total fair value of derivative assets
$81
$(71)
$10
 
$88
$(79)
$9
 
Fair value of derivative liabilities
 
 
 
 
 
 
 
 
Current
$(109)
$65
$(44)
 
$(121)
$71
$(50)
 
Noncurrent
(59)
29
(30)
 
(92)
56
(36)
 
Total fair value of derivative liabilities
$(168)
$94
$(74)
 
$(213)
$127
$(86)
 
Net fair value derivative assets/(liabilities)
$(87)
$23
$(64)
(b)
$(125)
$48
$(77)
(b)
(a)
Derivative instruments and collateral were offset on the consolidated balance sheet as applicable under the accounting rules. The Companies enter into master agreements for their commodity derivatives. These agreements typically provide offset in the event of contract termination. In such case, generally the non-defaulting party’s payable will be offset by the defaulting party’s payable. The non-defaulting party will customarily notify the defaulting party within a specific time period and come to an agreement on the early termination amount.
(b)
At June 30, 2016 and December 31, 2015, margin deposits for Con Edison ($16 million and $26 million, respectively) and CECONY ($16 million and $26 million, respectively) were classified as derivative assets on the consolidated balance sheet, but not included in the table. Margin is collateral, typically cash, that the holder of a derivative instrument is required to deposit in order to transact on an exchange and to cover its potential losses with its broker or the exchange.
(c)
Amounts represent derivative assets and liabilities included in assets and liabilities held for sale on the consolidated balance sheet (see Note P).

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


31

Table of Contents

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 and six months ended June 30, 2016 and 2015:
 
 
 
For the Three Months Ended June 30,
 
 
          Con Edison
 
          CECONY
(Millions of Dollars)
Balance Sheet Location
2016
 
2015

 
2016

2015

Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:
 
 
 
Current
Deferred derivative gains
$10
 
$(2)
 
$9
$(1)
Noncurrent
Deferred derivative gains
1
 

 


Total deferred gains/(losses)
 
$11
 
$(2)
 
$9
$(1)
Current
Deferred derivative losses
$68
 
$(11)
 
$61
$(10)
Current
Recoverable energy costs
(52)
 
(40)
 
(47)
(36)
Noncurrent
Deferred derivative losses
68
 
(2)
 
62
(1)
Total deferred gains/(losses)
 
$84
 
$(53)
 
$76
$(47)
Net deferred gains/(losses)
 
$95
 
$(55)
 
$85
$(48)
 
Income Statement Location
 
 
 
 
 
 
Pre-tax gain/(loss) recognized in income
 
 
 
 
 
 
 
Purchased power expense
$45
(a)
$(50)
(b)

$—


$—

 
Gas purchased for resale
(23)
 
(26)
 


 
Non-utility revenue
5
(a)
(27)
(b)


Total pre-tax gain/(loss) recognized in income
$27
 
$(103)
 

$—


$—

(a)
For the three months ended June 30, 2016, Con Edison recorded an unrealized gain in purchase power expense ($97 million gain).
(b)
For the three months ended June 30, 2015, Con Edison recorded unrealized pre-tax gains and losses in non-utility operating revenue ($1 million gain) and purchased power expense ($17 million loss).

 
 
For the Six Months Ended June 30,
 
 
          Con Edison
 
          CECONY
(Millions of Dollars)
Balance Sheet Location
2016
 
2015

 
2016

2015

Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:
 
 
 
Current
Deferred derivative gains
$7
 
$1
 
$5
$2
Noncurrent
Deferred derivative gains
1
 

 
(1)

Total deferred gains/(losses)
 
$8
 
$1
 
$4
$2
Current
Deferred derivative losses
$38
 
$32
 
$33
$32
Current
Recoverable energy costs
(125)
 
(39)
 
(113)
(38)
Noncurrent
Deferred derivative losses
12
 
(21)
 
11
(18)
Total deferred gains/(losses)
 
$(75)
 
$(28)
 
$(69)
$(24)
Net deferred gains/(losses)
 
$(67)
 
$(27)
 
$(65)
$(22)
 
Income Statement Location
  
 
  
 
  
  
Pre-tax gain/(loss) recognized in income
 
 
 
 
 
 
 
Purchased power expense
$(70)
(a)
$(28)
(b)

$—


$—

 
Gas purchased for resale
(33)
 
(69)
 


 
Non-utility revenue
17
(a)
15
(b)


Total pre-tax gain/(loss) recognized in income
$(86)
 
$(82)
 

$—


$—

(a)
For the six months ended June 30, 2016, Con Edison recorded unrealized gains and losses in non-utility operating revenue ($1 million loss) and purchase power expense ($35 million gain).
(b)
For the six months ended June 30, 2015, Con Edison recorded unrealized pre-tax gains and losses in non-utility operating revenue ($3 million loss) and purchased power expense ($5 million loss).



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The following table presents the hedged volume of Con Edison’s and CECONY’s derivative transactions at June 30, 2016:
 
 
Electric Energy
(MWh) (a)(b)
Capacity (MW) (a)
Natural Gas
(Dt) (a)(b)
Refined Fuels
(gallons)
Con Edison (c)
31,244,951

23,618

39,700,166

3,360,000

CECONY
15,349,625

10,200

38,830,000

3,360,000

(a)
Volumes are reported net of long and short positions, except natural gas collars where the volumes of long positions are reported.
(b)
Excludes electric congestion and gas basis swap contracts, which are associated with electric and gas contracts and hedged volumes.
(c)
Includes 14,519,076 MWh for electric energy, 10,779 MW for capacity and 887,007 Dt for natural gas derivative transactions that are held for sale.

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 June 30, 2016, Con Edison and CECONY had $191 million and $21 million of credit exposure in connection with energy supply and hedging activities, net of collateral, respectively. Con Edison’s net credit exposure consisted of $79 million with commodity exchange brokers, $67 million with independent system operators, $35 million with investment-grade counterparties and $10 million with non-investment grade/non-rated counterparties. CECONY’s net credit exposure consisted of $17 million with commodity exchange brokers and $4 million with investment-grade counterparties.
The collateral requirements associated with, and settlement of, derivative transactions are included in net cash flows from operating activities in the Companies’ consolidated statement of cash flows. Most derivative instrument contracts contain provisions that may require a party to provide collateral on its derivative instruments that are in a net liability position. The amount of collateral to be provided will depend on the fair value of the derivative instruments and the party’s credit ratings.
 
The following table presents the aggregate fair value of the Companies’ derivative instruments with credit-risk-related contingent features that are in a net liability position, the collateral posted for such positions and the additional collateral that would have been required to be posted had the lowest applicable credit rating been reduced one level and to below investment grade at June 30, 2016:
 
(Millions of Dollars)
Con Edison (a)
 
CECONY (a)
 
Aggregate fair value – net liabilities
$82
 
$68
 
Collateral posted
23
 
22
 
Additional collateral (b) (downgrade one level from current ratings)
4
 
3
 
Additional collateral (b) (downgrade to below investment grade from current ratings)
99
(c)
76
(c)
(a)
Non-derivative transactions for the purchase and sale of electricity and gas and qualifying derivative instruments, which have been designated as normal purchases or normal sales, are excluded from the table. These transactions primarily include purchases of electricity from independent system operators. In the event the Utilities and the competitive energy businesses were no longer extended unsecured credit for such purchases, the Companies would be required to post additional collateral of $4 million at June 30, 2016. For certain other such non-derivative transactions, the Companies could be required to post collateral under certain circumstances, including in the event counterparties had reasonable grounds for insecurity.
(b)
The Companies measure the collateral requirements by taking into consideration the fair value amounts of derivative instruments that contain credit-risk-related contingent features that are in a net liabilities position plus amounts owed to counterparties for settled transactions and amounts required by counterparties for minimum financial security. The fair value amounts represent unrealized losses, net of any unrealized gains where the Companies have a legally enforceable right to offset.
(c)
Derivative instruments that are net assets have been excluded from the table. At June 30, 2016, if Con Edison had been downgraded to below investment grade, it would have been required to post additional collateral for such derivative instruments of $20 million.

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


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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 June 30, 2016 and December 31, 2015 are summarized below.
 
  
2016
2015
(Millions of Dollars)
Level 1
Level 2
Level 3
Netting
Adjustment (e)
Total
Level 1
Level 2
Level 3
Netting
Adjustment (e)
Total
Con Edison
 
 
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
 
 
Commodity (a)(b)(c)
$3
$28
$9
$5
$45
$2
$25
$13
$7
$47
Commodity held for sale (f)

47
4
(45)
6

63
1
(63)
1
Other (a)(b)(d)
201
117


318
185
112


297
Total assets
$204
$192
$13
$(40)
$369
$187
$200
$14
$(56)
$345
Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
Commodity (a)(b)(c)
$4
$118
$3
$(30)
$95
$16
$153
$1
$(65)
$105
Commodity held for sale (f)

88
5
(45)
48
1
133
7
(63)
78
Total liabilities
$4
$206
$8
$(75)
$143
$17
$286
$8
$(128)
$183
CECONY
 
 
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
 
 
Commodity (a)(b)(c)
$2
$14
$2
$8
$26
$1
$9
$8
$17
$35
Other (a)(b)(d)
193
104


297
171
105


276
Total assets
$195
$118
$2
$8
$323
$172
$114
$8
$17
$311
Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
Commodity (a)(b)(c)
$3
$102

$—

$(31)
$74
$14
$129

$—

$(57)
$86


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(a)
The Companies’ policy is to review the fair value hierarchy and recognize transfers into and transfers out of the levels at the end of each reporting period. There were no transfers between levels 1, 2 and 3 for the six months ended June 30, 2016 and for the year ended December 31, 2015.
(b)
Level 2 assets and liabilities include investments held in the deferred compensation plan and/or non-qualified retirement plans, exchange-traded contracts where there is insufficient market liquidity to warrant inclusion in Level 1, certain over-the-counter derivative instruments for electricity, refined products and natural gas. Derivative instruments classified as Level 2 are valued using industry standard models that incorporate corroborated observable inputs; such as pricing services or prices from similar instruments that trade in liquid markets, time value and volatility factors.
(c)
The accounting rules for fair value measurements and disclosures require consideration of the impact of nonperformance risk (including credit risk) from a market participant perspective in the measurement of the fair value of assets and liabilities. At June 30, 2016 and December 31, 2015, the Companies determined that nonperformance risk would have no material impact on their financial position or results of operations.
(d)
Other assets are comprised of assets such as life insurance contracts within the deferred compensation plan and non-qualified retirement plans.
(e)
Amounts represent the impact of legally-enforceable master netting agreements that allow the Companies to net gain and loss positions and cash collateral held or placed with the same counterparties.
(f)
Amounts represent derivative assets and liabilities included in Assets and Liabilities held for sale on the consolidated balance sheet (see Note P).

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 of Level 3 at June 30, 2016
Valuation
Techniques
Unobservable Inputs
Range
 
(Millions of Dollars)
Con Edison – Commodity
Electricity
$2
Discounted Cash Flow
Forward energy prices (a)
$19.50-$86.50 per MWh
 
 
Discounted Cash Flow
Forward capacity prices (a)
$1.65-$12.25 per kW-month
Transmission Congestion Contracts/Financial Transmission Rights
3
Discounted Cash Flow
Discount to adjust auction prices for inter-zonal forward price curves (b)
52.8%-59.4%
 
 
 
Discount/premium to adjust auction prices for historical monthly realized settlements (b)
53.3%-144.9%
 
 
 
Inter-zonal forward price curves adjusted for historical zonal losses (b)
$0.86-$2.53 per MWh
Total Con Edison—Commodity
$5
 
 
 
CECONY—Commodity
Transmission Congestion Contracts
$2
Discounted Cash Flow
Discount to adjust auction prices for inter-zonal forward price curves (b)
52.8%-59.4%
 
 
 
Discount/premium to adjust auction prices for historical monthly realized settlements (b)
53.3%-144.9%
(a)
Generally, increases/(decreases) in this input in isolation would result in a higher/(lower) fair value measurement.
(b)
Generally, increases/(decreases) in this input in isolation would result in a lower/(higher) fair value measurement.
The table listed below provides a reconciliation of the beginning and ending net balances for assets and liabilities measured at fair value as of June 30, 2016 and 2015 and classified as Level 3 in the fair value hierarchy:
 
 
For the Three Months Ended June 30,
  
          Con Edison
          CECONY
(Millions of Dollars)
2016
2015

2016

2015

Beginning balance as of April 1,
$(4)
$11
$2
$12
Included in earnings
5
(3)

(2)
Included in regulatory assets and liabilities
1

(1)

Purchases
1
5
1
2
Settlements
2


(1)
Ending balance as of June 30,
$5
$13
$2
$11
 


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For the Six Months Ended June 30,
  
          Con Edison
          CECONY
(Millions of Dollars)
2016
2015
2016
2015
Beginning balance as of January 1,
$6
$20
$8
$13
Included in earnings
(2)
(15)
(1)
(5)
Included in regulatory assets and liabilities
(2)
1
(5)
1
Purchases
1
8
1
4
Settlements
2
(1)
(1)
(2)
Ending balance as of June 30,
$5
$13
$2
$11

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 ($5 million gain and $1 million loss) on the consolidated income statement for the three months ended June 30, 2016 and 2015, respectively. Realized and unrealized gains and losses on Level 3 commodity derivative assets and liabilities are reported in non-utility revenues (immaterial for both periods) and purchased power costs ($2 million loss and $10 million loss) on the consolidated income statement for the six months ended June 30, 2016, and 2015, respectively. The change in fair value relating to Level 3 commodity derivative assets and liabilities held at June 30, 2016 and 2015 is included in non-utility revenues (immaterial for both periods) and purchased power costs ($7 million gain and $1 million gain) on the consolidated income statement for the three months ended June 30, 2016 and 2015, respectively. For the six months ended June 30, 2016, and 2015, the change in fair value relating to Level 3 commodity derivative assets and liabilities is included in non-utility revenues (immaterial for both periods) and purchased power costs ($3 million gain and $4 million loss) on the consolidated income statement, respectively.

