This combined management's discussion and analysis of financial condition and results of operations relates to the consolidated financial statements included in this report of two separate registrants:Con Edison and CECONY, and should be read in conjunction with the financial statements and the notes thereto. As used in this report, the term the "Companies" refers toCon Edison and CECONY. CECONY is a subsidiary ofCon Edison and, as such, information in this management's discussion and analysis about CECONY applies toCon Edison . 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. Corporate OverviewCon Edison's principal business operations are those of the Utilities.Con Edison's business operations also include those of the Clean Energy Businesses and Con Edison Transmission. See "Significant Developments and Outlook" in the Introduction to this report, "The Utilities," "Clean Energy Businesses" and "Con Edison Transmission" in Item 1, and segment financial information in Note N to the financial statements in Item 8. Certain financial data ofCon Edison's businesses are presented below: For the Year Ended December 31, 2019 At December 31, 2019 (Millions of Dollars, Operating Net Income for except percentages) Revenues Common Stock Assets CECONY$10,821 86 %$1,250 93 %$46,557 80 % O&R 893 7 % 70 5 % 3,006 5 %Total Utilities 11,714 93 % 1,320 98 % 49,563 85 % Clean Energy Businesses (a) 857 7 % (18) (1 )% 6,528 11 % Con Edison Transmission 4 - % 52 4 % 1,618 3 % Other (b) (1) - % (11) (1 )% 370 1 % Total Con Edison$12,574 100 %$1,343 100 %$58,079 100 %
(a) Net income for common stock from the Clean Energy Businesses for the year
endedDecember 31, 2019 includes$(21) million of net after-tax mark-to-market losses and reflects$74 million (after-tax) of income attributable to the non-controlling interest of a tax equity investor in
renewable electric production projects accounted for under the HLBV method of
accounting. See Note Q to the financial statements in Item 8.
(b) Other includes parent company and consolidation adjustments.
Results of Operations Net income for common stock and earnings per share for the years endedDecember 31, 2019 , 2018 and 2017 were as follows: (Millions of Dollars, Net Income for except per share amounts) Common Stock Earnings per Share 2019 2018 2017 2019 2018 2017 CECONY$1,250 $1,196 $1,104 $3.80 $3.84 $3.59 O&R 70 59 64 0.21 0.19 0.21 Clean Energy Businesses (a)(b)(c) (18) 145 332 (0.06 ) 0.46 1.08 Con Edison Transmission (c) 52 47 44 0.16 0.15 0.15 Other (c)(d) (11) (65) (19) (0.02 ) (0.21 ) (0.06 ) Con Edison (e)$1,343 $1,382 $1,525 $4.09 $4.43 $4.97
(a) Net income for common stock from the Clean Energy Businesses for the year
ended
income attributable to the non-controlling interest of a tax equity investor
in renewable electric production projects accounted for under the HLBV method
of accounting. See Note Q to the financial statements in Item 8. Net income
for common stock from the Clean Energy Businesses for the year ended
on the sale of a solar electric production project in 2017. See Note U to the
financial statements in Item 8. Net income for common stock from the Clean
Energy Businesses also includes
million or
mark-to-market gains/(losses) in 2019, 2018 and 2017, respectively.
(b) In
LLC. Upon completion of the acquisition, the Clean Energy Businesses
recognized an after-tax gain of
to jointly-owned renewable energy production projects. See Note U to the
financial statements in Item 8.
(c) Upon enactment of the TCJA in
deferred tax assets and liabilities based upon the 21 percent corporate
income tax rate under the TCJA. As a result, the Clean Energy Businesses, Con
Edison Transmission and the parent company recognized in net income for
common stock for the year ended
and
Item 8.
50 CON EDISON ANNUAL REPORT 2019
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(d) Other includes parent company and consolidation adjustments. Net income for
common stock includes
resulting from a re-measurement of the company's deferred tax assets and
liabilities following the issuance of proposed regulations relating to the
TCJA for the year ended
statements in Item 8. Net income for common stock for the year ended December
31, 2018 also includes
transaction costs related to the Clean Energy Businesses' purchase of Sempra
(e) Earnings per share on a diluted basis were
Share" in Note A to the financial statements in Item 8.
The following tables present the estimated effect of major factors on earnings per share and net income for common stock for the years endedDecember 31, 2019 as compared with 2018, and 2018 as compared with 2017.
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Variation for the Years Ended December 31, 2019 vs. 2018 Net Income for Common Stock (Millions Earnings of per Share Dollars) CECONY (a) Changes in rate plans$0.76 $240 Reflects higher electric and gas net base revenues of$0.53 a share and$0.16 a share, respectively, due primarily to electric and gas base rate increases in January 2019 under the company's rate plans, higher incentives earned under the electric earnings adjustment mechanisms and positive incentives of$0.06 a share, and growth in the number of gas customers of$0.03 a share, offset, in part, by electric negative revenue adjustments of$(0.03) a share. Weather impact on steam (0.06) (19) Reflects the impact of warmer winter revenues weather in 2019. Operations and (0.19) (58) Reflects higher costs for pension and other maintenance expenses postretirement benefits of$(0.15) a share, which are recoverable under the rate plans, and higher stock-based compensation of$(0.07) a share, offset, in part, by lower consultant costs of$0.04 a share. Depreciation, property (0.54) (168) Reflects higher property taxes of$(0.26) a taxes and other tax share and higher depreciation and matters amortization expense of$(0.23) a share, both of which are recoverable under the rate plans, and the absence of New York State sales and use tax refunds received in 2018 of$(0.07) a share, offset, in part, by lower sales and use tax of$0.02 a share, upon conclusion of the audit assessment. Other (0.01) 59 Reflects the dilutive effect of Con Edison's stock issuances of$(0.21) a share, offset, in part, by lower costs associated with components of pension and other postretirement benefits other than service cost of$0.19 a share. Total CECONY (0.04) 54 O&R (a) Changes in rate plans 0.08 24 Reflects an electric base rate increase, offset, in part, by a gas base rate decrease under the company's rate plans, effective January 1, 2019. Operations and (0.01) (3) Reflects higher stock-based compensation. maintenance expenses Depreciation, property (0.02) (6) Reflects higher depreciation and taxes and other tax amortization expense. matters Other (0.03) (4) Includes the dilutive effect of Con Edison's stock issuances of$(0.01) a share. Total O&R 0.02 11 Clean Energy Businesses Operating revenues less 0.53 167 Reflects higher revenues from renewable energy costs electric production projects resulting from the December 2018 acquisition of Sempra Solar Holdings, LLC, including the consolidation of certain jointly-owned projects that were previously accounted for as equity investments of$0.81 a share, offset, in part, by lower engineering, procurement and construction services revenues of$(0.34) a share. Operations and 0.15 47 Reflects lower engineering, procurement and maintenance expenses construction costs of$0.19 a share and lower energy services costs of$0.04 a share, offset, in part, by higher costs associated with additional renewable electric production projects in operation resulting from the December 2018 acquisition of Sempra Solar Holdings, LLC. of$(0.06) a share. Depreciation and (0.34) (105) Reflects an increase in renewable electric amortization production projects resulting from the December 2018 acquisition of Sempra Solar Holdings, LLC. Net interest expense (0.29) (90) Reflects an increase in debt resulting from the December 2018 acquisition of Sempra Solar Holdings, LLC. HLBV effects (0.22) (74) Gain on acquisition of (0.28) (89)Sempra Solar Holdings , LLC, net of transaction costs in 2018 Other (0.07) (19) Reflects the absence in 2019 of equity income from certain jointly-owned projects that were accounted for as equity investments in 2018 but consolidated after the December 2018 acquisition of Sempra Solar Holdings, LLC. Total Clean Energy (0.52) (163) Businesses Con Edison Transmission 0.01 5 Reflects higher allowance for funds used during construction from the Mountain Valley Pipeline project. Other, including parent 0.19 54 Reflects lower New York State capital tax company expenses of$0.02 a share. Also reflects 2018 TCJA re-measurement of$0.14 a share and transaction costs related to the acquisition of Sempra Solar Holdings, LLC of$0.02 a share. Total Reported (GAAP$(0.34) $(39) basis) 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 affectCon Edison's results of operations.
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Variation for the Years Ended December 31, 2018 vs. 2017 Net Income for Common Stock (Millions Earnings of per Share Dollars) CECONY (a) Changes in rate plans$0.84 $258 Reflects primarily higher electric and gas net base revenues of$0.59 a share and$0.16 a share, respectively, and growth in the number of gas customers of$0.06 a share. Electric and gas base rates increased in January 2018 in accordance with the company's rate plans. Weather impact on steam 0.10 31 Steam revenues were$0.06 a share higher in revenues 2018 due to the estimated impact of colder winter weather in 2018. Steam revenues were$(0.05) a share lower in 2017 due to the estimated impact of warmer than normal winter weather. Operations and (0.08) (25) Reflects primarily higher consultant costs maintenance expenses of$(0.05) a share and storm-related costs of$(0.04) a share. Depreciation, property (0.37) (115) Reflects higher net property taxes of taxes and other tax$(0.25) a share and depreciation and matters amortization expense of$(0.19) a share, offset, in part, by New York State sales and use tax refunds of$0.07 a share. Other (0.24) (57) Reflects primarily higher interest expense on long-term debt of$(0.16) a share, regulatory reserve related to steam earnings sharing of$(0.05) a share, and the dilutive effect of Con Edison's stock issuances of$(0.06) a share. Total CECONY 0.25 92 O&R (a) Changes in rate plans 0.02 6 Reflects primarily higher gas net base revenues. Gas base rates increased in November 2017 in accordance with the company's gas rate plan. Operations and (0.02) (6) Reflects primarily reduction of a maintenance expenses regulatory asset associated with certain site investigation and environmental remediation costs. Depreciation, property (0.01) (4) Reflects higher depreciation and taxes and other tax amortization expense. matters Other (0.01) (1) Total O&R (0.02) (5) Clean Energy Businesses Operating revenues less (0.05) (16) Reflects primarily lower renewable energy costs revenues, including engineering, procurement and construction services, offset, in part, by an increase in renewable electric production projects in operation and an increase in energy services revenue. Operations and 0.06 19 Reflects primarily lower engineering, maintenance expenses procurement and construction costs. Depreciation (0.03) (9) Net interest expense (0.05) (15) Gain on sale of solar - (1) electric production project Income tax effect of the (0.88) (269) TCJA Gain on acquisition of 0.42 131Sempra Solar Holdings , LLC Other (0.09) (27) Total Clean Energy (0.62) (187) Businesses Con Edison Transmission - 3 Includes the effect of the TCJA of$0.04 a share in December 2017. Reflects income from equity investments. Other, including parent (0.15) (46) Includes TCJA re-measurement of$(0.14) a company expenses share, New York State capital tax of$(0.03) a share and transaction costs related to acquisition of Sempra Solar Holdings, LLC of$(0.02) a share. Also includes the effect of the TCJA of$(0.07) a share in December 2017. Total Reported (GAAP$(0.54) $(143) basis) 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 affectCon Edison's results of operations.
CON EDISON ANNUAL REPORT 2019 53
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The Companies' other operations and maintenance expenses for the years endedDecember 31, 2019 , 2018 and 2017 were as follows: (Millions of Dollars) 2019 2018 2017
CECONY
Operations$1,563 $1,553 $1,528
Pensions and other postretirement benefits 134 71 58 Health care and other benefits
170 166 170 Regulatory fees and assessments (a) 464 444 476 Other 304 321 294 Total CECONY 2,635 2,555 2,526 O&R 308 305 296 Clean Energy Businesses (b) 223 287 313 Con Edison Transmission 9 10 9 Other (c) - (5) (5)
Total other operations and maintenance expenses
(a) Includes Demand Side Management, System Benefit Charges and Public Service
Law 18A assessments which are collected in revenues.
(b) The decrease in other operations and maintenance expenses for the year ended
lower engineering, procurement and construction costs.
(c) Includes parent company and consolidation adjustments.
Con Edison's principal business segments are CECONY's regulated utility activities, O&R's regulated utility activities, the Clean Energy Businesses and Con Edison Transmission. CECONY's principal business segments are its regulated electric, gas and steam utility activities. A discussion of the results of operations by principal business segment for the years endedDecember 31, 2019 , 2018 and 2017 follows. For additional business segment financial information, see Note N to the financial statements in Item 8.
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The Companies' results of operations for the years endedDecember 31, 2019 , 2018 and 2017 were: Clean Energy Con Edison CECONY O&R Businesses Transmission Other (a) Con Edison (b) (Millions of Dollars) 2019 2018 2017 2019 2018 2017
2019 2018 2017 2019 2018 2017 2019 2018 2017 2019
2018 2017 Operating revenues$10,821 $10,680 $10,468 $893 $891 $874 $857 $763 $694 $4 $4 $2 $(1) $(1) $(5) $12,574 $12,337 $12,033 Purchased power 1,357 1,433 1,415 188 208 191 - 2 (3) - - - 1 1 (2) 1,546 1,644 1,601 Fuel 207 263 216 - - - - - - - - - - - - 207 263 216 Gas purchased for resale 606 643 510 90 86 73 185 313 226 - - - (1) (1) (1) 880 1,041 808 Other operations and maintenance 2,635 2,555 2,526 308 305 296 223 287 313 9 10 9 - (5) (5) 3,175 3,152 3,139 Depreciation and amortization 1,373 1,276 1,195 84 77 71 226 85 74 1 1 1 - (1) - 1,684 1,438 1,341 Taxes, other than income taxes 2,295 2,156 2,057 84 83 82 21 13 16 - - - 6 14 - 2,406 2,266 2,155 Gain on sale of solar electric production project (c) - - - - - - - - 1 - - - - - - - - 1 Gain on acquisition ofSempra Solar Holdings , LLC (c) - - - - - - - 131 - - - - - - - - 131 - Operating income 2,348 2,354 2,549 139 132 161 202 194 69 (6) (7) (8) (7) (9) 3 2,676 2,664 2,774 Other income less deductions (35) (143) (137) (11) (19) (19)
5 33 33 104 91 80 (12) (24) (5) 51 (62) (48) Net interest expense
728 689 623 41 39 36 186 63 43 25 20 16 11 8 11 991 819 729 Income before income tax expense 1,585 1,522 1,789 87 74 106 21 164 59 73 64 56 (30) (41) (13) 1,736 1,783 1,997 Income tax expense 335 326 685 17 15 42 (58) 19 (273) 21 17 12 (19) 24 6 296 401 472 Net income$1,250 $1,196 $1,104 $70 $59 $64 $79 $145 $332 $52 $47 $44 $(11) $(65) $(19) $1,440 $1,382 $1,525 Income attributable to non-controlling interest - - - - - - 97 - - - - - - - - 97 - - Net income from common stock$1,250 $1,196 $1,104 $70 $59 $64 $(18) $145 $332 $52 $47 $44 $(11) $(65) $(19) $1,343 $1,382 $1,525
(a) Includes parent company and consolidation adjustments.
(b) Represents the consolidated results of operations of
CON EDISON ANNUAL REPORT 2019 55
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Year Ended
CECONY For the Year Ended For the Year Ended December 31, 2019 December 31, 2018 (Millions of 2019-2018 Dollars) Electric Gas Steam 2019Total Electric Gas Steam 2018 Total Variation Operating revenues$8,062 $2,132 $627 $10,821 $7,971 $2,078 $631 $10,680 $141 Purchased power 1,324 - 33 1,357 1,393 - 40 1,433 (76) Fuel 99 - 108 207 158 - 105 263 (56) Gas purchased for resale - 606 - 606 - 643 - 643 (37) Other operations and maintenance 2,059 399 177 2,635 1,961 420 174 2,555 80 Depreciation and amortization 1,053 231 89 1,373 984 205 87 1,276 97 Taxes, other than income taxes 1,769 368 158 2,295 1,676 332 148 2,156 139 Operating income$1,758 $528 $62 $2,348 $1,799 $478 $77 $2,354 $(6) Electric
CECONY's results of electric operations for the year ended
For the Years Ended December 31, (Millions of Dollars) 2019 2018 Variation Operating revenues$8,062 $7,971 $91 Purchased power 1,324 1,393 (69) Fuel 99 158 (59) Other operations and maintenance 2,059 1,961 98 Depreciation and amortization 1,053 984 69 Taxes, other than income taxes 1,769 1,676 93 Electric operating income$1,758 $1,799 $(41)
CECONY's electric sales and deliveries in 2019 compared with 2018 were:
Millions of kWh Delivered
Revenues in Millions (a)
For the Years Ended For the Years Ended December December Percent December December Percent Description 31, 2019 31, 2018 Variation Variation 31, 2019 31, 2018 Variation Variation Residential/Religious (b) 10,560 10,797 (237 ) (2.2 )%$2,671 $2,846 $(175) (6.1 )% Commercial/Industrial 9,908 9,588 320 3.3 1,845 1,850 (5) (0.3 ) Retail choice customers 24,754 26,266 (1,512 ) (5.8 ) 2,470 2,624 (154) (5.9 ) NYPA, Municipal Agency and other sales 9,932 10,186 (254 ) (2.5 ) 663 662 1 0.2 Other operating revenues (c) - - - - 413 (11) 424 Large Total 55,154 56,837 (1,683 ) (3.0 )% (d)$8,062 $7,971 $91 1.1 %
(a) Revenues from electric sales 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.
(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 the revenue
decoupling mechanism current asset or regulatory liability and changes in
regulatory assets and liabilities in accordance with other provisions of the
company's rate plan.
(d) After adjusting for variations, primarily weather and billing days, electric
delivery volumes in the company's service area decreased 1.1 percent in 2019
compared with 2018.
Operating revenues increased$91 million in 2019 compared with 2018 due primarily to an increase in revenues from the rate plan ($215 million ), including earnings adjustment mechanism incentives for energy efficiency ($22 million ), offset, in part, by lower purchased power expenses ($69 million ) and fuel expenses ($59 million ). Purchased power expenses decreased$69 million in 2019 compared with 2018 due to lower unit costs ($199 million ), offset, in part, by higher purchased volumes ($130 million ).
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Fuel expenses decreased$59 million in 2019 compared with 2018 due to lower unit costs ($54 million ) and purchased volumes from the company's electric generating facilities ($5 million ). Other operations and maintenance expenses increased$98 million in 2019 compared with 2018 due primarily to higher costs for pension and other postretirement benefits ($91 million ), surcharges for assessments and fees that are collected in revenues from customers ($40 million ) and higher stock-based compensation ($23 million ), offset, in part, by lower other employee benefits ($41 million ) and municipal infrastructure support costs ($12 million ). Depreciation and amortization increased$69 million in 2019 compared with 2018 due primarily to higher electric utility plant balances. Taxes, other than income taxes increased$93 million in 2019 compared with 2018 due primarily to higher property taxes ($86 million ) and the absence of aNew York State sales and use tax refund received in 2018 ($26 million ), offset, in part, by higher deferral of under-collected property taxes ($11 million ), the reduction in the sales and use tax reserve upon conclusion of an audit assessment ($6 million ) and lower state and local taxes ($2 million ). Gas CECONY's results of gas operations for the year endedDecember 31, 2019 compared with the year endedDecember 31, 2018 were as follows: For the Years Ended December 31, (Millions of Dollars) 2019 2018 Variation Operating revenues$2,132 $2,078 $54 Gas purchased for resale 606 643 (37) Other operations and maintenance 399 420 (21) Depreciation and amortization 231 205 26 Taxes, other than income taxes 368 332 36 Gas operating income$528 $478 $50
CECONY's gas sales and deliveries, excluding off-system sales, in 2019 compared with 2018 were:
Thousands of Dt Delivered
Revenues in Millions (a)
For the Years Ended For the Years Ended December December Percent December December Percent
Description 31, 2019 31, 2018 Variation Variation 31, 2019 31, 2018 Variation Variation Residential
54,402 57,815 (3,413 ) (5.9 )%$943 $966 $(23) (2.4 )% General 33,235 34,490 (1,255 ) (3.6 ) 384 390 (6) (1.5 ) Firm transportation 81,710 82,472 (762 ) (0.9 ) 593 595 (2) (0.3 ) Total firm sales and transportation 169,347 174,777 (5,430 ) (3.1 ) (b) 1,920 1,951 (31) (1.6 ) Interruptible sales (c) 9,903 7,351 2,552 34.7 42 40 2 5.0 NYPA 39,643 34,079 5,564 16.3 2 2 - -
Generation plants 52,011 72,524 (20,513 ) (28.3 )
23 26 (3) (11.5 ) Other 20,701 20,822 (121 ) (0.6 ) 31 31 - - Other operating revenues (d) - - - - 114 28 86 Large Total 291,605 309,553 (17,948 ) (5.8 )%$2,132 $2,078 $54 2.6 %
(a) Revenues from gas sales are subject to a weather normalization clause and a
revenue decoupling mechanism, as a result of which, delivery revenues are
generally not affected by changes in delivery volumes from levels assumed
when rates were approved.
(b) After adjusting for variations, primarily billing days, firm gas sales and
transportation volumes in the company's service area increased 1.8 percent in
2019 compared with 2018, reflecting primarily increased volumes attributable
to the growth in the number of gas customers.
(c) Includes 5,484 thousands and 3,326 thousands of Dt for 2019 and 2018,
respectively, which are also reflected in firm transportation and other.
(d) Other gas operating revenues generally reflect changes in the revenue
decoupling mechanism and weather normalization clause current asset or
regulatory liability and changes in regulatory assets and liabilities in
accordance with other provisions of the company's rate plans. See Note B to
the financial statements in Item 8.
Operating revenues increased
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Gas purchased for resale decreased$37 million in 2019 compared with 2018 due to lower unit costs ($34 million ) and purchased volumes ($3 million ). Other operations and maintenance expenses decreased$21 million in 2019 compared with 2018 due primarily to lower surcharges for assessments and fees that are collected in revenues from customers. Depreciation and amortization increased$26 million in 2019 compared with 2018 due primarily to higher gas utility plant balances. Taxes, other than income taxes increased$36 million in 2019 compared with 2018 due primarily to higher property taxes ($37 million ), the absence of aNew York State sales and use tax refund received in 2018 ($3 million ) and higher state and local taxes ($2 million ), offset, in part, by higher deferral of under-collected property taxes ($4 million ) and the reduction in the sales and use tax reserve upon conclusion of an audit assessment ($1 million ). Steam CECONY's results of steam operations for the year endedDecember 31, 2019 compared with the year endedDecember 31, 2018 were as follows: For the Years Ended December 31, (Millions of Dollars) 2019 2018 Variation Operating revenues$627 $631 $(4) Purchased power 33 40 (7) Fuel 108 105 3 Other operations and maintenance 177 174 3 Depreciation and amortization 89 87 2 Taxes, other than income taxes 158 148 10 Steam operating income$62 $77 $(15)
CECONY's steam sales and deliveries in 2019 compared with 2018 were:
Millions of Pounds Delivered
Revenues in Millions
For the Years For the Years Ended Ended December December Percent December December Percent Description 31, 2019 31, 2018 Variation Variation 31, 2019 31, 2018 Variation Variation General 536 593 (57 ) (9.6 )%$27 $30 $(3) (10.0 )% Apartment house 5,919 6,358 (439 ) (6.9 ) 160 174 (14) (8.0 ) Annual power 13,340 14,811 (1,471 ) (9.9 ) 395 441 (46) (10.4 ) Other operating revenues (a) - - - - 45 (14) 59 Large Total 19,795 21,762 (1,967 ) (9.0 )% (b)$627 $631 $(4) (0.6 )%
(a) Other steam operating revenues generally reflect changes in regulatory assets
and liabilities in accordance with the company's rate plan. See Note B to the
financial statements in Item 8.
(b) After adjusting for variations, primarily weather and billing days, steam
sales and deliveries in the company's service area decreased 4.4 percent in
2019 compared with 2018.
Operating revenues decreased$4 million in 2019 compared with 2018 due primarily to the impact of warmer winter weather ($26 million ) and lower purchased power expenses ($7 million ), offset by certain rate plan reconciliations ($16 million ), lower reserve related to steam earnings sharing ($14 million ) and higher fuel expenses ($3 million ). Purchased power expenses decreased$7 million in 2019 compared with 2018 due to lower unit costs ($6 million ) and purchased volumes ($1 million ). Fuel expenses increased$3 million in 2019 compared with 2018 due to higher unit costs ($7 million ), offset, in part, by lower purchased volumes from the company's steam generating facilities ($4 million ). Other operations and maintenance expenses increased$3 million in 2019 compared with 2018 due primarily to higher municipal infrastructure support costs ($7 million ), higher costs for pension and other postretirement benefits ($8 million ) and stock-based compensation ($2 million ), offset, in part, by the absence in 2019 of property damage, clean-up and other response costs related to a steam main rupture in 2018 ($11 million ).
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Depreciation and amortization increased$2 million in 2019 compared with 2018 due primarily to higher steam utility plant balances. Taxes, other than income taxes increased$10 million in 2019 compared with 2018 due primarily to higher property taxes ($12 million ) and the absence of aNew York State sales and use tax refund received in 2018 ($1 million ), offset, in part, by lower state and local taxes ($1 million ), higher deferral of under-collected property taxes ($1 million ) and the reduction in the sales and use tax reserve upon conclusion of an audit assessment ($1 million ). Taxes, Other Than Income Taxes At$2,295 million , taxes other than income taxes remain one of CECONY's largest operating expenses. The principal components of, and variations in, taxes other than income taxes were: For the Years Ended December 31, (Millions of Dollars) 2019 2018 Variation Property taxes$1,979 $1,845 $134 State and local taxes related to revenue receipts 328 330 (2) Payroll taxes 69 69 - Other taxes (81) (88) 7 Total$2,295 (a)$2,156 (a)$139
(a) Including sales tax on customers' bills, total taxes other than income taxes
in 2019 and 2018 were
Other Income (Deductions) Other income (deductions) increased$108 million in 2019 compared with 2018 due primarily to lower costs associated with components of pension and other postretirement benefits other than service cost. Net Interest Expense Net interest expense increased$39 million in 2019 compared with 2018 due primarily to higher interest expense for long-term ($10 million ) and short-term ($6 million ) debt, an increase in interest accrued on the TCJA related regulatory liability ($9 million ) and interest accrued on the system benefit charge liability ($8 million ). Income Tax Expense Income taxes increased$9 million in 2019 compared with 2018 due primarily to higher income before income tax expense ($13 million ) and lower tax benefits in 2019 for plant-related flow through items ($7 million ), offset, in part, by an increase in the amortization of excess deferred federal income taxes due to the TCJA ($11 million ). O&R For the Year Ended For the Year Ended December 31, 2019 December 31, 2018 2019-2018 (Millions of Dollars) Electric Gas 2019 Total Electric Gas 2018 Total Variation Operating revenues$634 $259 $893 $642 $249 $891 $2 Purchased power 188 - 188 208 - 208 (20) Gas purchased for resale - 90 90 - 86 86 4 Other operations and maintenance 235 73 308 233 72 305 3 Depreciation and amortization 60 24 84 56 21 77 7 Taxes, other than income taxes 53 31 84 52 31 83 1 Operating income$98 $41 $139 $93 $39 $132 $7
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Electric
O&R's results of electric operations for the year ended
For the Years Ended December 31, (Millions of Dollars) 2019 2018 Variation Operating revenues$634 $642 $(8) Purchased power 188 208 (20) Other operations and maintenance 235 233 2 Depreciation and amortization 60 56 4 Taxes, other than income taxes 53 52 1 Electric operating income$98 $93 $5
O&R's electric sales and deliveries in 2019 compared with 2018 were:
Millions of kWh Delivered Revenues in Millions (a) For the Years Ended For the Years Ended December December Percent December December Percent Description 31, 2019 31, 2018 Variation Variation 31, 2019 31, 2018 Variation Variation Residential/Religious (b) 1,703 1,713 (10 ) (0.6 )%$309 $326 $(17) (5.2 )% Commercial/Industrial 808 799 9 1.1 112 115 (3) (2.6 ) Retail choice customers 2,885 2,974 (89 ) (3.0 ) 191 201 (10) (5.0 ) Public authorities 106 131 (25 ) (19.1 ) 8 12 (4) (33.3 ) Other operating revenues (c) - - - - 14 (12) 26 Large Total 5,502 5,617 (115 ) (2.0 )% (d)$634 $642 $(8) (1.2 )%
(a) Revenues from
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
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 the revenue
decoupling mechanism current asset or regulatory liability in accordance with
the company's
and liabilities in accordance with the company's electric rate plans. See
Note B to the financial statements in Item 8.
(d) After adjusting for weather and other variations, electric delivery volumes
in company's service area decreased 1.1 percent in 2019 compared with 2018.
Operating revenues decreased
Purchased power expenses decreased$20 million in 2019 compared with 2018 due to lower unit costs ($21 million ), offset, in part, by higher purchased volumes ($1 million ). Other operations and maintenance expenses increased$2 million in 2019 compared with 2018 due primarily to a regulatory change in accounting for manufactured gas plant spending ($5 million ) and higher stock-based compensation ($2 million ), offset, in part, by the reduction of a regulatory asset associated with certain site investigation and remediation costs in 2018 ($6 million ). Depreciation and amortization increased$4 million in 2019 compared with 2018 due primarily to higher electric utility plant balances. Taxes, other than income taxes increased$1 million in 2019 compared with 2018 due primarily to higher property taxes. Gas O&R's results of gas operations for the year endedDecember 31, 2019 compared with the year endedDecember 31, 2018 were as follows:
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For the Years Ended December 31, (Millions of Dollars) 2019 2018 Variation Operating revenues$259 $249 $10 Gas purchased for resale 90 86 4 Other operations and maintenance 73 72 1 Depreciation and amortization 24 21 3 Taxes, other than income taxes 31 31 - Gas operating income$41 $39 $2
O&R's gas sales and deliveries, excluding off-system sales, in 2019 compared with 2018 were:
Thousands of Dt Delivered
Revenues in Millions (a)
For the Years Ended For the Years Ended December December Percent December December Percent Description 31, 2019 31, 2018 Variation Variation 31, 2019 31, 2018 Variation Variation Residential 10,209 9,860 349 3.5 %$136 $140 $(4) (2.9 )% General 2,328 2,190 138 6.3 25 26 (1) (3.8 ) Firm transportation 9,459 9,950 (491 ) (4.9 ) 63 78 (15) (19.2 ) Total firm sales and transportation 21,996 22,000 (4 ) - (b) 224 244 (20) (8.2 ) Interruptible sales 3,668 3,746 (78 ) (2.1 ) 6 6 - - Generation plants 4 1 3 Large - - - - Other 914 959 (45 ) (4.7 ) 1 1 - - Other gas revenues - - - - 28 (2) 30 Large Total 26,582 26,706 (124 ) (0.5 )%$259 $249 $10 4.0 %
(a) Revenues from
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, firm sales and
transportation volumes in the company's service area increased 0.9 percent in
2019 compared with 2018.
Operating revenues increased$10 million in 2019 compared with 2018 due primarily to higher revenues from theNew York gas rate plan ($8 million ) and an increase in gas purchased for resale ($4 million ). Gas purchased for resale increased$4 million in 2019 compared with 2018 due to higher unit costs ($3 million ) and purchased volumes ($1 million ). Other operations and maintenance expenses increased$1 million in 2019 compared with 2018 due primarily to a regulatory change in accounting for manufactured gas plant spending ($3 million ) and higher stock-based compensation ($1 million ), offset, in part, by the reduction of a regulatory asset associated with certain site investigation and remediation costs in 2018 ($3 million ). Depreciation and amortization increased$3 million in 2019 compared with 2018 due primarily to higher gas utility plant balances. Taxes, Other Than Income Taxes Taxes, other than income taxes, increased$1 million in 2019 compared with 2018. The principal components of taxes, other than income taxes, were: For the Years Ended December 31, (Millions of Dollars) 2019 2018 Variation Property taxes$66 $65 $1 State and local taxes related to revenue receipts 10 10 - Payroll taxes 8 8 - Total$84 (a)$83 (a)$1
(a) Including sales tax on customers' bills, total taxes other than income taxes
in 2019 and 2018 were$116 million and$112 million , respectively.
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Other Income (Deductions) Other income (deductions) increased$8 million in 2019 compared with 2018 due primarily to lower costs associated with components of pension and other postretirement benefits other than service cost. Income Tax Expense Income taxes increased$2 million in 2019 compared with 2018 due primarily to higher income before income tax expense ($3 million ), offset, in part, by an increase in amortization of excess deferred federal income taxes due to the TCJA ($1 million ). Clean Energy Businesses The Clean Energy Businesses' results of operations for the year endedDecember 31, 2019 compared with the year endedDecember 31, 2018 were as follows: For the Years Ended December 31, (Millions of Dollars) 2019 2018 Variation Operating revenues$857 $763 $94 Purchased power - 2 (2) Gas purchased for resale 185 313 (128) Other operations and maintenance 223 287
(64)
Depreciation and amortization 226 85
141
Taxes, other than income taxes 21 13
8
Gain on acquisition of Sempra Solar Holdings, LLC (a) - 131 (131) Operating income$202 $194 $8
(a) See Note U to the financial statements in Item 8.
Operating revenues increased$94 million in 2019 compared with 2018 due primarily to higher revenues from renewable electric production projects resulting from theDecember 2018 acquisition ofSempra Solar Holdings, LLC , including the consolidation of certain jointly-owned projects that were previously accounted for as equity investments ($340 million ), offset, in part, by lower wholesale revenues ($144 million ), lower engineering, procurement and construction services revenues due to the completion in 2018 of a solar electric production project developed for another company ($92 million ) and lower energy services revenues ($24 million ). Net mark-to-market values increased ($14 million ). Purchased power expenses decreased$2 million in 2019 compared with 2018 due primarily to the absence in the 2019 period of the true-ups relating to the retail electric supply business sold in 2016. Gas purchased for resale decreased$128 million in 2019 compared with 2018 due to lower purchased volumes. Other operations and maintenance expenses decreased$64 million in 2019 compared with 2018 due primarily to lower engineering, procurement and construction costs ($82 million ) and lower energy services costs ($18 million ), offset, in part, by higher costs associated with additional renewable electric production projects in operation resulting from theDecember 2018 acquisition ofSempra Solar Holdings, LLC ($26 million ). Depreciation and amortization increased$141 million in 2019 compared with 2018 due primarily to an increase in renewable electric production projects resulting from theDecember 2018 acquisition ofSempra Solar Holdings, LLC (including the consolidation of certain jointly-owned projects that the Clean Energy Businesses previously accounted for as equity method investments). Taxes, other than income taxes increased$8 million in 2019 compared with 2018 due primarily to higher property taxes associated with additional renewable electric production projects in operation resulting from theDecember 2018 acquisition ofSempra Solar Holdings, LLC . Gain on acquisition ofSempra Solar Holdings, LLC decreased$131 million in 2019 compared with 2018 due to the absence in 2019 of the gain recognized in 2018 with respect to jointly-owned renewable energy production projects upon completion of the acquisition ofSempra Solar Holdings, LLC . See Note U to the financial statements in Item 8. Other Income (Deductions) Other income (deductions) decreased$28 million in 2019 compared with 2018 due primarily to the absence in 2019 of equity income from certain jointly-owned projects that were accounted for as equity investments in 2018 but consolidated after theDecember 2018 acquisition ofSempra Solar Holdings, LLC .
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Net Interest Expense Net interest expense increased$123 million in 2019 compared with 2018 due primarily to an increase in debt resulting from theDecember 2018 acquisition ofSempra Solar Holdings, LLC , including$825 million that was borrowed to fund a portion of the purchase price,$576 million ofSempra Solar Holdings, LLC subsidiaries' project debt that was outstanding at the time of the acquisition and the consolidation of$506 million of project debt of certain jointly-owned projects that the Clean Energy Businesses previously accounted for as equity method investments. Income Tax Expense Income taxes decreased$77 million in 2019 compared with 2018 due primarily to lower income before income tax expense (excluding income attributable to non-controlling interest) ($50 million ), higher renewable energy credits ($7 million ), lower state income taxes ($11 million ), adjustments for prior period federal income tax returns primarily due to increased research and development credits ($11 million ) and lower valuation allowances on state net operating losses ($6 million ), offset, in part, by an increase in uncertain tax positions ($9 million ). Income Attributable to Non-Controlling Interest Income attributable to non-controlling interest increased$97 million in 2019 compared with 2018 due primarily to the income attributable in the 2019 period to a tax equity investor in renewable electric production projects accounted for under the HLBV method of accounting. See Note Q to the financial statements in Item 8. Con Edison Transmission Other Income (Deductions) Other income (deductions) increased$13 million in 2019 compared with 2018 due primarily to higher allowance for funds used during construction from theMountain Valley Pipeline, LLC ($27 million ), offset, in part, by lower contract renewal rates at Stagecoach Gas Services ($17 million ). See "Con Edison Transmission -CET Gas " in Item 1 and Note U to the financial statements in Item 8.
Net Interest Expense
Net interest expense increased
Income Tax Expense Income taxes increased$4 million in 2019 compared with 2018 due primarily to higher income before income tax expense ($2 million ) and a decrease in the amortization of excess deferred federal income taxes due to the TCJA ($1 million ). Other Taxes, Other Than Income Taxes Taxes, other than income taxes decreased$8 million in 2019 compared with 2018 due primarily to lowerNew York State capital tax. Other Income (Deductions) Other income (deductions) increased$12 million in 2019 compared with 2018 due primarily to the absence in 2019 of transaction costs related to the acquisition ofSempra Solar Holdings, LLC in 2018. See Note U to the financial statements in Item 8. Income Tax Expense Income taxes decreased$43 million in 2019 compared with 2018 primarily due to the absence of the TCJA re-measurement of deferred tax assets associated withCon Edison's 2017 net operating loss carryforward into 2018.
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Year Ended
CECONY For the Year Ended For the Year Ended December 31, 2018 December 31, 2017 (Millions of 2018-2017 Dollars) Electric Gas Steam 2018Total Electric Gas Steam 2017 Total Variation Operating revenues$7,971 $2,078 $631 $10,680 $7,972 $1,901 $595 $10,468 $212 Purchased power 1,393 - 40 1,433 1,379 - 36 1,415 18 Fuel 158 - 105 263 127 - 89 216 47 Gas purchased for resale - 643 - 643 - 510 - 510 133 Other operations and maintenance 1,961 420 174 2,555 1,942 413 171 2,526 29 Depreciation and amortization 984 205 87 1,276 925 185 85 1,195 81 Taxes, other than income taxes 1,676 332 148 2,156 1,625 298 134 2,057 99 Operating income$1,799 $478 $77 $2,354 $1,974 $495 $80 $2,549 $(195) Electric
CECONY's results of electric operations for the year ended
For the Years Ended December 31, (Millions of Dollars) 2018 2017 Variation Operating revenues$7,971 $7,972 $(1) Purchased power 1,393 1,379 14 Fuel 158 127 31 Other operations and maintenance 1,961 1,942 19 Depreciation and amortization 984 925 59 Taxes, other than income taxes 1,676 1,625 51 Electric operating income$1,799 $1,974 $(175)
CECONY's electric sales and deliveries in 2018 compared with 2017 were:
Millions of kWh Delivered
Revenues in Millions (a)
For the Years Ended For the Years Ended December December Percent December December Percent Description 31, 2018 31, 2017 Variation Variation 31, 2018 31, 2017 Variation Variation Residential/Religious (b) 10,797 9,924 873 8.8 %$2,846 $2,515 $331 13.2 % Commercial/Industrial 9,588 9,246 342 3.7 1,850 1,823 27 1.5 Retail choice customers 26,266 26,136 130 0.5 2,624 2,712 (88) (3.2 ) NYPA, Municipal Agency and other sales 10,186 10,012 174 1.7 662 633 29 4.6 Other operating revenues (c) - - - - (11) 289 (300) Large Total 56,837 55,318 1,519 2.7 % (d)$7,971 $7,972 $(1) - %
(a) Revenues from electric sales 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.
(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 the revenue
decoupling mechanism current asset or regulatory liability and changes in
regulatory assets and liabilities in accordance with other provisions of the
company's rate plan. See Note B to the financial statements in Item 8.
(d) After adjusting for variations, primarily weather and billing days, electric
delivery volumes in the company's service area remained flat in 2018 compared
with 2017.