Note M — Variable Interest Entities
Con Edison enters into arrangements including leases, partnerships and electricity purchase agreements, with various entities. As a result of these arrangements, Con Edison retains or may retain a variable interest in these entities.
CECONY had a variable interest in a non-consolidated variable interest entity (VIE), Astoria Energy, LLC (Astoria Energy), with which CECONY entered into a long-term electricity purchase agreement that expired in April 2016. CECONY has ongoing long-term electricity purchase agreements with the following two potential VIEs: Cogen Technologies Linden Venture, LP, and Brooklyn Navy Yard Cogeneration Partners, LP. In 2015, requests were made of these two counterparties for information necessary to determine whether the entity was a VIE and whether CECONY is the primary beneficiary; however, the information was not made available. The payments for these contracts constitute CECONY’s maximum exposure to loss with respect to the potential VIEs.

 


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The following table summarizes the VIEs in which Con Edison Development has entered into as of June 30, 2016:
 
Project Name (a)
Generating
Capacity (b)
(MW AC)
Power Purchase Agreement Term (in Years)
Year of
Initial
Investment
Location
Maximum
Exposure to Loss
(Millions of Dollars) (c)
Copper Mountain Solar 3
128
20
2014
Nevada
$184
Panoche Valley
120
20
2015
California
204
Mesquite Solar 1
83
20
2013
Arizona
105
Copper Mountain Solar 2
75
25
2013
Nevada
84
California Solar
55
25
2012
California
68
Broken Bow II
38
25
2014
Nebraska
54
Texas Solar 4
32
25
2014
Texas
15
Pilesgrove (e)
9
      n/a (d)
2010
New Jersey
18
(a) With the exception of Texas Solar 4, Con Edison’s ownership interest is 50 percent and these projects are accounted for using the equity method of accounting. Con Edison is not the primary beneficiary since the power to direct the activities that most significantly impact the economics of the entities are shared equally between Con Edison Development and third parties. Con Edison’s ownership interest in Texas Solar 4 is 80 percent and is consolidated in the financial statements. Con Edison is the primary beneficiary since the power to direct the activities that most significantly impact the economics of Texas Solar 4 is held by Con Edison Development. The maximum exposure for Texas Solar 4 is the net assets of the investment offset by an $8 million noncontrolling interest.
(b) Represents Con Edison Development’s ownership interest in the project.
(c) For investments accounted for under the equity method, maximum exposure is equal to the carrying value of the investment on the consolidated balance sheet and any related receivables due from the project. For consolidated investments, maximum exposure is equal to the net assets of the investment on the consolidated balance sheet less any applicable noncontrolling interest. Con Edison did not provide any financial or other support during the year that was not previously contractually required.
(d) Pilesgrove has 3-4 year Solar Renewable Energy Credit hedges in place.
(e) Carrying value and maximum exposure reduced by an $8 million impairment charge in June 2016 (included in Investment and other income on Con Edison's consolidated income statement).

Note N — Related Party Transactions
The Utilities perform work and incur expenses on behalf of NY Transco, a company in which CET Electric has a 45.7 percent equity interest (see Note Q). The Utilities bill NY Transco for such work and expenses in accordance with established policies. For the three and six months ended June 30, 2016, the amounts billed by CECONY to NY Transco were immaterial.
CECONY has storage and wheeling service contracts with Stagecoach Gas Services LLC (Stagecoach), a joint venture formed by a subsidiary of CET Gas and a subsidiary of Crestwood Equity Partners LP (Crestwood) (see Note Q). In addition, CECONY is the replacement shipper on one of Crestwood’s firm transportation agreements with Tennessee Gas Pipeline Company LLC. Since the formation of the joint venture in June 2016, the amount of storage and wheeling services received by CECONY from Stagecoach was $3 million.
CECONY has a financial electric capacity contract with Con Edison Energy for the period May 2016 through April 2017. For the three and six months ended June 30, 2016, Con Edison Energy's realized losses under this contract were immaterial to earnings.

Note O — New Financial Accounting Standards
In May 2014, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board jointly issued a revenue recognition standard that will supersede the revenue recognition requirements within Accounting Standards Codification Topic 605, “Revenue Recognition,” and most industry-specific guidance under the Codification through Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” The purpose of the new guidance is to create a consistent framework for revenue recognition. The guidance clarifies how to measure and recognize revenue arising from customer contracts to depict the transfer of goods or services in an amount that reflects the consideration the entity expects to receive. Additionally, in March and April 2016, respectively, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net)” to clarify how to apply the implementation guidance for principal versus agent considerations and ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” to clarify the guidance pertaining to identifying performance obligations and licensing implementation guidance. Furthermore in May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” to clarify assessing collectibility, presentation of sales taxes, non-cash consideration, contract modification at transition, and completed contracts at transition. The new standard is effective for reporting periods beginning after December 15, 2017. Early adoption is permitted for reporting periods


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beginning after December 15, 2016. 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 January 2016, the FASB issued amendments on certain aspects of recognition, measurement, presentation, and disclosure of financial instruments through ASU No. 2016-01, “Financial Instruments (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The amendments require changes to the accounting for equity investments, the presentation and disclosure requirements for financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, clarification was provided related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. For public entities, the amendments are effective for reporting periods beginning after December 15, 2017. Early adoption is permitted for portions of the standard. The Companies are in the process of evaluating the potential impact of the new guidance on the Companies’ financial position, results of operations and liquidity.

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

In March 2016, the FASB issued amendments to the guidance for Derivatives and Hedging accounting through ASU 2016-05, “Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships." The amendments clarify that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument under Topic 815 does not, in and of itself, require discontinuation of the application of hedge accounting. The amendments in this update are effective for financial statements issued for reporting periods beginning after December 15, 2016. Early adoption is permitted. The application of this guidance is not expected to have a material impact on the Companies’ financial position, results of operations and liquidity.

In March 2016, the FASB issued amendments to clarify the guidance for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts through ASU No. 2016-06, “Derivatives & Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments.” An entity performing the assessment under the amendments is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. The amendments are effective for financial statements issued for reporting periods beginning after December 15, 2016. Early adoption is permitted. The application of this guidance is not expected to have a material impact on the Companies’ financial position, results of operations and liquidity.

In March 2016, the FASB issued amendments to eliminate the requirement to retroactively adopt the equity method of accounting when a company increases its level of ownership or degree of influence over an investment through ASU No. 2016-07, “Investments-Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting.” This amendment requires that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in Accumulated Other Comprehensive Income at the date the investment qualifies for the equity method. The amendments in this Update are effective for reporting periods beginning after December 15, 2016. The application of this guidance is not expected to have a material impact on the Companies’ financial position, results of operations and liquidity.

In March 2016, the FASB issued amendments to simplify several aspects of the accounting for share-based payment transactions through ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” The amendments simplify areas such as income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments are effective for reporting periods beginning after December 15, 2016. Early adoption is permitted. The application of this guidance is not expected to have a material impact on the Companies’ financial position, results of operations and liquidity.


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In May 2016, the FASB issued amendments to the guidance on revenue recognition and derivatives and hedging through ASU 2016-11, “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting (SEC Update).” The amendment rescinds certain SEC guidance superseded by the newly issued revenue recognition and hedging guidance (ASU 2014-09 and 2014-16 respectively). The amendments will be effective upon adoption of the 2014-09 and 2014-16. The Companies are in the process of evaluating the potential impact of the amendments on the Companies’ financial position, results of operations and liquidity.

In June 2016, the FASB issued amendments to the guidance for recognition of credit losses for financial instruments through ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The amendment replaces the incurred loss impairment methodology which involved delayed recognition of credit losses. As the updated guidance now requires credit losses to be recognized when expected rather than when incurred, a broader range of reasonable and supportable information must be considered in developing the credit loss estimates. This includes financial instruments that are valued at amortized cost and available for sale. For public entities, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted where entities may adopt earlier as of the fiscal years beginning after December 15, 2018 including interim periods within those fiscal years. The application of this guidance is not expected to have a material impact on the Companies’ financial position, results of operations and liquidity.

Note P — Assets Held For Sale
In July 2016, Con Edison Solutions entered into an agreement to sell the assets of its retail electric supply business (including retail contracts, related derivative instruments, information systems, and accounts receivable) to a subsidiary of Exelon Corporation. The company estimates that it will receive proceeds from the sale of approximately $200 million, subject to certain adjustments. The earnings impact of the sale will be determinable at closing when the mark-to-market effects of the derivative instruments being sold are known. The transaction is expected to close by the end of the year.

In October 2015, upon evaluating strategic alternatives, O&R entered into an agreement to sell Pike County Light & Power Company (Pike) to Corning Natural Gas Holding Corporation (Corning) for $16 million, including estimated working capital adjustments. The closing of the sale, which the company expects to occur in 2016, is subject to certain regulatory approvals by the FERC and Pennsylvania Public Utility Commission (PAPUC). In March 2016, FERC approved a proposed electric supply agreement between O&R and Pike. In June 2016, FERC approved a proposed gas supply and gas transportation agreement between O&R and Pike. In June 2016, the administrative law judge presiding over the PAPUC proceeding approved a joint settlement petition submitted by Pike, O&R, Corning and other parties, which is subject to PAPUC approval. In 2015, the company classified the related electric and gas assets and liabilities as held for sale and ceased recording depreciation expense on these assets. At September 30, 2015, O&R recorded an impairment charge of $5 million ($3 million, net of taxes), representing the difference between the carrying amount of Pike’s assets and the estimated sales proceeds. The impairment is reflected in the amount included in assets held for sale on the company's consolidated balance sheet at June 30, 2016.

At June 30, 2016, the carrying amounts of the assets and liabilities designated as held for sale were as follows:



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(Millions of Dollars)
Retail Electric Supply Business
Pike

Total
Cash and temporary cash investments

$—

$4
$4
Accounts receivable less allowance for uncollectible accounts of $2
70

70
Accrued unbilled revenue
79
1
80
Other assets
4
1
5
Total current assets
153
6
159
Utility plant, less accumulated depreciation of $6

14
14
Non-utility property, less accumulated depreciation of $13
3

3
Non-utility property construction work in progress
1

1
Regulatory assets

3
3
Other assets
3

3
Total assets held for sale
$160
$23
$183
 
 
 
 
Fair value of derivative liabilities
$34

$—

$34
Accounts payable
5

5
Other
3
1
4
Total current liabilities
42
1
43
Fair value of derivative liabilities
14

14
Long-term debt

3
3
Total liabilities held for sale
$56
$4
$60

Note Q — Acquisitions, Investments and Dispositions
Texas Solar 7
In January 2016, Con Edison Development acquired a company that is the owner of a 106 MW (AC) solar electric production project in Texas (Texas Solar 7) for $227 million; $218 million was recorded as non-utility construction work in progress and the remaining $9 million was recorded as other receivables. The total cost of this project is expected to be approximately $375 million. The project has been financed, in part, by debt secured by the project (see Note C). Electricity generated by this project is to be purchased by the City of San Antonio pursuant to a long-term power purchase agreement. The project is targeted to be fully in-service during 2016.