Operating revenues decreased$1 million in 2018 compared with 2017 due primarily to the reduction in other operating revenues resulting from the deferral as a regulatory liability of estimated net benefits for the 2018 period under the TCJA ($308 million ), offset in part by higher revenues from the electric rate plan ($244 million ), fuel expenses ($31 million ) and purchased power expenses ($14 million ).
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Purchased power expenses increased$14 million in 2018 compared with 2017 due to higher purchased volumes ($27 million ), offset by lower unit costs ($13 million ). Fuel expenses increased$31 million in 2018 compared with 2017 due to higher unit costs ($38 million ), offset by lower purchased volumes ($7 million ). Other operations and maintenance expenses increased$19 million in 2018 compared with 2017 due primarily to higher other employee benefits ($34 million ), consultant costs ($27 million ) and storm related costs ($16 million ), offset in part by lower stock based compensation ($36 million ) and surcharges for assessments and fees that are collected in revenues from customers ($23 million ). Depreciation and amortization increased$59 million in 2018 compared with 2017 due primarily to higher electric utility plant balances. Taxes, other than income taxes increased$51 million in 2018 compared with 2017 due primarily to higher property taxes ($100 million ) and state and local taxes ($3 million ), offset in part by deferral of under-collected property taxes due to new property tax rates for fiscal year 2017 - 2018 ($26 million ) and a sales and use tax refund ($26 million ). Gas CECONY's results of gas operations for the year endedDecember 31, 2018 compared with the year endedDecember 31, 2017 were as follows: For the Years Ended December 31, (Millions of Dollars) 2018 2017 Variation Operating revenues$2,078 $1,901 $177 Gas purchased for resale 643 510 133 Other operations and maintenance 420 413 7 Depreciation and amortization 205 185 20 Taxes, other than income taxes 332 298 34 Gas operating income$478 $495 $(17)
CECONY's gas sales and deliveries, excluding off-system sales, in 2018 compared with 2017 were:
Thousands of Dt Delivered
Revenues in Millions (a)
For the Years Ended For the Years Ended December December Percent December December Percent
Description 31, 2018 31, 2017 Variation Variation 31, 2018 31, 2017 Variation Variation Residential
57,815 52,244 5,571 10.7 %$966 $802 $164 20.4 % General 34,490 30,761 3,729 12.1 390 334 56 16.8 Firm transportation 82,472 71,353 11,119 15.6 595 524 71 13.5 Total firm sales and transportation 174,777 154,358 20,419 13.2 (b) 1,951 1,660 291 17.5 Interruptible sales (c) 7,351 7,553 (202 ) (2.7 ) 40 35 5 14.3 NYPA 34,079 37,033 (2,954 ) (8.0 ) 2 2 - - Generation plants 72,524 61,800 10,724 17.4 26 25 1 4.0 Other 20,822 21,317 (495 ) (2.3 ) 31 31 - - Other operating revenues (d) - - - - 28 148 (120) (81.1 ) Total 309,553 282,061 27,492 9.7 %$2,078 $1,901 $177 9.3 %
(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.
(b) After adjusting for variations, primarily billing days, firm gas sales and
transportation volumes in the company's service area increased 5.1 percent in
2018 compared with 2017, reflecting primarily increased volumes attributable
to the growth in the number of gas customers.
(c) Includes 3,326 thousands and 3,816 thousands of Dt for 2018 and 2017,
respectively, which are also reflected in firm transportation and other.
(d) Other gas operating revenues generally reflect changes in the revenue
decoupling mechanism and weather normalization clause current asset or
regulatory liability and changes in regulatory assets and liabilities in
accordance with other provisions of the company's rate plan. See Note B to
the financial statements in Item 8.
Operating revenues increased
CON EDISON ANNUAL REPORT 2019 65
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expense ($133 million ), offset in part by the reduction in other operating revenues resulting from the deferral as a regulatory liability of estimated net benefits for the 2018 period under the TCJA ($85 million ). Gas purchased for resale increased$133 million in 2018 compared with 2017 due to higher unit costs ($84 million ) and purchased volumes ($49 million ). Other operations and maintenance expenses increased$7 million in 2018 compared with 2017 due primarily to higher consultant costs. Depreciation and amortization increased$20 million in 2018 compared with 2017 due primarily to higher gas utility plant balances. Taxes, other than income taxes increased$34 million in 2018 compared with 2017 due primarily to higher property taxes ($40 million ) and state and local taxes ($6 million ), offset in part by deferral of under-collected property taxes due to new property tax rates for fiscal year 2017 - 2018 ($10 million ) and a sales and use tax refund ($3 million ). Steam CECONY's results of steam operations for the year endedDecember 31, 2018 compared with the year endedDecember 31, 2017 were as follows: For the Years Ended December 31, (Millions of Dollars) 2018 2017 Variation Operating revenues$631 $595 $36 Purchased power 40 36 4 Fuel 105 89 16 Other operations and maintenance 174 171 3 Depreciation and amortization 87 85 2 Taxes, other than income taxes 148 134 14 Steam operating income$77 $80 $(3)
CECONY's steam sales and deliveries in 2018 compared with 2017 were:
Millions of Pounds Delivered
Revenues in Millions
For the Years For the Years Ended Ended December December Percent December December Percent Description 31, 2018 31, 2017 Variation Variation 31, 2018 31, 2017 Variation Variation General 593 490 103 21.0 %$30 $26 $4 15.4 % Apartment house 6,358 5,754 604 10.5 174 158 16 10.1 Annual power 14,811 13,166 1,645 12.5 441 392 49 12.5 Other operating revenues (a) - - - - (14) 19 (33) Large Total 21,762 19,410 2,352 12.1 % (b)$631 $595 $36 6.1 %
(a) Other steam operating revenues generally reflect changes in regulatory assets
and liabilities in accordance with the company's rate plan. See Note B to the
financial statements in Item 8.
(b) After adjusting for variations, primarily weather and billing days, steam
sales and deliveries in the company's service area increased 0.6 percent in
2018 compared with 2017.
Operating revenues increased$36 million in 2018 compared with 2017 due primarily to the weather impact on revenues ($43 million ), higher fuel expenses ($16 million ) and purchased power ($4 million ), offset in part by the reduction in other operating revenues resulting from the deferral as a regulatory liability of estimated net benefits for the 2018 period under the TCJA ($15 million ) and higher regulatory reserve related to steam earnings sharing ($13 million ). Purchased power expenses increased$4 million in 2018 compared with 2017 due to higher purchased volumes ($6 million ), offset by lower unit costs ($2 million ). Fuel expenses increased$16 million in 2018 compared with 2017 due to higher unit costs ($12 million ) and purchased volumes ($4 million ). Other operations and maintenance expenses increased$3 million in 2018 compared with 2017 due primarily to property damage, clean-up and other response costs related to a steam main rupture inJuly 2018 ($14 million ),
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offset in part by surcharges for assessments and fees that are collected in revenues from customers ($4 million ) and lower municipal infrastructure support costs ($2 million ). Depreciation and amortization increased$2 million in 2018 compared with 2017 due primarily to higher steam utility plant balances. Taxes, other than income taxes increased$14 million in 2018 compared with 2017 due primarily to higher property taxes ($13 million ) and state and local taxes ($2 million ), offset in part by a sales and use tax refund ($1 million ). Taxes, Other Than Income Taxes At$2,156 million , taxes other than income taxes remain one of CECONY's largest operating expenses. The principal components of, and variations in, taxes other than income taxes were: For the Years Ended December 31, (Millions of Dollars) 2018 2017 Variation Property taxes$1,845 $1,692 $153 State and local taxes related to revenue receipts 330 319 11 Payroll taxes 69 67 2 Other taxes (88) (21) (67) Total$2,156 (a)$2,057 (a)$99
(a) Including sales tax on customers' bills, total taxes other than income taxes
in 2018 and 2017 were
Other Income (Deductions) Other income (deductions) decreased$6 million in 2018 compared with 2017 due primarily to an increase in non-service costs related to pension and other postretirement benefits. Net Interest Expense Net interest expense increased$66 million in 2018 compared with 2017 due primarily to higher debt balances in 2018. Income Tax Expense Income taxes decreased$359 million in 2018 compared with 2017 due primarily to lower income before income tax expense ($56 million ), a decrease in the corporate federal income tax rate due to the TCJA ($250 million ), a decrease in tax benefits for plant-related flow items ($9 million ) and an increase in the amortization of excess deferred federal income taxes due to the TCJA ($52 million ), offset in part by non-deductible business expenses ($3 million ) and a decrease in bad debt write-offs ($4 million ). O&R For the Year Ended For the Year Ended December 31, 2018 December 31, 2017 2018-2017 (Millions of Dollars) Electric Gas 2018 Total Electric Gas 2017 Total Variation Operating revenues$642 $249 $891 $642 $232 $874 $17 Purchased power 208 - 208 191 - 191 17 Gas purchased for resale - 86 86 - 73 73 13 Other operations and maintenance 233 72 305 232 64 296 9 Depreciation and amortization 56 21 77 51 20 71 6 Taxes, other than income taxes 52 31 83 53 29 82 1 Operating income$93 $39 $132 $115 $46 $161 $(29)
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Electric
O&R's results of electric operations for the year ended
For the Years Ended December 31, (Millions of Dollars) 2018 2017 Variation Operating revenues$642 $642 $- Purchased power 208 191 17 Other operations and maintenance 233 232 1 Depreciation and amortization 56 51 5 Taxes, other than income taxes 52 53 (1) Electric operating income$93 $115 $(22)
O&R's electric sales and deliveries in 2018 compared with 2017 were:
Millions of kWh Delivered Revenues in Millions (a) For the Years Ended For the Years Ended December December Percent December December Percent Description 31, 2018 31, 2017 Variation Variation 31, 2018 31, 2017 Variation Variation Residential/Religious (b) 1,713 1,567 146 9.3 %$326 $311 $15 4.8 % Commercial/Industrial 799 763 36 4.7 115 113 2 1.8 Retail choice customers 2,974 2,976 (2 ) (0.1 ) 201 201 - - Public authorities 131 105 26 24.8 12 9 3 33.3 Other operating revenues (c) - - - - (12) 8 (20) Large Total 5,617 5,411 206 3.8 % (d)$642 $642 $- -
(a) Revenues from
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
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 the revenue
decoupling mechanism current asset or regulatory liability in accordance with
the company's
and liabilities in accordance with the company's electric rate plans. See
Note B to the financial statements in Item 8.
(d) After adjusting for weather and other variations, electric delivery volumes
in company's service area increased 0.3 percent in 2018 compared with 2017.
Purchased power expenses increased$17 million in 2018 compared with 2017 due to higher purchased volumes ($15 million ) and unit costs ($3 million ). Other operations and maintenance expenses increased$1 million in 2018 compared with 2017 due primarily to the reduction of a regulatory asset associated with certain site investigation and environmental remediation costs ($6 million ), offset in part by lower surcharges for assessments and fees that are collected in revenues from customers ($3 million ) and lower healthcare costs ($2 million ). Depreciation and amortization increased$5 million in 2018 compared with 2017 due primarily to higher electric utility plant balances. Taxes, other than income taxes decreased$1 million in 2018 compared with 2017 due primarily to lower property taxes. Gas O&R's results of gas operations for the year endedDecember 31, 2018 compared with the year endedDecember 31, 2017 were as follows:
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For the Years Ended December 31, (Millions of Dollars) 2018 2017 Variation Operating revenues$249 $232 $17 Gas purchased for resale 86 73 13 Other operations and maintenance 72 64 8 Depreciation and amortization 21 20 1 Taxes, other than income taxes 31 29 2 Gas operating income$39 $46 $(7)
O&R's gas sales and deliveries, excluding off-system sales, in 2018 compared with 2017 were:
Thousands of Dt Delivered
Revenues in Millions (a)
For the Years Ended For the Years Ended December December Percent December December Percent Description 31, 2018 31, 2017 Variation Variation 31, 2018 31, 2017 Variation Variation Residential 9,860 8,296 1,564 18.9 %$140 $115 $25 21.7 % General 2,190 2,184 6 0.3 26 24 2 8.3 Firm transportation 9,950 9,873 77 0.8 78 74 4 5.4 Total firm sales and transportation 22,000 20,353 1,647 8.1 (b) 244 213 31 14.6 Interruptible sales 3,746 3,771 (25 ) (0.7 ) 6 7 (1) (14.3 ) Generation plants 1 9 (8 ) (88.9 ) - - - - Other 959 896 63 7.0 1 1 - - Other gas revenues - - - - (2) 11 (13) Large Total 26,706 25,029 1,677 6.7 %$249 $232 $17 7.3 %
(a) Revenues from
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, firm sales and
transportation volumes in the company's service area increased 2.4 percent in
2018 compared with 2017.
Operating revenues increased$17 million in 2018 compared with 2017 due primarily to the increase in gas purchased for resale ($13 million ) and higher revenues from theNew York gas rate plan ($12 million ), offset in part by the reduction in other operating revenues resulting from the deferral as a regulatory liability of estimated net benefits for the 2018 period under the TCJA ($8 million ). Gas purchased for resale increased$13 million in 2018 compared with 2017 due to higher purchased volumes ($11 million ) and unit costs ($2 million ). Other operations and maintenance expenses increased$8 million in 2018 compared with 2017 due primarily to higher pension costs ($6 million ) and the reduction of a regulatory asset associated with certain site investigation and environmental remediation costs ($3 million ), offset in part by lower healthcare costs ($1 million ). Depreciation and amortization increased$1 million in 2018 compared with 2017 due primarily to higher gas utility plant balances. Taxes, other than income taxes increased$2 million in 2018 compared with 2017 due primarily to higher property taxes ($1 million ) and state and local taxes ($1 million ). Taxes, Other Than Income Taxes Taxes, other than income taxes, increased$1 million in 2018 compared with 2017. The principal components of taxes, other than income taxes, were: For the Years Ended December 31, (Millions of Dollars) 2018 2017 Variation Property taxes$65 $66 $(1) State and local taxes related to revenue receipts 10 9 1 Payroll taxes 8 7 1 Total$83 (a)$82 (a)$1
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(a) Including sales tax on customers' bills, total taxes other than income taxes
in 2018 and 2017 were
Income Tax Expense Income taxes decreased$27 million in 2018 compared with 2017 due primarily to lower income before income tax expense ($7 million ), a decrease in the corporate federal income tax rate due to the TCJA ($15 million ) and an increase in the amortization of excess deferred federal income taxes due to the TCJA ($5 million ). Clean Energy Businesses The Clean Energy Businesses' results of operations for the year endedDecember 31, 2018 compared with the year endedDecember 31, 2017 were as follows: For the Years Ended December 31, (Millions of Dollars) 2018 2017 Variation Operating revenues$763 $694 $69 Purchased power 2 (3) 5 Gas purchased for resale 313 226 87 Other operations and maintenance 287 313
(26)
Depreciation and amortization 85 74
11
Taxes, other than income taxes 13 16
(3)
Gain on sale of solar electric production project (a) - 1
(1)
Gain on acquisition of Sempra Solar Holdings, LLC (a) 131 - 131 Operating income$194 $69 $125
(a) See Note U to the financial statements in Item 8.
Operating revenues increased$69 million in 2018 compared with 2017 due primarily to an increase in wholesale revenues ($89 million ) due to higher sales volumes and revenue from projects in operation ($28 million ), offset in part by a decrease in renewable revenues ($9 million ) from engineering, procurement and construction services revenues ($38 million ) and energy services revenues ($7 million ) and a decrease in net mark-to-market values ($5 million ). Purchased power expenses increased$5 million in 2018 compared with 2017 due primarily to true-ups relating to the sale of the retail electric supply business. Gas purchased for resale increased$87 million in 2018 compared with 2017 due to higher purchased volumes. Other operations and maintenance expenses decreased$26 million in 2018 compared with 2017 due primarily to decreased engineering, procurement and construction costs. Depreciation and amortization increased$11 million in 2018 compared with 2017 due to an increase in renewable electric production projects in operation during 2018. Taxes, other than income taxes decreased$3 million in 2018 compared with 2017 due to lower property taxes. Gain on sale of solar electric production project decreased$1 million in 2018 compared with 2017 due to the absence of gain on sale in 2018 ofUpton 2. See Note U to the financial statements in Item 8. Gain on acquisition ofSempra Solar Holdings, LLC increased$131 million in 2018 compared with 2017 due to the gain recognized with respect to jointly-owned renewable energy production projects upon completion of the acquisition ofSempra Solar Holdings, LLC . See Note U to the financial statements in Item 8. Net Interest Expense Net interest expense increased$20 million in 2018 compared with 2017 due primarily to the reversal of interest on uncertain tax positions in the 2017 period and higher interest rates in the 2018 period.
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Income Tax Expense Income taxes increased$292 million in 2018 compared with 2017 due primarily to the absence of the 2017 federal income tax benefit related to the re-measurement of the Clean Energy Businesses' deferred tax assets and liabilities based upon the 21 percent corporate income tax rate under the TCJA ($269 million ), higher income before income tax expense ($22 million ), higher state income taxes ($6 million ), a lower favorable state return-to-provision adjustment recorded in 2018 ($3 million ), a reduction in the reversal of uncertain tax positions in 2018 ($3 million ) and an increase in valuation allowances against state net operating loss carryforwards ($1 million ), offset in part by a decrease in the corporate federal income tax rate due to the TCJA ($8 million ) and an income tax benefit in 2018 related to the extension of energy efficiency programs ($3 million ). Con Edison Transmission Net Interest Expense Net interest expense increased$4 million in 2018 compared with 2017 due primarily to funding of increased investment inMountain Valley Pipeline, LLC . Other Income (Deductions) Other income (deductions) increased$11 million in 2018 compared with 2017 due primarily to increased earnings from equity investments inMountain Valley Pipeline, LLC . Income Tax Expense Income taxes increased$5 million in 2018 compared with 2017 due primarily to the absence of the 2017 federal income tax benefit related to the re-measurement of Con Edison Transmission's deferred tax assets and liabilities based upon the 21 percent corporate income tax rate under the TCJA ($11 million ) and the higher income before income tax expense in 2018 ($2 million ), offset in part by the decrease in the corporate federal income tax rate in 2018 due to the TCJA ($8 million ). Other Taxes, Other Than Income Taxes Taxes, other than income taxes increased$14 million in 2018 compared with 2017 due primarily to theNew York State capital tax in 2018. Other Income (Deductions) Other income (deductions) decreased$19 million in 2018 compared with 2017 due primarily to the transaction costs related to the acquisition ofSempra Solar Holdings, LLC . See Note U to the financial statements in Item 8. Income Tax Expense Income taxes increased$18 million in 2018 compared with 2017 due primarily toCon Edison's higher 2017 federal net operating loss carryover into 2018 on the federal tax return ($42 million ), the non-recurring deferred state income tax adjustment recorded in 2017 ($7 million ) and a decrease in the corporate federal tax rate in 2018 due to TCJA ($2 million ), offset in part by the absence of the 2017 federal income tax expense related to the re-measurement of Clean Energy Businesses' deferred tax assets and liabilities based upon the 21 percent corporate income tax rate under the TCJA ($21 million ), lower income before income tax expense ($6 million ) and lower state income taxes ($6 million ). See Note L to the financial statements in Item 8. Liquidity and Capital Resources The Companies' liquidity reflects cash flows from operating, investing and financing activities, as shown on their respective consolidated statements of cash flows and as discussed below. The principal factors affectingCon Edison's liquidity are its investments in the Utilities, the Clean Energy Businesses and Con Edison Transmission, the dividends it pays to its shareholders and the dividends it receives from the Utilities and cash flows from financing activities discussed below. The principal factors affecting CECONY's liquidity are its cash flows from operating activities, cash used in investing activities (including construction expenditures), the dividends it pays toCon Edison and cash flows from financing activities discussed below. The Companies generally maintain minimal cash balances and use short-term borrowings to meet their working capital needs and other cash requirements. The Companies repay their short-term borrowings using funds from long-term financings and operating activities. The Utilities' cost of capital, including working capital, is reflected in the rates they charge to their customers.
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Each of the Companies believes that it will be able to meet its reasonably likely short-term and long-term cash requirements. See "The Companies Require Access to Capital Markets to Satisfy Funding Requirements," "Changes To Tax Laws Could Adversely Affect the Companies" and "The Companies Also Face Other Risks That Are Beyond Their Control" in Item 1A, and "Capital Requirements and Resources" in Item 1.
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The Companies' cash, temporary cash investments and restricted cash resulting
from operating, investing and financing activities for the years ended
Clean Energy Con Edison CECONY O&R Businesses Transmission Other (a) Con Edison (b) (Millions of Dollars) 2019 2018 2017 2019 2018 2017 2019 2018 2017 2019 2018 2017 2019 2018 2017 2019 2018 2017 Operating activities$2,502 $2,204 $2,866 $190 $172 $216 $199 $220 $253 $194 $87 $(4) $49 $12 $36 $3,134 $2,695 $3,367 Investing activities (3,124) (3,306) (3,080) (218) (198) (196) (258) (1,740) (410)
(184) (227) (23) 2 - (1) (3,782) (5,471) (3,710) Financing activities 737 1,190 240 8 31 (22) 184 1,590 149 (12) 140 29 (58) (13) (39) 859 2,938 357 Net change for the period 115 88 26 (20) 5 (2) 125 70 (8) (2) - 2 (7) (1) (4) 211 162 14 Balance at beginning of period 818 730 704 52 47 49 126 56 64 2 2 - 8 9 13 1,006 844 830 Balance at end of period (c)$933 $818 $730 $32 $52 $47 $251 $126 $56 $-$2 $2 $1 $8 $9 $1,217 $1,006 $844 (a) Includes parent company and consolidation adjustments. (b) Represents the consolidated results of operations ofCon Edison and its businesses. (c) See "Reconciliation of Cash, Temporary Cash Investments and Restricted Cash" in Note A to the financial statements in Item 8.
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Cash Flows from Operating Activities The Utilities' cash flows from operating activities reflect primarily their energy sales and deliveries and cost of operations. The volume of energy sales and deliveries is affected primarily by factors external to the Utilities, such as growth of customer demand, weather, market prices for energy and economic conditions. Measures that promote distributed energy resources, such as distributed generation, demand reduction and energy efficiency, also affect the volume of energy sales and deliveries. See "Utility Regulation - State Utility Regulation - New York Utility Industry - Reforming the Energy Vision," "Competition" and "Environmental Matters - Climate Change" in Item 1. 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. See "Recoverable Energy Costs" in Note A to the financial statements in Item 8. Pursuant to their rate plans, the Utilities have recovered from customers a portion of the tax liability they will pay in the future as a result of temporary differences between the book and tax basis of assets and liabilities. These temporary differences affect the timing of cash flows, but not net income, as the Companies are required to record deferred tax assets and liabilities at the current corporate tax rate for the temporary differences. For the Utilities, credits to their customers of the net benefits of the TCJA, including the reduction of the corporate tax rate to 21 percent, decrease cash flows from operating activities. See "Changes To Tax Laws Could Adversely Affect the Companies," in Item 1A, "Federal Income Tax" in Note A, "Rate Plans" in Note B, "Other Regulatory Matters" in Note B and Note L to the financial statements in Item 8. 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, amortizations of certain regulatory assets and liabilities and accrued unbilled revenue. 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. See "Rate Plans -CECONY- Electric and Gas" and "Rate Plans - O&R New York - Electric and Gas" in Note B to the financial statements in Item 8. ForCon Edison , 2018 net income also included a non-cash gain recognized with respect to jointly-owned renewable energy production projects upon completion of the acquisition ofSempra Solar Holdings, LLC at the Clean Energy Businesses ($131 million ). See Note U to the financial statements in Item 8. Net cash flows from operating activities in 2019 forCon Edison and CECONY were$439 million and$298 million higher, respectively, than in 2018. The changes in net cash flows forCon Edison and CECONY reflect primarily lower pension and retiree benefit contributions ($122 million and$115 million , respectively), lower storm restoration costs ($192 million and$132 million , respectively), lower MTA power reliability costs ($160 million and$160 million , respectively), reimbursement received for restoration costs related to the restoration of power inPuerto Rico in the aftermath of theSeptember 2017 hurricanes ($95 million and$89 million , respectively), and for CECONY, lower net payments of income tax to affiliated companies ($122 million ), offset, in part, by higher TCJA net benefits provided to customers in the 2019 period ($379 million and$376 million , respectively). Net cash flows from operating activities in 2018 forCon Edison and CECONY were$672 million and$662 million lower, respectively, than in 2017. The change in net cash flows forCon Edison and CECONY reflects primarily cash payments for MTA power reliability costs ($179 million and$179 million , respectively) andPuerto Rico related restoration costs ($104 million and$98 million , respectively), storm restoration costs ($193 million and$133 million , respectively), higher accounts receivable from customers ($149 million and$168 million , respectively) primarily due to an increase in billed revenues for gas, higher pension and retiree benefit obligations ($89 million and$77 million , respectively), and lower income tax refunds received, net of income taxes paid ($29 million and$87 million , respectively). The change in net cash flows for CECONY also reflects an increase in accounts receivables from affiliated companies ($195 million ) primarily related to estimated federal income tax payments for 2018 exceeding the accrued income tax liability at year end and CECONY's ability to use its 2017 net operating loss carryover in 2018. These changes are offset in part by the cash impact of the Utilities' estimated net benefits in the 2018 period under the TCJA ($434 million and$411 million , respectively). See "Assets, Liabilities and Equity," below. The change in net cash flows also reflects the timing of payments for and recovery of energy costs. This timing is reflected within changes to accounts receivable - customers, recoverable and refundable energy costs within other regulatory assets and liabilities and accounts payable balances. Cash Flows Used in Investing Activities Net cash flows used in investing activities forCon Edison and CECONY were$1,689 million and$182 million lower, respectively, in 2019 than in 2018. The change forCon Edison reflects primarily the acquisition ofSempra Solar Holdings, LLC , net of cash acquired, at the Clean Energy Businesses in 2018 ($1,488 million ) (see Note U to the
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financial statements in Item 8) and proceeds received in 2019 from the sale of properties formerly used by CECONY in its operations ($187 million ). Net cash flows used in investing activities forCon Edison and CECONY were$1,761 million and$226 million higher, respectively, in 2018 than in 2017. The change forCon Edison reflects primarily the acquisition ofSempra Solar Holdings, LLC , net of cash acquired, at the Clean Energy Businesses ($1,488 million ) (see Note U to the financial statements in Item 8), higher new investments in electric and gas transmission projects at Con Edison Transmission ($204 million ) and increased utility construction expenditures at CECONY ($211 million ) and O&R ($10 million ), offset in part by lower non-utility construction expenditures at the Clean Energy Businesses ($169 million ). Cash Flows From Financing Activities Net cash flows from financing activities in 2019 forCon Edison and CECONY were$2,079 million and$453 million lower, respectively, than in 2018. Net cash flows from financing activities in 2018 forCon Edison and CECONY were$2,581 million and$950 million higher, respectively, than in 2017. Net cash flows from financing activities during the years endedDecember 31, 2019 , 2018 and 2017 reflect the followingCon Edison transactions: 2019 • Redeemed in advance of maturity$400 million of 2.00 percent 3-year
debentures;
• Entered into a forward sale agreement relating to 5,800,000 shares of its
common stock. In
million upon physical settlement of shares subject to the forward sale agreement.Con Edison used the proceeds to invest in CECONY for funding of its capital requirements and other general corporate purposes. At
agreement. In
million upon physical settlement of the remaining shares subject to the
forward sale agreement. See Note C to the financial statements in Item 8;
• Issued 5,649,369 shares of its common stock for
settlement of the remaining shares subject to its
agreements.
funding of their capital requirements and to repay short-term debt incurred
for that purpose; and
• Borrowed
repayment of a 6-month variable-rate term loan. In
pre-paid
2018 • Issued 9,324,123 common shares for$705 million pursuant to forward sale
agreements and borrowed
which amounts, along with
pay the purchase price for the acquisition by the Clean Energy Businesses of
million term loan with borrowings under a two-year term loan agreement. See
Notes D and U to the financial statements in Item 8.
2017
• Issued 4,100,000 common shares resulting in net proceeds of
after issuance expenses, that were invested by
subsidiaries, principally CECONY and the Clean Energy Businesses, for funding
of their construction expenditures and for other general corporate purposes;
and
• Issued
due 2020, and prepaid the
was to mature in 2018.Con Edison's cash flows from financing activities in 2019, 2018 and 2017 also reflect the proceeds, and reduction in cash used for reinvested dividends, resulting from the issuance of common shares under the company's dividend reinvestment, stock purchase and long-term incentive plans of$101 million ,$100 million and$97 million , respectively. Net cash flows from financing activities during the years endedDecember 31, 2019 , 2018 and 2017 reflect the following CECONY transactions: 2019 • Issued$600 million aggregate principal amount of 3.70 percent debentures,
due 2059, and
debentures, due 2049, the net proceeds from the sale of which were used to
repay short-term borrowings and for other general corporate purposes; and
• Redeemed at maturity
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2018
• Issued
due 2028, and
debentures, due 2048, the net proceeds from the sale of which were used to
redeem at maturity
general corporate purposes, including repayment of short-term debt;
• Issued
variable interest rate of 0.40 percent above three-month LIBOR and redeemed
determined pursuant to periodic auctions;
• Issued
due 2058, and
debentures, due 2028, the net proceeds from the sale of which were used to
repay short-term borrowings and for other general corporate purposes; and
• Redeemed at maturity
2017
• Issued
due 2027,
due 2057, and
debentures, due 2047, the net proceeds from the sales of which were used to
repay short-term borrowings and for other general corporate purposes.
Net cash flows from financing activities during the years ended
2019
• Issued
2049,
2029, and
due 2039, the net proceeds from the sales of which were used to repay
short-term borrowings and for other general corporate purposes; and
• Redeemed at maturity
2018
• Redeemed at maturity
• Issued
due 2048, the net proceeds from the sale of which were used to repay short-term borrowings and for other general corporate purposes.
O&R had no issuances of long-term debt in 2017.
Net cash flows from financing activities during the years ended
2019
• Issued
due 2038, secured by the company's California Solar 4 renewable electric
production projects; and
• Borrowed
interests in solar electric production projects, the net proceeds from the
sale of which were used to repay borrowings from
general corporate purposes.
pre-pay
the remainder to repay short-term borrowings and for other general corporate
purposes. The company has entered into fixed-rate interest rate swaps in connection with this borrowing. See Note O to the financial statements in Item 8.
2018
• Issued
due 2028, secured by the company'sWind Holdings renewable electric production projects.
2017
• Issued
due 2042, secured by the company's Upton County Solar renewable electric
production project.
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Cash flows from financing activities of the Companies also reflect commercial paper issuance. The commercial paper amounts outstanding atDecember 31, 2019 , 2018 and 2017 and the average daily balances for 2019, 2018 and 2017 forCon Edison and CECONY were as follows: 2019 2018
2017
(Millions of Dollars, except Weighted Average Outstanding at Daily Outstanding at Daily Outstanding at Daily Yield) December 31 average December 31 average December 31 average Con Edison$1,692 $1,074 $1,741 $889 $577 $566 CECONY$1,137 $734 $1,192 $532 $150 $251 Weighted average yield 2.0 % 2.5 % 3.0 % 2.3 % 1.8 % 1.2 % Common stock issuances and external borrowings are sources of liquidity that could be affected by changes in credit ratings, financial performance and capital market conditions. For information about the Companies' credit ratings and certain financial ratios, see "Capital Requirements and Resources" in Item 1. Capital Requirements and Resources For information about capital requirements, contractual obligations and capital resources, see "Capital Requirements and Resources" in Item 1. Assets, Liabilities and Equity The Companies' assets, liabilities and equity atDecember 31, 2019 and 2018 are summarized as follows: Clean Energy Con Edison CECONY O&R Businesses Transmission Other (a) Con Edison (b) (Millions of Dollars) 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 ASSETS Current assets$3,543 $3,357 $243 $263 $511 $372 $2 $32 $(27) $(160) $4,272 $3,864 Investments 461 385 26 25 - - 1,585 1,362 (7) (6) 2,065 1,766 Net plant 37,414 35,374 2,336 2,210 4,121 4,148 17 17 1 - 43,889 41,749 Other noncurrent assets 5,139 3,992 401 394 1,896 1,736 14 14 403 405 7,853 6,541 Total Assets$46,557 $43,108 $3,006 $2,892 $6,528 $6,256 $1,618 $1,425 $370 $239 $58,079 $53,920 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities$4,131 $4,200 $311 $392 $1,525 $1,608 $135 $5 $185 $2 $6,287 $6,207 Noncurrent liabilities 13,665 12,322 1,115 1,094 201 (32) 88 66 (17) (71) 15,052 13,379 Long-term debt 14,614 13,676 818 694 2,400 2,330 500 500 195 295 18,527 17,495 Equity 14,147 12,910 762 712 2,402 2,350 895 854 7 13 18,213 16,839 Total Liabilities and Equity$46,557 $43,108 $3,006 $2,892 $6,528 $6,256 $1,618 $1,425 $370 $239 $58,079 $53,920
(a) Includes parent company and consolidation adjustments.
(b) Represents the consolidated results of operations of
CECONY
Current assets atDecember 31, 2019 were$186 million higher than atDecember 31, 2018 . The change in current assets reflects an increase in cash and temporary cash investments ($115 million ), accrued unbilled revenue ($85 million ) and revenue decoupling mechanism receivable ($76 million ), offset, in part, by a decrease in other receivables ($91 million ). The decrease in other receivables reflects primarily the receipt of payments related to costs for aid provided by CECONY for the restoration of power inPuerto Rico in the aftermath of theSeptember 2017 hurricanes ($89 million ). Investments atDecember 31, 2019 were$76 million higher than atDecember 31, 2018 . The change in investments reflects primarily an increase in supplemental retirement income plan assets. See "Investments" in Note A and Note E to the financial statements in Item 8. Net plant atDecember 31, 2019 was$2,040 million higher than atDecember 31, 2018 . The change in net plant reflects primarily an increase in electric ($1,394 million ) and gas ($934 million ) plant balances, offset, in part, by an increase in accumulated depreciation ($502 million ).
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Other noncurrent assets atDecember 31, 2019 were$1,147 million higher than atDecember 31, 2018 . The change in other noncurrent assets reflects primarily the adoption of ASU No. 2016-02, "Leases (Topic 842)" ($601 million ). See Note J to the financial statements in Item 8. The change also reflects primarily an increase in the regulatory asset for property tax reconciliation ($124 million ), deferred derivative losses ($65 million ) and MTA power reliability deferral ($19 million ) which reflects costs incurred and deferred as a regulatory asset in the 2019 period. See "Regulatory Assets and Liabilities" in Note B to the financial statements in Item 8. It also reflects an increase in the regulatory asset for unrecognized pension and other postretirement costs to reflect the final actuarial valuation, as measured atDecember 31, 2019 , of the pension and other retiree benefit plans in accordance with the accounting rules for retirement benefits ($292 million ). See Notes B, E and F to the financial statements in Item 8. The change in the regulatory asset also reflects the year's amortization of accounting costs. Current liabilities atDecember 31, 2019 were$69 million lower than atDecember 31, 2018 . The change in current liabilities reflects primarily lower debt due within one year as ofDecember 31, 2019 ($125 million ), offset, in part, by an increase in the fair value of derivative liabilities ($56 million ). Noncurrent liabilities atDecember 31, 2019 were$1,343 million higher than atDecember 31, 2018 . The change in noncurrent liabilities reflects primarily the adoption of ASU No. 2016-02, "Leases (Topic 842)" ($551 million ). See Note J to the financial statements in Item 8. The change also reflects an increase in deferred income taxes and unamortized investment tax credits ($261 million ), which reflects primarily accelerated tax depreciation and repair deductions. See Note L to the financial statements in Item 8. It also reflects an increase in the liability for pension and retiree benefits ($289 million ), which primarily reflects contributions to the pension and other retiree benefit plans made by the Utilities in 2019 and the final actuarial valuation, as measured atDecember 31, 2019 of the plans in accordance with the accounting rules for retirement benefits. See Notes E and F to the financial statements in Item 8. Long-term debt atDecember 31, 2019 was$938 million higher than atDecember 31, 2018 . The change in long-term debt reflects primarily theMay 2019 issuance of$700 million andNovember 2019 issuance of$600 million of debentures offset, in part, by the reclassification of$350 million of long-term debt dueJune 2020 to long-term debt due within one year. See "Liquidity and Capital Resources - Cash Flows From Financing Activities" above and Note C to the financial statements in Item 8. Equity atDecember 31, 2019 was$1,237 million higher than atDecember 31, 2018 . The change in equity reflects net income for the year ($1,250 million ) and capital contributions from parent ($900 million ) in 2019, offset, in part, by common stock dividends to parent ($912 million ) in 2019.
O&R
Current assets atDecember 31, 2019 were$20 million lower than atDecember 31, 2018 . The change in current assets reflects primarily a decrease in cash and temporary cash investments ($18 million ) and customer accounts receivables, less allowance for uncollectible accounts ($15 million ). These decreases are offset, in part, by an increase in accrued unbilled revenue ($8 million ). Net plant atDecember 31, 2019 was$126 million higher than atDecember 31, 2018 . The change in net plant reflects primarily an increase in electric ($94 million ) and gas ($59 million ) plant balances, offset, in part, by an increase in accumulated depreciation ($37 million ). Current liabilities atDecember 31, 2019 were$81 million lower than atDecember 31, 2018 . The change in current liabilities reflects primarily lower debt due within one year as ofDecember 31, 2019 . Long-term debt atDecember 31, 2019 was$124 million higher than atDecember 31, 2018 . The change in long-term debt reflects primarily theNovember 2019 issuance of$43 million andDecember 2019 issuances of$82 million of debentures. See "Liquidity and Capital Resources - Cash Flows From Financing Activities" above. Equity atDecember 31, 2019 was$50 million higher than atDecember 31, 2018 . The change in equity reflects net income for the year ($70 million ) and a capital contribution from parent ($30 million ) in 2019, offset, in part, by common stock dividends to parent ($47 million ) in 2019 and a decrease in other comprehensive income ($4 million ). Clean Energy Businesses Current assets atDecember 31, 2019 were$139 million higher than atDecember 31, 2018 . The change in current assets reflects primarily increases in restricted cash.
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Net plant atDecember 31, 2019 was$27 million lower than atDecember 31, 2018 . The change in net plant reflects primarily depreciation for the year endedDecember 31, 2019 , investment tax credits and the reduction in the capitalized asset and related liability for asset retirement obligations for certain property leased by renewable electric production projects, offset, in part, by additional capital expenditures. Other noncurrent assets atDecember 31, 2019 were$160 million higher than atDecember 31, 2018 . The change in other noncurrent assets reflects primarily the adoption of ASU No. 2016-02, "Leases (Topic 842)." See Note J to the to the financial statements in Item 8. Current liabilities atDecember 31, 2019 were$83 million lower than atDecember 31, 2018 . The change in current liabilities reflects primarily the repayment of a borrowing under a 6-month term loan agreement with the proceeds of a 2-year term loan agreement ($825 million ) and a decrease in working capital requirements primarily due to the funding of theCalifornia Holdings 4 project debt ($187 million ), offset, in part, by the reclassification of the PG&E-related project debt from long-term debt to long-term debt due within one year ($990 million ). See "Long-Term Debt" in Note C to the financial statements in Item 8. Noncurrent liabilities atDecember 31, 2019 were$233 million higher than atDecember 31, 2018 . The change in noncurrent liabilities reflects primarily the adoption of ASU No. 2016-02 "Leases (Topic 842)" and a decrease in deferred income taxes and unamortized investment tax credits, which reflects primarily accelerated depreciation on renewable energy projects and the utilization of federal net operating loss carryforwards, offset, in part, by the reduction in the capitalized asset and related liability for asset retirement obligations for certain property leased by renewable electric production projects and See Note J to the financial statements in Item 8. Long-term debt atDecember 31, 2019 was$70 million higher than atDecember 31, 2018 . The change in long-term debt primarily reflects aMay 2019 borrowing of$464 million , due 2026, secured by equity interests in solar electric production projects, and anOctober 2019 issuance of$303 million , due 2038, secured by the company's California Solar 4 renewable electric production projects, offset, in part, by the reclassification of the PG&E-related project debt to long-term debt due within one year ($990 million ) and the repayment to parent of$450 million of an$825 million borrowing. See "Long-Lived and Intangible Assets" in Note A and "Long-Term Debt" in Note C to the financial statements in Item 8. Equity atDecember 31, 2019 was$52 million higher than atDecember 31, 2018 . The change in equity reflects primarily an increase in noncontrolling interest ($78 million ), offset, in part, by a net loss for the for the year ($18 million ) and common stock dividends to parent ($3 million ) in 2019.