Mountain Valley Pipeline
In January 2016, CET Gas acquired a 12.5 percent equity interest in Mountain Valley Pipeline, LLC (MVP), a company developing a proposed gas transmission project in West Virginia and Virginia. The company's initial contribution to MVP was $18 million. The estimated total project cost is $3,000 million to $3,500 million. Subject to FERC approval, MVP is targeting to be fully in-service during 2018. Con Edison is accounting for its equity interest in MVP as an equity method investment.
Stagecoach Gas Services
In April 2016, a CET Gas subsidiary agreed with a subsidiary of Crestwood to form a joint venture to own, operate and further develop existing natural gas pipeline and storage businesses located in northern Pennsylvania and southern New York. The transaction was substantially completed during June 2016. Crestwood contributed businesses to a new entity, Stagecoach, and the CET Gas subsidiary purchased a 50 percent equity interest in Stagecoach for $945 million (subject to closing adjustments). Con Edison is accounting for its equity interest in Stagecoach as an equity method investment.
NY Transco
In January 2016, CECONY entered into an agreement to transfer certain electric transmission projects to NY Transco, a company in which CET Electric has a 45.7 percent equity interest. In April 2016, the NYSPSC authorized CECONY, subject to certain conditions, to transfer the projects to NY Transco. In May 2016, CECONY transferred the projects to NY Transco for a purchase price of $122 million and an $8 million payment for easement rights on certain associated property. Also, through June 2016, CET Electric contributed $48 million to NY Transco in connection with the purchase of the projects. Con Edison is accounting for its equity interest in NY Transco as an equity method investment.



40

Table of Contents

Assets Held For Sale
In October 2015, O&R entered into an agreement to sell Pike to Corning. In July 2016, Con Edison Solutions entered into an agreement to sell the assets of its retail electric supply business to a subsidiary of Exelon Corporation. See Note P.





41

Table of Contents

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

This MD&A should be read in conjunction with the Second Quarter Financial Statements and the notes thereto, the MD&A in Item 7 of the Companies’ combined Annual Report on Form 10-K for the year ended December 31, 2015 (File Nos. 1-14514 and 1-1217, the Form 10-K) and the MD&A in Part 1, Item 2 of the Companies’ combined Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016 (File Nos. 1-14514 and 1-1217).

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

Con Edison, incorporated in New York State in 1997, is a holding company that owns all of the outstanding common stock of CECONY, Orange and Rockland Utilities, Inc. (O&R), the competitive energy businesses and Consolidated Edison Transmission, Inc. (Con Edison Transmission). As used in this report, the term the “Utilities” refers to CECONY and O&R.
 
 
Con Edison’s principal business operations are those of CECONY, O&R, the competitive energy businesses and Con Edison Transmission. CECONY’s principal business operations are its regulated electric, gas and steam delivery businesses. O&R’s principal business operations are its regulated electric and gas delivery businesses. The 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 Transmission invests in electric transmission facilities and gas pipeline and storage facilities.

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



42

Table of Contents

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

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

Steam
CECONY operates the largest steam distribution system in the United States by producing and delivering approximately 22,000 MMlb of steam annually to approximately 1,700 customers in parts of Manhattan.

Collective Bargaining Agreement
In June 2016, CECONY reached a four-year collective bargaining agreement with its largest union covering approximately 8,000 employees, effective June 26, 2016.

O&R
Electric
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.

Gas
O&R delivers gas to over 0.1 million customers in southeastern New York and adjacent areas of northeastern Pennsylvania.

Assets Held for Sale
In October 2015, O&R entered into an agreement to sell Pike to Corning Natural Gas Holding Corporation (see Note P to the Second Quarter Financial Statements).

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.

Assets Held for Sale
In July 2016, Con Edison entered into an agreement to sell the retail electric supply business of its competitive energy businesses (see Note P to the Second Quarter Financial Statements).

Con Edison Transmission
Con Edison Transmission invests in electric and gas transmission projects through its wholly-owned subsidiaries, Consolidated Edison Transmission, LLC (CET Electric) and Con Edison Gas Pipeline and Storage, LLC (formerly known as Con Edison Gas Midstream, LLC, CET Gas). CET Electric, which was formed in 2014, is investing in a company that owns electric transmission assets in New York. CET Gas, which was formed in 2016, owns, through a subsidiary, a 50 percent equity interest in a joint venture that owns, operates and will further develop an existing gas pipeline and storage business located in northern Pennsylvania and southern New York. In addition, CET Gas owns a 12.5 percent equity interest in a company developing a proposed gas transmission project in West Virginia and Virginia. See “Con Edison Transmission,” below.



43

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

  
For the Three Months Ended
June 30, 2016
For the Six Months Ended
June 30, 2016
At June 30, 2016
(Millions of Dollars, except
percentages)
Operating
Revenues
Net Income
Operating
Revenues
Net Income
Assets
CECONY
$2,281
82
%
$161
70
%
$4,913
82
%
$472
87
%
$40,353
85
%
O&R
175
6

2
1

390
7

28
5

2,689
6

Total Utilities
2,456
88

163
71

5,303
89

500
92

43,042
91

Competitive energy businesses (a)(b)
338
12

72
31

648
11

42
8

2,494
5

Con Edison Transmission


1



1

1,043
2

Other (c)


(4)
(2
)
(1)

(1)

691
2

Total Con Edison
$2,794
100
%
$232
100
%
$5,950
100
%
$542
100
%
$47,270
100
%
(a)
Net income from the competitive energy businesses for the three and six months ended June 30, 2016 includes $5 million of net loss related to the impairment of a solar electric production investment (see Note M to the Second Quarter Financial Statements). Also includes for the three and six months ended June 30, 2016 $58 million and $20 million, respectively, of net after-tax mark-to-market gains/(losses) (Con Edison Solutions, $58 million and $21 million and Con Edison Energy, $0 million and $(1) million).
(b)
Operating revenues and net income from the competitive energy businesses for the three and six months ended June 30, 2016 includes $263 million and $526 million, and $60 million and $28 million, respectively, related to their retail electric supply business. Assets at June 30, 2016 include assets classified as held for sale of $160 million (see Note P to the Second Quarter Financial Statements).
(c)
Other includes parent company and consolidation adjustments.

Results of Operations
Net income and earnings per share for the three and six months ended June 30, 2016 and 2015 were as follows:

  
For the Three Months Ended June 30,
For the Six Months Ended June 30,
 
2016
2015
2016
2015
2016
2015
2016
2015
(Millions of Dollars, except per share amounts)
Net Income
Earnings
per Share
Net Income
Earnings
per Share
CECONY
$161
$211

$0.54


$0.72

$472
$559

$1.59


$1.91

O&R
2
(7)
0.01

(0.02
)
28
16
0.10

0.05

Competitive energy businesses (a)(b)
72
17
0.24

0.06

42
19
0.14

0.07

Con Edison Transmission
1



1



Other (c)
(4)
(2)
(0.01
)
(0.01
)
(1)
(5)

(0.02
)
Con Edison (d)
$232
$219

$0.78


$0.75

$542
$589

$1.83


$2.01

(a)
Includes $5 million or $0.02 of net loss related to the impairment of a solar electric production investment for the three and six months ended June 30, 2016 (see Note M to the Second Quarter Financial Statements). Also includes $58 million or $0.20 a share and $(9) million or $(0.03) a share of net after-tax mark-to-market gains/(losses) for the three months ended June 30, 2016 and 2015, respectively, and $20 million or $0.07 a share and $(5) million or $(0.02) a share of net after-tax mark-to-market gains/(losses) for the six months ended June 30, 2016 and 2015, respectively.
(b)
Includes $60 million or $0.20 a share and $8 million or $0.03 a share of net income for the three months ended June 30, 2016 and 2015, respectively, and $28 million or $0.09 a share and $3 million or $0.01 a share of net income for the six months ended June 30, 2016 and 2015, respectively related to the retail electric supply business. See Note P to the Second Quarter Financial Statements. These amounts reflect net after-tax mark-to-market gains/(losses) of $58 million or $0.19 a share and $(10) million or $(0.03) a share for the three months ended June 30, 2016 and 2015, respectively and $21 million or $0.07 a share and $(3) million or $(0.01) a share for the six months ended June 30, 2016 and 2015, respectively.
(c)
Other includes parent company and consolidation adjustments.
(d)
Earnings per share on a diluted basis were $0.77 a share and $0.74 a share for the three months ended June 30, 2016 and 2015, respectively, and $1.82 a share and $2.01 a share for the six months ended June 30, 2016 and 2015, respectively.

The Companies’ results of operations for the three and six months ended June 30, 2016, as compared with the 2015 periods, reflect the impact of warmer than normal weather on steam revenues, changes in regulatory charges, and higher operations and maintenance expenses for emergency response, municipal infrastructure support, and stock-based compensation. In the six month period, these expenses were offset by lower surcharges for assessments and fees that are collected in revenues from customers at CECONY. In addition, the Utilities' rate plans provide for revenues to cover expected changes in certain operating costs including depreciation, property taxes and other tax matters. The results of operations also include the impairment of a solar electric production investment and the impact of the net mark-to-market effects of the competitive energy businesses.



44

Table of Contents

The following table presents the estimated effect on earnings per share and net income for the three and six months ended June 30, 2016 period as compared with 2015 periods, resulting from these and other major factors:

 
Three Months Variation
Six Months Variation
(Millions of Dollars, except per share amounts)
Earnings
per Share
Variation
Net Income 
Variation
Earnings
per Share
Variation
Net Income 
Variation
CECONY (a)
 
 
 
 
Changes in rate plans
$0.02
$5
$0.08
$24
Weather impact on steam revenues

(1)
(0.12)
(36)
Other operations and maintenance expenses
(0.03)
(8)
0.02
5
Depreciation, property taxes and other tax matters (b)
(0.14)
(40)
(0.25)
(72)
Other (includes dilutive effect of Con Edison's stock issuances)
(0.03)
(6)
(0.05)
(8)
Total CECONY
(0.18)
(50)
(0.32)
(87)
O&R (a)
 
 
 
 
Changes in rate plans
(0.01)
(2)

1
Other operations and maintenance expenses
0.03
7
0.06
14
Depreciation and property taxes
(0.01)
(2)
(0.02)
(5)
Other
0.02
6
0.01
2
Total O&R
0.03
9
0.05
12
Competitive energy businesses
 
 
 
 
Operating revenues less energy costs
0.24
70
0.16
48
Other operations and maintenance expenses
(0.04)
(10)
(0.05)
(14)
Other
(0.02)
(5)
(0.04)
(11)
Total competitive energy businesses (c)
0.18
55
0.07
23
Con Edison Transmission

1

1
Other, including parent company expenses

(2)
0.02
4
Total variations
$0.03
$13
$(0.18)
$(47)
(a)
Under the revenue decoupling mechanisms in the Utilities’ New York electric and gas rate plans and the weather-normalization clause applicable to their gas businesses, revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved. In general, the Utilities recover on a current basis the fuel, gas purchased for resale and purchased power costs they incur in supplying energy to their full-service customers. Accordingly, such costs do not generally affect the Companies’ results of operations.
(b)
These variations include $12 million or $0.04 a share and $21 million or $0.07 a share related to lower plant related flow-through tax deductions, offset in part by certain tax credits for the three and six months ended June 30, 2016, respectively.
(c)
These variations include the impairment of a solar electric production investment and net mark-to-market effects shown in notes (a) and (b) in the Results of Operations table above.

The Companies’ other operations and maintenance expenses for the three and six months ended June 30, 2016 and 2015 were as follows:

 
For the Three Months Ended June 30,
For the Six Months Ended June 30,
(Millions of Dollars)
2016
2015
2016
2015
CECONY
 
 
 
 
Operations
$369
$348
$728
$690
Pensions and other postretirement benefits
87
91
174
182
Health care and other benefits
42
38
78
78
Regulatory fees and assessments (a)
109
126
216
280
Other
94
84
185
160
Total CECONY
701
687
1,381
1,390
O&R
73
85
143
167
Competitive energy businesses
47
31
84
61
Con Edison Transmission
1

1

Other (b)
(2)
(1)
(2)
(2)
Total other operations and maintenance expenses
$820
$802
$1,607
$1,616
(a)
Includes Demand Side Management, System Benefit Charges and Public Service Law 18A assessments which are collected in revenues.
(b)
Includes parent company and consolidation adjustments.



45

Table of Contents

Con Edison’s principal business segments are CECONY’s regulated utility activities, O&R’s regulated utility activities, Con Edison’s competitive energy businesses and Con Edison Transmission. 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 and six months ended June 30, 2016 and 2015 follows. For additional business segment financial information, see Note J to the Second Quarter Financial Statements.




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Table of Contents

Three Months Ended June 30, 2016 Compared with Three Months Ended June 30, 2015
The Companies’ results of operations in 2016 compared with 2015 were:

  
CECONY
O&R
Competitive Energy Businesses
Con Edison
Transmission
Other (a)
Con Edison (b)
(Millions of Dollars)
Increases
(Decreases)
Amount
Increases
(Decreases)
Percent
Increases
(Decreases)
Amount
Increases
(Decreases)
Percent
Increases
(Decreases)
Amount
Increases
(Decreases)
Percent
Increases
(Decreases)
Amount
Increases
(Decreases)
Percent
Increases
(Decreases)
Amount
Increases
(Decreases)
Percent
Increases
(Decreases)
Amount
Increases
(Decreases)
Percent
Operating revenues
$(2)
(0.1
)%
$(3)
(1.7
)%
$10
3.0
%

$—

%
$1
Large

$6
0.2
%
Purchased power
11
3.1

(9)
(16.7
)
(104)
(41.9
)



%
(102)
(15.5
)
Fuel
2
6.5









2
6.5

Gas purchased for resale
(3)
(5.6
)
(1)
(11.1
)
(3)
(11.5
)


(1)

(8)
(9.0
)
Other operations and maintenance
14
2.0

(12)
(14.1
)
16
51.6

1

(1)
Large

18
2.2

Depreciation and amortization
21
8.3



4
66.7



1
Large

26
9.4

Taxes, other than income taxes
21
4.8

4
26.7

1
25.0



1

27
5.9

Operating income
(68)
(14.8
)
15
Large

96
Large

(1)

1
Large

43
9.1

Other income less deductions
4
Large



(5)
(41.7
)
3

(1)

1
10.0

Net interest expense
3
2.1



7
Large

1

(3)
(50.0
)
8
4.9

Income before income tax expense
(67)
(21.5
)
15
Large

84
Large

1

3
60.0

36
11.3

Income tax expense
(17)
(16.8
)
6
Large

29
Large



5
Large

23
22.8

Net income
$(50)
(23.7
)%
$9
Large

$55
Large

$1
%
$(2)
Large

$13
5.9
%
(a)
Includes parent company and consolidation adjustments.
(b)
Represents the consolidated financial results of Con Edison and its businesses.



47

Table of Contents

CECONY

  
For the Three Months Ended
June 30, 2016
  
For the Three Months Ended
June 30, 2015
  
  
(Millions of Dollars)
Electric
Gas
Steam
2016 Total
Electric
Gas
Steam
2015 Total
2016-2015
Variation
Operating revenues
$1,892
$304
$85
$2,281
$1,879
$308
$96
$2,283
$(2)
Purchased power
364

5
369
350

8
358
11
Fuel
22

11
33
15

16
31
2
Gas purchased for resale

51

51

54

54
(3)
Other operations and maintenance
552
101
48
701
535
107
45
687
14
Depreciation and amortization
215
39
21
275
201
35
18
254
21
Taxes, other than income taxes
368
65
27
460
356
58
25
439
21
Operating income
$371
$48
$(27)
$392
$422
$54
$(16)
$460
$(68)

Electric
CECONY’s results of electric operations for the three months ended June 30, 2016 compared with the 2015 period is as follows:
 
  
For the Three Months Ended
  
(Millions of Dollars)
June 30, 2016
June 30, 2015
Variation
Operating revenues
$1,892
$1,879
$13
Purchased power
364
350
14
Fuel
22
15
7
Other operations and maintenance
552
535
17
Depreciation and amortization
215
201
14
Taxes, other than income taxes
368
356
12
Electric operating income
$371
$422
$(51)

CECONY’s electric sales and deliveries for the three months ended June 30, 2016 compared with the 2015 period were:

  
Millions of kWh Delivered
 
Revenues in Millions (a)
  
For the Three Months Ended
  
 
For the Three Months Ended
  
Description
June 30, 2016
June 30, 2015
Variation
Percent
Variation
 
June 30, 2016
June 30, 2015
Variation
Percent
Variation
Residential/Religious (b)
2,141

2,207

(66
)
(3.0
)%
 
$549
$578
$(29)
(5.0
)%
Commercial/Industrial
2,180

2,246

(66
)
(2.9
)
 
415
448
(33)
(7.4
)
Retail choice customers
6,056

6,116

(60
)
(1.0
)
 
601
618
(17)
(2.8
)
NYPA, Municipal Agency and other sales
2,377

2,374

3

0.1

 
139
141
(2)
(1.4
)
Other operating revenues (c)




 
188
94
94
Large

Total
12,754

12,943

(189
)
(1.5
)%
(d)
$1,892
$1,879
$13
0.7
%
(a)
Revenues from electric sales are subject to a revenue decoupling mechanism, as a result of which delivery revenues generally are not affected by changes in delivery volumes from levels assumed when rates were approved.
(b)
“Residential/Religious” generally includes single-family dwellings, individual apartments in multi-family dwellings, religious organizations and certain other not-for-profit organizations.
(c)
Other electric operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the revenue decoupling mechanism and other provisions of the company’s rate plans.
(d)
After adjusting for variations, principally weather and billing days, electric delivery volumes in CECONY’s service area decreased 0.2 percent in the three months ended June 30, 2016 compared with the 2015 period.



48

Table of Contents

Operating revenues increased $13 million in the three months ended June 30, 2016 compared with the 2015 period due primarily to higher purchased power costs.

Purchased power expenses increased $14 million in the three months ended June 30, 2016 compared with the 2015 period due to higher unit costs ($62 million), offset by lower purchased volumes ($48 million).

Fuel expenses increased $7 million in the three months ended June 30, 2016 compared with the 2015 period due to higher unit costs ($5 million) and higher sendout volumes from the company’s electric generating facilities ($2 million).

Other operations and maintenance expenses increased $17 million in the three months ended June 30, 2016 compared with the 2015 period due primarily to higher costs for emergency response ($14 million), stock-based compensation ($6 million) and municipal infrastructure support ($5 million), offset in part by a decrease in the surcharges for assessments and fees that are collected in revenues from customers ($10 million).

Depreciation and amortization increased $14 million in the three months ended June 30, 2016 compared with the 2015 period due primarily to higher electric utility plant balances.

Taxes, other than income taxes increased $12 million in the three months ended June 30, 2016 compared with the 2015 period principally due to higher property taxes ($17 million), offset in part by lower state and local taxes ($3 million) and a favorable state audit settlement ($2 million).

Gas
CECONY’s results of gas operations for the three months ended June 30, 2016 compared with the 2015 period is as follows:

  
For the Three Months Ended
  
(Millions of Dollars)
June 30, 2016
June 30, 2015
Variation
Operating revenues
$304
$308
$(4)
Gas purchased for resale
51
54
(3)
Other operations and maintenance
101
107
(6)
Depreciation and amortization
39
35
4
Taxes, other than income taxes
65
58
7
Gas operating income
$48
$54
$(6)

CECONY’s gas sales and deliveries, excluding off-system sales, for the three months ended June 30, 2016 compared with the 2015 period were:

  
Thousands of Dt Delivered
 
Revenues in Millions (a)
  
For the Three Months Ended
  
 
For the Three Months Ended
  
Description
June 30, 2016
June 30, 2015
Variation
Percent
Variation
 
June 30, 2016
June 30, 2015
Variation
Percent
Variation
Residential
9,692

9,048

644

7.1
%
 
$140
$146
$(6)
(4.1
)%
General
6,014

6,125

(111
)
(1.8
)
 
56
57
(1)
(1.8
)
Firm transportation
14,409

14,640

(231
)
(1.6
)
 
88
97
(9)
(9.3
)
Total firm sales and transportation
30,115

29,813

302

1.0

(b)
284
300
(16)
(5.3
)
Interruptible sales (c)
1,815

1,321

494

37.4

 
5
11
(6)
(54.5
)
NYPA
11,062

10,035

1,027

10.2

 
1
1


Generation plants
22,879

19,217

3,662

19.1

 
6
7
(1)
(14.3
)
Other
4,682

4,116

566

13.8

 
8
7
1
14.3

Other operating revenues (d)




 

(18)
18
Large

Total
70,553

64,502

6,051

9.4
%
 
$304
$308
$(4)
(1.3
)%
(a)
Revenues from gas sales are subject to a weather normalization clause and a revenue decoupling mechanism as a result of which delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved.


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(b)
After adjusting for variations, principally billing days, firm gas sales and transportation volumes in the company’s service area increased 3.0 percent in the three months ended June 30, 2016 compared with the 2015 period, reflecting primarily increased volumes attributable to additional customers that have converted from oil-to-gas as heating fuel for their buildings.
(c)
Includes 915 thousands of Dt for the 2016 period, which is also reflected in firm transportation and other.
(d)
Other gas operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s rate plans.

Operating revenues decreased $4 million in the three months ended June 30, 2016 compared with the 2015 period due primarily to lower gas purchased for resale expense.

Gas purchased for resale decreased $3 million in the three months ended June 30, 2016 compared with the 2015 period due to lower unit costs ($32 million), offset by higher sendout volumes ($29 million).

Other operations and maintenance expenses decreased $6 million in the three months ended June 30, 2016 compared with the 2015 period due primarily to a decrease in the surcharges for assessments and fees that are collected in revenues from customers.

Depreciation and amortization increased $4 million in the three months ended June 30, 2016 compared with the 2015 period due primarily to higher gas utility plant balances.

Taxes, other than income taxes increased $7 million in the three months ended June 30, 2016 compared with the 2015 period principally due to higher property taxes.

Steam
CECONY’s results of steam operations for the three months ended June 30, 2016 compared with the 2015 period is as follows:

  
For the Three Months Ended
  
(Millions of Dollars)
June 30, 2016
June 30, 2015
Variation
Operating revenues
$85
$96
$(11)
Purchased power
5
8
(3)
Fuel
11
16
(5)
Other operations and maintenance
48
45
3
Depreciation and amortization
21
18
3
Taxes, other than income taxes
27
25
2
Steam operating income
$(27)
$(16)
$(11)

CECONY’s steam sales and deliveries for the three months ended June 30, 2016 compared with the 2015 period were:

  
Millions of Pounds Delivered
 
Revenues in Millions
  
For the Three Months Ended
  
 
For the Three Months Ended
  
Description
June 30, 2016
June 30, 2015
Variation
Percent
Variation
 
June 30, 2016
June 30, 2015
Variation
Percent
Variation
General
68

68


%
 
$4
$4

$—

%
Apartment house
1,094

1,121

(27
)
(2.4
)
 
26
29
(3)
(10.3
)
Annual power
2,511

2,607

(96
)
(3.7
)
 
62
71
(9)
(12.7
)
Other operating revenues (a)




 
(7)
(8)
1
12.5

Total
3,673

3,796

(123
)
(3.2
)%
(b)
$85
$96
$(11)
(11.5
)%
(a)
Other steam operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s rate plan.
(b)
After adjusting for variations, principally weather and billing days, steam sales and deliveries decreased 0.8 percent in three months ended June 30, 2016 compared with the 2015 period.

Operating revenues decreased $11 million in the three months ended June 30, 2016 compared with the 2015 period due primarily to lower fuel expenses ($5 million), purchased power costs ($3 million), the weather impact on revenues ($2 million) and lower revenues from the steam rate plan ($1 million).



50

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Purchased power expenses decreased $3 million in the three months ended June 30, 2016 compared with the 2015 period due to lower unit costs ($5 million), offset by higher purchased volumes ($2 million).

Fuel expenses decreased $5 million in the three months ended June 30, 2016 compared with the 2015 period due to lower unit costs ($9 million), offset by higher sendout volumes from the company’s steam generating facilities ($4 million).

Other operations and maintenance expenses increased $3 million in the three months ended June 30, 2016 compared with the 2015 period due primarily to higher costs for municipal infrastructure support.

Depreciation and amortization increased $3 million in the three months ended June 30, 2016 compared with the 2015 period due primarily to higher steam utility plant balances.

Taxes, other than income taxes increased $2 million in the three months ended June 30, 2016 compared with the 2015 period principally due to higher property taxes.

Income Tax Expense
Income taxes decreased $17 million in the three months ended June 30, 2016 compared with the 2015 period due primarily to lower income before income tax expense ($27 million) and higher settlement payments related to injuries and damages ($2 million), offset in part by plant-related flow through items ($12 million).