CET
Current assets atDecember 31, 2019 were$30 million lower than atDecember 31, 2018 . The change in current assets reflects an increased investment inMountain Valley Pipeline, LLC and a NY Transco electric transmission project. See "Con Edison Transmission -CET Gas " in Item 1. Investments atDecember 31, 2019 were$223 million higher than atDecember 31, 2018 . The change in investments reflects primarily increased investment inMountain Valley Pipeline, LLC and a NY Transco electric transmission project. See "Investments" in Note A and Note U to the financial statements in Item 8.
Current liabilities at
Noncurrent liabilities atDecember 31, 2019 was$22 million higher than atDecember 31, 2018 . The change in noncurrent liabilities reflects primarily an increase in deferred income taxes and unamortized investment tax credits, which reflects primarily accelerated tax depreciation and repair deductions. Equity atDecember 31, 2019 was$41 million higher than atDecember 31, 2018 . The change in equity reflects net income for the year ($52 million ), offset, in part, by common stock dividends to parent ($12 million ) in 2019. Off-Balance Sheet Arrangements InMay 2019 ,Con Edison entered into a forward sale agreement which met theSEC definition of an off-balance sheet arrangement, which the company physically settled by issuing 4,750,000 shares of its common stock inJune 2019 and 1,050,000 shares inJanuary 2020 . See Note C to the financial statements in Item 8 for more information
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on this agreement. None of the Companies' other transactions, agreements or
other contractual arrangements meet the
Regulatory Matters For information about the Utilities' rate plans and other regulatory matters affecting the Companies, see "Utility Regulation" in Item 1 and Note B to the financial statements in Item 8. Risk Factors The Companies' businesses are influenced by many factors that are difficult to predict, and that involve uncertainties that may materially affect actual operating results, cash flows and financial condition. See "Risk Factors" in Item 1A. Application of Critical Accounting Policies The Companies' financial statements reflect the application of their accounting policies, which conform to accounting principles generally accepted inthe United States of America . The Companies' critical accounting policies include industry-specific accounting applicable to regulated public utilities and accounting for pensions and other postretirement benefits, contingencies, long-lived assets, goodwill and derivative instruments. Accounting forRegulated Public Utilities The Utilities are subject to the accounting rules for regulated operations and the accounting requirements of theFERC and the state public utility regulatory commissions having jurisdiction. The accounting rules for regulated operations specify the economic effects that result from the causal relationship of costs and revenues in the rate-regulated environment and how these effects are to be accounted for by a regulated enterprise. Revenues intended to cover some costs may be recorded either before or after the costs are incurred. If regulation provides assurance that incurred costs will be recovered in the future, these costs would be recorded as deferred charges, or "regulatory assets," under the accounting rules for regulated operations. If revenues are recorded for costs that are expected to be incurred in the future, these revenues would be recorded as deferred credits, or "regulatory liabilities," under the accounting rules for regulated operations. The Utilities' principal regulatory assets and liabilities are listed in Note B to the financial statements in Item 8. The Utilities are receiving or being credited with a return on all of their regulatory assets for which a cash outflow has been made. The Utilities are paying or being charged with a return on all of their regulatory liabilities for which a cash inflow has been received. The Utilities' regulatory assets and liabilities atDecember 31, 2019 are recoverable from customers, or to be applied for customer benefit, in accordance with rate provisions that have been approved by the applicable public utility regulatory commission. In the event that regulatory assets of the Utilities were no longer probable of recovery, as required by the accounting rules for regulated operations, these regulatory assets would be charged to earnings. AtDecember 31, 2019 , the regulatory assets forCon Edison and CECONY were$4,987 million and$4,600 million , respectively. Accounting for Pensions and Other Postretirement BenefitsThe Utilities provide pensions and other postretirement benefits to substantially all of their employees and retirees. The Clean Energy Businesses and Con Edison Transmission also provide such benefits to transferred employees who previously worked for the Utilities. The Companies account for these benefits in accordance with the accounting rules for retirement benefits. In addition, the Utilities apply the accounting rules for regulated operations to account for the regulatory treatment of these obligations (which, as described in Note B to the financial statements in Item 8, reconciles the amounts reflected in rates for the costs of the benefit to the costs actually incurred). In applying these accounting policies, the Companies have made critical estimates related to actuarial assumptions, including assumptions of expected returns on plan assets, discount rates, health care cost trends and future compensation. See Notes A, E and F to the financial statements in Item 8 for information about the Companies' pension and other postretirement benefits, the actuarial assumptions, actual performance, amortization of investment and other actuarial gains and losses and calculated plan costs for 2019, 2018 and 2017. The discount rate for determining the present value of future period benefit payments is determined using a model to match the durations of highly-rated (Aa or higher by either Moody's or S&P) corporate bonds with the projected stream of benefit payments.
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In determining the health care cost trend rate, the Companies review actual recent cost trends and projected future trends. The cost of pension and other postretirement benefits in future periods will depend on actual returns on plan assets, assumptions for future periods, contributions and benefit experience.Con Edison's and CECONY's current estimates for 2020 are increases, compared with 2019, in their pension and other postretirement benefits costs of$160 million and$151 million , respectively.
The following table illustrates the effect on 2020 pension and other postretirement costs of changing the critical actuarial assumptions, while holding all other actuarial assumptions constant:
Other Change in Postretirement Actuarial Assumption Assumption Pension Benefits Total (Millions of Dollars) Increase in accounting cost: Discount rate Con Edison (0.25 )%$62 $3 $65 CECONY (0.25 )%$59 $2 $61 Expected return on plan assets Con Edison (0.25 )%$35 $2 $37 CECONY (0.25 )%$34 $2 $36 Health care trend rate Con Edison 1.00 % $-$9 $9 CECONY 1.00 % $-$4 $4 Increase in projected benefit obligation: Discount rate Con Edison (0.25 )%$666 $39 $705 CECONY (0.25 )%$631 $31 $662 Health care trend rate Con Edison 1.00 % $-$61 $61 CECONY 1.00 % $-$34 $34 A 5.0 percentage point variation in the actual annual return in 2020, as compared with the expected annual asset return of 7.00 percent, would change pension and other postretirement benefit costs forCon Edison and CECONY by approximately$27 million and$25 million , respectively, in 2021. Pension benefits are provided through a pension plan maintained byCon Edison to which CECONY, O&R, the Clean Energy Businesses and Con Edison Transmission make contributions for their participating employees. Pension accounting by the Utilities includes an allocation of plan assets. The Companies' policy is to fund their pension and other postretirement benefit accounting costs to the extent tax deductible, and for the Utilities, to the extent these costs are recovered under their rate plans. The Companies were not required to make cash contributions to the pension plan in 2019 under funding regulations and tax laws. However, CECONY and O&R made discretionary contributions to the pension plan in 2019 of$318 million and$32 million , respectively. In 2020, CECONY and O&R expect to make contributions to the pension plan of$433 million and$39 million , respectively. See "Expected Contributions" in Notes E and F to the financial statements in Item 8. Accounting for Contingencies The accounting rules for contingencies apply to an existing condition, situation or set of circumstances involving uncertainty as to possible loss that will ultimately be resolved when one or more future events occur or fail to occur. Known material contingencies, which are described in the notes to the financial statements, include certain regulatory matters (Note B), the Utilities' responsibility for hazardous substances, such as asbestos, PCBs and coal tar that have been used or generated in the course of operations (Note G) and other contingencies (Note H). In accordance with the accounting rules, the Companies have accrued estimates of losses relating to the
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contingencies as to which loss is probable and can be reasonably estimated, and no liability has been accrued for contingencies as to which loss is not probable or cannot be reasonably estimated. The Utilities recover costs for asbestos lawsuits, workers' compensation and environmental remediation pursuant to their current rate plans. Generally, changes during the terms of the rate plans to the amounts accrued for these contingencies would not impact earnings. Accounting for Long-Lived and Intangible Assets The accounting rules for certain long-lived assets and intangible assets with definite lives require testing for recoverability whenever events or changes in circumstances indicate their carrying amounts may not be recoverable. The carrying amount of a long-lived asset or intangible asset with a definite life is deemed not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Under the accounting rules, an impairment loss is recognized if the carrying amount is not recoverable from such cash flows, and exceeds its fair value, which approximates market value. InJanuary 2019 , PG&E filed for reorganization under Chapter 11 of theU.S. Bankruptcy Code. The output of certain of the Clean Energy Businesses' PG&E Projects is sold under PG&E PPAs. AtDecember 31, 2019 ,Con Edison's consolidated balance sheet included$819 million of net non-utility plant relating to the PG&E Projects,$1,057 million of intangible assets relating to the PG&E PPAs,$282 million of net non-utility plant of additional projects that secure the related project debt and$1,001 million of related project debt.Con Edison has tested whether its net non-utility plant relating to the PG&E Projects and intangible assets relating to the PG&E PPAs have been impaired. Based on the test,Con Edison has determined that there was no impairment. For other long-lived assets or intangible assets with definite lives,Con Edison recorded$2 million of impairment charges in 2018, and no impairment charges were recorded in 2019 or 2017. See "Clean Energy Businesses -Renewable Electric Production," in Item 1 and "Long-Lived and Intangible Assets" in Note A and "Long-term Debt" in Note C to the financial statements in Item 8. Accounting forGoodwill In accordance with the accounting rules for goodwill and intangible assets,Con Edison is required to test goodwill for impairment annually or whenever there is a triggering event. The company has an option to first make a qualitative assessment that evaluates relevant events and circumstances, such as industry and market conditions, regulatory environment and financial performance. If, after applying the optional qualitative assessment, it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the company then applies a two-step, quantitative goodwill impairment test. AtDecember 31, 2019 ,Con Edison's consolidated balance sheet included goodwill of$446 million . No material impairment charges on goodwill were recognized in 2019, 2018 or 2017. See "Goodwill" in Note A and Note K to the financial statements in Item 8. Accounting for Derivative Instruments The Companies apply the accounting rules for derivatives and hedging to their derivative financial instruments. The Companies use derivative financial instruments to hedge market price fluctuations in related underlying transactions for the physical purchase and sale of electricity and gas. The Utilities are permitted by their respective regulators to reflect in rates all reasonably incurred gains and losses on these instruments. The Clean Energy Businesses have also hedged interest rate risk on certain debt securities. See "Financial and Commodity Market Risks," below and Note O to the financial statements in Item 8. Where the Companies are required to make mark-to-market estimates pursuant to the accounting rules, the estimates of gains and losses at a particular period end do not reflect the end results of particular transactions, and will most likely not reflect the actual gain or loss at the conclusion of a transaction. Substantially all of the estimated gains or losses are based on prices supplied by external sources such as the fair value of exchange-traded futures and options and the fair value of positions for which price quotations are available through or derived from brokers or other market sources. 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 and investment risk.
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Interest Rate Risk The Companies' interest rate risk relates primarily to new debt financing needed to fund capital requirements, including the construction expenditures of the Utilities and maturing debt securities, and variable-rate debt.Con Edison and its subsidiaries manage interest rate risk through the issuance of mostly fixed-rate debt with varying maturities and through opportunistic refinancing of debt. The Clean Energy Businesses also use interest rate swaps. See Note O to the financial statements in Item 8.Con Edison and CECONY estimate that atDecember 31, 2019 , a 10 percent increase in interest rates applicable to its variable rate debt would result in an increase in annual interest expense of$7 million and$4 million , respectively. Under CECONY's current electric, gas and steam rate plans, variations in actual variable rate tax-exempt debt interest expense, including costs associated with the refinancing of the variable-rate tax-exempt debt, are reconciled to levels reflected in rates. Commodity Price RiskCon Edison's commodity price risk relates primarily to the purchase and sale of electricity, gas and related derivative instruments. The Utilities and the Clean Energy Businesses apply risk management strategies to mitigate their related exposures. See Note O to the financial statements in Item 8.Con Edison estimates that, as ofDecember 31, 2019 , a 10 percent decline in market prices would result in a decline in fair value of$81 million for the derivative instruments used by the Utilities to hedge purchases of electricity and gas, of which$76 million is for CECONY and$5 million is for O&R.Con Edison expects that any such change in fair value would be largely offset by directionally opposite changes in the cost of the electricity and gas purchased. In accordance with provisions approved by state regulators, the Utilities generally recover from customers the costs they incur for energy purchased for their customers, including gains and losses on certain derivative instruments used to hedge energy purchased and related costs. See "Recoverable Energy Costs" in Note A to the financial statements in Item 8. The Clean Energy Businesses use a value-at-risk (VaR) model to assess the market price risk of their portfolio of electricity and gas commodity fixed-price purchase and sales commitments, physical forward contracts, generating assets and commodity derivative instruments. VaR represents the potential change in fair value of the portfolio due to changes in market prices for a specified time period and confidence level. These businesses estimate VaR across their portfolio using a delta-normal variance/covariance model with a 95 percent confidence level, compare the measured VaR results against performance due to actual prices and stress test the portfolio each quarter using an assumed 30 percent price change from forecast. Since the VaR calculation involves complex methodologies and estimates and assumptions that are based on past experience, it is not necessarily indicative of future results. VaR for the portfolio, assuming a one-day holding period, for the years endedDecember 31, 2019 and 2018, respectively, was as follows: 95% Confidence Level, One-Day Holding Period 2019 2018 (Millions of Dollars) Average for the period $- $- High 1 1 Low - - Investment Risk The Companies' investment risk relates to the investment of plan assets for their pension and other postretirement benefit plans and to the investments of Con Edison Transmission that are accounted for under the equity method. See "Application of Critical Accounting Policies - Accounting for Pensions and Other Postretirement Benefits," above and Notes A, E and F to the financial statements in Item 8. The Companies' current investment policy for pension plan assets includes investment targets of 45 to 55 percent equity securities, 33 to 43 percent debt securities and 10 to 14 percent real estate. AtDecember 31, 2019 , the pension plan investments consisted of 51 percent equity securities, 38 percent debt securities and 11 percent real estate. 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
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customers the difference between the pension and other postretirement benefit expenses and the amounts for such expenses reflected in rates. O&R also defers such difference pursuant to itsNew York rate plans. Environmental Matters For information concerning climate change, environmental sustainability, potential liabilities arising from laws and regulations protecting the environment and other environmental matters, see "Environmental Matters" in Item 1 and Note G to the financial statements in Item 8. Impact of Inflation The Companies are affected by the decline in the purchasing power of the dollar caused by inflation. Regulation permits the Utilities to recover through depreciation only the historical cost of their plant assets even though in an inflationary economy the cost to replace the assets upon their retirement will substantially exceed historical costs. The impact is, however, partially offset by the repayment of the Companies' long-term debt in dollars of lesser value than the dollars originally borrowed. Material Contingencies For information concerning potential liabilities arising from the Companies' material contingencies, see "Application of Critical Accounting Policies - Accounting for Contingencies," above, and Notes B, G and H to the financial statements in Item 8. Item 7A: Quantitative and Qualitative Disclosures about Market RiskCon Edison For information aboutCon Edison's primary market risks associated with activities in derivative financial instruments, other financial instruments and derivative commodity instruments, see "Financial and Commodity Market Risks," in Item 7 (which information is incorporated herein by reference). See also "The Companies Require Access To Capital Markets to Satisfy Funding Requirements," in Item 1A. CECONY For information about CECONY's primary market risks associated with activities in derivative financial instruments, other financial instruments and derivative commodity instruments, see "Financial and Commodity Market Risks" in Item 7 (which information is incorporated herein by reference). See also "The Companies Require Access To Capital Markets to Satisfy Funding Requirements," in Item 1A.
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Item 8: Financial Statements and Supplementary Data Financial Statements
Page
Supplementary Financial Information
Report of Management on Internal Control Over Financial Reporting 87
Report of Independent Registered Public Accounting Firm
88
Consolidated Income Statement for the years ended
91
Consolidated Statement of Comprehensive Income for the years ended
92
Consolidated Statement of Cash Flows for the years ended
93
Consolidated Balance Sheet atDecember 31, 2019 and 2018
94
Consolidated Statement of Equity for the years ended
96
Consolidated Statement of Capitalization at
97
CECONY
Report of Management on Internal Control Over Financial Reporting 100
Report of Independent Registered Public Accounting Firm
101
Consolidated Income Statement for the years ended
103
Consolidated Statement of Comprehensive Income for the years ended
104
Consolidated Statement of Cash Flows for the years ended
105
Consolidated Balance Sheet atDecember 31, 2019 and 2018
106
Consolidated Statement of Shareholder's Equity for the years ended
108
Consolidated Statement of Capitalization at
109
Notes to the Financial Statements
111
Financial Statement SchedulesCon Edison
Schedule I - Condensed Financial Information of
172
Schedule II - Valuation and Qualifying Accounts for the years ended
175
CECONY
Schedule II - Valuation and Qualifying Accounts for the years ended
175
All other schedules are omitted because they are not applicable or the required information is shown in financial statements or notes thereto.
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Supplementary Financial Information Selected Quarterly Financial Data for the years endedDecember 31, 2019 and 2018 (Unaudited) 2019 First Second Third Fourth Con Edison Quarter Quarter Quarter Quarter (Millions of Dollars, except per share amounts) Operating revenues$3,514 $2,744 $3,365 $2,951 Operating income 786 458 867 565 Net income 424 152 473 295 Basic earnings per share$1.31 $0.46 $1.42 $0.89 Diluted earnings per share$1.31 $0.46 $1.42 $0.88 . 2018 First Second Third Fourth Con Edison Quarter Quarter Quarter Quarter (Millions of Dollars, except per share amounts) Operating revenues$3,364 $2,696 $3,328 $2,949 Operating income 755 426 826 657 Net income 428 188 435 331 Basic earnings per share$1.38 $0.60 $1.40 $1.06 Diluted earnings per share$1.37 $0.60 $1.39 $1.05 In the opinion ofCon Edison , these quarterly amounts include all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation. The sum of the quarterly financial information may vary from the annual data due to rounding. 2019 First Second Third Fourth CECONY Quarter Quarter Quarter Quarter (Millions of Dollars) Operating revenues$3,039 $2,331 $2,877 $2,573 Operating income 726 376 723 524 Net income 412 152 414 272 2018 First Second Third Fourth CECONY Quarter Quarter Quarter Quarter (Millions of Dollars)
Operating revenues$2,884 $2,338 $2,899 $2,558 Operating income 705 382 764 504 Net income 389 149 431 227 In the opinion of CECONY, these quarterly amounts include all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation. The sum of the quarterly financial information may vary from the annual data due to rounding.
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Report of Management on Internal Control Over Financial Reporting Management ofConsolidated Edison, Inc. and its subsidiaries (the Company) is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable, but not absolute, assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted inthe United States of America . Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of the effectiveness of controls to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate. Management of the Company assessed the effectiveness of internal control over financial reporting as ofDecember 31, 2019 , using the criteria established by theCommittee of Sponsoring Organizations of theTreadway Commission (COSO) in Internal Control - Integrated Framework (2013). Based on that assessment, management has concluded that the Company had effective internal control over financial reporting as ofDecember 31, 2019 . The effectiveness of the Company's internal control over financial reporting as ofDecember 31, 2019 , has been audited byPricewaterhouseCoopers LLP , the Company's independent registered public accounting firm, as stated in their report which appears on the following page of this Annual Report on Form 10-K. /s/John McAvoy John McAvoy Chairman, President and Chief Executive Officer /s/Robert Hoglund Robert Hoglund Senior Vice President and Chief Financial Officer
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the consolidated financial statements, including the related notes and financial statement schedules, ofConsolidated Edison, Inc. and its subsidiaries (the "Company") as listed in the accompanying index (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as ofDecember 31, 2019 , based on criteria established in Internal Control - Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of theTreadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as ofDecember 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period endedDecember 31, 2019 in conformity with accounting principles generally accepted inthe United States of America . Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as ofDecember 31, 2019 , based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note J to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control Over Financial Reporting. Our responsibility is to express opinions on the Company's consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with thePublic Company Accounting Oversight Board (United States ) ("PCAOB") and are required to be independent with respect to the Company in accordance with theU.S. federal securities laws and the applicable rules and regulations of theSecurities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made
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only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Accounting for the Effects of Regulatory Matters
As described in Notes A and B to the consolidated financial statements, the Company applies the authoritative guidance for regulated operations, which specifies the economic effects that result from the causal relationship of costs and revenues in the rate-regulated environment and how these effects are to be accounted for by a regulated enterprise. As ofDecember 31, 2019 , there were$4,987 million of deferred costs included in regulatory assets and$4,929 million of regulatory liabilities awaiting potential refund or future rate reductions. Under regulatory accounting guidance, if it is probable that costs will be recovered in the future, those costs would be recorded as deferred charges or "regulatory assets." Similarly, if revenues are recorded for costs expected to be incurred in the future, these revenues would be recorded as deferred credits or "regulatory liabilities." The Company's regulatory assets and liabilities will be recovered from customers, or applied for customer benefit, in accordance with rate provisions approved by the applicable state and federal regulators. The principal considerations for our determination that performing procedures relating to the accounting for the effects of regulatory matters is a critical audit matter are there was significant auditor judgment and subjectivity in performing procedures and in evaluating audit evidence relating to the computation of regulatory assets and regulatory liabilities. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management's assessment of regulatory proceedings, including the implementation of new regulatory orders or changes to existing regulatory balances. These procedures also included, among others, evaluating the reasonableness of management's assessment of impacts arising from correspondence with regulators and changes in laws and regulations; evaluating management's judgments related to the recoverability of regulatory assets and the establishment of regulatory liabilities; and recalculating regulatory assets and liabilities based on provisions and formulas outlined in rate orders and other correspondence with regulators.
Recoverability of Long-lived and Intangible Assets - Solar Plants with Pacific Gas & Electric ("PG&E") as the Long-Term Power Purchase Agreement Off-taker (hereafter "PG&E Impacted Plants")
As described in Notes A and C to the consolidated financial statements, onJanuary 29, 2019 , PG&E filed for bankruptcy causing an event of default under the PG&E power purchase agreements ("PPAs") and associated project debt agreements. The Company had long-lived assets of$1,101 million and intangible assets of$1,057 million as ofDecember 31, 2019 , related to PG&E Impacted Plants. Management tests long-lived and intangible assets for recoverability when events or changes in circumstances indicate that the carrying value of long-lived or intangible assets may not be recoverable ("triggering events assessment"). The carrying amount of a long-lived or intangible asset with a definite life is deemed not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets. The Company tested the related long-lived and intangible assets for the PG&E Impacted Plants for recoverability. Management's cash flow projections for the recoverability of long-lived and intangible assets for the PG&E Impacted Plants included significant assumptions relating to the likelihood of PG&E's assuming or rejecting the PPAs in bankruptcy.
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The principal considerations for our determination that performing procedures relating to the recoverability of long-lived and intangible assets for PG&E Impacted Plants is a critical audit matter are that there was significant judgment by management when developing the undiscounted cash flows, including the assumption related to the PG&E PPAs. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and in evaluating audit evidence relating to management's cash flow projections and significant assumptions, most notably the likelihood of PG&E's assuming or rejecting the PPAs in bankruptcy. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management's triggering events assessment and recoverability tests for the PG&E Impacted Plants' long-lived and intangible assets. These procedures also included, among others, testing management's process for developing the undiscounted cash flows used in the recoverability test. This included evaluating the appropriateness of the undiscounted cash flow model; testing the completeness, accuracy, and relevance of underlying data used in the model; and evaluating the reasonableness of management's significant assumptions, most notably the likelihood of PG&E's assuming or rejecting the PPAs in bankruptcy. /s/PricewaterhouseCoopers LLP New York, New York February 20, 2020 We have served as the Company's or its predecessors' auditor since 1938.
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Consolidated Edison, Inc. Consolidated Income Statement For the Years Ended December 31, (Millions of Dollars/Except Share Data) 2019 2018 2017 OPERATING REVENUES Electric$8,694 $8,612 $8,612 Gas 2,391 2,327 2,133 Steam 627 631 595 Non-utility 862 767 693 TOTAL OPERATING REVENUES 12,574 12,337 12,033 OPERATING EXPENSES Purchased power 1,546 1,644 1,601 Fuel 207 263 216 Gas purchased for resale 880 1,041 808 Other operations and maintenance 3,175 3,152 3,139 Depreciation and amortization 1,684 1,438 1,341 Taxes, other than income taxes 2,406 2,266 2,155 TOTAL OPERATING EXPENSES 9,898 9,804 9,260 Gain on sale of solar electric production project in 2017 - - 1 Gain on acquisition of Sempra Solar Holdings, LLC - 131 - OPERATING INCOME 2,676 2,664 2,774 OTHER INCOME (DEDUCTIONS) Investment income 96 119 111 Other income 45 17 15 Allowance for equity funds used during construction 14 12 11 Other deductions (104) (210) (185) TOTAL OTHER INCOME (DEDUCTIONS) 51 (62) (48) INCOME BEFORE INTEREST AND INCOME TAX EXPENSE 2,727 2,602 2,726 INTEREST EXPENSE Interest on long-term debt 888 780 726 Other interest 116 49 11 Allowance for borrowed funds used during construction (13) (10) (8) NET INTEREST EXPENSE 991 819 729 INCOME BEFORE INCOME TAX EXPENSE 1,736 1,783 1,997 INCOME TAX EXPENSE 296 401 472 NET INCOME$1,440 $1,382 $1,525 Income attributable to non-controlling interest$97 $- $- NET INCOME FOR COMMON STOCK$1,343 $1,382 $1,525 Net income per common share - basic$4.09 $4.43 $4.97 Net income per common share - diluted$4.08 $4.42 $4.94 AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC (IN MILLIONS) 328.5 311.7 307.1
AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED (IN MILLIONS)
329.5 312.9 308.8
The accompanying notes are an integral part of these financial statements.
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Consolidated Edison, Inc. Consolidated Statement of Comprehensive Income For the Years Ended December 31, (Millions of Dollars) 2019 2018 2017 NET INCOME$1,440 $1,382 $1,525 INCOME ATTRIBUTABLE TO NON-CONTROLLING INTEREST (97) - - OTHER COMPREHENSIVE INCOME, NET OF TAXES Pension and other postretirement benefit plan liability adjustments, net of taxes (5) 10 1 Other income, net of taxes 2 - - TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAXES (3) 10 1 COMPREHENSIVE INCOME$1,340 $1,392 $1,526
The accompanying notes are an integral part of these financial statements.
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Consolidated Edison, Inc. Consolidated Statement of Cash Flows For the Years Ended December 31, (Millions of Dollars) 2019 2018 2017 OPERATING ACTIVITIES Net Income$1,440 $1,382 $1,525 PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME Depreciation and amortization 1,684 1,438 1,341 Deferred income taxes 308 408 485 Rate case amortization and accruals (116) (117) (124) Common equity component of allowance for funds used during construction (14) (12) (11) Net derivative (gains)/losses 27 8 (4) (Gain) on Sale of Assets (14) - - Unbilled revenue and net unbilled revenue deferrals (3) 18 (113)
(Gain) on sale of retail electric supply business and solar electric production projects
- - (1) (Gain) on existing project interests due to acquisition of Sempra Solar Holdings, LLC - (131) - Other non-cash items, net (18) 115 5 CHANGES IN ASSETS AND LIABILITIES Accounts receivable - customers 23 (140) 9
Materials and supplies, including fuel oil and gas in storage
6 (20) 5 Revenue decoupling mechanism receivable (76) - - Other receivables and other current assets 54 (62) - Taxes receivable 29 27 15 Prepayments (73) (7) (19) Accounts payable 10 (46) 95 Pensions and retiree benefits obligations, net 357 325 414 Pensions and retiree benefits contributions (357) (479) (467) Accrued taxes 10 (49) 44 Accrued interest 24 (35) (7) Superfund and environmental remediation costs, net (9) (19) (14) Distributions from equity investments 57 107 108 System benefit charge 20 92 101 Deferred charges, noncurrent assets and other regulatory assets (492) (393) 2,376 Deferred credits and other regulatory liabilities 278 436 (2,524) Other current and noncurrent liabilities (21) (151) 128 NET CASH FLOWS FROM OPERATING ACTIVITIES 3,134 2,695 3,367 INVESTING ACTIVITIES Utility construction expenditures (3,238) (3,251) (3,028) Cost of removal less salvage (295) (258) (248) Non-utility construction expenditures (248) (246) (415) Investments in electric and gas transmission projects (205) (248) (45) Investments in/acquisitions of renewable electric production projects (10) (19) (45) Acquisition ofSempra Solar Holdings, LLC , net of cash acquired - (1,488) - Proceeds from sale of assets 192 5 34 Other investing activities 22 34 37 NET CASH FLOWS USED IN INVESTING ACTIVITIES (3,782) (5,471) (3,710) FINANCING ACTIVITIES Net (payment)/issuance of short-term debt (874) 1,989 (477) Issuance of long-term debt 3,017 3,030 1,697 Retirement of long-term debt (1,195) (1,938) (434) Debt issuance costs (32) (61) (19) Common stock dividends (924) (842) (803) Issuance of common shares - public offering 825 705 343 Issuance of common shares for stock plans 54 53 51 Distribution to noncontrolling interest (12) 2 (1) NET CASH FLOWS FROM FINANCING ACTIVITIES 859 2,938 357
CASH, TEMPORARY CASH INVESTMENTS AND RESTRICTED CASH: NET CHANGE FOR THE PERIOD
211 162 14 BALANCE AT BEGINNING OF PERIOD 1,006 844 830 BALANCE AT END OF PERIOD$1,217 $1,006 $844 SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION Cash paid/(received) during the period for: Interest$876 $805 $725 Income taxes$(26) -$(29) SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION Construction expenditures in accounts payable$336 $369 $432 Issuance of common shares for dividend reinvestment$47 $47 $46
Software licenses acquired but unpaid as of end of period
$80 $100 $- Equipment acquired but unpaid as of end of period$33 - -
The accompanying notes are an integral part of these financial statements.
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Consolidated Edison, Inc. Consolidated Balance Sheet December December (Millions of Dollars) 31, 2019 31, 2018 ASSETS CURRENT ASSETS Cash and temporary cash investments$981
Accounts receivable - customers, less allowance for
uncollectible accounts of
1,236
1,267
Other receivables, less allowance for uncollectible
accounts of
184 285 Taxes receivable 20 49 Accrued unbilled revenue 599 514 Fuel oil, gas in storage, materials and supplies, at average cost 352 358 Prepayments 260 187 Regulatory assets 128 76 Restricted cash 236 111 Revenue decoupling mechanism receivable 76 - Other current assets 200 122 TOTAL CURRENT ASSETS 4,272 3,864 INVESTMENTS 2,065 1,766 UTILITY PLANT, AT ORIGINAL COST Electric 31,866 30,378 Gas 10,107 9,100 Steam 2,601 2,562 General 3,562 3,331 TOTAL 48,136 45,371 Less: Accumulated depreciation 10,322
9,769
Net 37,814
35,602
Construction work in progress 1,937
1,978
NET UTILITY PLANT 39,751
37,580
NON-UTILITY PLANT
Non-utility property, less accumulated depreciation of
3,829 4,000 Construction work in progress 309 169 NET PLANT 43,889 41,749 OTHER NONCURRENT ASSETS Goodwill 446 440
Intangible assets, less accumulated amortization of
1,557
1,654
Operating lease right-of-use-asset 857
-
Regulatory assets 4,859
4,294
Other deferred charges and noncurrent assets 134
153
TOTAL OTHER NONCURRENT ASSETS 7,853 6,541 TOTAL ASSETS$58,079 $53,920
The accompanying notes are an integral part of these financial statements.
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Consolidated Edison, Inc. Consolidated Balance Sheet December December (Millions of Dollars) 31, 2019 31, 2018 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Long-term debt due within one year$1,446 $650 Term Loan - 825 Notes payable 1,692 1,741 Accounts payable 1,164 1,187 Customer deposits 346 351 Accrued taxes 76 61 Accrued interest 153 129 Accrued wages 102 109 Fair value of derivative liabilities 123 50 Regulatory liabilities 102 114 System benefit charge 647 627 Operating lease liabilities 65 - Other current liabilities 371 363 TOTAL CURRENT LIABILITIES 6,287 6,207 NONCURRENT LIABILITIES Provision for injuries and damages 130
146
Pensions and retiree benefits 1,516
1,228
Superfund and other environmental costs 734
779
Asset retirement obligations 425
450
Fair value of derivative liabilities 105
16
Deferred income taxes and unamortized investment tax credits 6,227
5,820 Operating lease liabilities 809 - Regulatory liabilities 4,827 4,641 Other deferred credits and noncurrent liabilities 279 299 TOTAL NONCURRENT LIABILITIES 15,052 13,379 LONG-TERM DEBT 18,527 17,495 EQUITY Common shareholders' equity 18,022 16,726 Noncontrolling interest 191 113 TOTAL EQUITY (See Statement of Equity) 18,213
16,839
TOTAL LIABILITIES AND EQUITY$58,079
The accompanying notes are an integral part of these financial statements.
CON EDISON ANNUAL REPORT 2019 95
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Consolidated Edison, Inc. Consolidated Statement of Equity
Accumulated
(In Common Stock Additional Treasury Stock Capital Other Millions/Except Paid-In Retained Stock Comprehensive Noncontrolling Share Data) Shares Amount Capital Earnings Shares Amount Expense Income/(Loss) Interest Total BALANCE AS OF DECEMBER 31, 2016 305$33 $5,854 $9,559 23$(1,038) $(83) $(27) $8 $14,306 Net income 1,525 1,525 Common stock dividends ($2.76 per share) (849) (849) Issuance of common shares - public offering 5 1 344 (2) 343 Issuance of common shares for stock plans 100 100 Other comprehensive income 1 1 Noncontrolling interest (1) (1) BALANCE AS OF DECEMBER 31, 2017 310$34 $6,298 $10,235 23$(1,038) $(85) $(26) $7 $15,425 Net income 1,382$1,382 Common stock dividends ($2.86 per share) (889) (889) Issuance of common shares - public offering 11 719 (14) 705 Issuance of common shares for stock plans 100 100 Other comprehensive income 10 10 Noncontrolling interest 106 106 BALANCE AS OF DECEMBER 31, 2018 321$34 $7,117 $10,728 23$(1,038) $(99) $(16) $113 $16,839 Net income 1,343 97$1,440 Common stock dividends ($2.96 per share) (971) (971) Issuance of common shares - public offering 12 1 835 (11) 825 Issuance of common shares for stock plans 102 102 Other comprehensive income (3) (3) Noncontrolling interest (19) (19) BALANCE AS OF DECEMBER 31, 2019 333$35 $8,054 $11,100 23$(1,038) $(110) $(19) $191 $18,213
The accompanying notes are an integral part of these financial statements.
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Consolidated Edison, Inc. Consolidated Statement of Capitalization Shares outstanding December 31, At December 31, (In Millions) 2019 2018 2019 2018 TOTAL EQUITY BEFORE ACCUMULATED OTHER COMPREHENSIVE LOSS 333 321$18,041 $16,742 Pension plan liability adjustments, net of taxes (17) (12) Unrealized losses on derivatives qualified as cash flow hedges, less reclassification adjustment for gains/(losses) included in net income and reclassification adjustment for unrealized losses included in regulatory assets, net of taxes (2) (4) TOTAL ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF TAXES (19) (16) Equity 18,022 16,726 Noncontrolling interest 191 113 TOTAL EQUITY (See Statement of Equity)
The accompanying notes are an integral part of these financial statements.
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Consolidated Edison, Inc. Consolidated Statement of Capitalization LONG-TERM DEBT (Millions of Dollars) At December 31, Maturity Interest Rate Series 2019 2018 DEBENTURES: 2019 4.96% 2009A $- 60 2019 6.65 2009B - 475 2019 2.00 2017A - 400 2020 4.45 2010A 350 350 2021 2.00 2016A 500 500 2021 2.35 (a) 2018C 640 640 2024 3.30 2014B 250 250 2026 2.90 2016B 250 250 2027 6.50 1997F 80 80 2027 3.125 2017B 350 350 2028 3.80 2018A 300 300 2028 4.00 2018D 500 500 2029 2.94 2019B 44 - 2033 5.875 2003A 175 175 2033 5.10 2003C 200 200 2034 5.70 2004B 200 200 2035 5.30 2005A 350 350 2035 5.25 2005B 125 125 2036 5.85 2006A 400 400 2036 6.20 2006B 400 400 2036 5.70 2006E 250 250 2037 6.30 2007A 525 525 2038 6.75 2008B 600 600 2039 6.00 2009B 60 60 2039 5.50 2009C 600 600 2039 3.46 2019C 38 - 2040 5.70 2010B 350 350 2040 5.50 2010B 115 115 2042 4.20 2012A 400 400 2043 3.95 2013A 700 700 2044 4.45 2014A 850 850 2045 4.50 2015A 650 650 2045 4.95 2015A 120 120 2045 4.69 2015B 100 100 2046 3.85 2016A 550 550 2046 3.88 2016A 75 75 2047 3.875 2017A 500 500 2048 4.65 2018E 600 600 2048 4.35 2018A 125 125 2048 4.35 2018B 25 25 2049 4.125 2019A 700 - 2049 3.73 2019A 43 - 2054 4.625 2014C 750 750 2056 4.30 2016C 500 500 2057 4.00 2017C 350 350 2058 4.50 2018B 700 700 2059 3.70 2019B 600 - TOTAL DEBENTURES 15,990 15,500
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Consolidated Edison, Inc. Consolidated Statement of Capitalization LONG-TERM DEBT (Millions of Dollars) At December 31, Maturity Interest Rate Series 2019 2018 TAX-EXEMPT DEBT - Notes issued toNew York State Energy Research andDevelopment Authority for Facilities Revenue Bonds: 2036 1.63% (a) 2010A 225 225 2039 1.63 (a) 2004C 99 99 2039 1.59 (a) 2005A 126 126 TOTAL TAX-EXEMPT DEBT 450 450 PROJECT DEBT: 2023 4.52 (b) Copper Mountain Solar 2 224 230 2024-2032 5.96 - 4.52 (b) Coram 150 160 2025 4.61 (b) Copper Mountain Solar 3 289 298 2026 3.72 (b) CED Southwest 456 - 2028 4.41 Wind Holdings 123 137 2028 3.81 (b) Copper Mountain Solar 1 67 70 2031 2.24 - 3.03 Mesquite Solar 1 193 208 2031-2038 5.25 - 4.95 Texas Solar 4 56 58 2036 3.94 California Solar 2 98 103 2036 4.07 California Solar 3 86 89 2037 4.78 California Solar 184 - 190 2038 3.82 California Solar 4 297 - 2039 4.82 Broken Bow II 68 69 2040 4.53 Texas Solar 5 145 150 2041 4.21 Texas Solar 7 199 206 2042 4.45 Upton County Solar 90 94 Other project debt 12 14 TOTAL PROJECT DEBT 2,737 2,076 Other long-term debt 974 304 Unamortized debt expense (141) (152) Unamortized debt discount (37) (33) TOTAL 19,973 18,145 Less: Long-term debt due within one year 1,446 650 TOTAL LONG-TERM DEBT 18,527 17,495 TOTAL CAPITALIZATION$36,549 $34,221
(a) Rates reset weekly or quarterly;
The accompanying notes are an integral part of these financial statements.