O&R

  
For the Three Months Ended
June 30, 2016
 
For the Three Months Ended
June 30, 2015
 
  
(Millions of Dollars)
Electric
Gas
2016 Total
Electric
Gas
2015 Total
2016-2015
Variation
Operating revenues
$144
$31
$175
$162
$16
$178
$(3)
Purchased power
45

45
54

54
(9)
Gas purchased for resale

8
8

9
9
(1)
Other operations and maintenance
60
13
73
68
17
85
(12)
Depreciation and amortization
13
4
17
13
4
17

Taxes, other than income taxes
12
7
19
11
4
15
4
Operating income
$14
$(1)
$13
$16
$(18)
$(2)
$15

Electric
O&R’s results of electric operations for the three months ended June 30, 2016 compared with the 2015 period is as follows:

  
For the Three Months Ended
  
(Millions of Dollars)
June 30, 2016
June 30, 2015
Variation
Operating revenues
$144
$162
$(18)
Purchased power
45
54
(9)
Other operations and maintenance
60
68
(8)
Depreciation and amortization
13
13

Taxes, other than income taxes
12
11
1
Electric operating income
$14
$16
$(2)



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Table of Contents

O&R’s electric sales and deliveries for the three months ended June 30, 2016 compared with the 2015 period were:

  
Millions of kWh Delivered
 
Revenues in Millions (a)
  
For the Three Months Ended
  
 
For the Three Months Ended
  
Description
June 30, 2016
June 30, 2015
Variation
Percent
Variation
 
June 30, 2016
June 30, 2015
Variation
Percent
Variation
Residential/Religious (b)
366

364

2

0.5
%
 
$66
$74
$(8)
(10.8
)%
Commercial/Industrial
197

195

2

1.0

 
28
33
(5)
(15.2
)
Retail choice customers
768

784

(16
)
(2.0
)
 
50
50


Public authorities
23

25

(2
)
(8.0
)
 
2
2


Other operating revenues (c)




 
(2)
3
(5)
Large

Total
1,354

1,368

(14
)
(1.0
)%
(d)
$144
$162
$(18)
(11.1
)%
(a)
O&R’s New York electric delivery revenues are subject to a revenue decoupling mechanism, as a result of which delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved. O&R’s electric sales in New Jersey and Pennsylvania are not subject to a decoupling mechanism, and as a result, changes in such volumes do impact revenues.
(b)
“Residential/Religious” generally includes single-family dwellings, individual apartments in multi-family dwellings, religious organizations and certain other not-for-profit organizations.
(c)
Other electric operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s electric rate plans.
(d)
After adjusting for weather and other variations, electric delivery volumes in O&R’s service area decreased 2.0 percent in the three months ended June 30, 2016 compared with the 2015 period.

Operating revenues decreased $18 million in the three months ended June 30, 2016 compared with the 2015 period due primarily to lower purchased power costs ($9 million) and revenues from the electric rate plans ($6 million).

Purchased power expenses decreased $9 million in the three months ended June 30, 2016 compared with the 2015 period due to lower unit costs ($10 million), offset by an increase in purchased volumes ($1 million).

Other operations and maintenance expenses decreased $8 million in the three months ended June 30, 2016 compared with the 2015 period due primarily to lower pension costs ($3 million), tree trimming costs ($2 million) and surcharges for assessments and fees that are collected in revenues from customers ($1 million).

Taxes, other than income taxes increased $1 million in the three months ended June 30, 2016 compared with the 2015 period principally due to higher property taxes.

Gas
O&R’s results of gas operations for the three months ended June 30, 2016 compared with the 2015 period is as follows:

  
For the Three Months Ended
  
(Millions of Dollars)
June 30, 2016
June 30, 2015
Variation
Operating revenues
$31
$16
$15
Gas purchased for resale
8
9
(1)
Other operations and maintenance
13
17
(4)
Depreciation and amortization
4
4

Taxes, other than income taxes
7
4
3
Gas operating income
$(1)
$(18)
$17



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Table of Contents

O&R’s gas sales and deliveries, excluding off-system sales, for the three months ended June 30, 2016 compared with the 2015 period were:

  
Thousands of Dt Delivered
 
Revenues in Millions (a)
  
For the Three Months Ended
  
 
For the Three Months Ended
  
Description
June 30, 2016
June 30, 2015
Variation
Percent
Variation
 
June 30, 2016
June 30, 2015
Variation
Percent
Variation
Residential
1,150

929

221

23.8
%
 
$12
$12

$—

%
General
281

207

74

35.7

 
1
2
(1)
(50.0
)
Firm transportation
1,722

1,668

54

3.2

 
12
12


Total firm sales and transportation
3,153

2,804

349

12.4

(b)
25
26
(1)
(3.8
)
Interruptible sales
946

1,048

(102
)
(9.7
)
 
1
1


Generation plants
11

1

10

Large

 




Other
132

119

13

10.9

 




Other gas revenues




 
5
(11)
16
Large

Total
4,242

3,972

270

6.8
%
 
$31
$16
$15
93.8
%
(a)
Revenues from New York gas sales are subject to a weather normalization clause and a revenue decoupling mechanism as a result of which delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved.
(b)
After adjusting for weather and other variations, total firm sales and transportation volumes decreased 1.5 percent in the three months ended June 30, 2016 compared with 2015 period.

Operating revenues increased $15 million in the three months ended June 30, 2016 compared with the 2015 period due primarily to the charge-off of certain regulatory assets in 2015 ($14 million) and higher revenues from the New York gas rate plan ($3 million), offset in part by decrease in gas purchased for resale ($1 million).

Gas purchased for resale decreased $1 million in the three months ended June 30, 2016 compared with the 2015 period due to a decrease in unit costs ($3 million), offset by an increase in purchased volumes ($2 million).

Other operations and maintenance expenses decreased $4 million in the three months ended June 30, 2016 compared with the 2015 period due primarily to lower pension costs ($3 million) and surcharges for assessments and fees that are collected in revenues from customers ($1 million).

Taxes, other than income taxes increased $3 million in the three months ended June 30, 2016 compared with the 2015 period principally due to higher property taxes.

Income Tax Expense
Income taxes increased $6 million in the three months ended June 30, 2016 compared with the 2015 period due primarily to higher income before income tax expense ($6 million) and plant-related flow through items ($1 million), offset in part by lower reimbursement of insurance claims ($1 million).

Competitive Energy Businesses
The competitive energy businesses’ results of operations for the three months ended June 30, 2016 compared with the 2015 period is as follows:

  
For the Three Months Ended
  
(Millions of Dollars)
June 30, 2016
June 30, 2015
Variation
Operating revenues
$338
$328
$10
Purchased power
144
248
(104)
Gas purchased for resale
23
26
(3)
Other operations and maintenance
47
31
16
Depreciation and amortization
10
6
4
Taxes, other than income taxes
5
4
1
Operating income
$109
$13
$96



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Table of Contents

Operating revenues increased $10 million in the three months ended June 30, 2016 compared with the 2015 period, due primarily to higher energy services and solar revenues. Energy services revenues increased $15 million. Solar revenues increased $14 million primarily due to an increase in solar electric production projects in operation. Electric retail revenues decreased $11 million due to lower unit prices ($26 million), offset by higher sales volume ($15 million). Wholesale revenues decreased $6 million due to lower sales volumes. Net mark-to-market values increased $112 million, of which $114 million in gains are reflected in purchased power costs and $2 million in losses are reflected in revenues.

Purchased power expenses decreased $104 million in the three months ended June 30, 2016 compared with the 2015 period due primarily to changes in mark-to-market gains ($114 million), offset by higher volumes ($10 million).

Gas purchased for resale decreased $3 million in the three months ended June 30, 2016 compared with the 2015 period due to lower purchased volumes.

Other operations and maintenance expenses increased $16 million in the three months ended June 30, 2016 compared with the 2015 period due primarily to an increase in energy services costs.

Depreciation and amortization increased $4 million in the three months ended June 30, 2016 compared with the 2015 period due an increase in solar electric production projects in operation during 2016.

Other Income (Deductions)
Other income (deductions) decreased $5 million in the three months ended June 30, 2016 compared with the 2015 period due primarily to the impairment of a solar electric production investment. See Note M to the Second Quarter Financial Statements.

Net Interest Expense
Net interest expense increased $7 million in the three months ended June 30, 2016 compared with the 2015 period due primarily to increased debt on solar projects.

Income Tax Expense
Income taxes increased $29 million in the three months ended June 30, 2016 compared with the 2015 period due primarily to higher income before income tax expense ($34 million), offset in part by higher renewable energy tax credits ($3 million).

Con Edison Transmission
Other Income (Deductions)
Other income (deductions) increased $3 million in the three months ended June 30, 2016 compared with the 2015 period due primarily to earnings from the equity investments in 2016.

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




54

Table of Contents

Six Months Ended June 30, 2016 Compared with Six Months Ended June 30, 2015
The Companies’ results of operations in 2016 compared with 2015 were:

  
CECONY
O&R
Competitive Energy
Businesses
Con Edison
Transmission
Other (a)
Con Edison (b)
(Millions of Dollars)
Increases
(Decreases)
Amount
Increases
(Decreases)
Percent
Increases
(Decreases)
Amount
Increases
(Decreases)
Percent
Increases
(Decreases)
Amount
Increases
(Decreases)
Percent
Increases
(Decreases)
Amount
Increases
(Decreases)
Percent
Increases
(Decreases)
Amount
Increases
(Decreases)
Percent
Increases
(Decreases)
Amount
Increases
(Decreases)
Percent
Operating revenues
$(379)
(7.2
)%
$(21)
(5.1
)%
$(54)
(7.7
)%

$—

%

$—

%
$(454)
(7.1
)%
Purchased power
(176)
(19.6
)
(20)
(19.0
)
(99)
(18.3
)




(295)
(19.1
)
Fuel
(81)
(43.8
)








(81)
(43.8
)
Gas purchased for resale
(69)
(27.4
)
(8)
(25.8
)
(35)
(51.5
)




(112)
(31.9
)
Other operations and maintenance
(9)
(0.6
)
(24)
(14.4
)
23
37.7

1



(9)
(0.6
)
Depreciation and amortization
36
7.0

(1)
(2.9
)
8
72.7



1

44
7.9

Taxes, other than income taxes
30
3.3

9
29.0

1
10.0





40
4.2

Operating income
(110)
(9.6
)
23
53.5

48
Large

(1)

(1)
(50.0
)
(41)
(3.4
)
Other income less deductions
1
Large

(1)
Large

(6)
(40.0
)
3

1
Large

(2)
(14.3
)
Net interest expense
7
2.4

1
5.6

13
Large

1

(6)
(50.0
)
16
5.0

Income before income tax expense
(116)
(13.6
)
21
80.8

29
Large

1

6
54.5

(59)
(6.6
)
Income tax expense
(29)
(9.9
)
9
90.0

6
Large



2
33.3

(12)
(4.0
)
Net income
$(87)
(15.6
)%
$12
75.0
%
$23
Large

$1
%
$4
80.0
%
$(47)
(8.0
)%
(a)
Includes parent company and consolidation adjustments.
(b)
Represents the consolidated financial results of Con Edison and its businesses.



55

Table of Contents

CECONY

  
For the Six Months Ended
June 30, 2016
  
For the Six Months Ended
June 30, 2015
  
  
(Millions of Dollars)
Electric
Gas
Steam
2016 Total
Electric
Gas
Steam
2015 Total
2016-2015
Variation
Operating revenues
$3,665
$905
$343
$4,913
$3,858
$963
$471
$5,292
$(379)
Purchased power
705

16
721
876

21
897
(176)
Fuel
60

44
104
72

113
185
(81)
Gas purchased for resale

183

183

252

252
(69)
Other operations and maintenance
1,081
204
96
1,381
1,079
217
94
1,390
(9)
Depreciation and amortization
428
78
41
547
403
70
38
511
36
Taxes, other than income taxes
746
139
59
944
728
130
56
914
30
Operating income
$645
$301
$87
$1,033
$700
$294
$149
$1,143
$(110)

Electric
CECONY’s results of electric operations for the six months ended June 30, 2016 compared with the 2015 period is as follows:
 
  
For the Six Months Ended
  
(Millions of Dollars)
June 30, 2016
June 30, 2015
Variation
Operating revenues
$3,665
$3,858
$(193)
Purchased power
705
876
(171)
Fuel
60
72
(12)
Other operations and maintenance
1,081
1,079
2
Depreciation and amortization
428
403
25
Taxes, other than income taxes
746
728
18
Electric operating income
$645
$700
$(55)

CECONY’s electric sales and deliveries for the six months ended June 30, 2016 compared with the 2015 period were:

  
Millions of kWh Delivered
 
Revenues in Millions (a)
  
For the Six Months Ended
  
 
For the Six Months Ended
  
Description
June 30, 2016
June 30, 2015
Variation
Percent
Variation
 
June 30, 2016
June 30, 2015
Variation
Percent
Variation
Residential/Religious (b)
4,476

4,671

(195
)
(4.2
)%
 
$1,134
$1,295
$(161)
(12.4
)%
Commercial/Industrial
4,471

4,683

(212
)
(4.5
)
 
830
975
(145)
(14.9
)
Retail choice customers
12,269

12,516

(247
)
(2.0
)
 
1,196
1,214
(18)
(1.5
)
NYPA, Municipal Agency and other sales
4,877

4,957

(80
)
(1.6
)
 
270
269
1
0.4

Other operating revenues (c)




 
235
105
130
Large

Total
26,093

26,827

(734
)
(2.7
)%
(d)
$3,665
$3,858
$(193)
(5.0
)%
(a)
Revenues from electric sales are subject to a revenue decoupling mechanism, as a result of which delivery revenues generally are not affected by changes in delivery volumes from levels assumed when rates were approved.
(b)
“Residential/Religious” generally includes single-family dwellings, individual apartments in multi-family dwellings, religious organizations and certain other not-for-profit organizations.
(c)
Other electric operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the revenue decoupling mechanism and other provisions of the company’s rate plans.
(d)
After adjusting for variations, principally weather and billing days, electric delivery volumes in CECONY’s service area increased 0.1 percent in the six months ended June 30, 2016 compared with the 2015 period.