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Report of Management on Internal Control Over Financial Reporting Management ofConsolidated Edison Company of New York, Inc. and its subsidiaries (the Company) is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable, but not absolute, assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted inthe United States of America . Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of the effectiveness of controls to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate. Management of the Company assessed the effectiveness of internal control over financial reporting as ofDecember 31, 2019 , using the criteria established by theCommittee of Sponsoring Organizations of theTreadway Commission (COSO) in Internal Control - Integrated Framework (2013). Based on that assessment, management has concluded that the Company had effective internal control over financial reporting as ofDecember 31, 2019 . The effectiveness of the Company's internal control over financial reporting as ofDecember 31, 2019 , has been audited byPricewaterhouseCoopers LLP , the Company's independent registered public accounting firm, as stated in their report which appears on the following page of this Annual Report on Form 10-K. /s/John McAvoy John McAvoy Chairman and Chief Executive Officer /s/Robert Hoglund Robert Hoglund Senior Vice President and Chief Financial OfficerFebruary 20, 2020
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Report of Independent Registered Public Accounting Firm
To the
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the consolidated financial statements, including the related notes and financial statement schedule, ofConsolidated Edison Company of New York, Inc. and its subsidiaries (the "Company") as listed in the accompanying index (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as ofDecember 31, 2019 , based on criteria established in Internal Control - Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of theTreadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as ofDecember 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period endedDecember 31, 2019 in conformity with accounting principles generally accepted inthe United States of America . Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as ofDecember 31, 2019 , based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note J to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control Over Financial Reporting. Our responsibility is to express opinions on the Company's consolidated financial statements, and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with thePublic Company Accounting Oversight Board (United States ) (PCAOB) and are required to be independent with respect to the Company in accordance with theU.S. federal securities laws and the applicable rules and regulations of theSecurities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made
CON EDISON ANNUAL REPORT 2019 101
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only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/PricewaterhouseCoopers LLP New York, New York February 20, 2020 We have served as the Company's auditor since 1938.
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Consolidated Edison Company of New York, Inc. Consolidated Income Statement For the Years Ended December 31, (Millions of Dollars) 2019 2018 2017 OPERATING REVENUES Electric$8,062 $7,971 $7,972 Gas 2,132 2,078 1,901 Steam 627 631 595 TOTAL OPERATING REVENUES 10,821 10,680 10,468 OPERATING EXPENSES Purchased power 1,357 1,433 1,415 Fuel 207 263 216 Gas purchased for resale 606 643 510 Other operations and maintenance 2,635 2,555
2,526
Depreciation and amortization 1,373 1,276
1,195
Taxes, other than income taxes 2,295 2,156 2,057 TOTAL OPERATING EXPENSES 8,473 8,326 7,919 OPERATING INCOME 2,348 2,354 2,549 OTHER INCOME (DEDUCTIONS) Investment and other income 40 13 14 Allowance for equity funds used during construction 12 11
10
Other deductions (87) (167)
(161)
TOTAL OTHER INCOME (DEDUCTIONS) (35) (143)
(137)
INCOME BEFORE INTEREST AND INCOME TAX EXPENSE 2,313 2,211
2,412 INTEREST EXPENSE Interest on long-term debt 672 662 615 Other interest 67 36 14 Allowance for borrowed funds used during construction (11) (9)
(6)
NET INTEREST EXPENSE 728 689
623
INCOME BEFORE INCOME TAX EXPENSE 1,585 1,522 1,789 INCOME TAX EXPENSE 335 326 685 NET INCOME$1,250 $1,196 $1,104
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 For the Years Ended December 31, (Millions of Dollars) 2019 2018 2017 NET INCOME$1,250 $1,196 $1,104 OTHER COMPREHENSIVE INCOME, NET OF TAXES Pension and other postretirement benefit plan liability adjustments, net of taxes (3 ) 1 1 Other income, net of taxes 2 - - TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAXES (1 ) 1 1 COMPREHENSIVE INCOME$1,249 $1,197 $1,105
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 For the Years Ended December 31, (Millions of Dollars) 2019 2018 2017 OPERATING ACTIVITIES Net income$1,250 $1,196 $1,104 PRINCIPAL NON-CASH CHARGES/(CREDITS) TO INCOME Depreciation and amortization 1,373 1,276 1,195 Deferred income taxes 128 354 575 Rate case amortization and accruals
(117) (133) (142) Common equity component of allowance for funds used during construction
(12) (11) (10) (Gain)/Loss on Sale of Assets (14) - - Unbilled revenue and net unbilled revenue deferrals (3) (4) (17) Other non-cash items, net 7 13 (59) CHANGES IN ASSETS AND LIABILITIES Accounts receivable - customers
3 (153) 15 Materials and supplies, including fuel oil and gas in storage
11 (17) (17) Revenue decoupling mechanism receivable (76) - - Other receivables and other current assets 54 (96) 23 Accounts receivables from affiliated companies 141 (150) 45 Prepayments (61) (9) (8) Accounts payable (7) (27) 125 Accounts payable to affiliated companies (4) 7 - Pensions and retiree benefits obligations, net 330 293 370 Pensions and retiree benefits contributions (325) (440) (420) Superfund and environmental remediation costs, net (12) (18) (12) Accrued taxes 11 (47) 52 Accrued taxes to affiliated companies - (72) (47) Accrued interest 1 (1) 2 System benefit charge 18 86 85 Deferred charges, noncurrent assets and other regulatory assets (486) (314) 2,212 Deferred credits and other regulatory liabilities 306 549 (2,242) Other current and noncurrent liabilities (14) (78) 37 NET CASH FLOWS FROM OPERATING ACTIVITIES 2,502 2,204 2,866 INVESTING ACTIVITIES Utility construction expenditures (3,028) (3,051) (2,840) Cost of removal less salvage (288) (255) (240) Proceeds from sale of assets 192 - - NET CASH FLOWS USED IN INVESTING ACTIVITIES (3,124) (3,306) (3,080) FINANCING ACTIVITIES Net (payment)/issuance of short-term debt (55) 1,042 (450) Issuance of long-term debt 1,300 2,740 1,200 Retirement of long-term debt (475) (1,836) - Debt issuance costs (21) (30) (15) Capital contribution by parent 900 120 301 Dividend to parent (912) (846) (796) NET CASH FLOWS FROM FINANCING ACTIVITIES 737 1,190 240 CASH, TEMPORARY CASH INVESTMENTS AND RESTRICTED CASH: NET CHANGE FOR THE PERIOD 115 88 26 BALANCE AT BEGINNING OF PERIOD 818 730 704 BALANCE AT END OF PERIOD
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION Cash paid/(received) during the period for: Interest$676 $662 $602 Income taxes$73 $195 $108 SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION Construction expenditures in accounts payable
$76 $95 - Equipment acquired but unpaid as of end of period$33 - -
The accompanying notes are an integral part of these financial statements.
CON EDISON ANNUAL REPORT 2019 105
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Consolidated Edison Company of New York, Inc. Consolidated Balance Sheet December December (Millions of Dollars) 31, 2019 31, 2018 ASSETS CURRENT ASSETS Cash and temporary cash investments$933
Accounts receivable - customers, less allowance for
uncollectible accounts of
1,153
1,163
Other receivables, less allowance for uncollectible
accounts of
120 211 Taxes receivable - 5 Accrued unbilled revenue 477 392 Accounts receivable from affiliated companies 73
214
Fuel oil, gas in storage, materials and supplies, at average cost 293 304 Prepayments 178 117 Regulatory assets 113 64 Revenue decoupling mechanism receivable 76 - Other current assets 127 69 TOTAL CURRENT ASSETS 3,543 3,357 INVESTMENTS 461 385 UTILITY PLANT AT ORIGINAL COST Electric 29,989 28,595 Gas 9,229 8,295 Steam 2,601 2,562 General 3,271 3,056 TOTAL 45,090 42,508 Less: Accumulated depreciation 9,490
8,988
Net 35,600
33,520
Construction work in progress 1,812
1,850
NET UTILITY PLANT 37,412
35,370
NON-UTILITY PROPERTY Non-utility property, less accumulated depreciation of$25 in 2019 and 2018 2 4 NET PLANT 37,414 35,374 OTHER NONCURRENT ASSETS Regulatory assets 4,487 3,923 Operating lease right-of-use asset 601
-
Other deferred charges and noncurrent assets 51
69
TOTAL OTHER NONCURRENT ASSETS 5,139 3,992 TOTAL ASSETS$46,557 $43,108
The accompanying notes are an integral part of these financial statements.
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Consolidated Edison Company of New York, Inc. Consolidated Balance Sheet December
December
(Millions of Dollars) 31, 2019 31, 2018 LIABILITIES AND SHAREHOLDER'S EQUITY CURRENT LIABILITIES Long-term debt due within one year$350 $475 Notes payable 1,137 1,192 Accounts payable 956 977 Accounts payable to affiliated companies 13 17 Customer deposits 334 339 Accrued taxes 71 55 Accrued interest 113 112 Accrued wages 92 99 Fair value of derivative liabilities 81 25 Regulatory liabilities 63 73 System benefit charge 587 569 Operating lease liabilities 54 - Other current liabilities 280 267 TOTAL CURRENT LIABILITIES 4,131 4,200 NONCURRENT LIABILITIES Provision for injuries and damages 125
141
Pensions and retiree benefits 1,241
952
Superfund and other environmental costs 654
693
Asset retirement obligations 362
292
Fair value of derivative liabilities 65
6
Deferred income taxes and unamortized investment tax credits 6,000 5,739 Operating lease liabilities 551 - Regulatory liabilities 4,427 4,258 Other deferred credits and noncurrent liabilities 240 241 TOTAL NONCURRENT LIABILITIES 13,665 12,322 LONG-TERM DEBT 14,614 13,676 COMMON SHAREHOLDER'S EQUITY (See Statement of Shareholder's Equity) 14,147
12,910
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY$46,557
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 Accumulated Common Stock Additional Repurchased Capital Other Paid-In Retained Con Edison Stock Comprehensive (In Millions) Shares Amount Capital Earnings Stock Expense Income/(Loss) Total BALANCE AS OF DECEMBER 31, 2016 235$589 $4,347 $7,923 $(962) $(61) $(7) $11,829 Net income$1,104 1,104 Common stock dividend to parent (796) (796) Capital contribution by parent 302 (1) 301 Other comprehensive income 1 1 BALANCE AS OF DECEMBER 31, 2017 235$589 $4,649 $8,231 $(962) $(62) $(6) $12,439 Net income 1,196 1,196 Common stock dividend to parent (846) (846) Capital contribution by parent 120 120 Other comprehensive income 1 1 BALANCE AS OF DECEMBER 31, 2018 235$589 $4,769 $8,581 $(962) $(62) $(5) $12,910 Net income 1,250 1,250 Common stock dividend to parent (912) (912) Capital contribution by parent 900 900 Other comprehensive income (1) (1 )
BALANCE AS OF
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 Capitalization Shares outstanding December 31, At December 31, (In Millions) 2019 2018 2019 2018 TOTAL SHAREHOLDER'S EQUITY BEFORE ACCUMULATED OTHER COMPREHENSIVE LOSS 235 235$14,153 $12,915 Unrealized losses on derivatives qualified as cash flow hedges, less reclassification adjustment for losses included in net income and reclassification adjustment for unrealized losses included in regulatory assets, net of taxes (6) (5) TOTAL ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF TAXES (6) (5) TOTAL SHAREHOLDER'S EQUITY (See Statement of Shareholder's Equity)
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 Capitalization LONG-TERM DEBT (Millions of Dollars) At December 31, Maturity Interest Rate Series 2019 2018 DEBENTURES: 2019 6.65 2009B - 475 2020 4.45 2010A 350 350 2021 2.35 (a) 2018C 640 640 2024 3.30 2014B 250 250 2026 2.90 2016B 250 250 2027 3.125 2017B 350 350 2028 3.80 2018A 300 300 2028 4.00 2018D 500 500 2033 5.875 2003A 175 175 2033 5.10 2003C 200 200 2034 5.70 2004B 200 200 2035 5.30 2005A 350 350 2035 5.25 2005B 125 125 2036 5.85 2006A 400 400 2036 6.20 2006B 400 400 2036 5.70 2006E 250 250 2037 6.30 2007A 525 525 2038 6.75 2008B 600 600 2039 5.50 2009C 600 600 2040 5.70 2010B 350 350 2042 4.20 2012A 400 400 2043 3.95 2013A 700 700 2044 4.45 2014A 850 850 2045 4.50 2015A 650 650 2046 3.85 2016A 550 550 2047 3.875 2017A 500 500 2048 4.65 2018E 600 600 2049 4.125 2019A 700 - 2054 4.625 2014C 750 750 2056 4.30 2016C 500 500 2057 4.00 2017C 350 350 2058 4.50 2018B 700 700 2059 3.70 2019B 600 - TOTAL DEBENTURES 14,665 13,840 TAX-EXEMPT DEBT - Notes issued toNew York State Energy Research and DevelopmentAuthority for Facilities Revenue Bonds : 2036 1.63 (a) 2010A 225 225 2039 1.63 (a) 2004C 99 99 2039 1.59 (a) 2005A 126 126 TOTAL TAX-EXEMPT DEBT 450 450 Unamortized debt expense (115) (107) Unamortized debt discount (36) (32) TOTAL 14,964 14,151 Less: Long-term debt due within one year 350 475 TOTAL LONG-TERM DEBT 14,614 13,676 TOTAL CAPITALIZATION$28,761 $26,586
(a) Rates reset weekly or quarterly;
The accompanying notes are an integral part of these financial statements.
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Notes to the Financial Statements 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 ) andConsolidated Edison Company of New York, Inc. and its subsidiaries (CECONY). CECONY is a subsidiary ofCon 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 ofOrange and Rockland Utilities, Inc. (O&R),Con Edison Clean Energy Businesses, Inc. (together with its subsidiaries, the Clean Energy Businesses) andCon Edison Transmission, Inc. (together with its subsidiaries,Con Edison Transmission) inCon 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 toCon 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 toCon Edison or the subsidiaries ofCon Edison other than itself.Con Edison has two regulated utility subsidiaries: CECONY and O&R. CECONY provides electric service and gas service inNew York City andWestchester County . The company also provides steam service in parts ofManhattan . O&R, along with its regulated utility subsidiary, provides electric service in southeasternNew York and northernNew Jersey and gas service in southeasternNew York .Con Edison Clean Energy Businesses, Inc. , which through its subsidiaries develop, own and operate renewable and energy infrastructure projects and provide energy-related products and services to wholesale and retail customers. InDecember 2018 , the Clean Energy Businesses acquiredSempra Solar Holdings, LLC .Con Edison Transmission, Inc. invests in electric transmission facilities through its subsidiary,Consolidated Edison Transmission, LLC (CET Electric ), and invests in gas pipeline and storage facilities through its subsidiaryCon Edison Gas Pipeline and Storage, LLC (CET Gas ). See Note U. Note A - Summary of Significant Accounting Policies and Other Matters Principles of Consolidation The Companies' consolidated financial statements include the accounts of their respective majority-owned subsidiaries, and variable interest entities (see Note Q), as required. All intercompany balances and intercompany transactions have been eliminated. Accounting Policies The accounting policies ofCon Edison and its subsidiaries conform to generally accepted accounting principles inthe United States of America (GAAP). For the Utilities, these accounting principles include the accounting rules for regulated operations and the accounting requirements of theFederal Energy Regulatory Commission (FERC) and the state regulators having jurisdiction. The accounting rules for regulated operations specify the economic effects that result from the causal relationship of costs and revenues in the rate-regulated environment and how these effects are to be accounted for by a regulated enterprise. Revenues intended to cover some costs may be recorded either before or after the costs are incurred. If regulation provides assurance that incurred costs will be recovered in the future, these costs would be recorded as deferred charges or "regulatory assets" under the accounting rules for regulated operations. If revenues are recorded for costs that are expected to be incurred in the future, these revenues would be recorded as deferred credits or "regulatory liabilities" under the accounting rules for regulated operations. The Utilities' principal regulatory assets and liabilities are detailed in NoteB. The Utilities are receiving or being credited with a return on all of their regulatory assets for which a cash outflow has been made, and are paying or being charged with a return on all of their regulatory liabilities for which a cash inflow has been received. The Utilities' regulatory assets and liabilities atDecember 31, 2019 are recoverable from customers, or to be applied for customer benefit, in accordance with rate provisions that have been approved by state regulators.
Other significant accounting policies of the Companies are referenced below in this Note A and in the notes that follow.
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Revenue Recognition The following table presents, for the years endedDecember 31, 2019 and 2018, revenue from contracts with customers as defined in Accounting Standards Codification (ASC) Topic 606, "Revenue from Contracts with Customers," as well as additional revenue from sources other than contracts with customers, disaggregated by major source. Revenue was recognized for the year endedDecember 31, 2017 under ASC Topic 605, "Revenue Recognition," and was materially consistent with revenue that would have been recognized under Topic 606. 2019 2018 Revenues Revenues from from contracts Other Total contracts Other Total with revenues operating with revenues operating (Millions of Dollars) customers (a) revenues customers (a) revenues CECONY Electric$7,913 $149 $8,062 $7,920 $51 $7,971 Gas 2,097 35 2,132 2,052 26 2,078 Steam 610 17 627 625 6 631 Total CECONY$10,620 $201 $10,821 $10,597 $83 $10,680 O&R Electric 627 7 634 647 (5) 642 Gas 247 12 259 256 (7) 249 Total O&R$874 $19 $893 $903 $(12) $891 Clean Energy Businesses Renewables 575 (b) - 575 329 (b) - 329 Energy services 71 - 71 95 - 95 Other - 211 211 - 339 339 Total Clean Energy Businesses$646 $211 $857 $424 $339 $763 Con Edison Transmission 4 - 4 4 - 4 Other (c) - (1) (1) - (1) (1) Total Con Edison$12,144 $430 $12,574 $11,928 $409 $12,337 (a) For the Utilities, this includes revenue from alternative revenue programs, such as the revenue decoupling mechanisms under theirNew York electric and gas rate plans. For the Clean Energy Businesses, this includes revenue from wholesale services. (b) Included within the total for Renewables revenue at the Clean Energy Businesses is$14 million and$103 million for the years endedDecember 31, 2019 and 2018, respectively, of revenue related to engineering, procurement and construction services. (c) Parent company and consolidation adjustments. Revenues are recorded as energy is delivered, generated or services are provided and billed to customers, except for services under percentage-of-completion contracts. Amounts billed are recorded in accounts receivable - customers, with payment generally due the following month.Con Edison's and the Utilities' accounts receivable - customers balance also reflects the Utilities' purchase of receivables from energy service companies to support retail choice programs. Accrued revenues not yet billed to customers are recorded as accrued unbilled revenues. The Utilities have the obligation to deliver electricity, gas and steam energy to their customers. As the energy is immediately available for use upon delivery to the customer, the energy and its delivery are identifiable as a single performance obligation. The Utilities recognize revenues as this performance obligation is satisfied over time as the Utilities deliver, and the customers simultaneously receive and consume, the energy. The amount of revenues recognized reflects the consideration the Utilities expect to receive in exchange for delivering the energy. Under their tariffs, the transaction price for full-service customers includes the Utilities' energy cost and for all customers includes delivery charges determined based on customer class and in accordance with established tariffs and guidelines of theNew York State Public Service Commission (NYSPSC) or theNew Jersey Board of Public Utilities (NJBPU), as applicable. Accordingly, there is no unsatisfied performance obligation associated with these customers. The transaction price is applied to the Utilities' revenue generating activities through the customer billing process. Because energy is delivered over time, the Utilities use output methods that recognize revenue based on direct measurement of the value transferred, such as units delivered, which provides an accurate measure of value for the energy delivered. The Utilities accrue revenues at the end of each month for estimated energy delivered but not yet billed to customers. The Utilities defer over a 12-month period net interruptible gas revenues, other than those authorized by the NYSPSC to be retained by the Utilities, for refund to firm gas sales and transportation customers.
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The Clean Energy Businesses recognize revenue for the sale of energy from renewable electric production projects as energy is generated and billed to counterparties; accrue revenues at the end of each month for energy generated but not yet billed to counterparties; and recognize revenue as energy is delivered and services are provided for managing energy supply assets leased from others and managing the dispatch, fuel requirements and risk management activities for generating plants and merchant transmission in the northeasternUnited States . The Clean Energy Businesses also recognize revenue for providing energy-efficiency services to government and commercial customers, and recognize revenue for engineering, procurement and construction services, under the percentage-of-completion method of revenue recognition. Sales and profits on each percentage-of-completion contract are recorded each month based on the ratio of actual cumulative costs incurred to the total estimated costs at completion of the contract, multiplied by the total estimated contract revenue, less cumulative revenues recognized in prior periods (the ''cost-to-cost'' method). The impact of revisions of contract estimates, which may result from contract modifications, performance or other reasons, are recognized on a cumulative catch-up basis in the period in which the revisions are made. 2019 2018 Unbilled Unbilled contract Unearned contract Unearned revenue revenue revenue revenue (Millions of Dollars) (a) (b) (a) (b) Beginning balance as of January 1, $29 $20 $58 $87 Additions (c) 86 1 144 38 Subtractions (c) 86 4 (d) 173 105 (d) Ending balance as of December 31, $29 $17 $29 $20
(a) Unbilled contract revenue represents accumulated incurred costs and earned
profits on contracts (revenue arrangements), which have been recorded as
revenue, but have not yet been billed to customers, and which represent
contract assets as defined in Topic 606. Substantially all accrued unbilled
contract revenue is expected to be collected within one year. Unbilled
contract revenue arises from the cost-to-cost method of revenue recognition.
Unbilled contract revenue from fixed-price type contracts is converted to
billed receivables when amounts are invoiced to customers according to
contractual billing terms, which generally occur when deliveries or other
performance milestones are completed.
(b) Unearned revenue represents a liability for billings to customers in excess
of earned revenue, which are contract liabilities as defined in Topic 606.
(c) Additions for unbilled contract revenue and subtractions for unearned revenue
represent additional revenue earned. Additions for unearned revenue and
subtractions for unbilled contract revenue represent billings. Activity also
includes appropriate balance sheet classification for the period.
(d) Of the subtractions from unearned revenue, $4 million and $50 million was
included in the balance as of January 1, 2019 and 2018, respectively.
As of December 31, 2019, the aggregate amount of the remaining fixed performance obligations of the Clean Energy Businesses, under contracts with customers for energy services is $82 million, of which $46 million will be recognized within the next two years, and the remaining $36 million will be recognized pursuant to long-term service and maintenance agreements. CECONY's electric and gas rate plans and O&R'sNew York electric and gas rate plans each contain a revenue decoupling mechanism under which the company's actual energy delivery revenues are compared with the authorized delivery revenues and the difference accrued, with interest, for refund to, or recovery from, customers, as applicable. See "Rate Plans" in Note B. The NYSPSC requires utilities to record gross receipts tax revenues and expenses on a gross income statement presentation basis (i.e., included in both revenue and expense). The recovery of these taxes is generally provided for in the revenue requirement within each of the respective NYSPSC approved rate plans. Total excise taxes (inclusive of gross receipts taxes) recorded in operating revenues were as follows: For the Years Ended December 31, (Millions of Dollars) 2019 2018 2017 Con Edison $323 $330 $302 CECONY 312 318 292
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Other Receivables Other Receivables includes costs related to aid provided by the Utilities in the restoration of power inPuerto Rico in the aftermath of September 2017 hurricanes. Such costs have fully been billed to the appropriate authorities. As of December 31, 2019,Con Edison and CECONY other receivables' balances related to such costs were $8 million. Plant and Depreciation Utility Plant Utility plant is stated at original cost. The cost of repairs and maintenance is charged to expense and the cost of betterments is capitalized. The capitalized cost of additions to utility plant includes indirect costs such as engineering, supervision, payroll taxes, pensions, other benefits and an allowance for funds used during construction (AFUDC). The original cost of property is charged to expense over the estimated useful lives of the assets. Upon retirement, the original cost of property is charged to accumulated depreciation. See NoteR. Rates used for AFUDC include the cost of borrowed funds and a reasonable rate of return on the Utilities' own funds when so used, determined in accordance with regulations of theFERC or the state public utility regulatory authority having jurisdiction. The rate is compounded semiannually, and the amounts applicable to borrowed funds are treated as a reduction of interest charges, while the amounts applicable to the Utilities' own funds are credited to other income (deductions). The AFUDC rates for CECONY were 5.1 percent, 5.4 percent and 5.5 percent for 2019, 2018 and 2017, respectively. The AFUDC rates for O&R were 5.3 percent, 2.2 percent and 2.5 percent for 2019, 2018 and 2017, respectively. The Utilities generally compute annual charges for depreciation using the straight-line method for financial statement purposes, with rates based on average service lives and net salvage factors. The average depreciation rates for CECONY were 3.2 percent for 2019 and 3.1 percent for 2018 and 2017. The average depreciation rates for O&R were 3.0 percent for 2019 and 2.9 percent for 2018 and 2017. The estimated lives for utility plant for CECONY range from 5 to 95 years for electric, 5 to 90 years for gas, 5 to 80 years for steam and 5 to 55 years for general plant. For O&R, the estimated lives for utility plant range from 5 to 75 years for electric and gas and 5 to 50 years for general plant.
At December 31, 2019 and 2018, the capitalized cost of the Companies' utility plant, net of accumulated depreciation, was as follows:
Con Edison CECONY (Millions of Dollars) 2019 2018 2019 2018 Electric Generation $591 $593 $591 $592 Transmission 3,634 3,333 3,380 3,106 Distribution 20,676 19,750 19,602 18,716 General 43 - 43 - Gas (a) 8,617 7,714 7,961 7,107 Steam 1,813 1,830 1,813 1,830 General 2,365 2,306 2,143 2,102 Held for future use 75 76 67 67 Construction work in progress 1,937 1,978 1,812 1,850 Net Utility Plant $39,751 $37,580 $37,412 $35,370 (a) Primarily distribution. General utility plant ofCon Edison and CECONY included $93 million and $88 million, respectively, at December 31, 2019, and $100 million and $95 million, respectively at December 31, 2018, related to a May 2018 acquisition of software licenses. The estimated aggregate annual amortization expense forCon Edison and CECONY is $7 million. The accumulated amortization forCon Edison and CECONY was $10 million at December 31, 2019 and was $3 million at December 31, 2018.
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Under the Utilities' rate plans, the aggregate annual depreciation allowance for the period ended December 31, 2019 was $1,417 million, including $1,332 million under CECONY's electric, gas and steam rate plans that have been approved by the NYSPSC. Non-UtilityPlant Non -utility plant is stated at original cost. ForCon Edison , non-utility plant consists primarily of the Clean Energy Businesses' renewable electric production projects. For the Utilities, non-utility plant consists of land and conduit for telecommunication use. Depreciation on these assets is computed using the straight-line method for financial statement purposes over their estimated useful lives, which is 10 years.
Con Edison tests goodwill for impairment at least annually or whenever there is a triggering event. There is an option to first make a qualitative assessment of whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before applying a two-step, quantitative goodwill impairment test.Con Edison has elected to perform the qualitative assessment for substantially all of its goodwill and, if needed, applies the two-step quantitative approach. The first step of the quantitative goodwill impairment test compares the estimated fair value of a reporting unit with its carrying value, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is considered not impaired. If the carrying value exceeds the estimated fair value of the reporting unit, the second step is performed to measure the amount of impairment loss, if any. The second step requires a calculation of the implied fair value of goodwill. In 2019,Con Edison recorded no impairment charge on goodwill. See Note K. Long-Lived and Intangible Assets The Companies test long-lived and intangible assets for recoverability when events or changes in circumstances indicate that the carrying value of long-lived or intangible assets may not be recoverable. The carrying amount of a long-lived asset or intangible asset with a definite life is deemed not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets. In the event a test indicates that such cash flows cannot be expected to be sufficient to fully recover the assets, the assets are considered impaired and written down to their estimated fair value.Con Edison's intangible assets with definite lives consist primarily of power purchase agreements, which were identified as part of purchase price allocations associated with acquisitions made by the Clean Energy Businesses in 2016 and 2018. At December 31, 2019 and 2018, intangible assets arising from power purchase agreements, including the PG&E PPAs (discussed below), were $1,554 million and $1,651 million, net of accumulated amortization of $119 million and $22 million, respectively, and are being amortized over the life of each agreement. Excluding power purchase agreements,Con Edison's other intangible assets were $3 million, net of accumulated amortization of $7 million, at December 31, 2019 and 2018. CECONY's other intangible assets were immaterial at December 31, 2019 and 2018.Con Edison recorded amortization expense related to its intangible assets of $99 million in 2019, $14 million in 2018 and $9 million in 2017.Con Edison expects amortization expense to be $100 million per year over the next five years.Con Edison recorded $2 million of impairment charges in 2018. No impairment charges were recorded onCon Edison's long-lived assets or intangible assets with definite lives in 2019 or 2017. In January 2019, Pacific Gas and Electric Company (PG&E) filed inthe United States Bankruptcy Court for the Northern District ofCalifornia for reorganization under Chapter 11 of theU.S. Bankruptcy Code. The output of certain of the Clean Energy Businesses' renewable electric production projects with an aggregate generating capacity of 680 MW (AC) (PG&E Projects) is sold to PG&E under long-term power purchase agreements (PG&E PPAs). Most of the PG&E PPAs have contract prices that are higher than estimated market prices. PG&E, as a debtor in possession, may assume or reject the PG&E PPAs, subject to review by the bankruptcy court. In January 2020, PG&E and certain PG&E shareholders submitted a plan of reorganization to the bankruptcy court. The plan includes the assumption by PG&E of all of its power purchase agreements. The plan is subject to, among other things: confirmation by the bankruptcy court by June 30, 2020 (or any extension of the date by which PG&E's bankruptcy must be resolved for PG&E to participate in the insurance fund described below); approval by theCalifornia Public Utilities Commission (CPUC) of PG&E's implementation of the plan and participation in the insurance fund; PG&E obtaining funding for distributions under the plan; and the continuation in full force and effect of the September 2019 subrogation claims restructuring support agreement, the December 2019 tort claimants restructuring support agreement and the January 2020 noteholder restructuring support agreement. The plan is
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supported by the parties to these restructuring support agreements, subject to their terms, and includes the assumption by PG&E of all of its power purchase agreements. A plan of reorganization can be revoked, amended, withdrawn or delayed prior to its confirmation by the bankruptcy court. Bankruptcy court approval is required for a plan of reorganization to be sent to creditors for consideration. In January and May 2019,FERC issued orders (which PG&E is challenging) affirming its jurisdiction to review and approve the modification or abrogation of wholesale power contracts that are the subject of rejection in bankruptcy. In June 2019, the bankruptcy court ruled thatFERC does not have concurrent jurisdiction with it and thatFERC's January and May 2019 orders are of no force and effect in the bankruptcy proceeding.FERC and additional parties, including the Clean Energy Businesses, are challenging the bankruptcy court's June 2019 ruling in appeals that are pending inthe United States Court of Appeals for the Ninth Circuit. In July 2019,California enacted a law addressing futureCalifornia wildfires. The law includes provisions for the establishment of wildfire liquidity and insurance funds and possible limitation of future wildfire liabilities forCalifornia utilities. PG&E, Southern California Edison Company andSan Diego Gas & Electric Company have agreed to participate in the insurance fund. PG&E's participation will require bankruptcy court approval and is conditioned on, among other things, resolution of PG&E's bankruptcy by June 30, 2020, and a determination by the CPUC that PG&E's bankruptcy reorganization plan is consistent with the state's climate goals as required under theCalifornia Renewables Portfolio Standard Program and related procurement requirements of the state.
The PG&E bankruptcy is an event of default under the PG&E PPAs. Unless the lenders for the related project debt otherwise agree, distributions from the related projects to the Clean Energy Businesses will not be made during the pendency of the bankruptcy. See "Reconciliation of Cash, Temporary Cash Investments and Restricted Cash," below.
At December 31, 2019 and 2018,Con Edison's consolidated balance sheet included $819 million and $885 million of net non-utility plant relating to the PG&E Projects, $1,057 million and $1,125 million of intangible assets relating to the PG&E PPAs, $282 million and $292 million of net non-utility plant of additional projects that secure the related project debt and $1,001 million and $1,050 million of non-recourse related project debt, respectively. See "Long-term Debt" in Note C.Con Edison has tested whether its net non-utility plant relating to the PG&E Projects and intangible assets relating to the PG&E PPAs have been impaired. The projected future cash flows used in the test reflectedCon Edison's expectation that the PG&E PPAs are not likely to be rejected. Based on the test,Con Edison has determined that there was no impairment. If, in the future, one or more of the PG&E PPAs is rejected or any such rejection becomes likely, there will be an impairment of the related intangible assets and could be an impairment of the related non-utility plant. The amount of any such impairment could be material. Recoverable Energy Costs The Utilities generally recover all of their prudently incurred fuel, purchased power and gas costs, including hedging gains and losses, in accordance with rate provisions approved by the applicable state public utility regulators. If the actual energy supply costs for a given month are more or less than the amounts billed to customers for that month, the difference in most cases is recoverable from or refundable to customers. Differences between actual and billed electric and steam supply costs and costs of its electric demand management programs are generally deferred for charge or refund to customers during the next billing cycle (normally within one or two months). For the Utilities' gas costs, differences between actual and billed gas costs during the 12-month period ending each August are charged or refunded to customers during a subsequent 12-month period.New York Independent System Operator (NYISO) The Utilities purchase electricity through the wholesale electricity market administered by the NYISO. The difference between purchased power and related costs initially billed to the Utilities by the NYISO and the actual cost of power subsequently calculated by the NYISO is refunded by the NYISO to the Utilities, or paid to the NYISO by the Utilities. The reconciliation payments or receipts are recoverable from or refundable to the Utilities' customers. Certain other payments to or receipts from the NYISO are also subject to reconciliation, with shortfalls or amounts in excess of specified rate allowances recoverable from or refundable to customers. These include proceeds from the sale through the NYISO of transmission rights on CECONY's transmission system (transmission congestion contracts or TCCs).
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Temporary Cash Investments Temporary cash investments are short-term, highly-liquid investments that generally have maturities of three months or less at the date of purchase. They are stated at cost, which approximates market. The Companies consider temporary cash investments to be cash equivalents. Investments Investments consist primarily of the investments of Con Edison Transmission that are accounted for under the equity method, and the fair value of the Utilities' supplemental retirement income plan and deferred income plan assets. Equity method investments are subject to the accounting rules which would require the recognition of a decrease in value other than for a temporary decline. The following investment assets are included in the Companies' consolidated balance sheets at December 31, 2019 and 2018:Con Edison
CECONY
(Millions of Dollars) 2019 2018 2019 2018 CET Gas investment in Stagecoach Gas Services, LLC $924 $948 $- $- CET Gas investment in Mountain Valley Pipeline, LLC (a) 602 363 - - Supplemental retirement income plan assets (b) 397 326 371 301 Deferred income plan assets 81 75 81 75 CET Electric investment in New York Transco, LLC 59 52 - - Other 2 2 9 9 Total investments $2,065 $1,766 $461 $385 (a) See Note U. (b) See Note E. Pension and Other Postretirement Benefits The accounting rules for retirement benefits require an employer to recognize an asset or liability for the overfunded or underfunded status of its pension and other postretirement benefit plans. For a pension plan, the asset or liability is the difference between the fair value of the plan's assets and the projected benefit obligation. For any other postretirement benefit plan, the asset or liability is the difference between the fair value of the plan's assets and the accumulated postretirement benefit obligation. The accounting rules generally require employers to recognize all unrecognized prior service costs and credits and unrecognized actuarial gains and losses in accumulated other comprehensive income/(loss) (OCI), net of tax. Such amounts will be adjusted as they are subsequently recognized as components of total periodic benefit cost or income pursuant to the current recognition and amortization provisions. For the Utilities' pension and other postretirement benefit plans, regulatory accounting treatment is generally applied in accordance with the accounting rules for regulated operations. Unrecognized prior service costs or credits and unrecognized actuarial gains and losses are recorded to regulatory assets or liabilities, rather than OCI. See Notes E and F. The total periodic benefit costs are recognized in accordance with the accounting rules for retirement benefits. Investment gains and losses are recognized in expense over a 15-year period and other actuarial gains and losses are recognized in expense over a 10-year period, subject to the deferral provisions in the rate plans. 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 such expenses and the amounts for such expenses reflected in rates. O&R also defers such difference pursuant to itsNew York rate plans. See Note B. The Companies calculate the expected return on pension and other postretirement benefit plan assets by multiplying the expected rate of return on plan assets by the market-related value (MRV) of plan assets at the beginning of the year, taking into consideration anticipated contributions and benefit payments that are to be made during the year. The accounting rules allow the MRV of plan assets to be either fair value or a calculated value that recognizes changes in fair value in a systematic and rational manner over not more than five years. The Companies use a calculated value when determining the MRV of the plan assets that adjusts for 20 percent of the difference
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between fair value and expected MRV of plan assets. This calculated value has the effect of stabilizing variability in assets to which the Companies apply the expected return. Federal Income Tax In accordance with accounting rules for income taxes, the Companies have recorded an accumulated deferred federal income tax liability at current tax rates for temporary differences between the book and tax basis of assets and liabilities. In accordance with rate plans, the Utilities have recovered amounts from customers for a portion of the tax liability they will pay in the future as a result of the reversal or "turn-around" of these temporary differences. As to the remaining deferred tax liability, the Utilities had established regulatory assets for the net revenue requirements to be recovered from customers for the related future tax expense pursuant to the NYSPSC's 1993 Policy Statement approving accounting procedures consistent with accounting rules for income taxes and providing assurances that these future increases in taxes will be recoverable in rates. Upon enactment of the Tax Cuts and Jobs Act of 2017 on December 22, 2017 (the TCJA), the Companies re-measured their deferred tax assets and liabilities based upon the 21 percent corporate income tax rate under the TCJA. The tax effects of changes in tax laws are to be recognized in the period in which the law is enacted and deferred tax assets and liabilities are to be re-measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled. For the Utilities, in accordance with theirNew York rate plans and the accounting rules for regulated operations, the change in deferred taxes was recorded as either an offset to a regulatory asset or a regulatory liability. ForCon Edison's other businesses, the change in deferred taxes was reflected as a decrease in income tax expense, which increasedCon Edison's net income. See "Other Regulatory Matters" and "Regulatory Assets and Liabilities" in Note B and Note L. Accumulated deferred investment tax credits are amortized ratably over the lives of the related properties and applied as a reduction to future federal income tax expense.Con Edison and its subsidiaries file a consolidated federal income tax return. The consolidated income tax liability is allocated to each member of the consolidated group using the separate return method. Each member pays or receives an amount based on its own taxable income or loss in accordance with a consolidated tax allocation agreement. Tax loss and tax credit carryforwards are allocated among members in accordance with consolidated tax return regulations. State Income TaxCon Edison and its subsidiaries file a combinedNew York State Corporation Business Franchise Tax Return. Similar to a federal consolidated income tax return, the income of all entities in the combined group is subject toNew York State taxation, after adjustments for differences between federal andNew York law and apportionment of income among the states in which the company does business. Each member's share of theNew York State tax is based on its ownNew York State taxable income or loss. Research and Development Costs Research and development costs are charged to operating expenses as incurred. Research and development costs were as follows: For the Years Ended December 31, (Millions of Dollars) 2019 2018 2017 Con Edison $24 $24 $24 CECONY 23 23 23 Earnings Per Common ShareCon Edison presents basic and diluted earnings per share (EPS) on the face of its consolidated income statement. Basic EPS is calculated by dividing earnings available to common shareholders ("Net income for common stock" onCon Edison's consolidated income statement) by the weighted average number ofCon Edison common shares outstanding during the period. In the calculation of diluted EPS, weighted average shares outstanding are increased for additional shares that would be outstanding if potentially dilutive securities were converted to common stock.
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Potentially dilutive securities forCon Edison consist of restricted stock units and deferred stock units for which the average market price of the common shares for the period was greater than the exercise price (see Note M) and its common shares that are subject to forward sale agreements (see Note C). Before the issuance of common shares upon settlement of the forward sale agreements, the shares will be reflected in the company's diluted earnings per share calculations using the treasury stock method. Under this method, the number of common shares used in calculating diluted earnings per share is deemed to be increased by the excess, if any, of the number of shares that would be issued upon physical settlement of the forward sale agreements over the number of shares that could be purchased by the company in the market (based on the average market price during the period) using the proceeds due upon physical settlement (based on the adjusted forward sale price at the end of the reporting period). Basic and diluted EPS forCon Edison are calculated as follows: For the Years Ended December 31, (Millions of Dollars, except per share amounts/Shares in Millions) 2019 2018 2017 Net income for common stock $1,343 $1,382 $1,525 Weighted average common shares outstanding - basic 328.5 311.7 307.1 Add: Incremental shares attributable to effect of potentially dilutive securities 1.0 1.2 1.7 Adjusted weighted average common shares outstanding - diluted 329.5 312.9 308.8 Net Income per common share - basic $4.09 $4.43 $4.97 Net Income per common share - diluted $4.08 $4.42 $4.94 The computation of diluted EPS for the years ended December 31, 2019 and 2018 excludes immaterial amounts of performance share awards that were not included because of their anti-dilutive effect.
Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Changes in Accumulated Other Comprehensive Income/(Loss) by Component Changes to accumulated other comprehensive income/(loss) (OCI) forCon Edison and CECONY are as follows: (Millions of Dollars)Con Edison
CECONY
Accumulated OCI, net of taxes, at December 31, 2016 (a) $(27)
$(7)
OCI before reclassifications, net of tax of $3 and $1
for
(4)
-
Amounts reclassified from accumulated OCI related to
pension plan liabilities, net of tax of $(3) and $(1)
for
5
1
Total OCI, net of taxes, at December 31, 2017 1
1
Accumulated OCI, net of taxes, at December 31, 2017 (a) $(26)
$(6)
OCI before reclassifications, net of tax of $3 for
4
-
Amounts reclassified from accumulated OCI related to
pension plan liabilities, net of tax of $(2) for
6
1
Total OCI, net of taxes, at December 31, 2018 10
1
Accumulated OCI, net of taxes, at December 31, 2018 (a) $(16)
$(5)
OCI before reclassifications, net of tax of $(6) and
$(1) for
(10)
(3)
Amounts reclassified from accumulated OCI related to
pension plan liabilities, net of tax of $(2) for
7
2
Total OCI, net of taxes, at December 31, 2019 (3)
(1)
Accumulated OCI, net of taxes, at December 31, 2019 (a) $(19)
$(6)
(a) Tax reclassified from accumulated OCI is reported in the income tax expense line item of the consolidated income statement. (b) For the portion of unrecognized pension and other postretirement benefit costs relating to the Utilities, costs are recorded into, and amortized out of, regulatory assets and liabilities instead of OCI. The net actuarial losses and prior service costs recognized during the period are included in the computation of total periodic pension and other postretirement benefit cost. See Notes E and F.
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Reconciliation of Cash, Temporary Cash Investments and Restricted Cash Cash, temporary cash investments and restricted cash are presented on a combined basis in the Companies' consolidated statements of cash flows. At December 31, 2019 and 2018, cash, temporary cash investments and restricted cash forCon Edison and CECONY were as follows: At December 31, Con Edison CECONY (Millions of Dollars) 2019 2018 2019
2018
Cash and temporary cash investments $981 $895 $933
$818
Restricted cash (a) 236 111 -
-
Total cash, temporary cash investments and restricted cash $1,217 $1,006 $933
$818
(a) Restricted cash included cash of the Clean Energy Businesses' renewable
electric production project subsidiaries ($236 million and $109 million at
December 31, 2019 and 2018, respectively) that, under the related project
debt agreements, is either restricted until the various maturity dates of the
project debt to being used for normal operating expenses and capital
expenditures, debt service, and required reserves or restricted as a result
of the PG&E bankruptcy. During the pendency of the PG&E bankruptcy, unless
the lenders for the related project debt otherwise agree, cash may not be
distributed from the related projects to the Clean Energy Businesses. See
"Long-Lived and Intangible Assets," above and "Long-term Debt" in Note C. In
addition, restricted cash included O&R's
principal, interest, trustee and service fees ($2 million at December 31,
2018). Note B - Regulatory Matters Rate Plans The Utilities provide service toNew York customers according to the terms of tariffs approved by the NYSPSC. Tariffs for service to customers ofRockland Electric Company (RECO), O&R'sNew Jersey regulated utility subsidiary, are approved by the NJBPU. The tariffs include schedules of rates for service that limit the rates charged by the Utilities to amounts that recover from their customers costs approved by the regulator, including capital costs, of providing service to customers as defined by the tariff. The tariffs implement rate plans adopted by state utility regulators in rate orders issued at the conclusion of rate proceedings. Pursuant to the Utilities' rate plans, there generally can be no change to the charges to customers during the respective terms of the rate plans other than specified adjustments provided for in the rate plans. The Utilities' rate plans each cover specified periods, but rates determined pursuant to a plan generally continue in effect until a new rate plan is approved by the state utility regulator. Common provisions of the Utilities'New York rate plans include: Recoverable energy costs that allow the Utilities to recover on a current basis the costs for the energy they supply with no mark-up to their full-service customers. Cost reconciliations that reconcile pension and other postretirement benefit costs, environmental remediation costs, property taxes, variable rate tax-exempt debt and certain other costs to amounts reflected in delivery rates for such costs. In addition, changes in the Utilities' costs not reflected in rates, in excess of certain amounts, resulting from changes in tax or other law, rule, regulation, order, or other requirement or interpretation are deferred as a regulatory asset or regulatory liability to be reflected in the Utilities' next rate plan or in a manner to be determined by the NYSPSC. Also, the Utilities generally retain the right to petition for recovery or accounting deferral of extraordinary and material cost increases and provision is sometimes made for the utility to retain a share of cost reductions, for example, property tax refunds. Revenue decoupling mechanisms that reconcile actual energy delivery revenues to the authorized delivery revenues approved by the NYSPSC. The difference is accrued with interest for refund to, or recovery from customers, as applicable. Earnings sharing that require the Utilities to defer for customer benefit a portion of earnings over specified rates of return on common equity. There is no symmetric mechanism for earnings below specified rates of return on common equity.
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Negative revenue adjustments for failure to meet certain performance standards relating to service, reliability, safety and other matters. Positive revenue adjustments for achievement of performance standards related to achievement of clean energy goals, safety and other matters. Net utility plant reconciliations that require deferral as a regulatory liability of the revenue requirement impact of the amount, if any, by which actual average net utility plant balances are less than amounts reflected in rates. There is generally no symmetric mechanism if actual average net utility plant balances are more than amounts reflected in rates. Rate base, as reflected in the rate plans, is, in general, the sum of the Utilities' net plant, working capital and certain regulatory assets less deferred taxes and certain regulatory liabilities. For each rate plan, the NYSPSC uses a forecast of the average rate base for each year that new rates would be in effect ("rate year"). Weighted average cost of capital is determined based on the authorized common equity ratio, return on common equity, cost of long-term debt and cost of customer deposits reflected in each rate plan. For each rate plan, the revenues designed to provide the utility a return on invested capital for each rate year are determined by multiplying each utility rate base by its pre-tax weighted average cost of capital. The Utilities' actual return on common equity will reflect their actual operations for each rate year, and may be more or less than the authorized return on equity reflected in their rate plans (and if more, may be subject to earnings sharing). The following tables contain a summary of the Utilities' rate plans: CECONY - Electric Effective period January 2017 - December 2019 January 2020 - December 2022 (a) Base rate changes Yr. 1 - $195 million (b) Yr. 1 - $113 million (c) Yr. 2 - $155 million (b) Yr. 2 - $370 million (c) Yr. 3 - $155 million (b) Yr. 3 - $326 million (c) Amortizations to Yr. 1 - $84 million Yr. 1 - $267 million (d) income of net Yr. 2 - $83 million Yr. 2 - $269 million (d) regulatory (assets) Yr. 3 - $69 million Yr. 3 - $272 million (d) and liabilities Other revenue sources Retention of $75 million of Retention of $75 million of annual transmission annual transmission congestion revenues. congestion revenues. Potential earnings Potential earnings adjustment mechanism adjustment mechanism incentives for energy incentives for energy efficiency and other efficiency and other potential incentives of up potential incentives of up to: to: Yr. 1 - $28 million Yr. 1 - $69 million Yr. 2 - $47 million Yr. 2 - $74 million Yr. 3 - $64 million Yr. 3 - $79 million In 2017, 2018 and 2019, the company recorded $13 million, $25 million and $43 million of earnings adjustment mechanism incentives for energy efficiency, respectively. The company also achieved $5 million of incentives for service terminations in 2017, 2018 and 2019 that, pursuant to the rate plan, is being recorded ratably in earnings from 2018 to 2020. In 2018 and 2019, the company recorded $3 million and $7 million of incentives for service terminations, respectively. Revenue decoupling Continuation of Continuation of mechanisms reconciliation of actual to reconciliation of actual to authorized electric delivery authorized electric delivery revenues. revenues. In 2017, 2018 and 2019, the company deferred for customer benefit $45 million, $(6) million and $169 million of revenues, respectively. Recoverable energy Continuation of current rate Continuation of current rate costs recovery of purchased power recovery of purchased power and fuel costs. and fuel costs. Negative revenue Potential charges if certain Potential charges if certain adjustments performance targets relating performance targets relating to service, reliability, to service, reliability, safety and other matters are safety and other matters are not met: not met: Yr. 1 - $376 million Yr. 1 - $450 million Yr. 2 - $341 million Yr. 2 - $461 million Yr. 3 - $352 million Yr. 3 - $476 million In 2017 and 2018, the company did not record any negative revenue adjustments. In 2019, the company recorded negative revenue adjustments of $15 million.
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Cost reconciliations Continuation of Continuation of reconciliation of expenses reconciliation of expenses for pension and other for pension and other postretirement benefits, postretirement benefits, variable-rate tax-exempt variable-rate debt, major debt, major storms, property storms, property taxes (e), taxes (e), municipal municipal infrastructure infrastructure support costs support costs (f), the (f), the impact of new laws impact of new laws and and environmental site environmental site investigation and investigation and remediation to amounts remediation to amounts reflected in rates (g). reflected in rates. (g) In 2017, 2018 and 2019, the company deferred $35 million, $189 million and $10 million of net regulatory assets, respectively. Net utility plant Target levels reflected in Target levels reflected in reconciliations rates: rates: Electric average net plant Electric average net plant target excluding advanced target excluding advanced metering infrastructure metering infrastructure (AMI): (AMI): Yr. 1 - $21,689 million Yr. 1 - $24,491 million Yr. 2 - $22,338 million Yr. 2 - $25,092 million Yr. 3 - $23,002 million Yr. 3 - $25,708 million AMI: AMI: Yr. 1 - $126 million Yr. 1 - $572 million Yr. 2 - $257 million Yr. 2 - $740 million Yr. 3 - $415 million Yr. 3 - $806 million (h) The company deferred $0.4 million as a regulatory asset in 2017. In 2018 and 2019, $0.4 and $11.8 million was deferred as a regulatory liability, respectively. Average rate base Yr. 1 - $18,902 million Yr. 1 - $21,660 million Yr. 2 - $19,530 million Yr. 2 - $22,783 million Yr. 3 - $20,277 million Yr. 3 - $23,926 million Weighted average cost Yr. 1 - 6.82 percent 6.61 percent of capital (after-tax) Yr. 2 - 6.80 percent Yr. 3 - 6.73 percent Authorized return on 9.0 percent 8.80 percent common equity Actual return on Yr. 1 - 9.30 percent common equity (i) Yr. 2 - 9.36 percent Yr. 3 - 8.82 percent Earnings sharing Most earnings above an Most earnings above an annual earnings threshold of annual earnings threshold of 9.5 percent are to be 9.3 percent are to be applied to reduce regulatory applied to reduce regulatory assets for environmental assets for environmental remediation and other costs remediation and other costs accumulated in the rate accumulated in the rate year. year. In 2017, the company had no earnings above the threshold but recorded a positive adjustment related to 2016 of $5.7 million in earnings. In 2018 and 2019, the company had no earnings sharing above the threshold. Cost of long-term debt Yr. 1 - 4.93 percent 4.63 percent Yr. 2 - 4.88 percent Yr. 3 - 4.74 percent Common equity ratio 48 percent 48 percent
(a) In January 2020, the NYSPSC approved the October 2019 Joint Proposal for
CECONY's electric rate plan for January 2020 through December 2022. If at the
end of any semi-annual period ending June 30 and December 31,
investments in its non-utility businesses exceed 15 percent of its total
consolidated revenues, assets or cash flow, or if the ratio of holding
company debt to total consolidated debt rises above 20 percent, CECONY is
required to notify the NYSPSC and submit a ring-fencing plan or a demonstration why additional ring-fencing measures (see Note S) are not necessary.
(b) The electric base rate increases were in addition to a $48 million increase
resulting from the December 2016 expiration of a temporary credit under the
prior rate plan. At the NYSPSC's option, these increases were implemented
with increases of $199 million in each rate year. Base rates reflect recovery
by the company of certain costs of its energy efficiency, system peak
reduction and electric vehicle programs (Yr. 1 - $20.5 million; Yr. 2 - $49
million; and Yr. 3 - $107.5 million) over a 10-year period, including the
overall pre-tax rate of return on such costs.
(c) Base rates reflect recovery by the company of certain costs of its energy
efficiency, Reforming the Energy Vision demonstration projects, non-wire
alternative projects (including the Brooklyn Queens demand management
program), and off-peak electric vehicle charging programs (Yr. 1 - $206
million; Yr. 2 - $245 million; and Yr. 3 - $251 million) over a ten-year
period, including the overall pre-tax rate of return on such costs.
(d) Amounts reflect amortization of the 2018 tax savings under the federal Tax
Cuts and Jobs Act of 2017 (TCJA) allocable to CECONY's electric customers
($377 million) over a three-year period ($126 million annually), the
protected portion of the regulatory liability for excess deferred income
taxes allocable to CECONY's electric customers ($1,663 million) over the
remaining lives of the related assets ($49 million in Yr. 1, $50 million in
Yr. 2, and $53 million in Yr. 3) and the unprotected portion of the net
regulatory liability ($784 million) over five years ($157 million annually).
Amounts also reflect amortization of the regulatory asset for deferred MTA
power reliability costs ($238 million) over a five-year period ($48 million
annually).
(e) Deferrals for property taxes are limited to 90 percent of the difference from
amounts reflected in rates, subject to an annual maximum for the remaining
difference of not more than a maximum number of basis points impact on return
on common equity: Yr 1 - 10.0 basis points; Yr 2 - 7.5 basis points; and Yr 3
- 5.0 basis points.
(f) In general, if actual expenses for municipal infrastructure support (other
than company labor) are below the amounts reflected in rates the company will
defer the difference for credit to customers, and if the actual expenses are
above the amount reflected in rates the company will defer for recovery from
customers 80 percent of the difference subject to a maximum deferral, subject
to certain conditions, of
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30 percent of the amount reflected in the January 2017-December 2019 rate plan and 15 percent of the amount reflected in the January 2020-December 2022 rate plan. (g) In addition, the NYSPSC staff has commenced a focused operations audit to
investigate the income tax accounting of CECONY and other
Any NYSPSC-ordered adjustment to CECONY's income tax accounting will be
refunded to or collected from customers, as determined by the NYSPSC. See
"Other Regulatory Matters," below.
(h) Reconciliation of net utility plant for AMI will be done on a combined basis
for electric and gas.
(i) Calculated in accordance with the earnings calculation method prescribed in
the rate order.
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CECONY - Gas Effective period January 2017 - December 2019 January 2020 - December 2022 (a) Base rate changes Yr. 1 - $(5) million (b) Yr. 1 - $84 million (c) Yr. 2 - $92 million Yr. 2 - $122 million (c) Yr. 3 - $90 million Yr. 3 - $167 million (c) Amortizations to Yr. 1 - $39 million Yr. 1 - $45 million (d) income of net Yr. 2 - $37 million Yr. 2 - $43 million (d) regulatory (assets) Yr. 3 - $36 million Yr. 3 - $10 million (d) and liabilities Other revenue sources Retention of annual revenues Retention of annual revenues from non-firm customers of from non-firm customers of up to $65 million and 15 up to $65 million and 15 percent of any such revenues percent of any such revenues above $65 million. above $65 million. Potential incentives if Potential earnings adjusted performance targets related mechanism incentives for to gas leak backlog, leak energy efficiency and other prone pipe and service potential incentives of up terminations are met: to: Yr. 1 - $7 million Yr. 1 - $20 million Yr. 2 - $8 million Yr. 2 - $22 million Yr. 3 - $8 million Yr. 3 - $25 million In 2017, 2018 and 2019, the company achieved incentives of $7 million, $6 million and $7 million, respectively, that, pursuant to the rate plan, is being recorded ratably in earnings from 2018 to 2020. In 2018 and 2019, the company recorded incentives of $5 million and $9 million, respectively, for gas leak backlog, leak prone pipe and service terminations. Revenue decoupling Continuation of Continuation of mechanisms reconciliation of actual to reconciliation of actual to authorized gas delivery authorized gas delivery revenues. revenues, modified to be In 2017, 2018 and 2019, the calculated based upon company deferred $3 million, revenue per customer class $12 million and $10 million instead of revenue per of regulatory liabilities, customer. respectively. Recoverable energy Continuation of current rate Continuation of current rate costs recovery of purchased gas recovery of purchased gas costs. costs. Negative revenue Potential charges if Potential charges if adjustments performance targets relating performance targets relating to service, safety and other to service, safety and other matters are not met: matters are not met: Yr. 1 - $68 million Yr. 1 - $81 million Yr. 2 - $63 million Yr. 2 - $88 million Yr. 3 - $70 million Yr. 3 - $96 million In 2017 and 2018, the company recorded negative revenue adjustments of $5 million and $4 million, respectively. In 2019, the company did not record any negative revenue adjustments. Cost reconciliations Continuation of Continuation of reconciliation of expenses reconciliation of expenses for pension and other for pension and other postretirement benefits, postretirement benefits, variable-rate tax-exempt variable-rate debt, major debt, major storms, property storms, property taxes (e), taxes (e), municipal municipal infrastructure infrastructure support costs support costs (f), the (f), the impact of new laws impact of new laws and and environmental site environmental site investigation and investigation and remediation to amounts remediation to amounts reflected in rates. (g) reflected in rates. (g) In 2017, 2018 and 2019, the company deferred $2 million of net regulatory liabilities, $44 million of net regulatory assets and $18 million of net regulatory assets, respectively. Net utility plant Target levels reflected in Target levels reflected in reconciliations rates: rates: Gas average net plant target Gas average net plant target excluding AMI: excluding AMI: Yr. 1 - $5,844 million Yr. 1 - $8,108 million Yr. 2 - $6,512 million Yr. 2 - $8,808 million Yr. 3 - $7,177 million Yr. 3 - $9,510 million AMI: AMI: Yr. 1 - $27 million Yr. 1 - $142 million Yr. 2 - $57 million Yr. 2 - $183 million Yr. 3 - $100 million Yr. 3 - $211 million (h) In 2017 and 2018 the company deferred $2.2 million as regulatory liabilities. In 2019, the company deferred $1.7 million as a regulatory liability. Average rate base Yr. 1 - $4,841 million Yr. 1 - $7,171 million Yr. 2 - $5,395 million Yr. 2 - $7,911 million Yr. 3 - $6,005 million Yr. 3 - $8,622 million Weighted average cost Yr. 1 - 6.82 percent 6.61 percent of capital Yr. 2 - 6.80 percent (after-tax) Yr. 3 - 6.73 percent Authorized return on 9.0 percent 8.80 percent common equity Actual return on Yr. 1 - 9.22 percent common equity (i) Yr. 2 - 9.04 percent Yr. 3 - 8.72 percent
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Earnings sharing Most earnings above an Most earnings above an annual earnings threshold of annual earnings threshold of 9.5 percent are to be 9.3 percent are to be applied to reduce regulatory applied to reduce regulatory assets for environmental assets for environmental remediation and other costs remediation and other costs accumulated in the rate accumulated in the rate year. year. In 2017, 2018 and 2019, the company had no earnings above the threshold. Cost of long-term debt Yr. 1 - 4.93 percent 4.63 percent Yr. 2 - 4.88 percent Yr. 3 - 4.74 percent Common equity ratio 48 percent 48 percent
(a) In January 2020, the NYSPSC approved the October 2019 Joint Proposal for
CECONY's gas rate plan for January 2020 through December 2022. If at the end
of any semi-annual period ending June 30 and December 31,
investments in its non-utility businesses exceed 15 percent of its total
consolidated revenues, assets or cash flow, or if the ratio of holding company debt to total consolidated debt rises above 20 percent, CECONY is required to notify the NYSPSC and submit a ring-fencing plan or a demonstration why additional ring-fencing measures (see Note S) are not necessary.
(b) The gas base rate decrease was offset by a $41 million increase resulting
from the December 2016 expiration of a temporary credit under the prior rate
plan.
(c) The gas base rate increases shown above will be implemented with increases
of $47 million in Yr. 1; $176 million in Yr. 2; and $170 million in Yr. 3 in
order to levelize customer bill impacts. Base rates reflect recovery by the
company of certain costs of its energy efficiency program (Yr. 1 - $30 million; Yr. 2 - $37 million; and Yr. 3 - $40 million) over a ten-year period, including the overall pre-tax rate of return on such costs. (d) Amounts reflect amortization of the remaining 2018 TCJA tax savings
allocable to CECONY's gas customers ($63 million) over a two year period
($32 annually), the protected portion of the regulatory liability for excess
deferred income taxes allocable to CECONY's gas customers ($725 million)
over the remaining lives of the related assets ($14 million in Yr. 1, $14
million in Yr. 2, and $12 million in Yr. 3) and the unprotected portion of
the net regulatory liability ($107 million) over five years ($21 million
annually)
(e)-(i) See footnotes (e) - (i) to the table under "CECONY Electric," above.
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CECONY - Steam Effective period January 2014 - December 2016 (a) Base rate changes Yr. 1 - $(22.4) million (b) Yr. 2 - $19.8 million (b) Yr. 3 - $20.3 million (b) Yr. 4 - None Yr. 5 - None Yr. 6 - None Amortizations to $37 million over three years income of net regulatory (assets) and liabilities Recoverable energy Current rate recovery of costs purchased power and fuel costs. Negative revenue Potential charges (up to $1 adjustments million annually) if certain steam performance targets are not met. In years 2014 through 2019, the company did not record any negative revenue adjustments. Cost reconciliations In 2014, 2015, 2016, 2017, (c) 2018 and 2019, the company deferred $42 million of net regulatory liabilities, $17 million of net regulatory assets, $8 million and $14 million of net regulatory liabilities, $1 million of net regulatory assets and $8 million of net regulatory liabilities, respectively. Net utility plant Target levels reflected in reconciliations rates were: Production: Yr. 1 - $1,752 million Yr. 2 - $1,732 million Yr. 3 - $1,720 million Distribution: Yr. 1 - $6 million Yr. 2 - $11 million Yr. 3 - $25 million The company reduced its regulatory liability by $0.1 million in 2014 and immaterial amounts in 2015 and 2016 and no deferrals were recorded in 2017, 2018 and 2019. Average rate base Yr. 1 - $1,511 million Yr. 2 - $1,547 million Yr. 3 - $1,604 million Weighted average cost Yr. 1 - 7.10 percent of capital (after-tax) Yr. 2 - 7.13 percent Yr. 3 - 7.21 percent Authorized return on 9.3 percent common equity Actual return on Yr. 1 - 9.82 percent common equity (d) Yr. 2 - 10.88 percent Yr. 3 - 10.54 percent Yr. 4 - 9.51 percent Yr. 5 - 11.73 percent Yr. 6 - 10.45 percent Earnings sharing Weather normalized earnings above an annual earnings threshold of 9.9 percent are to be applied to reduce regulatory assets for environmental remediation and other costs. In 2014, the company had no earnings above the threshold. Actual earnings were $11.5 million and $7.8 million above the threshold in 2015 and 2016, respectively. In 2017, actual earnings were $8.5 million above the threshold, offset in part by a positive adjustment related to 2016 of $4 million. In 2018, actual earnings were $16.5 million above the threshold, and an additional $1.1 million related to 2017 was recorded. In 2019 actual earnings were $5 million above the threshold, offset in part by an adjustment related to 2018 of $2.3 million. Cost of long-term debt Yr. 1 - 5.17 percent Yr. 2 - 5.23 percent Yr. 3 - 5.39 percent Common equity ratio 48 percent
(a) Rates determined pursuant to this rate plan continue in effect until a new
rate plan is approved by the NYSPSC.
(b) The impact of these base rate changes was deferred which resulted in an $8
million regulatory liability at December 31, 2016.
(c) Deferrals for property taxes are limited to 90 percent of the difference from
amounts reflected in rates, subject to an annual maximum for the remaining
difference of not more than a 10 basis point impact on return on common
equity.
(d) Calculated in accordance with the earnings calculation method prescribed in
the rate order.
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O&R New York - Electric Effective period November 2015 - October 2017 January 2019 - December 2021 (a) (d) Base rate changes Yr. 1 - $9.3 million Yr. 1 - $13.4 million (e) Yr. 2 - $8.8 million Yr. 2 - $8.0 million (e) Yr. 3 - None Yr. 3 - $5.8 million (e) Amortizations to Yr. 1 - $(8.5) million (b) Yr. 1 - $(1.5) million (f) income of net Yr. 2 - $(9.4) million (b) Yr. 2 - $(1.5) million (f) regulatory (assets) Yr. 3 - None Yr. 3 - $(1.5) million (f) and liabilities Other revenue sources Potential earnings adjustment mechanism incentives for peak reduction, energy efficiency, Distributed Energy Resources utilization and other potential incentives of up to: Yr. 1 - $3.6 million Yr. 2 - $4.0 million Yr. 3 - $4.2 million Potential incentive if performance target related to service terminations is met: $0.5 million annually. In 2019, the company recorded $2.6 million of earnings adjustment mechanism incentives for energy efficiency and $0.2 million of incentives for service terminations. Revenue decoupling In 2015, 2016, 2017 and Continuation of mechanisms 2018, the company deferred reconciliation of actual to for the customer's benefit authorized electric delivery an immaterial amount, $6.3 revenues. million as regulatory liabilities, $11.2 million In 2019 the company deferred as regulatory asset and $0.5 $0.1 million as a regulatory million as regulatory asset, asset. respectively. Recoverable energy Continuation of current rate Continuation of current rate costs recovery of purchased power recovery of purchased power costs. costs. Negative revenue Potential charges (up to $4 Potential charges if certain adjustments million annually) if certain performance targets relating performance targets are not to service, reliability and met. In 2015 the company other matters are not met: recorded $1.25 million in Yr. 1 - $4.4 million negative revenue Yr. 2 - $4.4 million adjustments. In 2016, 2017 Yr. 3 - $4.5 million and 2018, the company did not record any negative In 2019, the company did not revenue adjustments. record any negative revenue adjustments. Cost reconciliations In 2015, 2016 and 2017, the Reconciliation of expenses company deferred $0.3 for pension and other million, $7.4 million and postretirement benefits, $3.2 million as net environmental remediation decreases to regulatory costs, property taxes (g), assets, respectively. In energy efficiency program 2018, the company deferred (h), major storms, the $5 million as a net impact of new laws and regulatory asset. certain other costs to amounts reflected in rates.(i) In 2019, the company deferred $4.3 million as a net regulatory asset. Net utility plant Target levels reflected in Target levels reflected in reconciliations rates are: rates were: Yr. 1 - $928 million (c) Electric average net plant Yr. 2 - $970 million (c) target excluding advanced The company metering infrastructure increased/(reduced) its (AMI): regulatory asset by $2.2 Yr. 1 - $1,008 million million, $(1.9) million, Yr. 2 - $1,032 million $(1.9) million and $1.4 Yr. 3 - $1,083 million million in 2015, 2016, 2017 AMI (j): and 2018, respectively. Yr. 1 - $48 million Yr. 2 - $58 million Yr. 3 - $61 million The company increased regulatory asset by an immaterial amount in 2019. Average rate base Yr. 1 - $763 million Yr. 1 - $878 million Yr. 2 - $805 million Yr. 2 - $906 million Yr. 3 - $805 million Yr. 3 - $948 million Weighted average cost Yr. 1 - 7.10 percent Yr. 1 - 6.97 percent of capital (after-tax) Yr. 2 - 7.06 percent Yr. 2 - 6.96 percent Yr. 3 - 7.06 percent Yr. 3 - 6.96 percent Authorized return on 9.0 percent 9.0 percent common equity Actual return on Yr. 1 - 10.8 percent Yr. 1 - 9.6 percent common equity (k) Yr. 2 - 9.7 percent Yr. 3 - 7.2 percent
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Earnings sharing Most earnings above an Most earnings above an annual earnings threshold of annual earnings threshold of 9.6 percent are to be 9.6 percent are to be applied to reduce regulatory applied to reduce regulatory assets. In 2015, earnings assets for environmental did not exceed the earnings remediation and other costs threshold. Actual earnings accumulated in the rate were $6.1 million, $0.3 year. million above the threshold for 2016 and 2017, In 2019, earnings did not respectively. In 2018, exceed the earnings earnings did not exceed the threshold. earnings threshold. Cost of long-term debt Yr. 1 - 5.42 percent Yr. 1 - 5.17 percent Yr. 2 - 5.35 percent Yr. 2 - 5.14 percent Yr. 3 - 5.35 percent Yr. 3 - 5.14 percent Common equity ratio 48 percent 48 percent
(a) Rates determined pursuant to this rate plan continued in effect until the
subsequent rate plan became effective.
(b) $59.3 million of the regulatory asset for deferred storm costs is to be
recovered from customers over a 5 year period, including $11.85 million in
each of years 1 and 2, $1 million of the regulatory asset for such costs will
not be recovered from customers, and all outstanding issues related to
Superstorm Sandy and other past major storms prior to November 2014 are
resolved. Approximately $4 million of regulatory assets for property tax and
interest rate reconciliations will not be recovered from customers. Amounts
that will not be recovered from customers were charged-off in June 2015.
(c) Excludes electric AMI as to which the company will be required to defer as a
regulatory liability the revenue requirement impact of the amount, if any, by
which actual average net utility plant balances are less than amounts
reflected in rates: $1 million in year 1 and $9 million in year 2.
(d) If at the end of any year,
businesses exceed 15 percent of
assets or cash flow, or if the ratio of holding company debt to total consolidated debt rises above 20 percent, O&R is required to notify the NYSPSC and submit a ring-fencing plan or a demonstration why additional ring-fencing measures (see Note S) are not necessary.
(e) The electric base rate increases shown above will be implemented with
increases of: Yr. 1 - $8.6 million; Yr. 2 - $12.1 million; and Yr. 3 - $12.2
million.
(f) Reflects amortization of, among other things, the company's net benefits
under the TCJA prior to January 1, 2019, amortization of net regulatory
liability for future income taxes and reduction of previously incurred
regulatory assets for environmental remediation costs. Also, for electric,
reflects amortization over a six year period of previously incurred
incremental major storm costs. See "Other Regulatory Matters," below.
(g) Deferrals for property taxes are limited to 90 percent of the difference from
amounts reflected in rates, subject to an annual maximum for the remaining
difference of not more than a maximum number of basis points impact on return
on common equity: Yr. 1 - 10.0 basis points; Yr. 2 - 7.5 basis points; and
Yr. 3 - 5.0 basis points.
(h) Energy efficiency costs are expensed as incurred. Such costs are subject to a
downward-only reconciliation over the terms of the electric and gas rate
plans. The company will defer for the benefit of customers any cumulative
shortfall over the terms of the electric and gas rate plans between actual
expenditures and the levels provided in rates.
(i) In addition, amounts reflected in rates relating to income taxes and excess
deferred federal income tax liability balances will be reconciled (i.e.,
refunded to or collected from customers) to any final, non-appealable
NYSPSC-ordered findings in its investigation of O&R's income tax accounting.
See "Other Regulatory Matters," in Note B.
(j) Net plant reconciliation for AMI expenditures will be implemented for a
single category of AMI capital expenditures that includes amounts allocated
to both electric and gas customers.
(k) Calculated in accordance with the earnings calculation method prescribed in
the rate order.
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O&R New York - Gas Effective period November 2015 - October January 2019 - December 2021 2018 (a) (d) Base rate changes Yr. 1 - $16.4 million Yr. 1 - $(7.5) million (e) Yr. 2 - $16.4 million Yr. 2 - $3.6 million (e) Yr. 3 - $5.8 million Yr. 3 - $0.7 million (e) Yr. 3 - $10.6 million collected through a surcharge Amortization to income Yr. 1 - $(1.7) million (b) Yr. 1 - $1.8 million (f) of net regulatory Yr. 2 - $(2.1) million (b) Yr. 2 - $1.8 million (f) (assets) and liabilities Yr. 3 - $(2.5) million (b) Yr. 3 - $1.8 million (f) Other revenue sources Continuation of retention of annual revenues from non-firm customers of up to $4.0 million, with variances to be shared 80 percent by customers and 20 percent by company. Potential earnings adjustment mechanism incentives of up to $0.3 million annually. Potential incentives if performance targets related to gas leak backlog, leak prone pipe, emergency response, damage prevention and service terminations are met: Yr. 1 - $1.2 million; Yr. 2 - $1.3 million; and Yr. 3 - $1.3 million. In 2019, the company recorded $0.3 million of earnings adjustment mechanism incentives for energy efficiency and $0.7 million of incentives for gas leak backlog, leak prone pipe and service terminations. Revenue decoupling In 2015, 2016, 2017 and Continuation of mechanisms 2018, the company deferred reconciliation of actual to $0.8 million of regulatory authorized gas delivery assets, $6.2 million of revenues. regulatory liabilities, $1.7 million of regulatory In 2019, the company liabilities and $6.3 deferred $0.8 million of million of regulatory regulatory assets. liabilities, respectively. Recoverable energy costs Current rate recovery of Continuation of current rate purchased gas costs. recovery of purchased gas costs. Negative revenue Potential charges (up to Potential charges if adjustments $3.7 million in Yr. 1, performance targets relating $4.7 million in Yr. 2 and to service, safety and other $4.9 million in Yr. 3) if matters are not met: Yr. 1 - certain performance $5.5 million; Yr. 2 - $5.7 targets are not met. In million; and Yr. 3 - $6.0 2015, 2016 and 2017, the million. company did not record any negative revenue In 2019, the company adjustments. In 2018, the recorded a $0.2 million company recorded a $0.1 negative revenue adjustment. million negative revenue adjustment. Cost reconciliations In 2015 and 2016, the Reconciliation of expenses company deferred $4.5 for pension and other million and $6.6 million postretirement benefits, as net regulatory environmental remediation liabilities and assets, costs, property taxes (g), respectively. In 2017 and energy efficiency program 2018, the company deferred (h), the impact of new laws $3.5 million and $7.4 and certain other costs to million as net regulatory amounts reflected in liabilities, respectively. rates.(i) In 2019, the company deferred $6 million as net regulatory liabilities. Net utility plant Target levels reflected in Target levels reflected in reconciliations rates are: rates were: Yr. 1 - $492 million (c) Gas average net plant target Yr. 2 - $518 million (c) excluding AMI: Yr. 3 - $546 million (c) Yr. 1 - $593 million No deferral was recorded Yr. 2 - $611 million for 2015 and immaterial Yr. 3 - $632 million amounts were recorded as AMI (j): regulatory liabilities in Yr. 1 - $20 million 2016 and 2017. In 2018, Yr. 2 - $24 million the company deferred $0.4 Yr. 3 - $25 million million as regulatory asset. In 2019, the company deferred an immaterial amount as regulatory asset. Average rate base Yr. 1 - $366 million Yr. 1 - $454 million Yr. 2 - $391 million Yr. 2 - $476 million Yr. 3 - $417 million Yr. 3 - $498 million Weighted average cost of Yr. 1 - 7.10 percent Yr. 1 - 6.97 percent capital (after-tax) Yr. 2 - 7.06 percent Yr. 2 - 6.96 percent Yr. 3 - 7.06 percent Yr. 3 - 6.96 percent Authorized return on 9.0 percent 9.0 percent common equity Actual return on common Yr. 1 - 11.2 percent Yr. 1 - 8.9 percent equity (k) Yr. 2 - 9.7 percent Yr. 3 - 8.1 percent
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Earnings sharing Most earnings above an Most earnings above an annual earnings threshold annual earnings threshold of of 9.6 percent are to be 9.6 percent are to be applied to reduce applied to reduce regulatory regulatory assets. In assets for environmental 2015, earnings did not remediation and other costs exceed the earnings accumulated in the rate threshold. Actual earnings year. In 2019, earnings did were $4 million, $0.2 not exceed the earnings million above the threshold. threshold for 2016 and 2017, respectively. In 2018, earnings did not exceed the earnings threshold. Cost of long-term debt Yr. 1 - 5.42 percent Yr. 1 - 5.17 percent Yr. 2 - 5.35 percent Yr. 2 - 5.14 percent Yr. 3 - 5.35 percent Yr. 3 - 5.14 percent Common equity ratio 48 percent 48 percent
(a) Rates pursuant to this rate plan continued in effect until the subsequent
rate plan became effective.
(b) Reflects that the company will not recover from customers a total of
approximately $14 million of regulatory assets for property tax and interest
rate reconciliations. Amounts that will not be recovered from customers were
charged-off in June 2015.
(c) Excludes gas AMI as to which the company will be required to defer as a
regulatory liability the revenue requirement impact of the amount, if any, by
which actual average net utility plant balances are less than amounts
reflected in rates: $0.5 million in year 1, $4.2 million in year 2 and $7.2
million in year 3.
(d) If at the end of any year,
businesses exceed 15 percent of
assets or cash flow, or if the ratio of holding company debt to total consolidated debt rises above 20 percent, O&R is required to notify the NYSPSC and submit a ring-fencing plan or a demonstration why additional ring-fencing measures (see Note S) are not necessary.
(e) The gas base rate changes shown above will be implemented with changes of:
Yr. 1 - $(5.9) million; Yr. 2 - $1.0 million; and Yr. 3 - $1.0 million.
(f)-(k) See footnotes (f) - (k) to the table under "O&R New York - Electric," above.
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In January 2020, the NJBPU approved an electric rate increase, effective February 1, 2020, of $12 million for RECO. The following table contains a summary of the terms of the distribution rate plans. RECO Effective period March 2017 - January 2020 February 2020 Base rate changes Yr. 1 - $1.7 million Yr. 1 - $12 million Amortization to income $0.2 million over three $4.8 million over four of net years and continuation of years. regulatory (assets) and $(25.6) million of deferred liabilities storm costs over four years which expired on July 31, 2018 (a) Recoverable energy costs Current rate recovery of Current rate recovery of purchased power costs. purchased power costs. Cost reconciliations None None Average rate base Yr. 1 - $178.7 million Yr. 1 - $229.9 million Weighted average cost of 7.47 percent 7.11 percent capital (after-tax) Authorized return on 9.6 percent 9.5 percent common equity Actual return on common Yr. 1 - 7.5 percent equity Yr. 2 - 5.7 percent Cost of long-term debt 5.37 percent 4.88 percent Common equity ratio 49.7 percent 48.32 percent
(a) In January 2016, the NJBPU approved RECO's plan to spend $15.7 million in
capital over three years to harden its electric system against storms, the
costs of which RECO, beginning in 2017, is collecting through a customer
surcharge. In November 2017,FERC approved a September 2017 settlement agreement among RECO, the New Jersey Division of Rate Counsel and the NJBPU that increases RECO's annual transmission revenue requirement from $11.8 million to $17.7 million, effective April 2017. The revenue requirement reflects a return on common equity of 10.0 percent. Other Regulatory Matters In August 2018, the NYSPSC ordered CECONY to begin on January 1, 2019 to credit the company's electric and gas customers, and to begin on October 1, 2018 to credit its steam customers, with the net benefits of the federal Tax Cuts and Jobs Act of 2017 (TCJA) as measured based on amounts reflected in its rate plans prior to the enactment of the TCJA in December 2017. The net benefits include the revenue requirement impact of the reduction in the corporate federal income tax rate to 21 percent, the elimination for utilities of bonus depreciation and the amortization of excess deferred federal income taxes. CECONY, under its electric rate plan that was approved in January 2020, is amortizing its TCJA net benefits prior to January 1, 2019 allocable to its electric customers ($377 million) over a three-year period, the "protected" portion of its net regulatory liability for future income taxes related to certain accelerated tax depreciation benefits allocable to its electric customers ($1,663 million) over the remaining lives of the related assets and the remainder, or "unprotected" portion of the net regulatory liability allocable to its electric customers ($784 million) over a five-year period. CECONY, under its gas rate plan that was approved in January 2020, is amortizing its remaining TCJA net benefits prior to January 1, 2019 allocable to its gas customers ($63 million) over a two-year period, the protected portion of its net regulatory liability for future income taxes allocable to its gas customers ($725 million) over the remaining lives of the related assets and the unprotected portion of the net regulatory liability allocable to its gas customers ($107 million) over a five-year period. See footnote (d) to the CECONY - Electric and Gas tables under "Rate Plans," above. CECONY's net benefits prior to October 1, 2018 allocable to the company's steam customers ($15 million) are being amortized over a three-year period. CECONY's net regulatory liability for future income taxes, including both the protected and unprotected portions, allocable to the company's steam customers ($185 million) is being amortized over the remaining lives of the related assets (with the amortization period for the unprotected portion subject to review in its next steam rate proceeding). O&R, under its current electric and gas rate plans, has reflected its TCJA net benefits in its electric and gas rates beginning as of January 1, 2019. Under the rate plans, O&R is amortizing its net benefits prior to January 1, 2019 ($22 million) over a three-year period, the protected portion of its net regulatory liability for future income taxes ($123 million) over the remaining lives of the related assets and the unprotected portion ($30 million) over a fifteen-year period. See "Rate Plans," above.
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In January 2018, the NYSPSC issued an order initiating a focused operations audit of the income tax accounting of certain utilities, including CECONY and O&R. The Utilities are unable to estimate the amount or range of their possible loss related to this matter. At December 31, 2019, the Utilities had not accrued a liability related to this matter. In March 2018,Winter Storms Riley and Quinn caused damage to the Utilities' electric distribution systems and interrupted service to approximately 209,000 CECONY customers, 93,000 O&R customers and 44,000 RECO customers. At December 31, 2019, CECONY's costs related to March 2018 storms, including Riley and Quinn, amounted to $134 million, including operation and maintenance expenses reflected in its electric rate plan ($15 million), operation and maintenance expenses charged against a storm reserve pursuant to its electric rate plan ($84 million), capital expenditures ($29 million) and removal costs ($6 million). At December 31, 2019, O&R and RECO costs related to 2018 storms amounted to $43 million and $17 million, respectively, most of which were deferred as regulatory assets pursuant to their electric rate plans. In January 2019, O&R began recovering its deferred storm costs over a six-year period in accordance with itsNew York electric rate plan. The NYSPSC investigated the preparation and response to the storms by CECONY, O&R, and otherNew York electric utilities, including all aspects of their emergency response plans. In April 2019, following the issuance of a NYSPSC staff report on the investigation, the NYSPSC ordered the utilities to show cause why the NYSPSC should not commence a penalty action against them for violating their emergency response plans. The Utilities are unable to estimate the amount or range of their possible loss related to this matter. At December 31, 2019, the Utilities had not accrued a liability related to this matter. In July 2018, the NYSPSC commenced an investigation into the rupture of a CECONY steam main located on Fifth Avenue and 21st Street inManhattan . Debris from the incident included dirt and mud containing asbestos. The response to the incident required the closing of buildings and streets for various periods. The NYSPSC has commenced an investigation. As of December 31, 2019, with respect to the incident, the company incurred operating costs of $17 million for property damage, clean-up and other response costs and invested $9 million in capital and retirement costs. The company is unable to estimate the amount or range of its possible loss related to the incident. At December 31, 2019, the company had not accrued a liability related to the incident. In March 2019, the NYSPSC ordered CECONY to show cause why the NYSPSC should not commence a penalty action and prudence proceeding against CECONY for alleged violations of gas operator qualification, performance, and inspection requirements. At December 31, 2019, the company had accrued a $10 million liability related to this matter. On July 13, 2019, electric service was interrupted to approximately 72,000 CECONY customers on the west side ofManhattan . The NYSPSC and the Northeast Power Coordinating Council, a regional reliability entity, are investigating the July 13, 2019 power outage. Pursuant to the major outage reliability performance provisions of its electric rate plan, as a result of the July 13, 2019 power outage, the company recorded a $5 million negative revenue adjustment. The NYSPSC is also investigating other CECONY power outages that occurred in July 2019, primarily in the Flatbush area ofBrooklyn . Primarily due to these outages, pursuant to the rate plan's annual non-network outage frequency and non-network outage duration reliability performance provisions, the company recorded a $10 million negative revenue adjustment. The company is unable to estimate the amount or range of its possible additional loss related to these power outages.
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Regulatory Assets and Liabilities Regulatory assets and liabilities at December 31, 2019 and 2018 were comprised of the following items: Con Edison CECONY (Millions of Dollars) 2019 2018 2019 2018 Regulatory assets Unrecognized pension and other postretirement costs $2,541 $2,238 $2,403 $2,111 Environmental remediation costs 732 810 647 716 Revenue taxes 321 291 308 278 MTA power reliability deferral 248 229 248 229 Property tax reconciliation 219 101 210 86 System peak reduction and energy efficiency programs 131 72 130 70 Deferred derivative losses 83 17 76 11 Municipal infrastructure support costs 75 67 75 67 Pension and other postretirement benefits deferrals 71 73 47 56 Deferred storm costs 77 76 - - Brooklyn Queens demand management program 39 39 39 39 Meadowlands heater odorization project 35 36 35 36 Unamortized loss on reacquired debt 28 36 26 34 Preferred stock redemption 22 23 22 23 Recoverable REV demonstration project costs 21 20 19 18 Gate station upgrade project 19 17 19 17 Non-wire alternative projects 14 3 14 3 Workers' compensation 3 5 3 5 O&R transition bond charges - 2 - - Other 180 139 166 124 Regulatory assets - noncurrent 4,859 4,294 4,487 3,923 Deferred derivative losses 128 36 113 29 Recoverable energy costs - 40 - 35 Regulatory assets - current 128 76 113 64 Total Regulatory Assets $4,987 $4,370 $4,600 $3,987 Regulatory liabilities Future income tax* $2,426 $2,515 $2,275 $2,363 Allowance for cost of removal less salvage 989 928 843 790 TCJA net benefits 471 434 454 411 Net unbilled revenue deferrals 199 117 199 117 Net proceeds from sale of property 173 6 173 6 Energy efficiency portfolio standard unencumbered funds 122 127 118 122 Pension and other postretirement benefit deferrals 75 62 46 40 System benefit charge carrying charge 48 27 44 24 Property tax refunds 45 45 45 45 BQDM and REV Demo reconciliations 27 18 26 18 Earnings sharing - electric, gas and steam 22 36 15 27 Settlement of gas proceedings 10 15 10 15 Unrecognized other postretirement costs 9 7 - 7 Settlement of prudence proceeding 8 37 8 37 Property tax reconciliation - 36 - 36 Other 203 231 171 200 Regulatory liabilities - noncurrent 4,827 4,641 4,427 4,258 Refundable energy costs 44 31 12 8 Deferred derivative gains 34 30 34 29 Revenue decoupling mechanism 24 53 17 36 Regulatory liabilities-current 102 114 63 73 Total Regulatory Liabilities $4,929 $4,755
$4,490 $4,331
* See "Federal Income Tax" in Note A, "Other Regulatory Matters," above, and Note L.
Unrecognized pension and other postretirement costs represent the net regulatory asset associated with the accounting rules for retirement benefits. See Note A.
Revenue taxes represent the timing difference between taxes collected and paid by the Utilities to fund mass transportation.
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MTA power reliability deferral represents CECONY's costs in excess of those reflected in its prior electric rate plan to take certain actions relating to the electrical equipment that serves the Metropolitan Transportation Authority (MTA)subway system. The company is recovering this regulatory asset pursuant to its current electric rate plan. See footnote (d) to the CECONY - Electric table under "Rate Plans," above. Deferred storm costs represent response and restoration costs, other than capital expenditures, in connection with Superstorm Sandy and other major storms that were deferred by the O&R. Settlement of prudence proceeding represents the remaining amount to be credited to customers pursuant to a Joint Proposal, approved by the NYSPSC in April 2016, with respect to the prudence of certain CECONY expenditures and related matters. Settlement of gas proceedings represents the amount to be credited to customers pursuant to a settlement agreement approved by the NYSPSC in February 2017 related to CECONY's practices of qualifying persons to perform plastic fusions on gas facilities and alleged violations of gas safety violations identified by the NYSPSC staff in its investigation of a March 2014 Manhattan explosion and fire (see Note H). The NYSPSC has authorized CECONY to accrue unbilled electric, gas and steam revenues. CECONY has deferred the net margin on the unbilled revenues for the future benefit of customers by recording a regulatory liability of $199 million and $117 million at December 31, 2019 and 2018, respectively, for the difference between the unbilled revenues and energy cost liabilities. Note C - Capitalization Common StockCon Edison is authorized to issue 500,000,000 shares of its common stock and CECONY is authorized to issue 340,000,000 of its common stock. At December 31, 2019 and 2018, 332,629,597 and 320,960,396 shares, respectively, ofCon Edison common stock were outstanding. At December 31, 2019 and 2018, 235,488,094 million shares of CECONY common stock were outstanding, all of which were owned byCon Edison . At December 31, 2019 and 2018,Con Edison had 23,210,700 treasury shares, including 21,976,200 shares ofCon Edison stock that CECONY purchased prior to 2001 in connection withCon Edison's stock repurchase plan. CECONY presents in the financial statements the cost of theCon Edison stock it owns as a reduction of common shareholder's equity. In November 2018,Con Edison entered into forward sale agreements relating to 14,973,492 shares of its common stock. In December 2018, the company issued 9,324,123 shares for $705 million upon physical settlement of shares subject to the forward sale agreements. In March 2019,Con Edison issued 5,649,369 shares of its common stock for $425 million upon physical settlement of the remaining shares subject to the forward sale agreements. In May 2019,Con Edison entered into a forward sale agreement relating to 5,800,000 shares of its common stock. In June 2019, the company issued 4,750,000 shares for $400 million upon physical settlement of shares subject to the forward sale agreement. At December 31, 2019, 1,050,000 shares remained subject to the forward sale agreement. In January 2020, the company issued 1,050,000 shares for $88 million upon physical settlement of the remaining shares subject to the forward sale agreement. Capitalization ofCon Edison Con Edison's capitalization shown on its Consolidated Statement of Capitalization includes its outstanding common stock and long-term debt and the outstanding long-term debt of the Utilities and the Clean Energy Businesses. Dividends In accordance with NYSPSC requirements, the dividends that the Utilities generally pay are limited to not more than 100 percent of their respective income available for dividends calculated on a two-year rolling average basis. See Note S. Excluded from the calculation of "income available for dividends" are non-cash charges to income resulting from accounting changes or charges to income resulting from significant unanticipated events. The restriction also does not apply to dividends paid in order to transfer toCon Edison proceeds from major transactions, such as asset sales, or to dividends reducing each utility subsidiary's equity ratio to a level appropriate to its business risk. Long-term Debt Long-term debt maturing in the period 2020-2024 is as follows:
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(Millions of Dollars) Con Edison CECONY 2020 $518 (a) $350 2021 1,967 640 2022 437 - 2023 316 - 2024 385 250
(a) Amount shown includes $73 million of PG&E-related project debt that is
amortizing and scheduled to be repaid in 2020. Amount shown does not include
$928 million of PG&E-related project debt that, as a result of the PG&E
bankruptcy, was reclassified during the first quarter of 2019 on
consolidated balance sheet from long-term debt to long-term debt due within
one year. See "Long-Lived and Intangible Assets" in Note A.
CECONY has issued $450 million of tax-exempt debt through theNew York State Energy Research and Development Authority (NYSERDA) that currently bear interest at a rate determined weekly and is subject to tender by bondholders for purchase by the company. The carrying amounts and fair values of long-term debt at December 31, 2019 and 2018 are: (Millions of Dollars) 2019 2018 Carrying Fair Carrying Fair Long-Term Debt (including current portion) (a) Amount Value Amount Value Con Edison $19,973 $22,738 $18,145 $18,740 CECONY $14,964 $17,505 $14,151 $14,685
(a) Amounts shown are net of unamortized debt expense and unamortized debt
discount of $178 million and $151 million for
respectively, as of December 31, 2019 and $185 million and $139 million for
The fair values of the Companies' long-term debt have been estimated primarily using available market information and at December 31, 2019 are classified as Level 2 (see Note P). At December 31, 2019, and 2018, the Clean Energy Businesses had $2,737 million and $2,076 million, respectively of non-recourse debt secured by the pledge of the applicable renewable energy production projects including $1,001 million and $1,050 million, respectively, of PG&E-related project debt. As a result of the January 2019 PG&E bankruptcy (see "Long-Lived and Intangible Assets" in Note A), the lenders for the PG&E-related project debt may, upon written notice, declare principal and interest on the PG&E-related project debt to be due and payable immediately and, if such amounts are not timely paid, foreclose on the related projects. The company is seeking to negotiate agreements with the PG&E-related project debt lenders pursuant to which the lenders would defer exercising these remedies. Significant Debt Covenants The significant debt covenants under the financing arrangements for the Companies' debentures andCon Edison's notes and February 2019 $825 million, two-year variable-rate term loan include obligations to pay principal and interest when due and covenants not to consolidate with or merge into any other entity unless certain conditions are met. In addition, the notes include a covenant that the company shall continue its utility business inNew York City , the term loan includes a covenant that, subject to certain exceptions, the company and its subsidiaries will not mortgage, lien, pledge or otherwise encumber its assets, and the notes and term loan provide that the company shall not permit its ratio of consolidated debt to consolidated total capital to exceed certain amounts (0.675 to 1 for the notes and 0.65 for the term loan) and include cross default provisions with respect to the failure by the company or any material subsidiary to make one or more payments in respect of material financial obligations (in excess of an aggregate $100 million of debt for the notes and $150 million of debt or derivative obligations for the term loan, excluding non-recourse debt) of the company (or any of its material subsidiaries, in the case of the notes) and the occurrence of an event or condition which results in the acceleration of the maturity of any material debt (in excess of an aggregate $100 million for the notes and $150 million for the term loan, not including non-recourse debt) of the company (or any of its material subsidiaries, in the case of the notes) or enables the holders of such debt to accelerate the maturity thereof. The Companies' debentures have no cross default provisions. The tax-exempt financing arrangements of CECONY are subject to covenants for the debentures discussed above and the covenants discussed below. The Companies were in compliance with their significant debt covenants at December 31, 2019.
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The tax-exempt financing arrangements involved the issuance of uncollateralized promissory notes of CECONY to NYSERDA in exchange for the net proceeds of a like amount of tax-exempt bonds with substantially the same terms sold to the public by NYSERDA. The tax-exempt financing arrangements include covenants with respect to the tax-exempt status of the financing, including covenants with respect to the use of the facilities financed. The arrangements include provisions for the maintenance of liquidity and credit facilities, the failure to comply with which would, except as otherwise provided, constitute an event of default for the debt to which such provisions applied. The failure to comply with debt covenants would, except as otherwise provided, constitute an event of default for the debt to which such provisions applied. If an event of default were to occur, the principal and accrued interest on the debt to which such event of default applied and, in the case of theCon Edison notes, a make-whole premium might and, in the case of certain events of default would, become due and payable immediately. The liquidity and credit facilities currently in effect for the tax-exempt financing include covenants that the ratio of debt to total capital of CECONY will not at any time exceed 0.65 to 1 and that, subject to certain exceptions, CECONY will not mortgage, lien, pledge or otherwise encumber its assets. Certain of the facilities also include as events of default, defaults in payments of other debt obligations in excess of specified levels ($150 million or $100 million, depending on the facility). Note D - Short-Term Borrowing In December 2016,Con Edison and the Utilities entered into a credit agreement (Credit Agreement), under which banks are committed to provide loans and letters of credit on a revolving credit basis. The Credit Agreement, as amended in 2019, expires in December 2023. There is a maximum of $2,250 million of credit available through December 2022 and $2,200 million of credit available from then through December 2023. The full amount is available to CECONY and $1,000 million (subject to increase up to $1,500 million) is available toCon Edison , including up to $1,200 million of letters of credit. The Credit Agreement supports the Companies' commercial paper programs. The Companies have not borrowed under the Credit Agreement. At December 31, 2019,Con Edison had $1,692 million of commercial paper outstanding, of which $1,137 million was outstanding under CECONY's program. The weighted average interest rate at December 31, 2019 was 2.0 percent for bothCon Edison and CECONY. At December 31, 2018,Con Edison had $1,741 million of commercial paper outstanding of which $1,192 million was outstanding under CECONY's program. The weighted average interest rate at December 31, 2018 was 3.0 percent for bothCon Edison and CECONY.
At December 31, 2019 and 2018, no loans were outstanding under the Credit Agreement. An immaterial amount of letters of credit were outstanding under the Credit Agreement as of December 31, 2019 and 2018.
The banks' commitments under the Credit Agreement are subject to certain conditions, including that there be no event of default. The commitments are not subject to maintenance of credit rating levels or the absence of a material adverse change. Upon a change of control of, or upon an event of default by one of the Companies, the banks may terminate their commitments with respect to that company, declare any amounts owed by that company under the Credit Agreement immediately due and payable and require that company to provide cash collateral relating to the letters of credit issued for it under the Credit Agreement. Events of default for a company include that company exceeding at any time of a ratio of consolidated debt to consolidated total capital of 0.65 to 1 (at December 31, 2019 this ratio was 0.51 to 1 forCon Edison and 0.53 to 1 for CECONY); that company having liens on its assets in an aggregate amount exceeding five percent of its consolidated total capital, subject to certain exceptions; that company or any of its material subsidiaries failing to make one or more payments in respect of material financial obligations (in excess of an aggregate $150 million of debt or derivative obligations other than non-recourse debt) of that company; the occurrence of an event or condition which results in the acceleration of the maturity of any material debt (in excess of an aggregate $150 million of debt other than non-recourse debt) of that company or enables the holders of such debt to accelerate the maturity thereof; and other customary events of default. Interest and fees charged for the revolving credit facilities and any loans made or letters of credit issued under the Credit Agreement reflect the Companies' respective credit ratings. The Companies were in compliance with their covenants at December 31, 2019.
See Note S for information about short-term borrowing between related parties.
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Note E - Pension BenefitsCon Edison maintains a tax-qualified, non-contributory pension plan that covers substantially all employees of CECONY, O&R and Con Edison Transmission and certain employees of the Clean Energy Businesses. The plan is designed to comply with the Internal Revenue Code and the Employee Retirement Income Security Act of 1974.Con Edison also maintains additional non-qualified supplemental pension plans. Total Periodic Benefit Cost The components of the Companies' total periodic benefit costs for 2019, 2018 and 2017 were as follows: Con Edison CECONY (Millions of Dollars) 2019 2018 2017 2019 2018 2017 Service cost - including administrative expenses $250 $290 $263 $232 $272 $246 Interest cost on projected benefit obligation 601 561 591 564 525 554 Expected return on plan assets (988) (1,033) (968) (936) (979) (917) Recognition of net actuarial loss 518 688 595 492 651 563 Recognition of prior service cost/(credit) (17) (17) (17) (19) (19) (19) TOTAL PERIODIC BENEFIT COST $364 $489 $464 $333 $450 $427 Cost capitalized (108) (127) (181) (102) (119) (169) Reconciliation to rate level (15) (92) (34) (12) (100) (41) Total expense recognized $241 $270 $249 $219 $231 $217 In March 2017, the FASB issued amendments to the guidance for retirement benefits through ASU 2017-07, "Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost." The Companies adopted ASU 2017-07 beginning on January 1, 2018. The guidance requires that components of net periodic benefit cost other than service cost be presented outside of operating income on consolidated income statements, and that only the service cost component is eligible for capitalization. Accordingly, the service cost components are included in the line "Other operations and maintenance" and the non-service cost components are included in the line "Other deductions" in the Companies' consolidated income statements. As permitted by a practical expedient under ASU 2017-07, the Companies applied the presentation requirements retrospectively for both pension and other postretirement benefit costs using amounts disclosed in prior-period financial statements as appropriate estimates. Funded Status The funded status at December 31, 2019, 2018 and 2017 was as follows:
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Con Edison CECONY (Millions of Dollars) 2019 2018 2017 2019 2018 2017 CHANGE IN PROJECTED BENEFIT OBLIGATION Projected benefit obligation at beginning of year $14,449 $15,536 $14,095 $13,542 $14,567 $13,203 Service cost - excluding administrative expenses 245 286 259 228 267 241 Interest cost on projected benefit obligation 601 561 591 564 525 554 Net actuarial loss/(gain) 2,191 (1,219) 1,231 2,076 (1,159) 1,171 Plan amendments 15 - 6 - - - Benefits paid (709) (715) (646) (660) (658) (602) PROJECTED BENEFIT OBLIGATION AT END OF YEAR $16,792 $14,449 $15,536 $15,750 $13,542 $14,567 CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year $13,450 $14,274 $12,472 $12,744 $13,519 $11,815 Actual return on plan assets 2,556 (536) 2,041 2,425 (507) 1,935 Employer contributions 350 473 450 318 434 412 Benefits paid (709) (715) (646) (660) (658) (602) Administrative expenses (39) (46) (43) (37) (44) (41) FAIR VALUE OF PLAN ASSETS AT END OF YEAR $15,608 $13,450 $14,274 $14,790 $12,744 $13,519 FUNDED STATUS $(1,184) $(999) $(1,262) $(960) $(798) $(1,048) Unrecognized net loss $2,604 $2,464 $2,760 $2,466 $2,338 $2,624 Unrecognized prior service costs (173) (205) (223) (202) (222) (242) Accumulated benefit obligation 15,015 13,030 13,897 14,010 12,161 12,972 The increase in the pension liability atCon Edison and CECONY of $185 million and $162 million, respectively, compared with December 31, 2018, was primarily due to an increase in the plan's projected benefit obligation as a result of a decrease in the discount rate, partially offset by an increase in plan assets as a result of the actual return on plan assets. ForCon Edison , this increase in pension liability corresponds with an increase to regulatory assets of $167 million for unrecognized net losses and unrecognized prior service costs associated with the Utilities consistent with the accounting rules for regulated operations, a debit to OCI of $10 million (net of taxes) for the unrecognized net losses, and an immaterial change to OCI (net of taxes) for the unrecognized prior service costs associated with the Clean Energy Businesses,Con Edison Transmission, and RECO. For CECONY, the increase in pension liability corresponds with an increase to regulatory assets of $147 million for unrecognized net losses and unrecognized prior service costs consistent with the accounting rules for regulated operations, and also a debit to OCI of $2 million (net of taxes) for unrecognized net losses, and an immaterial change to OCI (net of taxes) for the unrecognized prior service costs associated with certain employees of the Clean Energy Businesses and Con Edison Transmission who previously worked for CECONY. A portion of the unrecognized net loss and prior service cost for the pension plan, equal to $701 million and $(16) million, respectively, will be recognized from accumulated OCI and the regulatory asset into net periodic benefit cost over the next year forCon Edison . Included in these amounts are $663 million and $(20) million, respectively, for CECONY. At December 31, 2019 and 2018,Con Edison's investments include $397 million and $326 million, respectively, held in external trust accounts for benefit payments pursuant to the supplemental retirement plans. Included in these amounts for CECONY were $371 million and $301 million, respectively. See Note P. The accumulated benefit obligations for the supplemental retirement plans forCon Edison and CECONY were $395 million and $360 million as of December 31, 2019 and $316 million and $285 million as of December 31, 2018, respectively.
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Assumptions
The actuarial assumptions were as follows:
2019 2018
2017
Weighted-average assumptions used to determine benefit obligations at December 31: Discount rate 3.35 % 4.25 % 3.70 % Rate of compensation increase CECONY 3.80 % 4.25 % 4.25 % O&R 3.20 % 4.00 % 4.00 % Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31: Discount rate 4.25 % 3.70 % 4.25 % Expected return on plan assets 7.00 % 7.50 % 7.50 % Rate of compensation increase CECONY 4.25 % 4.25 % 4.25 % O&R 4.00 % 4.00 % 4.00 % The expected return assumption reflects anticipated returns on the plan's current and future assets. The Companies' expected return was based on an evaluation of the current environment, market and economic outlook, relationships between the economy and asset class performance patterns, and recent and long-term trends in asset class performance. The projections were based on the plan's target asset allocation. Discount Rate Assumption To determine the assumed discount rate, the Companies use a model that produces a yield curve based on yields on selected highly rated (Aa or higher by either Moody's orStandard & Poor's ) corporate bonds. Bonds with insufficient liquidity, bonds with questionable pricing information and bonds that are not representative of the overall market are excluded from consideration. For example, the bonds used in the model cannot be callable (with the exception of "make whole" callable bonds), and the amount of the bond issue outstanding must be in excess of $50 million. The spot rates defined by the yield curve and the plan's projected benefit payments are used to develop a weighted average discount rate. Expected Benefit Payments Based on current assumptions, the Companies expect to make the following benefit payments over the next ten years: (Millions of Dollars) 2020 2021 2022 2023 2024 2025-2029 Con Edison $744 $756 $770 $788 $801 $4,181 CECONY 688 699 713 728 741 3,883 Expected Contributions Based on estimates as of December 31, 2019, the Companies expect to make contributions to the pension plans during 2020 of $472 million (of which $433 million is to be made by CECONY). The Companies' policy is to fund the total periodic benefit cost of the qualified plan to the extent tax deductible and to also contribute to the non-qualified supplemental plans. Plan Assets The asset allocations for the pension plan at the end of 2019, 2018 and 2017, and the target allocation for 2020 are as follows:
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Target Allocation Range Plan Assets at December 31, Asset Category 2020 2019 2018 2017 Equity Securities 45% - 55% 51 % 51 % 58 % Debt Securities 33% - 43% 38 % 39 % 33 % Real Estate 10% - 14% 11 % 10 % 9 % Total 100% 100 % 100 % 100 %Con Edison has established a pension trust for the investment of assets to be used for the exclusive purpose of providing retirement benefits to participants and beneficiaries and payment of plan expenses. Pursuant to resolutions adopted byCon Edison's Board of Directors, the Management Development and Compensation Committee of the Board of Directors (the Committee) has general oversight responsibility forCon Edison's pension and other employee benefit plans. The pension plan's named fiduciaries have been granted the authority to control and manage the operation and administration of the plans, including overall responsibility for the investment of assets in the trust and the power to appoint and terminate investment managers. The investment objectives of theCon Edison pension plan are to maintain a level and form of assets adequate to meet benefit obligations to participants, to achieve the expected long-term total return on the trust assets within a prudent level of risk and maintain a level of volatility that is not expected to have a material impact on the company's expected contribution and expense or the company's ability to meet plan obligations. The assets of the plan have no significant concentration of risk in one country (other thanthe United States ), industry or entity. The strategic asset allocation is intended to meet the objectives of the pension plan by diversifying its funds across asset classes, investment styles and fund managers. An asset/liability study typically is conducted every few years to determine whether the current strategic asset allocation continues to represent the appropriate balance of expected risk and reward for the plan to meet expected liabilities. Each study considers the investment risk of the asset allocation and determines the optimal asset allocation for the plan. The target asset allocation for 2020 reflects the results of such a study conducted in 2018. Individual fund managers operate under written guidelines provided byCon Edison , which cover such areas as investment objectives, performance measurement, permissible investments, investment restrictions, trading and execution, and communication and reporting requirements.Con Edison management regularly monitors, and the named fiduciaries review and report to the Committee regarding, asset class performance, total fund performance, and compliance with asset allocation guidelines. Management changes fund managers and rebalances the portfolio as appropriate. At the direction of the named fiduciaries, such changes are reported to the Committee. Assets measured at fair value on a recurring basis are summarized below as defined by the accounting rules for fair value measurements (see Note P).
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The fair values of the pension plan assets at December 31, 2019 by asset category are as follows: (Millions of Dollars)
Level 1 Level 2
Total
Investments within the fair value hierarchy U.S. Equity (a) $3,652 $- $3,652 International Equity (b) 3,354 - 3,354 U.S. Government Issued Debt (c) - 1,496 1,496 Corporate Bonds Debt (d) - 3,260 3,260 Structured Assets Debt (e) - 173 173 Other Fixed Income Debt (f) - 955 955 Cash and Cash Equivalents (g) - 326 326 Futures (h) - - - Total investments within the fair value hierarchy $7,006 $6,210 $13,216 Investments measured at NAV per share (n) Private Equity (i) 555 Real Estate (j) 1,806 Hedge Funds (k) 270 Total investments valued using NAV per share $2,631 Funds for retiree health benefits (l) (110) (98) (208) Funds for retiree health benefits measured at NAV per share (l)(n) (42) Total funds for retiree health benefits $(250) Investments (excluding funds for retiree health benefits) $6,896 $6,112 $15,597 Pending activities (m) 11 Total fair value of plan net assets
$15,608
(a)
investments in domestic equity index funds and actively-managed
small-capitalization equities.
(b) International Equity includes international equity index funds and
actively-managed international equities.
(c)
(d) Corporate Bonds Debt consists of debt issued by various corporations.
(e) Structured Assets Debt includes commercial-mortgage-backed securities and
collateralized mortgage obligations.
(f) Other Fixed Income Debt includes municipal bonds, sovereign debt and regional
governments.
(g) Cash and Cash Equivalents include short term investments, money markets,
foreign currency and cash collateral.
(h) Futures consist of exchange-traded financial contracts encompassing
Equity, International Equity and
(i) Private Equity consists of global equity funds that are not exchange-traded.
(j) Real Estate investments include real estate funds based on appraised values
that are broadly diversified by geography and property type.
(k) Hedge Funds are within a commingled structure which invests in various hedge
fund managers who can invest in all financial instruments.
(l) The Companies set aside funds for retiree health benefits through a separate
account within the pension trust, as permitted under Section 401(h) of the
Internal Revenue Code of 1986, as amended. In accordance with the Code, the
plan's investments in the 401(h) account may not be used for, or diverted to,
any purpose other than providing health benefits for retirees. The net assets
held in the 401(h) account are calculated based on a pro-rata percentage
allocation of the net assets in the pension plan. The related obligations for
health benefits are not included in the pension plan's obligations and are
included in the Companies' other postretirement benefit obligation. See Note
F.
(m) Pending activities include security purchases and sales that have not
settled, interest and dividends that have not been received and reflects
adjustments for available estimates at year end.
(n) In accordance with ASU 2015-07, Fair Value Measurements (Topic 820):
Disclosures for Investments in Certain Entities That Calculate Net Asset
Value per Share (or its equivalent), certain investments that are measured at
fair value using the net asset value per share (or its equivalent) practical
expedient have not been classified in the fair value hierarchy.
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The fair values of the pension plan assets at December 31, 2018 by asset category are as follows: (Millions of Dollars)
Level 1 Level 2
Total
Investments within the fair value hierarchy U.S. Equity (a) $3,515 $10 $3,525 International Equity (b) 2,896 - 2,896 U.S. Government Issued Debt (c) - 1,886 1,886 Corporate Bonds Debt (d) - 2,619 2,619 Structured Assets Debt (e) - 6 6 Other Fixed Income Debt (f) - 121 121 Cash and Cash Equivalents (g) 160 556 716 Futures (h) 568 - 568 Total investments within the fair value hierarchy $7,139 $5,198
$12,337
Investments measured at NAV per share (n) Private Equity (i) 440 Real Estate (j) 1,310 Hedge Funds (k) 255 Total investments valued using NAV per share
$2,005
Funds for retiree health benefits (l) (118) (86)
(204)
Funds for retiree health benefits measured at NAV per share (l)(n)
(33)
Total funds for retiree health benefits
$(237)
Investments (excluding funds for retiree health benefits) $7,021 $5,112
$14,105
Pending activities (m)
(655)
Total fair value of plan net assets
$13,450
(a) - (n) Reference is made to footnotes (a) through (n) in the above table of pension plan assets at December 31, 2019 by asset category. The Companies also offer a defined contribution savings plan that covers substantially all employees and made contributions to the plan as follows:
For the Years Ended December 31, (Millions of Dollars) 2019 2018 2017 Con Edison $49 $45 $40 CECONY 42 39 35 Note F - Other Postretirement Benefits The Utilities and Con Edison Transmission currently have contributory comprehensive hospital, medical and prescription drug programs for eligible retirees, their dependents and surviving spouses. CECONY also has a contributory life insurance program for bargaining unit employees and provides basic life insurance benefits up to a specified maximum at no cost to certain retired management employees. O&R has a non-contributory life insurance program for retirees. Certain employees of the Clean Energy Businesses and Con Edison Transmission are eligible to receive benefits under these programs. Total Periodic Benefit Cost The components of the Companies' total periodic postretirement benefit costs for 2019, 2018 and 2017 were as follows:
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Con Edison CECONY (Millions of Dollars) 2019 2018 2017 2019 2018 2017 Service cost $18 $20 $20 $13 $14 $13 Interest cost on accumulated other postretirement benefit obligation 44 42 46 36 34 38 Expected return on plan assets (66) (73) (69) (54) (63) (61) Recognition of net actuarial loss/(gain) (9) 8 2 (10) 3 (3) Recognition of prior service credit (2) (6) (17) (2) (2) (11) TOTAL PERIODIC POSTRETIREMENT BENEFIT CREDIT $(15) $(9) $(18) $(17) $(14) $(24) Cost capitalized (7) (8) 8 (5) (6) 10 Reconciliation to rate level 12 8 (4) 7 9 (2) Total credit recognized $(10) $(9) ($14) $(15) $(11) ($16) For information about the adoption of ASU 2017-07, "Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost," see Note E. Funded Status The funded status of the programs at December 31, 2019, 2018 and 2017 were as follows: Con Edison CECONY (Millions of Dollars) 2019 2018 2017 2019 2018 2017 CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $1,114 $1,219 $1,198 $913 $985 $1,007 Service cost 18 20 20 13 14 13 Interest cost on accumulated postretirement benefit obligation 44 42 46 36 34 38 Amendments (14) - - - - - Net actuarial loss/(gain) 264 (70) 53 252 (32) 16 Benefits paid and administrative expenses, net of subsidies (110) (135) (134) (100) (125) (124) Participant contributions 41 38 36 40 37 35 BENEFIT OBLIGATION AT END OF YEAR $1,357 $1,114 $1,219 $1,154 $913 $985 CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year $885 $1,039 $975 $759 $893 $851 Actual return on plan assets 198 (66) 150 165 (54) 130 Employer contributions 7 6 17 6 6 8 Employer group waiver plan subsidies 23 34 34 22 32 30 Participant contributions 40 37 35 40 37 35 Benefits paid (127) (165) (172) (120) (155) (161) FAIR VALUE OF PLAN ASSETS AT END OF YEAR $1,026 $885 $1,039 $872 $759 $893 FUNDED STATUS $(331) $(229) $(180) $(282) $(154) $(92) Unrecognized net loss/(gain) $155 $14 $(47) $149 $(2) $(85) Unrecognized prior service costs (19) (8) (14) (3) (5) (7) The increase in the other postretirement benefits liability atCon Edison and CECONY of $102 million and $128 million, respectively, compared with December 31, 2018, was primarily due to an increase in the plans' projected benefit obligation as a result of an increase in net actuarial loss, partially offset by an increase in plan assets as a result of the actual return on plan assets. ForCon Edison , this increased liability corresponds with an increase to regulatory assets of $134 million for unrecognized net losses and unrecognized prior service costs associated with the Utilities consistent with the accounting rules for regulated operations, a credit to OCI of $6 million (net of taxes) for the unrecognized net losses and a debit to OCI of $1 million (net of taxes) for the unrecognized prior service costs associated with the Clean Energy Businesses, Con Edison Transmission, and RECO.
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For CECONY, the increase in liability corresponds with an increase to regulatory assets of $153 million for unrecognized net losses and the unrecognized prior service costs associated with the company consistent with the accounting rules for regulated operations, and also immaterial changes to OCI for the unrecognized net losses and the unrecognized prior service costs associated with eligible employees of the Clean Energy Businesses and Con Edison Transmission who previously worked for CECONY. A portion of the unrecognized net losses and prior service costs for the other postretirement benefits, equal to $27 million and $(3) million, respectively, will be recognized from accumulated OCI and the regulatory asset into net periodic benefit cost over the next year forCon Edison . Included in these amounts are $22 million and $(2) million, respectively, for CECONY. Assumptions The actuarial assumptions were as follows: 2019 2018
2017
Weighted-average assumptions used to determine benefit obligations at December 31: Discount Rate CECONY 3.10 % 4.15 % 3.55 % O&R 3.35 % 4.30 % 3.70 % Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31: Discount Rate CECONY 4.15 % 3.55 % 4.00 % O&R 4.30 % 3.70 % 4.20 % Expected Return on Plan Assets 6.80 % 7.50 %
7.50 %
Refer to Note E for descriptions of the basis for determining the expected return on assets, investment policies and strategies and the assumed discount rate. The health care cost trend rate used to determine net periodic benefit cost for the years ended December 31, 2019, 2018 and 2017 was 5.40 percent, 5.60 percent and 5.80 percent, respectively, which is assumed to decrease gradually to 4.50 percent by 2024 and remain at that level thereafter. The health care cost trend rate used to determine benefit obligations as of December 31, 2019, 2018 and 2017 was 5.20 percent, 5.40 percent and 5.60 percent, respectively, which is assumed to decrease gradually to 4.50 percent by 2024 and remain at that level thereafter. A one-percentage point change in the assumed health care cost trend rate would have the following effects at December 31, 2019: Con Edison CECONY One-Percentage-Point (Millions of Dollars) Increase Decrease Increase Decrease Effect on accumulated other postretirement benefit obligation $60 $(17) $33
$3
Effect on service cost and interest cost components for 2019 1 - (1) 2 Expected Benefit Payments Based on current assumptions, the Companies expect to make the following benefit payments over the next ten years, net of receipt of governmental subsidies and participant contributions: (Millions of Dollars) 2020 2021 2022 2023 2024 2025-2029 Con Edison $96 $95 $93 $92 $91 $422 CECONY 87 85 83 82 80 368
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Expected Contributions Based on estimates as of December 31, 2019,Con Edison and CECONY expect to make a contribution of $6 million (substantially all of which is to be made by CECONY) to the other postretirement benefit plans in 2020. The Companies' policy is to fund the total periodic benefit cost of the plans to the extent tax deductible. Plan Assets The asset allocations for CECONY's other postretirement benefit plans at the end of 2019, 2018 and 2017, and the target allocation for 2020 are as follows: Target Allocation Range Plan Assets at December 31, Asset Category 2020 2019 2018 2017 Equity Securities 42%-80% 54 % 52 % 60 % Debt Securities 20%-58% 46 % 48 % 40 % Total 100% 100 % 100 % 100 %Con Edison has established postretirement health and life insurance benefit plan trusts for the investment of assets to be used for the exclusive purpose of providing other postretirement benefits to participants and beneficiaries. Refer to Note E for a discussion ofCon Edison's investment policy for its benefit plans. The fair values of the plans' assets at December 31, 2019 by asset category as defined by the accounting rules for fair value measurements (see Note P) are as follows: (Millions of Dollars) Level 1 Level 2 Total Equity (a) $- $404 $404 Other Fixed Income Debt (b) - 331 331 Cash and Cash Equivalents (c) - 23 23 Total investments $- $758 $758 Funds for retiree health benefits (d) 110 98
208
Investments (including funds for retiree health benefits) $110 $856
$966
Funds for retiree health benefits measured at net asset value (d)(e) 42 Pending activities (f) 18 Total fair value of plan net assets
$1,026
(a) Equity includes a passively managed commingled index fund benchmarked to the
MSCI All Country World Index.
(b) Other Fixed Income Debt includes a passively managed commingled index fund
benchmarked to the Bloomberg Barclays
separately managed fund indexed to the Bloomberg Barclays
Index.
(c) Cash and Cash Equivalents include short-term investments and money markets.
(d) The Companies set aside funds for retiree health benefits through a separate
account within the pension trust, as permitted under Section 401(h) of the
Internal Revenue Code of 1986, as amended. In accordance with the Code, the
plan's investments in the 401(h) account may not be used for, or diverted to,
any purpose other than providing health benefits for retirees. The net assets
held in the 401(h) account are calculated based on a pro-rata percentage
allocation of the net assets in the pension plan. The related obligations for
health benefits are not included in the pension plan's obligations and are
included in the Companies' other postretirement benefit obligation. See Note
E.