56

Table of Contents

Operating revenues decreased $193 million in the six months ended June 30, 2016 compared with the 2015 period due primarily to lower purchased power costs ($171 million) and the changes in regulatory charges ($22 million).

Purchased power expenses decreased $171 million in the six months ended June 30, 2016 compared with the 2015 period due to lower unit costs ($623 million), offset by higher purchased volumes ($452 million).

Fuel expenses decreased $12 million in the six months ended June 30, 2016 compared with the 2015 period due to lower unit costs ($51 million), offset by higher sendout volumes from the company’s electric generating facilities ($39 million).

Other operations and maintenance expenses increased $2 million in the six months ended June 30, 2016 compared with the 2015 period due primarily to higher costs for stock-based compensation ($21 million), emergency response ($14 million) and municipal infrastructure support ($8 million), offset in part by a decrease in the surcharges for assessments and fees that are collected in revenues from customers ($40 million).

Depreciation and amortization increased $25 million in the six months ended June 30, 2016 compared with the 2015 period due primarily to higher electric utility plant balances.

Taxes, other than income taxes increased $18 million in the six months ended June 30, 2016 compared with the 2015 period principally due to higher property taxes ($34 million), offset in part by lower state and local taxes ($9 million), a favorable state audit settlement ($4 million) and lower sales and use tax reserve based on a favorable audit settlement ($3 million).

Gas
CECONY’s results of gas operations for the six months ended June 30, 2016 compared with the 2015 period is as follows:

  
For the Six Months Ended
  
(Millions of Dollars)
June 30, 2016
June 30, 2015
Variation
Operating revenues
$905
$963
$(58)
Gas purchased for resale
183
252
(69)
Other operations and maintenance
204
217
(13)
Depreciation and amortization
78
70
8
Taxes, other than income taxes
139
130
9
Gas operating income
$301
$294
$7



57

Table of Contents

CECONY’s gas sales and deliveries, excluding off-system sales, for the six months ended June 30, 2016 compared with the 2015 period were:

  
Thousands of Dt Delivered
 
Revenues in Millions (a)
  
For the Six Months Ended
  
 
For the Six Months Ended
  
Description
June 30, 2016
June 30, 2015
Variation
Percent
Variation
 
June 30, 2016
June 30, 2015
Variation
Percent
Variation
Residential
31,231

34,762

(3,531
)
(10.2
)%
 
$417
$449
$(32)
(7.1
)%
General
16,997

19,545

(2,548
)
(13.0
)
 
160
181
(21)
(11.6
)
Firm transportation
43,028

49,393

(6,365
)
(12.9
)
 
279
284
(5)
(1.8
)
Total firm sales and transportation
91,256

103,700

(12,444
)
(12.0
)
(b)
856
914
(58)
(6.3
)
Interruptible sales (c)
5,923

4,161

1,762

42.3

 
25
39
(14)
(35.9
)
NYPA
19,171

19,802

(631
)
(3.2
)
 
1
1


Generation plants
35,150

32,040

3,110

9.7

 
12
13
(1)
(7.7
)
Other
11,467

11,773

(306
)
(2.6
)
 
19
15
4
26.7

Other operating revenues (d)




 
(8)
(19)
11
(57.9
)
Total
162,967

171,476

(8,509
)
(5.0
)%
 
$905
$963
$(58)
(6.0
)%
(a)
Revenues from gas sales are subject to a weather normalization clause and a revenue decoupling mechanism as a result of which delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved.
(b)
After adjusting for variations, principally billing days, firm gas sales and transportation volumes in the company’s service area increased 3.5 percent in the six months ended June 30, 2016 compared with the 2015 period, reflecting primarily increased volumes attributable to additional customers that have converted from oil-to-gas as heating fuel for their buildings.
(c)
Includes 3,376 and 1,043 thousands of Dt for the 2016 and 2015 periods, which are also reflected in firm transportation and other.
(d)
Other gas operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s rate plans.

Operating revenues decreased $58 million in the six months ended June 30, 2016 compared with the 2015 period due primarily to lower gas purchased for resale expense ($69 million) and the changes in regulatory charges ($5 million), offset in part by higher revenues from the gas rate plan ($27 million) reflecting primarily higher delivery volumes attributable to oil-to-gas conversions.

Gas purchased for resale decreased $69 million in the six months ended June 30, 2016 compared with the 2015 period due to lower unit costs ($171 million), offset by higher sendout volumes ($102 million).

Other operations and maintenance expenses decreased $13 million in the six months ended June 30, 2016 compared with the 2015 period due primarily to a decrease in the surcharges for assessments and fees that are collected in revenues from customers ($17 million), offset in part by higher costs for stock-based compensation ($4 million).

Depreciation and amortization increased $8 million in the six months ended June 30, 2016 compared with the 2015 period due primarily to higher gas utility plant balances.

Taxes, other than income taxes increased $9 million in the six months ended June 30, 2016 compared with the 2015 period principally due to higher property taxes.



58

Table of Contents

Steam
CECONY’s results of steam operations for the six months ended June 30, 2016 compared with the 2015 period is as follows:

  
For the Six Months Ended
  
(Millions of Dollars)
June 30, 2016
June 30, 2015
Variation
Operating revenues
$343
$471
$(128)
Purchased power
16
21
(5)
Fuel
44
113
(69)
Other operations and maintenance
96
94
2
Depreciation and amortization
41
38
3
Taxes, other than income taxes
59
56
3
Steam operating income
$87
$149
$(62)

CECONY’s steam sales and deliveries for the six months ended June 30, 2016 compared with the 2015 period were:

  
Millions of Pounds Delivered
 
Revenues in Millions
  
For the Six Months Ended
  
 
For the Six Months Ended
  
Description
June 30, 2016
June 30, 2015
Variation
Percent
Variation
 
June 30, 2016
June 30, 2015
Variation
Percent
Variation
General
334

441

(107
)
(24.3
)%
 
$16
$22
$(6)
(27.3
)%
Apartment house
3,475

4,240

(765
)
(18.0
)
 
92
130
(38)
(29.2
)
Annual power
7,691

9,632

(1,941
)
(20.2
)
 
235
333
(98)
(29.4
)
Other operating revenues (a)




 

(14)
14
Large

Total
11,500

14,313

(2,813
)
(19.7
)%
(b)
$343
$471
$(128)
(27.2
)%
(a)
Other steam operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s rate plan.
(b)
After adjusting for variations, principally weather and billing days, steam sales and deliveries increased 0.4 percent in six months ended June 30, 2016 compared with the 2015 period.

Operating revenues decreased $128 million in the six months ended June 30, 2016 compared with the 2015 period due primarily to lower fuel expenses ($69 million), the weather impact on revenues ($60 million) and lower purchased power costs ($5 million), offset in part by higher revenues from the steam rate plan ($8 million).

Purchased power expenses decreased $5 million in the six months ended June 30, 2016 compared with the 2015 period due to lower unit costs ($15 million), offset by higher purchased volumes ($10 million).

Fuel expenses decreased $69 million in the six months ended June 30, 2016 compared with the 2015 period due to lower unit costs ($93 million), offset by higher sendout volumes from the company’s steam generating facilities ($24 million).

Other operations and maintenance expenses increased $2 million in the six months ended June 30, 2016 compared with the 2015 period due primarily to a higher costs for municipal infrastructure support ($5 million) and stock-based compensation ($2 million), offset in part by a decrease in the surcharges for assessments and fees that are collected in revenues from customers ($6 million).

Depreciation and amortization increased $3 million in the six months ended June 30, 2016 compared with the 2015 period due primarily to higher steam utility plant balances.

Taxes, other than income taxes increased $3 million in the six months ended June 30, 2016 compared with the 2015 period principally due to higher property taxes ($6 million), offset in part by lower state and local taxes ($3 million).



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Net Interest Expense
Net interest expense increased $7 million in the six months ended June 30, 2016 compared with the 2015 period due primarily higher long-term debt balances in the 2016 period.

Income Tax Expense
Income taxes decreased $29 million in the six months ended June 30, 2016 compared with the 2015 period due primarily to lower income before income tax expense ($46 million), a research and development credit ($9 million) and higher settlement payments related to injuries and damages ($3 million), offset in part by plant-related flow through items ($28 million) and an increase in uncertain tax positions ($2 million).

O&R

  
For the Six Months Ended
June 30, 2016
 
For the Six Months Ended
June 30, 2015
 
  
(Millions of Dollars)
Electric
Gas
2016 Total
Electric
Gas
2015 Total
2016-2015
Variation
Operating revenues
$284
$106
$390
$318
$93
$411
$(21)
Purchased power
85

85
105

105
(20)
Gas purchased for resale

23
23

31
31
(8)
Other operations and maintenance
117
26
143
132
35
167
(24)
Depreciation and amortization
24
9
33
25
9
34
(1)
Taxes, other than income taxes
26
14
40
22
9
31
9
Operating income
$32
$34
$66
$34
$9
$43
$23

Electric
O&R’s results of electric operations for the six months ended June 30, 2016 compared with the 2015 period is as follows:

  
For the Six Months Ended
  
(Millions of Dollars)
June 30, 2016
June 30, 2015
Variation
Operating revenues
$284
$318
$(34)
Purchased power
85
105
(20)
Other operations and maintenance
117
132
(15)
Depreciation and amortization
24
25
(1)
Taxes, other than income taxes
26
22
4
Electric operating income
$32
$34
$(2)



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O&R’s electric sales and deliveries for the six months ended June 30, 2016 compared with the 2015 period were:

  
Millions of kWh Delivered
 
Revenues in Millions (a)
  
For the Six Months Ended
  
 
For the Six Months Ended
  
Description
June 30, 2016
June 30, 2015
Variation
Percent
Variation
 
June 30, 2016
June 30, 2015
Variation
Percent
Variation
Residential/Religious (b)
722

745

(23
)
(3.1
)%
 
$131
$147
$(16)
(10.9
)%
Commercial/Industrial
391

391



 
54
63
(9)
(14.3
)
Retail choice customers
1,509

1,578

(69
)
(4.4
)
 
96
99
(3)
(3.0
)
Public authorities
45

50

(5
)
(10.0
)
 
4
5
(1)
(20.0
)
Other operating revenues (c)




 
(1)
4
(5)
Large

Total
2,667

2,764

(97
)
(3.5
)%
(d)
$284
$318
$(34)
(10.7
)%
(a)
O&R’s New York electric delivery revenues are subject to a revenue decoupling mechanism, as a result of which delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved. O&R’s electric sales in New Jersey and Pennsylvania are not subject to a decoupling mechanism, and as a result, changes in such volumes do impact revenues.
(b)
“Residential/Religious” generally includes single-family dwellings, individual apartments in multi-family dwellings, religious organizations and certain other not-for-profit organizations.
(c)
Other electric operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the company’s electric rate plans.
(d)
After adjusting for weather and other variations, electric delivery volumes in O&R’s service area decreased 1.2 percent in the six months ended June 30, 2016 compared with the 2015 period.

Operating revenues decreased $34 million in the six months ended June 30, 2016 compared with the 2015 period due primarily to lower purchased power costs ($20 million) and revenues from the electric rate plans ($8 million).

Purchased power expenses decreased $20 million in the six months ended June 30, 2016 compared with the 2015 period due to lower unit costs ($16 million) and purchased volumes ($4 million).

Other operations and maintenance expenses decreased $15 million in the six months ended June 30, 2016 compared with the 2015 period due primarily to lower pension costs ($6 million), surcharges for assessments and fees that are collected in revenues from customers ($4 million) and tree trimming costs ($3 million).

Taxes, other than income taxes increased $4 million in the six months ended June 30, 2016 compared with the 2015 period principally due to higher property taxes.

Gas
O&R’s results of gas operations for the six months ended June 30, 2016 compared with the 2015 period is as follows:

  
For the Six Months Ended
  
(Millions of Dollars)
June 30, 2016
June 30, 2015
Variation
Operating revenues
$106
$93
$13
Gas purchased for resale
23
31
(8)
Other operations and maintenance
26
35
(9)
Depreciation and amortization
9
9

Taxes, other than income taxes
14
9
5
Gas operating income
$34
$9
$25



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O&R’s gas sales and deliveries, excluding off-system sales, for the six months ended June 30, 2016 compared with the 2015 period were:

  
Thousands of Dt Delivered
 
Revenues in Millions (a)
  
For the Six Months Ended
  
 
For the Six Months Ended
  
Description
June 30, 2016
June 30, 2015
Variation
Percent
Variation
 
June 30, 2016
June 30, 2015
Variation
Percent
Variation
Residential
4,712

5,308

(596
)
(11.2
)%
 
$46
$48
$(2)
(4.2
)%
General
1,046

1,174

(128
)
(10.9
)
 
8
9
(1)
(11.1
)
Firm transportation
6,297

8,032

(1,735
)
(21.6
)
 
41
43
(2)
(4.7
)
Total firm sales and transportation
12,055

14,514

(2,459
)
(16.9
)
(b)
95
100
(5)
(5.0
)
Interruptible sales
2,125

2,300

(175
)
(7.6
)
 
2
2


Generation plants
12

15

(3
)
(20.0
)
 




Other
512

605

(93
)
(15.4
)
 




Other gas revenues




 
9
(9)
18
Large

Total
14,704

17,434

(2,730
)
(15.7
)%
 
$106
$93
$13
14.0
%
(a)
Revenues from New York gas sales are subject to a weather normalization clause and a revenue decoupling mechanism as a result of which delivery revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved.
(b)
After adjusting for weather and other variations, total firm sales and transportation volumes increased 2.7 percent in the six months ended June 30, 2016 compared with 2015 period.

Operating revenues increased $13 million in the six months ended June 30, 2016 compared with the 2015 period due primarily to the charge-off of certain regulatory assets in 2015 ($14 million) and higher revenues from the New York gas rate plan ($10 million), offset in part by a decrease in gas purchased for resale ($8 million).

Gas purchased for resale decreased $8 million in the six months ended June 30, 2016 compared with the 2015 period due to a decrease in purchased volumes ($9 million), offset by an increase in unit costs ($1 million).

Other operations and maintenance expenses decreased $9 million in the six months ended June 30, 2016 compared with the 2015 period due primarily to lower pension costs ($7 million) and surcharges for assessments and fees that are collected in revenues from customers ($2 million).

Taxes, other than income taxes increased $5 million in the six months ended June 30, 2016 compared with the 2015 period principally due to higher property taxes.

Income Tax Expense
Income taxes increased $9 million in the six months ended June 30, 2016 compared with the 2015 period due primarily to higher income before income tax expense ($8 million) and plant-related flow through items ($2 million), offset in part by lower reimbursement in insurance claims ($1 million).

Competitive Energy Businesses
The competitive energy businesses’ results of operations for the six months ended June 30, 2016 compared with the 2015 period is as follows:

  
For the Six Months Ended
  
(Millions of Dollars)
June 30, 2016
June 30, 2015
Variation
Operating revenues
$648
$702
$(54)
Purchased power
443
542
(99)
Gas purchased for resale
33
68
(35)
Other operations and maintenance
84
61
23
Depreciation and amortization
19
11
8
Taxes, other than income taxes
11
10
1
Operating income
$58
$10
$48



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Operating revenues decreased $54 million in the six months ended June 30, 2016 compared with the 2015 period, due primarily to lower electric retail revenues and wholesale revenues. Electric retail revenues decreased $65 million due to lower unit prices ($85 million), offset by higher sales volume ($20 million). Wholesale revenues decreased $36 million due to lower sales volumes. Solar revenues increased $24 million primarily due to an increase in solar electric production projects in operation. Energy services revenues increased $22 million. Net mark-to-market values increased $41 million, of which $40 million in gains are reflected in purchased power costs and $1 million in gains are reflected in revenues.

Purchased power expenses decreased $99 million in the six months ended June 30, 2016 compared with the 2015 period due primarily to changes in mark-to-market gains ($40 million) and lower unit prices ($67 million), offset by higher volumes ($8 million).

Gas purchased for resale decreased $35 million in the six months ended June 30, 2016 compared with the 2015 period due to lower purchased volumes.

Other operations and maintenance expenses increased $23 million in the six months ended June 30, 2016 compared with the 2015 period due primarily to an increase in energy services costs.

Depreciation and amortization increased $8 million in the six months ended June 30, 2016 compared with the 2015 period due an increase in solar electric production projects in operation during 2016.

Other Income (Deductions)
Other income (deductions) decreased $6 million in the three months ended June 30, 2016 compared with the 2015 period due primarily to the impairment of a solar electric production investment. See Note M to the Second Quarter Financial Statements.

Net Interest Expense
Net interest expense increased $13 million in the six months ended June 30, 2016 compared with the 2015 period due primarily to increased debt on solar projects.

Income Tax Expense
Income taxes increased $6 million in the six months ended June 30, 2016 compared with the 2015 period due primarily to higher income before income tax expense ($12 million), offset in part by higher renewable energy tax credits ($5 million).

Con Edison Transmission
Other Income (Deductions)
Other income (deductions) increased $3 million in the six months ended June 30, 2016 compared with the 2015 period due primarily to earnings from the equity investments in 2016.

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

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

Changes in the Companies’ cash and temporary cash investments resulting from operating, investing and financing activities for the six months ended June 30, 2016 and 2015 are summarized as follows:



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For the Six Months Ended June 30,
  
Con Edison
CECONY
(Millions of Dollars)
2016
2015
Variation
2016
2015
Variation
Operating activities
$1,631
$1,486
$145
$1,399
$1,202
$197
Investing activities
(2,986)
(1,725)
(1,261)
(1,225)
(1,209)
(16)
Financing activities
1,273
249
1,024
(202)
28
(230)
Net change for the period
(82)
10
(92)
(28)
21
(49)
Balance at beginning of period
944
699
245
843
645
198
Balance at end of period
$862
$709
$153
$815
$666
$149
 
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 six months ended June 30, 2016 for Con Edison and CECONY were $145 million and $197 million higher, respectively, than in the 2015 period. The change in net cash flows for Con Edison and CECONY reflects primarily the income taxes paid, net of refunds received in the 2016 period as compared with the 2015 period. The amount and timing of income tax payments and refunds reflect, among other things, the extension of bonus depreciation tax provisions.

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 $1,261 million and $16 million higher, respectively, for the six months ended June 30, 2016 compared with the 2015 period. The change for Con Edison reflects primarily increased investments in/acquisitions of renewable electric production and electric and gas transmission projects ($998 million), increased utility construction expenditures in 2016 ($170 million) and increased non-utility construction expenditures related to development of renewable electric production projects ($153 million). In addition, the change for CECONY reflects primarily increased utility construction expenditures in 2016 ($160 million), offset in part by the proceeds from the transfer of assets to NY Transco ($122 million).

Cash Flows From/(Used In) Financing Activities
Net cash flows from financing activities for Con Edison and CECONY were $1,024 million higher and $230 million lower, respectively, in the six months ended June 30, 2016 compared with the 2015 period.

In June 2016, Con Edison borrowed $400 million pursuant to a credit agreement with a syndicate of banks. The borrowing matures in 2018 and bears interest at a LIBOR plus margin of 1.00 percent.

In May 2016, Con Edison issued approximately 10 million common shares resulting in net proceeds, after issuance expenses, of $702 million and $500 million aggregate principal amount of 2.00 percent debentures, due 2021, the net proceeds from the sale of which were used in connection with the acquisition by a CET Gas subsidiary of a 50 percent equity interest in a gas pipeline and storage joint venture (see Con Edison Transmission, below) and for general corporate purposes.


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In June 2016, CECONY issued $550 million of 3.85 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 June 2016, Con Edison Solutions subsidiary borrowed $2 million pursuant to a loan agreement with a New Jersey utility. The borrowing matures in 2026, bears interest of 11.18 percent and may be repaid in cash or project Solar Renewable Energy Certificates. In May 2016, a Con Edison Development subsidiary issued $95 million aggregate principal amount of 4.07 percent senior notes, due 2036, secured by the company's California Holdings 3 solar project. In February 2016, a Con Edison Development subsidiary issued $218 million aggregate principal amount of 4.21 percent senior notes, due 2041, secured by the company's Texas Solar 7 solar project.

Cash flows used in financing activities of the Companies also reflect commercial paper issuance. The commercial paper amounts outstanding at June 30, 2016 and 2015 and the average daily balances for the six months ended June 30, 2016 and 2015 for Con Edison and CECONY were as follows:

  
2016
2015
(Millions of Dollars, except Weighted Average Yield)
Outstanding at June 30,
Daily
average
Outstanding at June 30,
Daily
average
Con Edison
$708
$992
$1,245
$536
CECONY
$608
$418
$995
$183
Weighted average yield
0.7%
0.6%
0.4%
0.4%

Capital Requirements and Resources
Con Edison has increased its estimates for capital requirements for 2016 from $4,892 million to $6,117 million. The increase reflects the agreement it announced in April 2016 for the $975 million purchase of a 50 percent equity interest in a gas pipeline and storage joint venture. See “Con Edison Transmission,” below. The increase also reflects increased estimates of capital expenditures by its competitive energy businesses from $985 million to $1,235 million to reflect additional renewable energy project development. See "Con Edison Development," below. The company plans to meet its 2016 capital requirements, including for maturing securities, through internally-generated funds and the issuance of securities. The company’s plans include the issuance, which the company completed in May 2016, of approximately $500 million of common equity and approximately $500 million of long-term debt in connection with the purchase of the joint venture interest. In addition, the company’s plans to meet its other 2016 capital requirements include the issuance of between $1,000 million and $1,800 million of long-term debt, most of which would be at the Utilities, $400 million of which was issued by Con Edison and $550 million of which was issued by CECONY in June 2016, respectively; debt secured by its renewable electric production projects at the competitive energy businesses; and approximately $200 million of common equity, which was issued in May 2016, in addition to equity under its dividend reinvestment, employee stock purchase and long term incentive plans. See "Liquidity and Capital Resources," above.

Con Edison has also increased its estimates of capital expenditures by its competitive energy businesses from $360 million to $400 million for both 2017 and 2018 to reflect additional renewable energy project development.

For each of the Companies, the ratio of earnings to fixed charges (Securities and Exchange Commission basis) for the six months ended June 30, 2016 and 2015 and the twelve months ended December 31, 2015 was:
 
  
Ratio of Earnings to Fixed Charges
  
For the Six Months Ended June 30, 2016
For the Six Months Ended June 30, 2015
For the Twelve Months Ended December 31, 2015
Con Edison
3.2
3.5
3.5
CECONY
3.3
3.7
3.6



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For each of the Companies, the common equity ratio at June 30, 2016 and December 31, 2015 was:

  
Common Equity Ratio
(Percent of total capitalization)
  
June 30, 2016
December 31, 2015
Con Edison
50.4
52.1
CECONY
50.5
51.4

Contractual Obligations
Con Edison’s obligations to make payments pursuant to contracts increased to $39,043 million at June 30, 2016 from $34,884 million at December 31, 2015 due primarily to increases in the company’s long-term debt ($1,759 million, including $550 million for CECONY, see “Cash Flows from Financing Activities," above) and interest on long-term debt ($954 million, including $749 million for CECONY). The increase in contractual obligations also reflects increases in obligations under natural gas supply, transportation and storage contracts ($1,714 million, including $1,438 million for CECONY).  

Other Changes in Assets and Liabilities
The following table shows changes in certain assets and liabilities at June 30, 2016, compared with December 31, 2015.

 
Con Edison
CECONY
(Millions of Dollars)
2016 vs. 2015
Variation
2016 vs. 2015
Variation
Assets
 
 
Investments
$1,029
$21
Assets held for sale
26

Regulatory asset — Unrecognized pension and other postretirement costs
(360)
(336)
Income taxes receivable
(151)

Liabilities
 
 
Deferred income taxes and investment tax credits
$341
$366
Liabilities held for sale
(29)

Pension and retiree benefits
(488)
(480)
 
Investments
The increase in investments for Con Edison reflects the purchase of a 50 percent equity interest in a natural gas pipeline and storage joint venture. See “Con Edison Transmission,” below and Note Q to the Second Quarter Financial Statements.