(e) In accordance with ASU 2015-07, Fair Value Measurements (Topic 820):
Disclosures for Investments in Certain Entities That Calculate Net Asset
Value per Share (or its equivalent), certain investments that are measured at
fair value using the net asset value per share (or its equivalent) practical
expedient have not been classified in the fair value hierarchy.
(f) Pending activities include security purchases and sales that have not
settled, interest and dividends that have not been received, and reflects
adjustments for available estimates at year-end.
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The fair values of the plans' assets at December 31, 2018 by asset category (see Note P) are as follows: (Millions of Dollars) Level 1 Level 2 Total Equity (a) $- $322 $322 Other Fixed Income Debt (b) - 289 289 Cash and Cash Equivalents (c) - 14 14 Total investments $- $625
$625
Funds for retiree health benefits (d) 118 86
204
Investments (including funds for retiree health benefits) $118 $711
$829
Funds for retiree health benefits measured at net asset value (d)(e) 33 Pending activities (f) 23 Total fair value of plan net assets
$885
(a) - (f) Reference is made to footnotes (a) through (f) in the above table of other postretirement benefit plan assets at December 31, 2019 by asset category. 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 December 31, 2019 and 2018 were as follows: Con Edison CECONY (Millions of Dollars) 2019 2018 2019 2018 Accrued Liabilities: Manufactured gas plant sites $640 $689 $561 $603 Other Superfund Sites 94 90 93 90 Total $734 $779 $654 $693 Regulatory assets $732 $810 $647 $716 Most of the accrued Superfund Site liability relates to sites that have been investigated, in whole or in part. However, for some of the sites, the extent and associated cost of the required remediation has not yet been determined. As investigations progress and information pertaining to the required remediation becomes available,
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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 Utilities are permitted to recover or defer as regulatory assets (for subsequent recovery through rates) prudently incurred site investigation and remediation costs. Environmental remediation costs incurred related to Superfund Sites at December 31, 2019 and 2018 were as follows:
Con Edison CECONY (Millions of Dollars) 2019 2018 2019 2018 Remediation costs incurred $19 $25 $13 $18 Insurance and other third party recoveries received byCon Edison or CECONY were immaterial in 2019 and 2018.Con Edison and CECONY estimate that in 2020 they will incur costs for remediation of approximately $46 million and $43 million, respectively. 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. In 2019,Con Edison and CECONY estimated that for their manufactured gas plant sites (including CECONY'sAstoria site), the aggregate undiscounted potential liability for the investigation and remediation of coal tar and/or other environmental contaminants could range up to $2.8 billion and $2.6 billion, respectively. These estimates were based on the assumption that there is contamination at all sites, including those that have not yet been fully investigated and additional assumptions about the extent of the contamination and the type and extent of the remediation that may be required. Actual experience may be materially different. Asbestos Proceedings Suits have been brought inNew 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 December 31, 2019,Con Edison and CECONY have accrued their estimated aggregate undiscounted potential liabilities for these suits and additional suits that may be brought over the next 15 years as shown in the following table. These estimates were based upon a combination of modeling, historical data analysis and risk factor assessment. Courts have begun, and unless otherwise determined on appeal may continue, to apply different standards for determining liability in asbestos suits than the standard that applied historically. As a result, the Companies currently believe that there is a reasonable possibility of an exposure to loss in excess of the liability accrued for the suits. The Companies are unable to estimate the amount or range of such loss. In addition, certain current and former employees have claimed or are claiming workers' compensation benefits based on alleged disability from exposure to asbestos. CECONY is permitted to defer as regulatory assets (for subsequent recovery through rates) costs incurred for its asbestos lawsuits and workers' compensation claims. The accrued liability for asbestos suits and workers' compensation proceedings (including those related to asbestos exposure) and the amounts deferred as regulatory assets for the Companies at December 31, 2019 and 2018 were as follows: Con Edison CECONY (Millions of Dollars) 2019 2018 2019 2018 Accrued liability - asbestos suits $8 $8 $7
$7
Regulatory assets - asbestos suits $8 $8 $7
$7
Accrued liability - workers' compensation $78 $79 $73
$75
Regulatory assets - workers' compensation $3 $5 $3
$5
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Note H - Other Material Contingencies Manhattan Explosion and Fire On March 12, 2014, two multi-use five-story tall buildings located on Park Avenue between 116th and 117th Streets inManhattan 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. TheNational Transportation Safety Board (NTSB) investigated. The parties to the investigation included the company, theCity of New York , thePipeline and Hazardous Materials Safety Administration and the NYSPSC. In June 2015, theNTSB issued a final report concerning the incident, its probable cause and safety recommendations. TheNTSB 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. TheNTSB also made safety recommendations, including recommendations to the company that addressed its procedures for the preparation and examination of plastic fusions, training of its staff on conditions for notifications to the City's Fire Department and extension of its gas main isolation valve installation program. In February 2017, the NYSPSC approved a settlement agreement with the company related to the NYSPSC's investigations of the incident and the practices of qualifying persons to perform plastic fusions. Pursuant to the agreement, the company is providing $27 million of future benefits to customers (for which it has accrued a regulatory liability) and will not recover from customers $126 million of costs for gas emergency response activities that it had previously incurred and expensed. Approximately eighty suits are pending against the company seeking generally unspecified damages and, in some cases, punitive damages, for wrongful death, personal injury, property damage and business interruption. The company has notified its insurers of the incident and believes that the policies in force at the time of the incident will cover the company's costs, in excess of a required retention (the amount of which is not material), to satisfy any liability it may have for damages in connection with the incident. The company is unable to estimate the amount or range of its possible loss for damages related to the incident. At December 31, 2019, the company had not accrued a liability for damages related to the incident. Other Contingencies For information about the PG&E bankruptcy, see "Long-Lived and Intangible Assets" in Note A. Also, for additional contingencies, see "Other Regulatory Matters" in Note B and "Uncertain Tax Positions" in Note L. GuaranteesCon Edison and its subsidiaries have entered into various agreements providing financial or performance assurance primarily to third parties on behalf of their subsidiaries. Maximum amounts guaranteed byCon Edison under these agreements totaled $1,831 million and $2,439 million at December 31, 2019 and 2018, respectively. A summary, by type and term, ofCon Edison's total guarantees under these other agreements at December 31, 2019 is as follows: Guarantee Type 0 - 3 years 4 - 10 years > 10 years Total (Millions of Dollars) Con Edison Transmission $387 $186 $- $573 Energy transactions 419 51 209 679 Renewable electric production projects 70 9 431 510 Other 69 - - 69 Total $945 $246 $640 $1,831 Con Edison Transmission -Con Edison has guaranteed payment by CET Electric of the contributions CET Electric agreed to make toNew York Transco LLC (NYTransco ). CET Electric owns a 45.7 percent interest in NY Transco. In April 2019, theNew York Independent System Operator (NYISO) selected a transmission project that was jointly proposed by National Grid and NY Transco. The siting, construction and operation of the project will require approvals and permits from appropriate governmental agencies and authorities, including the NYSPSC. The NYISO indicated it will work with the developers to enter into agreements for the development and operation of the projects, including a schedule for entry into service by December 2023. Guarantee amount shown includes the maximum possible required amount of CET Electric's contributions for this project as calculated based on the
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assumptions that the project is completed at 175 percent of its estimated costs and NY Transco does not use any debt financing for the project. Also included within the table above are guarantees for $25 million fromCon Edison on behalf of CET Gas in relation to Mountain Valley Pipeline (MVP), LLC, a company developing a proposed gas transmission project inWest Virginia andVirginia . See Note U. Energy Transactions -Con Edison guarantees payments on behalf of the Clean Energy Businesses in order to facilitate physical and financial transactions in electricity, gas, pipeline capacity, transportation, oil, renewable energy credits and energy services. To the extent that liabilities exist under the contracts subject to these guarantees, such liabilities are included in Con Edison's consolidated balance sheet. Renewable Electric Production Projects - Con Edison and the Clean Energy Businesses guarantee payments on behalf of their wholly-owned subsidiaries associated with their investment in, or development for others of, solar and wind energy facilities. See Note U. Other - Other guarantees include $70 million in guarantees provided by Con Edison to Travelers Insurance Company for indemnity agreements for surety bonds in connection with operation of solar energy facilities and energy service projects of the Clean Energy Businesses. Note I - Electricity Purchase Agreements The Utilities have electricity purchase agreements with non-utility generators and others for generating capacity. The Utilities recover their purchased power costs in accordance with provisions approved by the applicable state public utility regulators. See "Recoverable Energy Costs" in Note A. The Utilities also conducted auctions and have entered into various other electricity purchase agreements. Assuming performance by the parties to the electricity purchase agreements, the Utilities are obligated over the terms of the agreements to make capacity and other fixed payments. The future capacity and other fixed payments under the electricity purchase agreements are estimated to be as follows: All Years (Millions of Dollars) 2020 2021 2022 2023 2024 Thereafter Con Edison $172 $101 $62 $57 $55 $546 CECONY 169 99 62 57 55 546 For energy delivered under most of the electricity purchase agreements, CECONY is obligated to pay variable prices. The company's payments under its agreements for capacity, energy and other fixed payments in 2019, 2018 and 2017 were as follows: For the Years Ended December 31, (Millions of Dollars) 2019 2018 2017 Indian Point (a) $- $6 $211 Linden Cogeneration (b) - - 114 Astoria Generating Company (c) 116 179 92 Brooklyn Navy Yard (d) 115 124 117 Cogen Technologies - 9 18 Total $231 $318 $552 (a) Contract term ended in 2018. (b) Contract term ended in 2017. (c) Capacity purchase agreements with terms ending in 2020 and 2021. (d) Contract for plant output, which started in 1996 and ends in 2036. Note J - Leases In January 2019, the Companies adopted Accounting Standards Update (ASU) No. 2016-02, "Leases (Topic 842)," including the amendments thereto, using a modified retrospective transition method of adoption that required no prior period adjustments or charges to retained earnings for cumulative impact. The standard supersedes the lease requirements within ASC Topic 840, "Leases."
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The Companies lease land, office buildings, equipment and access rights to support electric transmission facilities. Upon adoption of Topic 842, the Companies recognized lease right-of-use assets and lease liabilities on their consolidated balance sheets for virtually all of their leases (other than leases that meet the definition of a short-term lease, the expense for which was immaterial). A lease right-of-use asset represents a right to use an identifiable underlying asset and obtain substantially all of the economic benefits from the use of that asset for the lease term. A lease liability represents an obligation to make lease payments arising from the lease. Leases are classified as either operating leases or finance leases. Operating leases are included in operating lease right-of-use asset and operating lease liabilities on the Companies' consolidated balance sheets. Finance leases are included in other noncurrent assets, other current liabilities and other noncurrent liabilities. The Utilities, as regulated entities, are permitted to continue to recognize expense for operating leases using the timing that conforms to the regulatory rate treatment as rental payments are recovered from our customers and to account the same way for finance leases. Lessor accounting is similar to the previous model, but updated to align with ASC Topic 606 "Revenue from Contracts with Customers." The Companies elected the following practical expedients: (1) a package of practical expedients that allows the Companies to not reassess: (a) whether expired or existing contracts contained leases; (b) the lease classification for expired or existing leases and (c) the initial direct costs for existing leases; (2) for all underlying asset classes, an expedient that allows the Companies to not apply the recognition requirements to short-term leases and an expedient that allows the Companies to account for lease and associated non-lease components as a single lease component; (3) an expedient that allows the use of hindsight to determine lease term; and (4) an expedient that allows the Companies to not evaluate under Topic 842 land easements that exist or expired before the entity's adoption of Topic 842 and that were not previously accounted for as leases under Topic 840. The Companies, upon adoption of Topic 842 recognized, and for new operating leases at commencement date recognize, operating lease right-of-use assets and operating lease liabilities based on the present value of the future minimum lease payments over the lease term. As most of the Companies' leases do not provide an implicit rate, the Companies used their collateralized incremental borrowing rate based on the information available at the commencement date to determine the present value of future payments. Most of the Companies' leases have remaining lease terms of one year to 40 years, and may include options to renew or extend the leases for up to five years at the fair rental value. The Companies' lease terms include options to renew, extend or terminate the lease when it is reasonably certain that the Companies will exercise that option. There were no leases with material variable lease payments or residual value guarantees.
Operating lease cost and cash paid for amounts included in the measurement of lease liabilities for the twelve months ended December 31, 2019, were as follows:
(Millions of Dollars) Con Edison CECONY Operating lease cost $83 $64 Operating lease cash flows $75 $60 As of December 31, 2019, assets recorded as finance leases were $1 million for Con Edison and an immaterial amount for CECONY, and the accumulated amortization associated with finance leases for Con Edison and CECONY were $5 million and $3 million, respectively. For the twelve months ended December 31, 2019, finance lease costs and cash flows for Con Edison and CECONY were immaterial. Right-of-use assets obtained in exchange for lease obligations for Con Edison and CECONY were $39 million and $4 million, respectively, for the twelve months ended December 31, 2019.
Other information related to leases for Con Edison and CECONY at December 31, 2019 was as follows:
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Con Edison CECONY Weighted Average Remaining Lease Term: Operating leases 19.8 years 14.0 years Finance leases 12.2 years 2.4 years Weighted Average Discount Rate: Operating leases 4.3% 3.6% Finance leases 3.5% 4.1% Future minimum lease payments under non-cancellable leases at December 31, 2019 were as follows: (Millions of Dollars) Con Edison CECONY Year Ending December 31, Operating Operating Leases Finance Leases Leases Finance Leases 2020 $78 $- $60 $- 2021 75 - 57 - 2022 73 - 55 - 2023 72 - 54 - 2024 72 - 55 - All years thereafter 992 1 501 - Total future minimum lease payments $1,362 $1 $782 $- Less: imputed interest (488) - (177) - Total $874 $1 $605 $- Reported as of December 31, 2019 Operating lease liabilities (current) $65 $- $54 $- Operating lease liabilities (noncurrent) 809 - 551 - Other noncurrent liabilities - 1 - - Total $874 $1 $605 $-
At December 31, 2019, the Companies did not have material obligations under operating or finance leases that had not yet commenced.
Disclosures related to the twelve months ended December 31, 2019 are presented as required under Topic 842. Prior period disclosures for the year ended December 31, 2018 are presented under Topic 840. The Companies have elected to use a practical expedient provided by Topic 842 whereby comparative disclosures for prior periods are allowed to be presented under Topic 840. The disclosures presented under Topic 842 and Topic 840 will not be fully comparable in specific disclosure requirements.
The future minimum lease commitments at December 31, 2018, accounted for under Topic 840, for the Companies' operating lease agreements that are not cancellable by the Companies were as follows:
(Millions of Dollars) Con Edison CECONY 2019 $72 $56 2020 72 56 2021 71 54 2022 68 53 2023 68 53 All years thereafter 890 592 Total $1,241 $864 The Companies are lessors under certain leases whereby the Companies own real estate and distribution poles and lease portions of them to others. Revenue under such leases was immaterial for Con Edison and CECONY for the twelve months ended December 31, 2019.
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Note K - Goodwill In 2019 and 2018, Con Edison elected to perform the optional qualitative assessment for goodwill related to the 1999 O&R merger and the acquisition of a gas storage company, and the first step of the quantitative test for the acquisition of a residential solar company. In 2019 and 2018, Con Edison completed impairment tests for its goodwill of $406 million related to the O&R merger, and determined that it was not impaired. For the impairment test, $245 million and $161 million of goodwill were allocated to CECONY and O&R, respectively. In 2019 and 2018, Con Edison completed impairment tests for goodwill of $8 million related to a gas storage company acquired by CET Gas from the Clean Energy Businesses and determined that it was not impaired. In 2019 and 2018, Con Edison determined that goodwill of $14 million related to the residential solar company acquired by the Clean Energy Businesses in 2016 was not impaired. In 2018, Con Edison recorded $12 million of goodwill related to a battery storage company acquired by the Clean Energy Businesses, and, in 2019, the amount was increased to $18 million, reflecting final purchase price adjustments. In 2019, Con Edison elected to perform the first step of the quantitative test for goodwill related to the battery storage company acquisition and determined that it was not impaired. Estimates of future cash flows, projected growth rates, and discount rates inherent in the cash flow estimates for Con Edison subsidiaries other than the Utilities may vary significantly from actual results, which could result in a future impairment of goodwill. Note L - Income Tax The components of income tax are as follows: Con Edison CECONY (Millions of Dollars) 2019 2018 2017 2019 2018 2017 State Current $(12) $(10) $(2) $22 $6 $37 Deferred 96 107 103 68 82 75 Federal Current - 3 (11) 185 (34) 73 Deferred 219 310 391 63 275 504
Amortization of investment tax credits (7) (9) (9) (3) (3)
(4) Total income tax expense $296 $401 $472 $335 $326 $685
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The tax effects of temporary differences, which gave rise to deferred tax assets and liabilities, are as follows:
Con Edison CECONY (Millions of Dollars) 2019 2018 2019 2018 Deferred tax liabilities: Property basis differences $7,699 $7,402 $6,640 $6,446 Regulatory assets: Unrecognized pension and other postretirement costs 712 627 674 591 Environmental remediation costs 205 227 181 200 Deferred storm costs 22 21 - - Other regulatory assets 376 273 355 252 Operating lease right-of-use asset 231 -
169 -
Equity investments 104 102 - - Total deferred tax liabilities $9,349 $8,652 $8,019 $7,489 Deferred tax assets: Accrued pension and other postretirement costs $291 $248 $222 $180 Regulatory liabilities: Future income tax 678 702 638 662 Other regulatory liabilities 702 632 622 554 Superfund and other environmental costs 206 218 183 194 Asset retirement obligations 135 114 102 82 Operating lease liabilities 231 - 170 - Loss carryforwards 108 229 - - Tax credits carryforward 896 817 - - Valuation allowance (40) (33) - - Other 56 53 103 102 Total deferred tax assets 3,263 2,980 2,040 1,774 Net deferred tax liabilities $6,086 $5,672 $5,979 $5,715 Unamortized investment tax credits 141 148 21 24 Net deferred tax liabilities and unamortized investment tax credits $6,227 $5,820 $6,000 $5,739 Upon enactment of the TCJA in December 2017, the Companies re-measured their deferred tax assets and liabilities based upon the TCJA's 21 percent corporate federal income tax rate. As a result, Con Edison, decreased its net deferred tax liabilities by $5,312 million (including $4,781 million for CECONY), recognized $259 million in net income, decreased its regulatory asset for future income tax by $1,250 million (including $1,182 million for CECONY), decreased the regulatory asset for revenue taxes by $90 million (including $86 million for CECONY), and accrued a regulatory liability for future income tax of $3,713 million (including $3,513 million for CECONY). Since the Companies were in a net regulatory liability position with respect to these income tax matters, the Companies netted the regulatory asset for future income tax against the regulatory liability for future income tax. Under the rate normalization requirements continued by the TCJA, $2,684 million of the net regulatory liability (including $2,542 million for CECONY) related to certain accelerated tax depreciation benefits is to be amortized over the remaining lives of the related assets. The remainder of the net regulatory liability is to be refunded (or credited) to customers as determined by the NYSPSC or NJBPU, as applicable. See "Other Regulatory Matters" in Note B. The amount recognized in net income included $269 million for the Clean Energy Businesses, $11 million for Con Edison Transmission and $(21) million for the parent company. The re-measurement had no impact on the Companies' cash flows for 2017. At December 31, 2017, the Companies recorded provisional income tax amounts in its accounting for certain effects of the provisions of the TCJA as allowed under SEC Staff Accounting Bulletin 118 (SAB 118). SAB 118 allowed a one year period for companies to finalize the provisional amounts recorded as of December 31, 2017. In August 2018, the Internal Revenue Service (IRS) and U.S. Department of Treasury issued proposed regulations (which were finalized in December 2019), that clarified provisions in the TCJA on the allowance for additional first-year depreciation for qualified property of regulated public utilities placed in service in the fourth quarter of 2017. Under this guidance, which Con Edison elected to adopt the Utilities deducted $477 million in additional depreciation in
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Con Edison's 2017 federal income tax return. The additional depreciation increased Con Edison's 2017 federal net operating loss (NOL) carryover to $563 million (CECONY's 2017 federal NOL carryover of $153 million was applied in full to CECONY's 2018 tax liability), which required a re-measurement of deferred tax assets and liabilities associated with the filing of its 2017 federal income tax return. As a result, Con Edison decreased its net deferred tax liabilities by $13 million (including $50 million for CECONY), recognized $42 million in income tax expense at the parent company related to re-measuring the 2017 federal NOL carryover to 2018, decreased the regulatory asset for revenue taxes by $1 million (entirely attributable to CECONY) and accrued a regulatory liability for future income tax of $54 million (including $49 million for CECONY). The Companies completed their assessment in the fourth quarter of 2018 and no further adjustments to the provisional amounts were recorded. Reconciliation of the difference between income tax expense and the amount computed by applying the prevailing statutory income tax rate to income before income taxes is as follows: Con Edison CECONY (% of Pre-tax income) 2019 2018 2017 2019 2018 2017 STATUTORY TAX RATE Federal 21 % 21 % 35 % 21 % 21 % 35 % Changes in computed taxes resulting from: State income tax 4 4 4 5 5 4 Taxes attributable to noncontrolling interests (1 ) - - - - - Cost of removal 1 1 1 1 1 1 Other plant-related items (1 ) (1 ) (1 ) (1 ) (1 ) (1 ) TCJA deferred tax re-measurement - 2 (13 ) - - - Amortization of excess deferred federal income taxes (4 ) (3 ) - (4 ) (3 ) - Renewable energy credits (2 ) (1 ) (1 ) - - - Research and development credits (1 ) - - (1 ) (1 ) - Other - - (2 ) - (1 ) (1 ) Effective tax rate 17 % 23 % 23 % 21 % 21 % 38 % CECONY and O&R deferred as regulatory liabilities their estimated net benefits under the TCJA for the year ended December 31, 2018. CECONY's net benefits prior to January 1, 2019 for its electric service and amortization of excess deferred federal income taxes for its electric service continued to be deferred. RECO deferred as a regulatory liability its estimated net benefits under the TCJA for the three months ended March 31, 2018. The net benefits include the revenue requirement impact of the reduction in the corporate federal income tax rate to 21 percent, the elimination for utilities of bonus depreciation and the amortization of excess deferred federal income taxes the utilities collected from customers that will not be paid to the IRS under the TCJA. See "Other Regulatory Matters" in Note B. At December 31, 2019, Con Edison had a federal net operating loss carryover of approximately $36 million from prior years, due primarily to accelerated depreciation (including bonus depreciation), comprised of its remaining 2017 federal net operating loss carryover of $13 million (which, will expire, if unused, in 2037) and its 2018 federal net operating loss carryover of $23 million (which can be carried forward indefinitely). Con Edison has $896 million in general business tax credit carryovers (primarily renewable energy tax credits), which if unused will begin to expire in 2032. 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. At December 31, 2019, Con Edison had a 2018 New York State net operating loss of approximately $272 million from 2018, primarily as a result of accelerated tax deductions on renewable energy projects. Con Edison will carry back approximately $100 million of its 2018 net operating loss to 2015 and 2016, which will result in recovery of $9 million of income tax. The remaining 2018 New York State net operating loss of $172 million will be carried forward to future years. At December 31, Con Edison had a 2019 New York State net operating loss of approximately $453 million, primarily as a result of accelerated tax deductions on renewable energy projects. This loss will be carried forward to future years. A deferred tax asset has been recognized for these New York State net operating loss carryforwards that will begin to expire, if unused, in 2038. A valuation allowance has not been provided; as it is more likely than not that the deferred tax asset will be realized. In addition, an $18 million valuation allowance for the entire amount of its New York City net operating loss carryforward and a $22 million valuation allowance for other
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state net operating loss carryforwards has been provided; as it is not more likely than not that the deferred tax asset will be realized.
At December 31, 2019, Con Edison had charitable contributions carryforwards of $28 million ($5 million from 2015; $7 million from 2016; $5 million from 2017; $5 million from 2018 and $6 million from 2019), if unused will begin to expire in 2020. The tax effect of the carryforwards were recorded as a deferred tax asset, and no valuation allowance has been provided, as it is more likely than not that the deferred tax asset will be realized. The Protecting Americans from Tax Hikes Act of 2015 extended bonus depreciation applying a 50 percent rate for property acquired and placed in service for years 2015 through 2017 with reduced rates of 40 percent and 30 percent for years 2018 and 2019, respectively. The TCJA does not allow bonus depreciation after December 31, 2017 (excluding certain transition rules) for Companies that qualify as a utility company for the consolidated group under the de minimis exception to Treasury regulations. In December 2019, the Federal government issued final regulations providing guidance on provisions in the TCJA allowing for full expensing of qualified plant additions. These provisions, which Con Edison adopted under the proposed regulations of August 2018, allowed the Utilities a full expense tax deduction for plant additions in the fourth quarter of 2017, and the Utilities continue additional first year depreciation transition rules for plant additions placed in service in tax years beginning in 2018, under long-term construction contracts entered into before September 28, 2017. The impact on the Utilities of these regulations is discussed above. In November 2018, the Federal government issued, and Con Edison adopted, proposed regulations providing guidance on the tax deductibility of interest expense under the TCJA. The TCJA generally provides for the continued deductibility of interest expense by regulated public utilities and may limit the deduction for interest expense by most non-utility businesses to 30 percent of adjusted taxable income (which resembles earnings before interest, taxes, depreciation and amortization).The regulations provide an annual safe harbor test that if at least 90 percent of consolidated plant assets consist of utility property, the entire consolidated group will be treated as a regulated public utility, and all of the consolidated group's interest expense will be currently tax deductible. For 2018, Con Edison met the 90 percent safe harbor test and its deduction for interest expense was not limited. For 2019, Con Edison did not meet the 90 percent safe harbor test and its deduction for interest expense will be limited by an amount that is not material. Con Edison, as permitted, will carry over the portion of its 2019 interest expense that it will not be able to deduct for 2019 to future years when Con Edison expects it will be able to deduct such interest expense. Qualifying consolidated groups would not be entitled to the full expensing provisions in the TCJA noted above. The safe harbor rules do not apply to partnerships in which Con Edison and its subsidiaries are a partner. Uncertain Tax Positions Under the accounting rules for income taxes, the Companies are not permitted to recognize the tax benefit attributable to a tax position unless such position is more likely than not to be sustained upon examination by taxing authorities, including resolution of any related appeals and litigation processes, based solely on the technical merits of the position. A reconciliation of the beginning and ending amounts of unrecognized tax benefits for Con Edison and CECONY follows: Con Edison CECONY (Millions of Dollars) 2019 2018 2017 2019 2018 2017 Balance at January 1, $6 $12 $42 $4 $5 $21 Additions based on tax positions related to the current year 1 2 1 1 2 1 Additions based on tax positions of prior years 10 1 1 - 1 1 Reductions for tax positions of prior years (2) (2) (24) (1) (1) (18) Reductions from expiration of statute of limitations - (4) (2) - - - Settlements (2) (3) (6) (2) (3) - Balance at December 31, $13 $6 $12 $2 $4 $5
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In 2019, Con Edison reached a settlement with the IRS on tax year 2017 and was denied state refund claims in New Jersey, which resulted in Con Edison reversing $4 million in uncertain tax positions. Of this amount, only an immaterial amount reduced Con Edison's effective tax rate. The amount related to CECONY was $2 million, of which, only an immaterial amount reduced CECONY's effective tax rate. Current and prior year additions in 2019 are for tax credits and a state combined reporting issue, which increased Con Edison's effective tax rate. As of December 31, 2019, Con Edison reasonably expects to resolve within the next twelve months approximately $10 million of various federal and state uncertainties due to the expected completion of ongoing tax examinations, of which the entire amount, if recognized, would reduce Con Edison's effective tax rate. The amount related to CECONY is approximately $1 million, of which the entire amount, if recognized, would reduce CECONY's effective tax rate. 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 2019, 2018 and 2017, the Companies recognized an immaterial amount of interest and no penalties for uncertain tax positions in their consolidated income statements. At December 31, 2019 and 2018, the Companies reflected an immaterial amount of interest and no penalties in their consolidated balance sheets. At December 31, 2019, the total amount of unrecognized tax benefits that, if recognized, would reduce the Companies' effective tax rate is $13 million ($12 million, net of federal taxes) with $2 million attributable to CECONY. Con Edison's federal tax return for 2018 remains under examination. State income tax returns remain open for examination in New York for tax years 2010 through 2018 and in New Jersey for tax years 2008 through 2018. Note M - Stock-Based Compensation The Companies may compensate employees and directors with, among other things, stock options, stock units, restricted stock units and contributions to the stock purchase plan. The Long Term Incentive Plan, which was approved by Con Edison's shareholders in 2003 (2003 LTIP), and the Long Term Incentive Plan, which was approved by Con Edison's shareholders in 2013 (2013 LTIP), are collectively referred to herein as the LTIP. The LTIP provides for, among other things, awards to employees of restricted stock units and stock options and, to Con Edison's non-employee directors, stock units. Existing awards under the 2003 LTIP continue in effect, however no new awards may be issued under the 2003 LTIP. The 2013 LTIP provides for awards for up to five million shares of common stock. Shares of Con Edison common stock used to satisfy the Companies' obligations with respect to stock-based compensation may be new (authorized, but unissued) shares, treasury shares or shares purchased in the open market. The shares used during the year ended December 31, 2019 were new shares. The Companies intend to use new shares to fulfill their stock-based compensation obligations for 2020. The Companies recognized stock-based compensation expense using a fair value measurement method. The following table summarizes stock-based compensation expense recognized by the Companies in the years ended December 31, 2019, 2018 and 2017: Con Edison CECONY (Millions of Dollars) 2019 2018 2017 2019 2018 2017 Performance-based restricted stock $36 $3 $53 $30 $3 $45 Time-based restricted stock 2 2 2 2 1 2 Non-employee director deferred stock compensation 2 3 2 2 3 2 Stock purchase plan 7 6 6 6 6 6 Total $47 $14 $63 $40 $13 $55 Income tax benefit $13 $4 $25 $11 $4 $22
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Restricted Stock and Stock Units Restricted stock and stock unit awards under the LTIP have been made as follows: (i) awards that provide for adjustment of the number of units (performance-restricted stock units or Performance RSUs) to certain officers and employees; (ii) time-based awards to certain employees; and (iii) awards to non-employee directors. Restricted stock and stock units awarded represent the right to receive, upon vesting, shares of Con Edison common stock, or, except for units awarded under the directors' plan, the cash value of shares or a combination thereof. The number of units in each annual Performance RSU award is subject to adjustment as follows: (i) 50 percent of the units awarded will be multiplied by a factor that may range from 0 to 200 percent, based on Con Edison's total shareholder return relative to a specified peer group during a specified performance period (the TSR portion); and (ii) 50 percent of the units awarded will be multiplied by factors that may range from 0 to 200 percent, based on determinations made in connection with the Companies' annual incentive plans or, for certain executive officers, actual performance as compared to certain performance measures during a specified performance period (the non-TSR portion). Performance RSU awards generally vest upon completion of the performance period. Performance against the established targets is recomputed each reporting period as of the earlier of the reporting date and the vesting date. The TSR portion applies a Monte Carlo simulation model, and the non-TSR portion is the product of the market price at the end of the period and the average non-TSR determination over the vesting period. Performance RSUs are "liability awards" because each Performance RSU represents the right to receive, upon vesting, one share of Con Edison common stock, the cash value of a share or a combination thereof. As such, changes in the fair value of the Performance RSUs are reflected in net income. The assumptions used to calculate the fair value of the awards were as follows: 2019 2018 2017 Risk-free interest rate (a) 1.58% - 1.59% 2.48% - 2.63% 1.76% - 1.89% Expected term (b) 3 years 3 years
3 years Expected share price volatility (c) 12.89% - 15.51% 14.76% - 17.71% 11.01% - 14.70%
(a) The risk-free rate is based on the U.S. Treasury zero-coupon yield curve.
(b) The expected term of the Performance RSUs equals the vesting period. The
Companies do not expect significant forfeitures to occur.
(c) Based on historical experience.
A summary of changes in the status of the Performance RSUs' TSR and non-TSR portions during the year ended December 31, 2019 is as follows:
Con Edison CECONY Weighted Average Weighted Average Grant Date Fair Value Grant Date Fair Value (a) (a) TSR Non-TSR TSR Non-TSR Portion Portion Portion Portion Units (b) (c) Units (b) (c) Non-vested at December 31, 2018 1,005,836 $74.81 $74.27 761,906 $74.47 $74.42 Granted 389,600 64.37 80.03 284,516 64.82 80.31 Vested (357,325) 83.17 72.09 (275,376) 82.77 72.32 Forfeited (46,873) 65.08 78.03 (30,186) 65.20 78.10 Transferred (d) - - - 1,344 70.04 75.65
Non-vested at
December 31, 2019 991,238 $68.15 $77.14 742,204 $68.06 $77.32
(a) The TSR and non-TSR Portions each account for 50 percent of the awards'
value.
(b) Fair value is determined using the Monte Carlo simulation described above.
Weighted average grant date fair value does not reflect any accrual or
payment of dividends prior to vesting.
(c) Fair value is determined using the market price of one share of Con Edison
common stock on the grant date. The market price has not been discounted to
reflect that dividends do not accrue and are not payable on Performance RSUs
until vesting.
(d) Represents allocation to another Con Edison subsidiary of a portion of the
Performance RSUs that had been awarded to a CECONY officer who transferred to
another subsidiary.
The total expense to be recognized by Con Edison in future periods for unvested Performance RSUs outstanding at December 31, 2019 is $25 million, including $21 million for CECONY, and is expected to be recognized over a weighted average period of one year for both Con Edison and CECONY. Con Edison and CECONY paid cash of
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$24 million and $22 million in 2019, $29 million and $28 million in 2018, and $22 million and $21 million in 2017, respectively, to settle vested Performance RSUs. In accordance with the accounting rules for stock compensation, for time-based awards, the Companies are accruing a liability and recognizing compensation expense based on the market value of a common share throughout the vesting period. The vesting period for awards is three years and is based on the employee's continuous service to Con Edison. Prior to vesting, the awards are subject to forfeiture in whole or in part under certain circumstances. The awards are "liability awards" because each restricted stock unit represents the right to receive, upon vesting, one share of Con Edison common stock, the cash value of a share or a combination thereof. As such, prior to vesting, changes in the fair value of the units are reflected in net income. A summary of changes in the status of time-based awards during the year ended December 31, 2019 is as follows: Con Edison CECONY Weighted Weighted Average Average Grant Date Grant Date Units Fair Value Units Fair Value Non-vested at December 31, 2018 65,180 $77.42 61,380 $77.42 Granted 24,850 84.81 23,350 84.81 Vested (20,980) 76.62 (19,830) 76.62 Forfeited (1,800) 79.12 (1,800) 79.12
Non-vested at December 31, 2019 67,250 $80.36 63,100
$80.36
The total expense to be recognized by Con Edison in future periods for unvested time-based awards outstanding at December 31, 2019 for Con Edison and CECONY was $3 million and $2 million, respectively, and is expected to be recognized over a weighted average period of one year. Con Edison and CECONY paid cash of $1 million in 2019, 2018 and 2017, to settle vested time-based awards. Under the LTIP, each non-employee director receives stock units, which are deferred until the director's separation from service or another date specified by the director. Each director may also elect to defer all or a portion of their cash compensation into additional stock units, which are deferred until the director's termination of service or another date specified by the director. Non-employee directors' stock units issued under the LTIP are considered "equity awards," because they may only be settled in shares. Directors immediately vest in units issued to them. The fair value of the units is determined using the closing price of Con Edison's common stock on the business day immediately preceding the date of issue. In the year ended December 31, 2019, approximately 27,100 units were issued at a weighted average grant date price of $87.57. Stock Purchase Plan The Stock Purchase Plan, which was approved by shareholders in 2004 and 2014, provides for the Companies to contribute up to $1 for each $9 invested by their directors, officers or employees to purchase Con Edison common stock under the plan. Eligible participants may invest up to $25,000 during any calendar year (subject to an additional limitation for officers and employees of not more than 20 percent of their pay). Dividends paid on shares held under the plan are reinvested in additional shares unless otherwise directed by the participant. Participants in the plan immediately vest in shares purchased by them under the plan. The fair value of the shares of Con Edison common stock purchased under the plan was calculated using the average of the high and low composite sale prices at which shares were traded at the New York Stock Exchange on the trading day immediately preceding such purchase dates. During 2019, 2018 and 2017, 747,899, 786,385 and 719,125 shares were purchased under the Stock Purchase Plan at a weighted average price of $85.45, $78.27 and $79.57 per share, respectively. Note N - Financial Information by Business Segment The business segments of each of the Companies, which are its operating segments, were determined based on management's reporting and decision-making requirements in accordance with the accounting rules for segment reporting.
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Con Edison's principal business segments are CECONY's regulated utility activities, O&R's regulated utility activities, the Clean Energy Businesses and Con Edison Transmission. CECONY's principal business segments are its regulated electric, gas and steam utility activities. All revenues of these business segments are from customers located in the United States of America. Also, all assets of the business segments are located in the United States of America. The accounting policies of the segments are the same as those described in Note A. Common services shared by the business segments are assigned directly or allocated based on various cost factors, depending on the nature of the service provided. The financial data for the business segments are as follows: As of and for the Year Ended Income December 31, 2019 Inter- Depreciation taxes on (Millions of Operating segment and Operating Other Income Interest operating Total Capital Dollars) revenues revenues amortization income (deductions) charges income (a) assets expenditures CECONY Electric $8,062 $17 $1,053 $1,758 $(28) $539 $239 $32,988 $1,851 Gas 2,132 7 231 528 (4) 147 99 11,090 1,078 Steam 627 70 89 62 (3) 42 4 2,479 91 Consolidation adjustments - (94) - - - - - - - Total CECONY $10,821 $- $1,373 $2,348 ($35) $728 $342 $46,557 $3,020 O&R Electric $634 $- $60 $98 $(7) $27 $15 $2,130 $142 Gas 259 - 24 41 (4) 14 6 876 61 Other - - - - - - - - - Total O&R $893 $- $84 $139 $(11) $41 $21 $3,006 $203 Clean Energy Businesses $857 $- $226 $202 $5 $186 $(58) $6,528 $248 Con Edison Transmission 4 - 1 (6) 104 25 1 1,618 205 Other (b) (1) - - (7) (12) 11 (6) 370 - Total Con Edison $12,574 $- $1,684 $2,676 $51 $991 $300 $58,079 $3,676 As of and for the Year Ended December Income 31, 2018 Inter- Depreciation taxes on (Millions of Operating segment and Operating Other Income Interest operating Total Capital Dollars) revenues revenues amortization income (deductions) charges income (a) assets expenditures CECONY Electric $7,971 $16 $984 $1,799 $(110) $519 $233 $31,012 $1,861 Gas 2,078 7 205 478 (23) 131 87 9,710 1,050 Steam 631 75 87 77 (10) 39 8 2,386 94 Consolidation adjustments - (98) - - - - - - - Total CECONY $10,680 $- $1,276 $2,354 $(143) $689 $328 $43,108 $3,005 O&R Electric $642 $- $56 $93 $(14) $25 $14 $2,036 $138 Gas 249 - 21 39 (5) 14 7 856 67 Other - - - - - - - - - Total O&R $891 $- $77 $132 $(19) $39 $21 $2,892 $205 Clean Energy Businesses $763 $- $85 $194 $33 $63 $19 $5,821 $1,791 Con Edison Transmission 4 - 1 (7) 91 20 (1) 1,425 248 Other (b) (1) - (1) (9) (24) 8 39 674 - Total Con Edison $12,337 $- $1,438 $2,664 $(62) $819 $406 $53,920 $5,249
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As of and for the Year Ended December Income 31, 2017 Inter- Depreciation taxes on (Millions of Operating segment and Operating Other Income Interest operating Total Capital Dollars) revenues revenues amortization income (deductions) charges income (a) assets expenditures CECONY Electric $7,972 $16 $925 $1,974 $(105) $472 $511 $29,661 $1,905 Gas 1,901 6 185 495 (23) 113 152 8,387 909 Steam 595 75 85 80 (9) 38 25 2,403 90 Consolidation adjustments - (97) - - - - - - - Total CECONY $10,468 $- $1,195 $2,549 $(137) $623 $688 $40,451 $2,904 O&R Electric $642 $- $51 $115 $(14) $24 $30 $1,949 $128 Gas 232 - 20 46 (5) 12 12 824 61 Other - - - - - - - - - Total O&R $874 $- $71 $161 $(19) $36 $42 $2,773 $189 Clean Energy Businesses $694 $- $74 $69 $33 $43 $(273) $2,735 $447 Con Edison Transmission 2 - 1 (8) 80 16 (11) 1,222 66 Other (b) (5) - - 3 (5) 11 13 930 - Total Con Edison $12,033 $- $1,341 $2,774 $(48) $729 $459 $48,111 $3,606
(a) For Con Edison, the income tax expense/(benefit) on non-operating income was
$(4) million, $(5) million and $13 million in 2019, 2018 and 2017,
respectively. For CECONY, the income tax expense/(benefit) on non-operating
income was $(7) million, $(2) million and $(3) million in 2019, 2018 and
2017, respectively. At December 31, 2017, Con Edison re-measured its deferred
tax assets and liabilities based upon the 21 percent corporate income tax
rate under the TCJA. As a result, Con Edison, decreased its federal income
tax expense by $259 million ($269 million, $11 million and $(21) million,
respectively, for the Clean Energy Businesses, Con Edison Transmission and
the parent company). See Note L to the financial statements in Item 8.