Assets Held for Sale and Liabilities Held for Sale
The increase in Con Edison's assets held for sale and liabilities held for sale reflects agreements to sell Con Edison Solutions' retail electric supply business and O&R's subsidiary, Pike. See Note P to the Second Quarter Financial Statements.

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, 2015, 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 2016. See Notes B, E and F to the Second Quarter Financial Statements.

Income Taxes Receivable
The decrease in income taxes receivable for Con Edison reflects primarily the refund received in February 2016 from the Internal Revenue Service as a result of the extension of bonus depreciation in December 2015.



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Deferred Income Taxes and Investment Tax Credits
The increase in the liability for deferred income taxes and investment tax credits for Con Edison and CECONY reflects primarily the extension of bonus depreciation in 2016, partially offset by the increase in deferred income tax assets associated with the federal tax attribute carryforwards related to the net operating loss and general business tax credits.

Off-Balance Sheet Arrangements
None of the Companies’ interests in variable interest entities (VIEs) meet the Securities and Exchange Commission definition of off-balance sheet arrangements. For information regarding the Companies’ VIEs, see Note M to the Second Quarter Financial Statements.

Regulatory Matters
In March 2016, the New York State Public Service Commission (NYSPSC) issued an order in which it approved CECONY’s advanced metering infrastructure (AMI) plan for the company’s electric and gas delivery businesses, subject to a cap on capital expenditures of $1,285 million. AMI components include smart meters, a communication network, information technology systems and business applications. The plan provides for full deployment of AMI to the company’s customers to be implemented over a six-year period. The NYSPSC directed CECONY to submit a customer engagement plan, an update to the company’s benefit cost analysis and metrics that the NYSPSC can use to monitor the success of the project.

In May 2016, the NYSPSC issued an order in its Reforming the Energy Vision (REV) proceeding adopting a ratemaking and utility revenue framework. The order indicated that utilities will have four ways of achieving earnings: traditional cost-of-service earnings; earnings tied to achievement of alternatives that reduce utility capital spending and provide definitive consumer benefit; earnings from market-facing platform activities; and transitional outcome-based performance measures. The order also indicated, among other things, that existing measures for negative revenue adjustments for utility failure to meet basic service standards should generally be retained and net utility plant reconciliations should be modified to encourage cost-effective distributed energy resources (DER) as an alternative to utility capital investment. The order directs each utility to file a system efficiency proposal; an interconnection survey process and proposed earnings adjustment mechanism; a progress report on aggregated data reporting automation; an aggregated data privacy policy statement; revisions to standby service tariffs and cost allocation matrix; one or more smart home rate demonstration proposals; and revisions to voluntary time of use rates and promotion and education tools.

In June 2016, CECONY and O&R each filed initial distributed system implementation plans with the NYSPSC, pursuant to which the companies provide additional system and planning information for third-party developers to facilitate the integration of DER in the distributed system platform.

In August 2016, the NYSPSC issued an order adopting the New York State Energy Plan’s goal of 50 percent of the State’s electricity to be generated by renewable sources by 2030 as part of a strategy to reduce statewide greenhouse gas emissions 40 percent by 2030. The NYSPSC also adopted a Clean Energy Standard (CES) that includes renewable energy credit (REC) and zero-emissions credit (ZEC) requirements. Beginning in 2017, load serving entities (LSEs), including CECONY and O&R for their full-service customers, will be required to obtain RECs and ZECs in amounts determined by the NYSPSC. LSEs may satisfy their REC obligation by either purchasing RECs acquired through central procurement by the New York State Energy Research and Development Authority (NYSERDA), by self-supply through direct purchase of tradable RECs, or by making alternative compliance payments. LSEs will purchase ZECs from NYSERDA at prices determined by the NYSPSC. The order establishes an annual NYSPSC staff review and triennial NYSPSC review of the CES. 

For certain information about the Utilities' rate plans and other regulatory matters affecting the Companies, see Note B to the Second Quarter Financial Statements.



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Con Edison Development
The following table provides information about the renewable electric production projects Con Edison Development owned at June 30, 2016:
 
Project Name
Production
Technology
Generating
Capacity (a)
(MW AC)
Power
Purchase
Agreement
Term (in Years)
Actual/Expected
In-Service Date
Location
Wholly owned projects





Flemington Solar
Solar
8
n/a (b)
2011
New Jersey
Frenchtown I, II and III
Solar
14
n/a (b)
2011-13
New Jersey
PA Solar
Solar
10
n/a (b)
2012
Pennsylvania
California Solar 2
Solar
80
20
2014-16
California
Oak Tree Wind
Wind
20
20
2014
South Dakota
Texas Solar 3
Solar
6
25
2015
Texas
Texas Solar 5
Solar
95
25
2015
Texas
Campbell County Wind
Wind
95
30
2015
South Dakota
Projects of less than 5 MW
Solar
20
Various (b)
Various
Various
Jointly owned projects (c)





Pilesgrove
Solar
9
n/a (b)
2011
New Jersey
California Solar
Solar
55
25
2012-13
California
Mesquite Solar 1
Solar
83
20
2013
Arizona
Copper Mountain Solar 2
Solar
75
25
2013-15
Nevada
Copper Mountain Solar 3
Solar
128
20
2014-15
Nevada
Broken Bow II
Wind
38
25
2014
Nebraska
Texas Solar 4
Solar
32
25
2014
Texas
Total MW (AC) in Operation

768



California Solar 3
Solar
110
20
2016
California
Texas Solar 7 (c)
Solar
106
25
2016
Texas
Panoche Valley (d)
Solar
120
20
2019
California
Total MW (AC) in Construction

336



Total MW (AC), All Projects

1,104 (e)



(a)
Represents Con Edison Development’s ownership interest in the project.
(b)
New Jersey, Pennsylvania and Massachusetts assets have 3-4 year Solar Renewable Energy Credit hedges in place.
(c)
See Note Q to the Second Quarter Financial Statements.
(d)
See Note M to the Second Quarter Financial Statements.
(e)
Additionally, in October 2015, Con Edison Development purchased Lost Hills, which is developing but has not started constructing, a 20 MW (AC) solar electric production project in California and in November 2015 purchased Upton County, which is developing but has not started constructing, a 150 MW (AC) solar electric production project in Texas.

Con Edison Transmission
CET Electric
In March 2016, the Federal Energy Regulatory Commission approved a November 2015 settlement agreement applicable to three transmission projects that the NYSPSC approved in October 2013 in its proceeding to address potential needs that could arise should the Indian Point Energy Center (which is owned by Entergy Corporation subsidiaries) no longer be able to operate. CECONY developed and, in May 2016, transferred two of the projects to New York Transco LLC. See Note Q to the Second Quarter Financial Statements. The settlement agreement, among other things, provides for a 10 percent return on common equity (or 9.5 percent for capital costs in excess of $228 million incurred for initial commercial operation), a maximum common equity ratio of 53 percent and allocation of 63 percent of the costs of the projects to load serving entities in the CECONY and O&R service areas.

CET Gas
In April 2016, a CET Gas subsidiary agreed with a subsidiary of Crestwood Equity Partners LP to form a joint venture to own, operate and further develop a gas pipeline and storage business located in northern Pennsylvania and southern New York. In June 2016, the transaction was substantially completed. See Note Q to the Second Quarter Financial Statements.

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.


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Interest Rate Risk
The Companies’ interest rate risk relates primarily to variable rate debt and to new debt financing needed to fund capital requirements, including the construction expenditures of the Utilities and maturing debt securities. Con Edison and its businesses manage interest rate risk through the issuance of mostly fixed-rate debt with varying maturities and through opportunistic refinancing of debt. Con Edison and CECONY estimate that at June 30, 2016, a 10 percent increase in interest rates applicable to its variable rate debt would result in an increase in annual interest expense of $2 million. 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.

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 Second Quarter Financial Statements.

Con Edison estimates that, as of June 30, 2016, a 10 percent decline in market prices would result in a decline in fair value of $68 million for the derivative instruments used by the Utilities to hedge purchases of electricity and gas, of which $60 million is for CECONY and $8 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 six months ended June 30, 2016 and the year ended December 31, 2015, respectively, was as follows:

95% Confidence Level, One-Day Holding Period
June 30, 2016
December 31, 2015
 
(Millions of Dollars)
Average for the period
$2
$1
High
3
2
Low
1


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 Second Quarter Financial Statements.



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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 55 to 65 percent equities and 35 to 45 percent fixed income and other securities. At June 30, 2016, 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 Second Quarter Financial Statements.


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

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


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Part II Other Information

 
Item 1: Legal Proceedings
For information about certain legal proceedings affecting the Companies, see 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 6: Exhibits
Con Edison
Exhibit 4.1.1
Form of CEI’s 2.00% Debentures, Series 2016 A (Designated in CEI’s Current Report on Form 8-K, dated May 10, 2016 (File No. 1-14514) as Exhibit 4).
Exhibit 4.1.2
$400 million Credit Agreement dated as of June 10, 2016 among CEI, as Borrower, the Lenders party thereto and Mizuho Bank, Ltd., as Administrative Agent and as Lead Arranger and Bookrunner.
Exhibit 10.1
Amendment, dated June 13, 2016, to the Consolidated Edison Thrift Savings Plan.
Exhibit 10.2
Contribution Agreement, dated as of April 20, 2016, by and between Crestwood Pipeline and Storage Northeast LLC and Con Edison Gas Pipeline and Storage Northeast, LLC (Designated in CEI’s Current Report on Form 8-K, dated April 20, 2016 (File No. 1-14514) as Exhibit 10).
Exhibit 12.1
Statement of computation of Con Edison’s ratio of earnings to fixed charges for the six-month periods ended June 30, 2016 and 2015, and the 12-month period ended December 31, 2015.
Exhibit 31.1.1
Rule 13a-14(a)/15d-14(a) Certifications – Chief Executive Officer.
Exhibit 31.1.2
Rule 13a-14(a)/15d-14(a) Certifications – Chief Financial Officer.
Exhibit 32.1.1
Section 1350 Certifications – Chief Executive Officer.
Exhibit 32.1.2
Section 1350 Certifications – Chief Financial Officer.
Exhibit 101.INS
XBRL Instance Document.
Exhibit 101.SCH
XBRL Taxonomy Extension Schema.
Exhibit 101.CAL
XBRL Taxonomy Extension Calculation Linkbase.
Exhibit 101.DEF
XBRL Taxonomy Extension Definition Linkbase.
Exhibit 101.LAB
XBRL Taxonomy Extension Label Linkbase.
Exhibit 101.PRE
XBRL Taxonomy Extension Presentation Linkbase.
 

CECONY
Exhibit 4.2.1       
Form of CECONY’s 3.85% Debentures, Series 2016 A (Designated in CECONY’s Current Report on Form 8-K, dated June 14, 2016 (File No. 1-1217) as Exhibit 4).
Exhibit 12.2
Statement of computation of CECONY’s ratio of earnings to fixed charges for the six-month periods ended June 30, 2016 and 2015, and the 12-month period ended December 31, 2015.
Exhibit 31.2.1
Rule 13a-14(a)/15d-14(a) Certifications – Chief Executive Officer.
Exhibit 31.2.2
Rule 13a-14(a)/15d-14(a) Certifications – Chief Financial Officer.
Exhibit 32.2.1
Section 1350 Certifications – Chief Executive Officer.
Exhibit 32.2.2
Section 1350 Certifications – Chief Financial Officer.
Exhibit 101.INS
XBRL Instance Document.
Exhibit 101.SCH
XBRL Taxonomy Extension Schema.
Exhibit 101.CAL
XBRL Taxonomy Extension Calculation Linkbase.
Exhibit 101.DEF
XBRL Taxonomy Extension Definition Linkbase.
Exhibit 101.LAB
XBRL Taxonomy Extension Label Linkbase.
Exhibit 101.PRE
XBRL Taxonomy Extension Presentation Linkbase.
Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, instruments defining the rights of holders of long-term debt of Con Edison’s subsidiaries other than CECONY, the total amount of which does not exceed ten percent of the total assets of Con Edison and its subsidiaries on a consolidated basis, are not filed as exhibits to Con Edison’s Form 10-K or Form 10-Q. Con Edison agrees to furnish to the SEC upon request a copy of any such instrument.
 


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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
Consolidated Edison, Inc.
 
Consolidated Edison Company of New York, Inc.
 
 
 
Date: August 4, 2016
By 
/s/ Robert Hoglund
 
 
Robert Hoglund
Senior Vice President, Chief
Financial Officer and Duly
Authorized Officer
 



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