(b) Parent company and consolidation adjustments. Other does not represent a
business segment.
Note O - 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. These are economic hedges, for which the Utilities and the Clean Energy Business do not elect hedge accounting. The Clean Energy Businesses use interest rate swaps to manage the risks associated with interest rates related to outstanding and expected future debt issuances and borrowings. Derivatives are recognized on the consolidated balance sheet at fair value (see Note P), unless an exception is available under the accounting rules for derivatives and hedging. Qualifying derivative contracts that have been designated as normal purchases or normal sales contracts are not reported at fair value under the accounting rules. In August 2017, the FASB issued amendments to the guidance for derivatives and hedging through ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." The amendments in this update provide greater clarification on hedge accounting for risk components, presentation and disclosure of hedging instruments, and overall targeted improvements to simplify hedge accounting. The amendments were effective for reporting periods beginning after December 15, 2018. The application of the guidance did not have a material impact on the Companies' financial position, results of operations and liquidity because the Companies do not elect hedge accounting for their derivative instruments and hedging activities.
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The fair values of the Companies' derivatives including the offsetting of assets and liabilities on the consolidated balance sheet at December 31, 2019 and 2018 were: (Millions of Dollars) 2019 2018 Gross Gross Amounts of Amounts of Recognized Gross Net Amounts of Recognized Gross Net Amounts of Assets/ Amounts Assets/(Liabilities) Assets/ Amounts Assets/(Liabilities) Balance Sheet Location (Liabilities) Offset (a) (Liabilities) Offset (a) Con Edison Fair value of derivative assets Current $60 $(3) $57 (b) $43 $(14) $29 (b) Noncurrent 19 (13) 6 (c) 16 (7) 9 (d) Total fair value of derivative assets $79 $(16) $63 $59 $(21) $38 Fair value of derivative liabilities Current $(140) $17 $(123) (c) $(61) $11 $(50) Noncurrent (122) 16 (106) (c) (25) 9 (16) (d) Total fair value of derivative liabilities $(262) $33 $(229) $(86) $20 $(66) Net fair value derivative assets/(liabilities) $(183) $17 $(166) $(27) $(1) $(28) CECONY Fair value of derivative assets Current $39 $(6) $33 (b) $25 $(6) $19 (b) Noncurrent 17 (12) 5 11 (5) 6 Total fair value of derivative assets $56 $(18) $38 $36 $(11) $25 Fair value of derivative liabilities Current $(100) $19 $(81) $(31) $6 $(25) Noncurrent (80) 16 (64) (12) 6 (6) Total fair value of derivative liabilities $(180) $35 $(145) $(43) $12 $(31) Net fair value derivative assets/(liabilities) $(124) $17 $(107) $(7) $1 $(6)
(a) Derivative instruments and collateral were offset on the consolidated balance
sheet as applicable under the accounting rules. The Companies enter into
master agreements for their commodity derivatives. These agreements typically
provide offset in the event of contract termination. In such case, generally
the non-defaulting party's payable will be offset by the defaulting party's
payable. The non-defaulting party will customarily notify the defaulting
party within a specific time period and come to an agreement on the early
termination amount.
(b) At December 31, 2019 and 2018, margin deposits for Con Edison ($9 million and
$7 million, respectively) and CECONY ($8 million and $6 million,
respectively) were classified as derivative assets on the consolidated
balance sheet, but not included in the table. Margin is collateral, typically
cash, that the holder of a derivative instrument is required to deposit in
order to transact on an exchange and to cover its potential losses with its
broker or the exchange.
(c) Includes amounts for interest rate swaps of $1 million in noncurrent assets,
$(7) million in current liabilities and $(34) million in noncurrent
liabilities. At December 31, 2019, the Clean Energy Businesses had interest
rate swaps with notional amounts of $919 million. The expiration dates of the
swaps range from 2024-2041.
(d) Includes amounts for interest rate swaps of $2 million in noncurrent assets
and $(6) million in noncurrent liabilities. At December 31, 2018, the Clean
Energy Businesses had interest rate swaps with notional amounts of $499 million. The expiration dates of the swaps range from 2024-2035. 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. See "Recoverable Energy Costs" in Note A. In accordance with the accounting rules for regulated operations, the Utilities record a regulatory asset or liability to defer recognition of unrealized gains and losses on their electric and gas derivatives. As gains and losses are realized in future periods, they will be recognized as purchased power, gas and fuel costs in the Companies' consolidated income statements. The Clean Energy Businesses record realized and unrealized gains and losses on their derivative contracts in purchased power, gas purchased for resale and non-utility revenue in the reporting period in which they occur. The Clean Energy Businesses record changes in the fair value of their interest rate swaps in other interest expense at the end of each reporting period. Management believes that these derivative instruments represent economic hedges that mitigate exposure to fluctuations in commodity prices and interest rates.
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The following table presents the realized and unrealized gains or losses on derivatives that have been deferred or recognized in earnings for the years ended December 31, 2019 and 2018:
Con Edison
CECONY
(Millions of Dollars) Balance Sheet Location 2019 2018
2019 2018 Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:
Deferred derivative Current gains $4 $(1) $5 $1 Deferred derivative Noncurrent gains (3) 4 (1) 3 Total deferred gains/(losses) $1 $3 $4 $4 Deferred derivative Current losses $(91) $4 $(83) $8 Current Recoverable energy costs (142) (26) (124) (26) Deferred derivative Noncurrent losses (67) 27 (65) 26 Total deferred gains/(losses) $(300) $5 $(272) $8 Net deferred gains/(losses) $(299) $8 $(268) $12 Income Statement Location Pre-tax gain/(loss) recognized in income Gas purchased for resale $(2) $(2) $- $- Non-utility revenue 25 4 - - Other operations and maintenance expense 1 (2) 1 (2) Other interest expense (36) (4) - - Total pre-tax gain/(loss) recognized in income $(12) $(4) $1 $(2)
The following table presents the hedged volume of Con Edison's and CECONY's commodity derivative transactions at December 31, 2019:
Electric Energy (MWh)
Natural Gas (Dt) Refined Fuels
(a)(b) Capacity (MW) (a) (a)(b) (gallons) Con Edison 24,868,670 28,916 277,827,601 5,712,000 CECONY 22,487,800 19,950 258,080,000 5,712,000
(a) Volumes are reported net of long and short positions, except natural gas
collars where the volumes of long positions are reported.
(b) Excludes electric congestion and gas basis swap contracts which are
associated with electric and gas contracts and hedged volumes.
The Companies are exposed to credit risk related to transactions entered into primarily for the various energy supply and hedging activities by the Utilities and the Clean Energy Businesses. Credit risk relates to the loss that may result from a counterparty's nonperformance. The Companies use credit policies to manage this risk, including an established credit approval process, monitoring of counterparty limits, netting provisions within agreements, collateral or prepayment arrangements, credit insurance and credit default swaps. The Companies measure credit risk exposure as the replacement cost for open energy commodity and derivative positions plus amounts owed from counterparties for settled transactions. The replacement cost of open positions represents unrealized gains, net of any unrealized losses where the Companies have a legally enforceable right to offset. At December 31, 2019, Con Edison and CECONY had $128 million and $8 million of credit exposure in connection with open energy supply net receivables and hedging activities, net of collateral, respectively. Con Edison's net credit exposure consisted of $62 million with independent system operators, $27 million with non-investment grade/non-rated counterparties, $24 million with investment-grade counterparties, and $15 million with commodity exchange brokers. CECONY's net credit exposure consisted of $8 million with commodity exchange brokers. The collateral requirements associated with, and settlement of, derivative transactions are included in net cash flows from operating activities in the Companies' consolidated statement of cash flows. Most derivative instrument contracts contain provisions that may require a party to provide collateral on its derivative instruments that are in a net liability position. The amount of collateral to be provided will depend on the fair value of the derivative instruments and the party's credit ratings.
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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 December 31, 2019: (Millions of Dollars) Con Edison (a) CECONY (a) Aggregate fair value - net liabilities $163
$145
Collateral posted 25
25
Additional collateral (b) (downgrade one level from current ratings)
50
41
Additional collateral (b)(c) (downgrade to below investment grade from current ratings) 159
134
(a) Non-derivative transactions for the purchase and sale of electricity and gas
and qualifying derivative instruments, which have been designated as normal
purchases or normal sales, are excluded from the table. These transactions
primarily include purchases of electricity from independent system operators.
In the event the Utilities and the Clean Energy Businesses were no longer
extended unsecured credit for such purchases, the Companies would be required
to post additional collateral of $1 million at December 31, 2019. 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 December 31, 2019, if Con Edison had been downgraded to below investment
grade, it would have been required to post additional collateral for such
derivative instruments of $49 million.
Note P - Fair Value Measurements The accounting rules for fair value measurements and disclosures define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in a principal or most advantageous market. Fair value is a market-based measurement that is determined based on inputs, which refer broadly to assumptions that market participants use in pricing assets or liabilities. These inputs can be readily observable, market corroborated, or generally unobservable firm inputs. The Companies often make certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, and the risks inherent in the inputs to valuation techniques. The Companies use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The accounting rules for fair value measurements and disclosures established a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value in three broad levels. The rules require that assets and liabilities be classified in their entirety based on the level of input that is significant to the fair value measurement. Assessing the significance of a particular input may require judgment considering factors specific to the asset or liability, and may affect the valuation of the asset or liability and their placement within the fair value hierarchy. The Companies classify fair value balances based on the fair value hierarchy defined by the accounting rules for fair value measurements and disclosures as follows: • Level 1 - Consists of assets or liabilities whose value is based on
unadjusted quoted prices in active markets at the measurement date. An
active market is one in which transactions for assets or liabilities occur
with sufficient frequency and volume to provide pricing information on an
ongoing basis. This category includes contracts traded on active exchange
markets valued using unadjusted prices quoted directly from the exchange.
• Level 2 - Consists of assets or liabilities valued using industry standard
models and based on prices, other than quoted prices within Level 1, that
are either directly or indirectly observable as of the measurement date.
The industry standard models consider observable assumptions including time
value, volatility factors and current market and contractual prices for the
underlying commodities, in addition to other economic measures. This category includes contracts traded on active exchanges or in over-the-counter markets priced with industry standard models.
• Level 3 - Consists of assets or liabilities whose fair value is estimated
based on internally developed models or methodologies using inputs that are
generally less readily observable and supported by little, if any, market
activity at the measurement date. Unobservable inputs are developed based
on the best available information and subject to cost benefit constraints.
This category includes contracts priced using models that are internally
developed and contracts placed in illiquid markets. It also includes contracts that expire after
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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 for the years ended December 31, 2019 and 2018 are summarized below. 2019 2018 (Millions of Netting Netting Dollars) Level 1 Level 2 Level 3 Adjustment (e) Total Level 1 Level 2 Level 3 Adjustment (e) Total Con Edison Derivative assets: Commodity (a)(b)(c) $4 $61 $2 $4 $71 $6 $36 $7 $(6) $43 Interest rate swaps (a)(b)(c)(f) - 1 - - 1 - 2 - - 2 Other (a)(b)(d) 353 125 - - 478 287 114 - - 401 Total assets $357 $187 $2 $4 $550 $293 $152 $7 $(6) $446 Derivative liabilities: Commodity (a)(b)(c) $18 $174 $18 $(22) $188 $8 $43 $20 $(11) $60 Interest rate swaps (a)(b)(c)(f) - 41 - - 41 - 6 - - 6 Total liabilities $18 $215 $18 $(22) $229 $8 $49 $20 $(11) $66
CECONY
Derivative assets: Commodity (a)(b)(c) $3 $42 $1 $- $46 $3 $28 $1 $(1) $31 Other (a)(b)(d) 333 119 - - 452 267 109 - - 376 Total assets $336 $161 $1 $- $498 $270 $137 $1 $(1) $407 Derivative liabilities: Commodity (a)(b)(c) $15 $147 $7 $(24) $145 $5 $30 3 $(6) $32
(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. Con Edison and CECONY had $24 million and $22 million of commodity
derivative liabilities transferred from level 3 to level 2 during the year
ended December 31, 2019 because of availability of observable market data due
to the decrease in the terms of certain contracts from beyond three years as
of September 30, 2019 to less than three years as of December 31, 2019. Con
Edison and CECONY had $2 million of commodity derivative liabilities
transferred from level 3 to level 2 during the year ended December 31, 2018
because of availability of observable market data due to the decrease in the
terms of certain contracts from beyond three years as of December 31, 2017 to
less than three years as of December 31, 2018.
(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 December 31, 2019 and 2018, 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) See Note O.
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 and interest rate swaps. Under the Companies' policies and procedures, multiple independent sources of information are obtained for forward price curves used to value commodity derivatives and interest rate swaps. Fair value and changes in fair value of commodity derivatives and interest rate swaps are reported on a monthly basis to the Companies' risk committees, comprised of officers and employees of the Companies that oversee energy hedging at the Utilities and the Clean Energy Businesses. The risk management group reports to the Companies' Vice President and Treasurer.
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Fair Value of Level 3 at December 31, 2019 Valuation (Millions of Dollars) Techniques Unobservable Inputs Range Con Edison - Commodity Discounted Forward energy Electricity $(1) Cash Flow prices (a) $25.50-$34.10 per MWh Discounted Forward capacity (16) Cash Flow prices (a) $0.09-$8.90 per kW-month Inter-zonal forward price curves adjusted Transmission Discounted for historical zonal Congestion Contracts 1 Cash Flow losses (b) $(3.69)-$7.37 per MWh Total Con Edison - Commodity $(16) CECONY - Commodity Discounted Forward capacity Electricity $(7) Cash Flow prices (a) $0.15-$8.90 per kW-month Inter-zonal forward price curves adjusted Transmission Discounted for historical zonal Congestion Contracts 1 Cash Flow losses (b) $0.36-$3.10 per MWh Total CECONY - Commodity $(6)
(a) Generally, increases (decreases) in this input in isolation would result in a
higher (lower) fair value measurement.
(b) Generally, increases (decreases) in this input in isolation would result in a
lower (higher) fair value measurement.
The table listed below provides a reconciliation of the beginning and ending net balances for assets and liabilities measured at fair value for the years ended December 31, 2019 and 2018 and classified as Level 3 in the fair value hierarchy: Con Edison CECONY (Millions of Dollars) 2019 2018 2019 2018 Beginning balance as of January 1, $(13) $1 $(2) $4 Included in earnings (5) 4 - 4 Included in regulatory assets and liabilities 18 (10) 17 (4) Settlements 8 (6) 1 (4) Transfer out of level 3 (24) (2) (22) (2) Ending balance as of December 31, $(16) $(13)
$(6) $(2)
For the Utilities, realized gains and losses on Level 3 commodity derivative assets and liabilities are reported as part of purchased power, gas and fuel costs. The Utilities generally recover these costs in accordance with rate provisions approved by the applicable state public utilities regulators. See Note A. Unrealized gains and losses for commodity derivatives are generally deferred on the consolidated balance sheet in accordance with the accounting rules for regulated operations. For the Clean Energy Businesses, realized and unrealized gains and losses on Level 3 commodity derivative assets and liabilities are reported in non-utility revenues ($2 million gain and $3 million loss) and purchased power costs (immaterial) on the consolidated income statement for the years ended December 31, 2019 and 2018, respectively. The change in fair value relating to Level 3 commodity derivative assets and liabilities held at December 31, 2019 and 2018 is included in non-utility revenues ($2 million gain and $3 million loss) and purchased power costs (immaterial) on the consolidated income statement for the years ended December 31, 2019 and 2018, respectively. Note Q - Variable Interest Entities The accounting rules for consolidation address the consolidation of a variable interest entity (VIE) by a business enterprise that is the primary beneficiary. A VIE is an entity that does not have a sufficient equity investment at risk to permit it to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest. The primary beneficiary is the business enterprise that has the power to direct the activities of the VIE that most significantly impact the VIE's economic performance and either absorbs a significant amount of the VIE's losses or has the right to receive benefits that could be significant to the VIE. The Companies enter into arrangements including leases, partnerships and electricity purchase agreements, with various entities. As a result of these arrangements, the Companies retain or may retain a variable interest in these entities. CECONY
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CECONY has an ongoing long-term electricity purchase agreement with Brooklyn Navy Yard Cogeneration Partners, LP, a potential VIE. In 2019, a request was made of this counterparty 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. In April 2017, CECONY's long-term electricity purchase agreement with Cogen Technologies Linden Venture, LP (Linden Cogeneration), another potential VIE, expired. See Note I for information on these electricity purchase agreements, the payments pursuant to which constitute CECONY's maximum exposure to loss with respect to the potential VIEs. Clean Energy Businesses In September 2019, the Clean Energy Businesses, which previously owned an 80 percent membership interest in OCI Solar San Antonio 4 LLC (Texas Solar 4), acquired the remaining 20 percent interest. As a result of the acquisition, Texas Solar 4 is a consolidated entity. Prior to the acquisition, Con Edison had a variable interest in Texas Solar 4, as to which Con Edison was the primary beneficiary since the power to direct the activities that most significantly impact the economics of Texas Solar 4 was held by the Clean Energy Businesses. Texas Solar 4 owns a project company that developed a 40 MW (AC) solar electric production project. Electricity generated by the project is sold pursuant to a long-term power purchase agreement. Con Edison's earnings from Texas Solar 4 for the years ended December 31, 2019 and 2018 were immaterial. In December 2018, the Clean Energy Businesses completed its acquisition of Sempra Solar Holdings, LLC. See Note U. Included in the acquisition were certain operating projects (Tax Equity Projects) with a noncontrolling tax equity investor to which a percentage of earnings, tax attributes and cash flows are allocated. The Tax Equity Projects are consolidated entities in which Con Edison has less than a 100 percent membership interest. Con Edison is the primary beneficiary since the power to direct the activities that most significantly impact the economics of the Tax Equity Projects is held by the Clean Energy Businesses. Electricity generated by the Tax Equity Projects is sold to utilities and municipalities pursuant to long-term power purchase agreements. For the year ended December 31, 2019, the hypothetical liquidation at book value (HLBV) method of accounting for the Tax Equity Projects resulted in $98 million of income ($74 million, after tax) for the tax equity investor and a $64 million loss ($48 million, after tax) for Con Edison, and earnings under the HLBV method for the year ended December 31, 2018 were immaterial. Con Edison has determined that the use of HLBV accounting is reasonable and appropriate to attribute income and loss to the tax equity investors. Using the HLBV method, the company's earnings from the projects are adjusted to reflect the income or loss allocable to the tax equity investors calculated based on how the project would allocate and distribute its cash if it were to sell all of its assets for their carrying amounts and liquidate at a particular point in time. Under the HLBV method, the company calculates the liquidation value allocable to the tax equity investors at the beginning and end of each period based on the contractual liquidation waterfall and adjusts its income for the period to reflect the change in the liquidation value allocable to the tax equity investors.
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At December 31, 2019 and 2018, Con Edison's consolidated balance sheet included the following amounts associated with its VIEs:
Tax Equity Projects Texas Great Valley Solar Copper Mountain - Solar 4 (c)(d) Mesquite Solar (c)(e) (c)(f) (Millions of Dollars) 2019 2018 2019 2018 2018 Restricted cash $- $- $- $- $4 Non-utility property, less accumulated depreciation (g)(h) 293 313 461 492 98 Other assets 40 18 128 97 9 Total assets (a) $333 $331 $589 $589 $111 Long-term debt due within one year $- $- $- $- $2 Other liabilities 17 17 18 33 26 Long-term debt - - - - 56 Total liabilities (b) $17 $17 $18 $33 $84
(a) The assets of the Tax Equity Projects represent assets of a consolidated VIE
that can be used only to settle obligations of the consolidated VIE.
(b) The liabilities of the Tax Equity Projects represent liabilities of a
consolidated VIE for which creditors do not have recourse to the general
credit of the primary beneficiary.
(c) Con Edison did not provide any financial or other support during the year
that was not previously contractually required.
(d) Great Valley Solar consists of the Great Valley Solar 1, Great Valley Solar
2, Great Valley Solar 3 and Great Valley Solar 4 projects, for which the
noncontrolling interest of the tax equity investor was $62 million and $33
million at December 31, 2019 and 2018, respectively.
(e) Copper Mountain - Mesquite Solar consists of the Copper Mountain Solar 4,
Mesquite Solar 2 and Mesquite Solar 3 projects for which the noncontrolling
interest of the tax equity investor was $126 million and $71 million at
December 31, 2019 and 2018, respectively.
(f) Noncontrolling interest of the third party was $7 million at December 31,
2018.
(g) Non-utility property is reduced by accumulated depreciation of $9 million for
Great Valley Solar and $15 million for Copper Mountain - Mesquite Solar at
December 31, 2019.
(h) Non-utility property is reduced by accumulated depreciation of $1 million for
Great Valley Solar, $1 million for Copper Mountain - Mesquite Solar and $15
million for Texas Solar 4 at December 31, 2018.
The following table summarizes the VIEs into which the Clean Energy Businesses have entered as of December 31, 2019:
Maximum Power Exposure to Purchase Loss Generating Agreement (Millions Capacity (a) Term in Year of of Dollars) Project Name (MW AC) Years Investment Location (b) Great Valley Solar (c) 200 15-20 2018 California $254 Copper Mountain - Nevada and Mesquite Solar (c) 344 20-25 2018 Arizona 445
(a) Represents ownership interest in the project.
(b) Maximum exposure is equal to the net assets of the project on the
consolidated balance sheet less any applicable noncontrolling interest ($62
million for Great Valley Solar and $126 million for Copper Mountain -
Mesquite Solar). Con Edison did not provide any financial or other support
during the year that was not previously contractually required.
(c) For the projects comprising Great Valley Solar and Copper Mountain Mesquite
Solar, refer to (d) and (e) in the table above.
Note R - Asset Retirement Obligations The Companies recognize a liability at fair value for legal obligations associated with the retirement of long-lived assets in the period in which they are incurred, or when sufficient information becomes available to reasonably estimate the fair value of such legal obligations. When the liability is initially recorded, asset retirement costs are capitalized by increasing the carrying amount of the related asset. The liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. The fair value of the asset retirement obligation liability is measured using expected future cash flows discounted at credit-adjusted risk-free rates, historical information, and where available, quoted prices from outside contractors. The Companies evaluate these assumptions underlying the asset retirement obligation liability on an annual basis or as frequently as needed. The Companies recorded asset retirement obligations associated with the removal of asbestos and asbestos-containing material in their buildings (other than the structures enclosing generating stations and substations),
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electric equipment and steam and gas distribution systems. The Companies also recorded asset retirement obligations relating to gas and oil pipelines abandoned in place and municipal infrastructure support. The Companies did not record an asset retirement obligation for the removal of asbestos associated with the structures enclosing generating stations and substations. For these building structures, the Companies were unable to reasonably estimate their asset retirement obligations because the Companies were unable to estimate the undiscounted retirement costs or the retirement dates and settlement dates. The amount of the undiscounted retirement costs could vary considerably depending on the disposition method for the building structures, and the method has not been determined. The Companies anticipate continuing to use these building structures in their businesses for an indefinite period, and so the retirement dates and settlement dates are not determinable. Con Edison recorded asset retirement obligations for the removal of the Clean Energy Businesses' solar and wind equipment related to projects located on property that is not owned by them and the term of the arrangement is finite including any renewal options. Con Edison did not record asset retirement obligations for the Clean Energy Businesses' projects that are located on property that is owned by them because they expect that the equipment will continue to generate electricity at these facilities long past the manufacturer's warranty at minimal operating expense. Therefore, Con Edison was unable to reasonably estimate the retirement date of this equipment. The Utilities include in depreciation rates the estimated removal costs, less salvage, for utility plant assets. The amounts related to removal costs that are associated with asset retirement obligations are classified as an asset retirement liability. Pursuant to accounting rules for regulated operations, future removal costs that do not represent legal asset retirement obligations are recorded as regulatory liabilities. Accretion and depreciation expenses related to removal costs that represent legal asset retirement obligations are applied against the Companies' regulatory liabilities. Asset retirement costs that are recoverable from customers are recorded as regulatory liabilities to reflect the timing difference between costs recovered through the rate-making process and recognition of costs. At December 31, 2019, the liabilities for asset retirement obligations of Con Edison and CECONY were $425 million and $362 million, respectively. At December 31, 2018, the liabilities for asset retirement obligations of Con Edison and CECONY were $450 million and $292 million, respectively. The change in liabilities at December 31, 2019 was due to changes in estimated cash flows of $(1) million and $96 million for Con Edison and CECONY, respectively, and accretion expense of $14 million and $12 million for Con Edison and CECONY, respectively. The changes were offset by liabilities settled of $38 million for both Con Edison and CECONY. The change in liabilities at December 31, 2018 was due to changes in estimated cash flows of $168 million and $39 million for Con Edison and CECONY, respectively, and accretion expense of $13 million and $11 million for Con Edison and CECONY, respectively. The changes were offset by liabilities settled of $45 million for both Con Edison and CECONY. Con Edison and CECONY also recorded reductions of $44 million and $50 million during the years ended December 31, 2019 and 2018, respectively, to the regulatory liability associated with cost of removal to reflect depreciation and interest expense. Note S - Related Party Transactions The NYSPSC generally requires that the Utilities and Con Edison's other subsidiaries be operated as separate entities. The Utilities and the other subsidiaries are required to have separate operating employees and operating officers of the Utilities may not be operating officers of the other subsidiaries. The Utilities may provide administrative and other services to, and receive such services from, Con Edison and its other subsidiaries only pursuant to cost allocation procedures approved by the NYSPSC. Transfers of assets between the Utilities and Con Edison or its other subsidiaries may be made only as approved by the NYSPSC. The debt of the Utilities is to be raised directly by the Utilities and not derived from Con Edison. Without the prior permission of the NYSPSC, the Utilities may not make loans to, guarantee the obligations of, or pledge assets as security for the indebtedness of Con Edison or its other subsidiaries. The NYSPSC limits the dividends that the Utilities may pay Con Edison. See "Dividends" in Note C. As a result, substantially all of the net assets of CECONY and O&R ($14,147 million and $762 million, respectively), at December 31, 2019, are considered restricted net assets. The NYSPSC may impose additional measures to separate, or "ring fence," the Utilities from Con Edison and its other subsidiaries. See "Rate Plans" in Note B. The costs of administrative and other services provided by CECONY to, and received by it from, Con Edison and its other subsidiaries for the years ended December 31, 2019, 2018 and 2017 were as follows:
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CECONY (Millions of Dollars) 2019 2018 2017 Cost of services provided $121 $115 $111 Cost of services received 64 73 64 In addition, CECONY and O&R have joint gas supply arrangements, in connection with which CECONY sold to O&R $71 million, $83 million and $66 million of natural gas for the years ended December 31, 2019, 2018 and 2017, respectively. These amounts are net of the effect of related hedging 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. The Utilities bill NY Transco for such work and expenses in accordance with established policies. For the years ended December 31, 2019 and 2018, the amounts billed by the Utilities to NY Transco were immaterial. In May 2016, CECONY transferred certain electric transmission projects to NY Transco. 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). In addition, CECONY is the replacement shipper on one of Crestwood's firm transportation agreements with Tennessee Gas Pipeline Company LLC. CECONY incurred costs for storage and wheeling services from Stagecoach of $33 million, $28 million and $31 million for the years ended December 31, 2019, 2018 and 2017, respectively. In addition, the Clean Energy Businesses entered into two electricity sales agreements with Stagecoach under which the amounts received in 2019, 2018 and 2017 were immaterial. CECONY has a 20-year transportation contract with Mountain Valley Pipeline, LLC (MVP) for 250,000 dekatherms per day of capacity. CET Gas holds a 12.5 percent equity interest in MVP (that is expected to be reduced by approximately 10 percent based on the current project estimate). In October 2017, the Environmental Defense Fund and the Natural Resource Defense Council requested the NYSPSC to prohibit CECONY from recovering costs under its MVP contract unless CECONY can demonstrate that the contract is in the public interest. CECONY advised the NYSPSC that it would respond to the request if the NYSPSC opened a proceeding to consider this request. For the years ended December 31, 2019 and 2018, CECONY incurred no costs under the contract. FERC has authorized CECONY to lend funds to O&R for a period of not more than 12 months, in an amount not to exceed $250 million, at prevailing market rates. At December 31, 2019 and 2018 there were no outstanding loans to O&R. The Clean Energy Businesses had financial electric capacity contracts with CECONY and O&R during 2019 and 2018. For the years ended December 31, 2019 and 2018, the Clean Energy Businesses realized $1 million loss under these contracts. Note T - New Financial Accounting Standards In January 2020, the Companies adopted ASU 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." The amendments replace the incurred loss impairment methodology which involved delayed recognition of credit losses. The amendments introduce an expected credit loss impairment model which requires immediate recognition of anticipated losses over the instrument's life. A broader range of reasonable and supportable information must be considered in developing the credit loss estimates. The Companies' financial instruments subject to the amendments include their accounts receivable - customers and other receivables. The adoption of this guidance will not have a material impact on the Companies' financial position, results of operations and liquidity. The Companies will prepare additional disclosures as required by the amendments beginning in 2020. The Companies implemented additional internal controls related to the amendments, however the adoption of the amendments will not require a change that will materially affect the Companies' internal control over financial reporting. In January 2020, the Companies adopted ASU 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." The amendments in this update simplify goodwill impairment testing by eliminating Step 2 of the goodwill impairment test wherein an entity has to compute the implied fair value of goodwill by performing procedures to determine the fair value of its assets and liabilities. Under the new guidance, an entity will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair
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value up to the total amount of goodwill allocated to that reporting unit. The adoption of this guidance will not have a material impact on the Companies' financial position, results of operations and liquidity.
In December 2019, the FASB issued amendments to the guidance for income taxes through ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." The amendments in this update simplify the accounting for income taxes by removing certain exceptions such as: 1) the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items, 2) the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, 3) the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary, and 4) the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. For public entities, the amendments are effective for reporting periods beginning after December 15, 2020. Early adoption is permitted. 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.
Note U - Acquisitions, Investments and Dispositions Acquisitions and Investments
Mountain Valley Pipeline In January 2016, CET Gas acquired a 12.5 percent equity interest in MVP, a company developing a proposed gas transmission project in West Virginia and Virginia. The company's initial contribution to MVP was $18 million. At December 31, 2019 and 2018, CET Gas' cash investment in MVP was $530 million and $337 million, respectively. In October 2019, the operator of MVP indicated that it expects a late 2020 full in-service date for the project at an overall project cost of $5,300 million to $5,500 million, excluding allowance for funds used during construction. MVP is currently defending certain agency actions and judicial challenges that must be resolved favorably before the pipeline can be completed. There are other proceedings that may affect MVP, including an investigation of potential criminal and/or civil violations of the Clean Water Act and other federal statutes as they relate to the construction of the pipeline. CET Gas, as it was permitted to do under the joint venture agreement, has limited its cash contributions to the joint venture to approximately $530 million, which will reduce its ownership interest in the joint venture to approximately 10 percent based on the current project cost estimate. Con Edison is accounting for its equity interest in MVP as an equity method investment. Sempra Solar In December 2018, the Clean Energy Businesses completed their acquisition of Sempra Solar Holdings, LLC, a Sempra Energy subsidiary, for $1,609 million, including working capital and other closing adjustments of $69 million. In 2019, Con Edison finalized the purchase price allocation and reclassified approximately $100 million which primarily decreased property, plant and equipment and asset retirement obligations, the impact of which was not material to earnings. The reclassification was recorded within the one year available to finalize the purchase price allocation. The acquired company has ownership interests in 981 megawatts (AC) of operating renewable electric production projects, including its 379 megawatts (AC) share of projects in which its subsidiaries had a 50 percent ownership interest (Acquired JV Interests) and the Clean Energy Businesses had the remaining ownership interests (Previously-Owned JV Interests), and certain development rights with respect to solar electric production and energy storage projects. At the acquisition date, the acquired company's subsidiaries had $1,354 million of tangible assets consisting mostly of property, plant and equipment, $878 million of intangible assets mostly arising from power purchase agreements, $4 million of other noncurrent assets, $568 million of project debt (including, in each case, amounts associated with the Acquired JV Interests) and $28 million of asset retirement obligation liabilities. The weighted average amortization period for these intangible assets is 16 years. At the acquisition date, the fair value of the noncontrolling interest attributable to the tax equity investors (see below) was $100 million. The acquisition date valuation was performed using a discounted cash flow approach. The fair values of assets acquired and liabilities assumed were determined based on significant estimates and assumptions that are judgmental in nature, including projected amounts and timing of future cash flows, discount rates reflecting risk inherent in the future cash flows and future power prices.
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Upon completion of the acquisition, the acquisition date fair value of the Previously-Owned JV Interests increased from $437 million to $568 million and Con Edison recognized a pre-tax gain of $131 million ($89 million or $0.28 per share net of taxes). Prior to the acquisition, Con Edison had been accounting for the Previously-Owned JV Interests under the equity method. Upon completion of the acquisition, Con Edison is accounting for Acquired JV Interests and the Previously-Owned JV Interests on a consolidated basis.
Certain projects acquired have tax equity investors to which a percentage of earnings, tax attributes and cash flows are allocated. See Note Q.
Con Edison's revenues and net income for the years ended December 31, 2018 and 2017 as reported and pro forma to account on a consolidated basis for the acquisition as if the acquisition had been completed on January 1, 2017 instead of December 13, 2018 are as follows: Years ended December 31, (Millions of Dollars) 2018 2017 As Reported Revenue $12,337 $12,033 Net income 1,382 1,525 PRO FORMA SUPPLEMENTAL INFORMATION If Acquired January 1, 2017 (a)(b) Revenue $12,655 $12,331 Net income 1,279 1,612
(a) Reflects the following material adjustments: • included additional interest expense of $37 million and $38 million in 2018
and 2017, respectively, that would have been incurred if $825 million that
was borrowed in December 2018 under a variable rate term loan agreement to
fund a portion of the purchase price for the acquisition had instead been borrowed for such purpose on January 1, 2017 at a fixed rate of 4.64% per annum; and • with respect to the Previously-Owned JV Interests: eliminated the $131 million purchase accounting gain (pre-tax) that Con Edison recognized upon
the completion of the acquisition in 2018 and reflected the $131 million
purchase accounting gain in 2017; recorded the corresponding increase to the book value of the related net utility plant and power purchase agreement intangible asset as of January 1, 2017 instead of December 13,
2018, and included the increased depreciation and amortization expense in
2018 and 2017; and eliminated $33 million and $32 million of other income
that Con Edison had recorded in 2018 and 2017, respectively, under the equity method of accounting.
(b) Recalculating each investor's claim on the investee's assets under the contractual liquidation waterfall as if the acquisition had been completed on January 1, 2017 is impracticable. Accordingly, no HLBV adjustments were made.
Dispositions Upton 2 In May 2017, the Clean Energy Businesses sold Upton 2, a development stage solar electric production project, for $11 million to Vistra Asset Co. and recorded a $1 million gain on sale ($0.7 million, net of taxes). In addition, the Clean Energy Businesses agreed to perform the engineering, procurement and construction for the 180 MW (AC) project, which was completed in 2018.
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Schedule I Condensed Financial Information of Consolidated Edison, Inc. (a) Condensed Statement of Income and Comprehensive Income (Parent Company Only)
For the Years Ended December 31, (Millions of Dollars, except per share amounts) 2019 2018
2017
Equity in earnings of subsidiaries $1,354 $1,447
$1,544
Other income (deductions), net of taxes 76 (6) 31 Interest expense (87) (59) (50) Net Income $1,343 $1,382 $1,525 Comprehensive Income $1,340 $1,392 $1,526 Net Income Per Share - Basic $4.09 $4.43 $4.97 Net Income Per Share - Diluted $4.08 $4.42
$4.94
Dividends Declared Per Share $2.96 $2.86
$2.76
Average Number Of Shares Outstanding-Basic (In Millions) 328.5 311.1
307.1
Average Number Of Shares Outstanding-Diluted (In Millions) 329.5 312.9
308.8
(a) These financial statements, in which Con Edison's subsidiaries have been
included using the equity method, should be read together with its
consolidated financial statements and the notes thereto appearing above.
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Condensed Financial Information of Consolidated Edison, Inc. (a) Condensed Statement of Cash Flows (Parent Company Only) For the Years Ended December 31, (Millions of Dollars) 2019 2018 2017 Net Income 1,343 1,382 1,525 Equity in earnings of subsidiaries (1,354) (1,447) (1,544) Dividends received from: CECONY 912 846 796 O&R 47 46 44 Clean Energy Businesses 3 15 12 Con Edison Transmission 12 10 8 Change in Assets: Special deposits (3) (8) - Income taxes receivable 25 2 34 Other - net 44 187 21 Net Cash Flows from Operating Activities 1,029 1,033 896 Investing Activities Contributions to subsidiaries (930) (1,110) (434) Debt receivable from affiliated companies 450 (825) - Net Cash Flows Used in Investing Activities (480) (1,935) (434) Financing Activities Net proceeds of short-term debt (783) 164 (53) Issuance of long-term debt 825 825 400 Retirement of long-term debt (553) (3) (402) Debt issuance costs - - (2) Issuance of common shares for stock plans, net of repurchases 54 53 51 Issuance of common shares - public offering 825 705 343 Common stock dividends (924) (842) (803) Net Cash Flows Used in Financing Activities (556) 902 (466) Net Change for the Period (7 ) - (4) Balance at Beginning of Period 9 9 13 Balance at End of Period $2 $9 $9
(a) These financial statements, in which Con Edison's subsidiaries have been
included using the equity method, should be read together with its
consolidated financial statements and the notes thereto appearing above.
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Condensed Financial Information of Consolidated Edison, Inc. (a) Condensed Balance Sheet (Parent Company Only) December 31, (Millions of Dollars) 2019 2018 Assets Current Assets Cash and temporary cash investments $2 $9 Income taxes receivable 18 43 Term loan receivable from affiliated companies - 825 Accounts receivable from affiliated companies 870 536 Prepayments 32 33 Other current assets 12 12 Total Current Assets 934 1,458 Investments in subsidiaries and others 18,009 16,707 Goodwill 406 406 Deferred income tax 14 69
Long-term debt receivable from affiliated companies 1,275 900 Other noncurrent assets
- 2 Total Assets $20,638 $19,542 Liabilities and Shareholders' Equity Current Liabilities Long-term debt due within one year $3 $3 Term loan - 825 Notes payable 537 495 Accounts payable - 9 Accounts payable to affiliated companies 595 274 Accrued taxes 2 2 Other current liabilities 10 13 Total Current Liabilities 1,147 1,621 Deferred income tax - - Total Liabilities 1,147 1,621 Long-term debt 1,469 1,195
Shareholders' Equity Common stock, including additional paid-in capital 8,089 7,151 Retained earnings
9,933 9,575 Total Shareholders' Equity 18,022 16,726 Total Liabilities and Shareholders' Equity $20,638 $19,542
(a) These financial statements, in which Con Edison's subsidiaries have been
included using the equity method, should be read together with its
consolidated financial statements and the notes thereto appearing above.
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